Domestic Fuel

The Governor’s Ethanol Coalition met this week in Washington, DC and passed a resolution urging major auto makers to make more flex-fuel vehicles that can run on 85 percent ethanol. Thirty-two of the country’s governors are members of the coalition, which was formed in 1992 to promote ethanol use. So far only midwestern governors have chaired the organization, but governors of states like New York, Arizona and Washington are listed as members. Kansas Gov. Kathleen Sebelius is the new chairman of the coalition and she was quoted as saying this week, “There’s a new energy behind our efforts to promote biofuels.”
Here are a couple of links to regional stories about the meeting this week.
Wichita Business Journal
Kansas City InfoZine
KXMC-News North Dakota

Here are some pictures from the “Energy Independence Rally” yesterday at the Missouri State Capitol. According to the Missouri Corn Growers Association press release – Over two hundred farmers and ethanol advocates met at the Missouri State Capitol (Tuesday) to show their support for increased energy independence and the Missouri Renewable Fuel Standard (MoRFS), legislation that would require nearly all the gasoline sold in the state contain 10 percent ethanol. It was a nice crowd and I would say that estimate is just about right. The event started at the Missouri Farm Bureau Building and ended in the halls of the capitol. The large crowd of farmers, ethanol plant members, business officials, community leaders, FFA students and others traveled to Jefferson City, Mo., to meet with lawmakers and push for passage of the statewide ethanol standard.
Once passed, Missouri will join Minnesota, Montana and Hawaii to become the fourth state in the nation to establish a statewide renewable fuel standard. Ethanol legislation is also currently pending in Illinois, Iowa, Nebraska, Wisconsin and most recently, Idaho.
Thanks to Becky Grisham with MCGA for the pictures. I really need to start carrying a camera with me in my car like my husband does!

The sudden interest of private companies wanting to invest in ethanol plants is causing some consternation in the midwest. US ethanol plant development has been largely a grassroots campaign over the past decade financed by farmer-owned cooperatives. Now one of those co-ops is facing the entrepreneur’s dream dilemma – selling out for venture capital. Midwest Grain Processors, a 1,300 farmer co-op in Lakota, IA has a deal worth $100 million in the works with a little-known Australian corporation by the name of Global Ethanol. The big bucks would help the co-op double capacity, but it would cost them 60 percent interest.
The Des Moines Register reports today that Senator Charles Grassley (IA-R) is urging the farmers “not to sell control to a foreign company.” The farmer-owners must vote to approve the deal before it can go through.
When I started researching this story today, I spent about an hour searching for this Global Ethanol company on the web, unsuccessfully. I finally found an article in the Australian Courier-Mail that kind of answered my question, saying “Little is known about Global Ethanol. Director Timothy McMahon yesterday referred questions to fellow director Trevor Bourne, who is in the US.”
I think that’s a little weird that a company calling itself GLOBAL ETHANOL is nowhere to be found on the web and has little known about it. Not very global, if you ask me. I will be interested to see how this deal goes down.

I went to noon Mass today at the beautiful St. Peter Church across from the Capitol building in Jefferson City, MO. I parked in one of the metered spots in front of the church even though there were temporary No Parking signs set up for a funeral, thinking that it must have been for a morning funeral that just concluded. I was wrong – the funeral Mass started in the upper church right after the regular daily noon service concluded in the lower chapel. I walked out to find my car blocked in by the funeral procession and the service just beginning. So, instead of fretting about it, I decided to go for a walk around downtown and enjoy the glorious weather. As I walked past the Capitol building I noticed a fairly large group gathered around the steps having a rally of some sort – not an unusual sight during the legislative session. Then I noticed the easily-recognizable blue jackets of a few FFA members – and the fact that the crowd was flanked by a couple of vehicles emblazoned with E85 emblems. Hmmmm – I said to myself, being the astute reporter-type that I am – must be some kind of ethanol thing going on here. Surveying the scene, which included a couple hundred farmer-types listening to brief statements from MO corn industry leaders and state lawmakers, I was reminded why my husband always keeps a camera handy. Of course, it would have been nice if I had received a media invite to the event – but we are still trying to convince some people that blogs are media too. Our good friend Becky Grisham with the Missouri Corn Growers Association has assured me that she will send me a picture of the crowd to post. Maybe tomorrow.

An economist who makes his living forecasting the future of oils and oilseeds says that the supply of fats and oils in the world is not enough to keep pace with demand. According to a Bloomberg article, Thomas Mielke of Oil World says that between the increasing demands for both food and fuel, “There is a supply-demand deficit that is slowly worsening and the real impact is still to come.”
Mielke specifically addresses the use of products such as soy oil and palm oil for biodiesel and corn and sugarcane to make ethanol. “We cannot solve energy problems with oils and fats,” Mielke said. “If you look at five-year accumulative demand trends starting 1981, there has been an alarming acceleration in demand for the world’s 17 major oils and fats. There’s going to be more and more competition for new acreage from grains and sugar for oilseeds.”
So, either we have to grow more, use less, or find other sources.

Demand for ethanol is up and it is becoming evident that domestic production will not be able to supply it all. So, the possibility of lifting the current import tariffs on ethanol, particularly from Brazil, is being raised in Washington.
A Reuters article today says “Congress seems unlikely to lift import duties on much-needed ethanol to meet a domestic shortfall in the fuel additive due to opposition from U.S. producers and farmers.”
However, the article also goes on to say that Senator Saxby Chambliss, head of the Senate Agriculture Committee, told Reuters on Tuesday that Congress has no plans to consider tariff cuts this year, but he said such a move was not out of the question. “We’d be foolish not to consider it … if it benefits the energy community, particularly if at the same time it benefits our farmers,” Chambliss said. U.S. Agriculture Secretary Mike Johanns said this week he had not discussed lifting the tariffs on Brazilian ethanol.
Just because the “farm lobby” is against lifting the import duty doesn’t mean it’s not going to happen. The very powerful sugar industry was adamently opposed to the CAFTA-DR and lobbied heavily against its passage by Congress – but it did pass. So, it is possible.
Even though, as the article notes, Brazil is “slapped with a 2.5 percent ad valorem tariff and a second duty of 54 cents per gallon” on its exports of sugarcane-based ethanol to the U.S. – shipments from Brazil are expected to range from 60 million to 70 million gallons this year. Point being, there is nothing actually stopping Brazilian ethanol from coming here, the tariffs are simply designed to offset “the 51 cents per gallon tax credit the United States provides for blending 10 percent ethanol into gasoline” which may or may not be fair, depending on your viewpoint.
The article also quotes Renewable Fuels Association president Bob Dineen on the issue admitting that domestic production will not be able to meet demand, but still opposing the lifting of import tariffs.
Dinneen said supply problems that may result are no reason to lift duties on Brazilian ethanol imports, as the Brazilian government already subsidizes its domestic ethanol producers. “The Brazilians would love to have us subsidize their product (by easing our duties). But I don’t see a serious effort to do that in the Congress,” he said.
That may change and the ethanol industry may have to accept some compromise on the matter. But, like any industry – from cotton to steel – they are going to be protective of their protection and want to hang on to it for as long as possible, which is to be expected.

The Ft. Lauderdale Sun-Sentinel ran an article Sunday that originally ran in the N.Y. Times on February 7. It’s headlined “It takes fuel to make fuel” and I am surprised that I haven’t seen it in any other NYT company papers considering the hype over ethanol and the Ames, IA dateline.
The article is all about how turning corn into ethanol requires natural gas and the research that is being done to make ethanol more cost-effective. Two potential solutions are offered to using less natural gas in the production of ethanol – using cow manure or corn stover.
The article talks about work being done at Frontline Bioenergy in Ames, which has as it’s mission statement “…to lead the nation in biomass gasification solutions for energy and products” and the cute little leaf logo you see on this post. It quotes Frontline’s research and development manager John Reardon on their gasification project, “It’s just a step. But our whole economy is based on fossil energy, and we have to make a step somewhere.”
That’s how it will all be done – a step at a time. Our dependence on fossil fuels may be an addiction, but it’s not one we can quit cold turkey. We have to cut down gradually, a step at a time, to wean ourselves like babies. But it can be done.
Thanks to Gary Dikkers for sending me the article.

The headline for the article is “Wall Street storms the Corn Belt to build new ethanol plants,” and it makes it sound like ethanol plants are the hottest investment since dot-com. Don’t know if it’s THAT huge, and hopefully not that short-lived, but no doubt it is getting a bit easier to find investors for ethanol plants than it was even just a year ago.

Here’s an addition to the editorials pages about ethanol. The Jefferson City (MO) News Tribune two very long dueling editorial about the pros and cons of the ten percent ethanol mandate being considered by the state legislature. The pro side was written by Missouri Corn Growers Association CEO Gary Marshall. The opposing viewpoint was written by Ron Leone, executive director of the Missouri Petroleum Marketers and Convenience Store Association.
Both arguments are pretty predictable considering the lobbies they represent, but interesting reading just the same.

Ethanol is fueling editorial fodder nationwide. Here are links to just a handful of today’s editorials about ethanol around the country – both positive and negative.

From the Washington Post - Ponying Up for Alternative-Fuel Research
From the Denver Post – Be careful what you wish for
From the Joplin (MO) Globe – Why don’t we grow energy?
From the Daily Press (VA) – Cornstalks are essential, not ‘waste’
From the Detroit News - E85 fuel has big appeal, but do numbers add up?
From the Sacramento (CA) Bee – The Carbohydrate Economy

Here is a link to today’s Washington Farm Report in the Des Moines Register which discusses the research into how much energy it takes to make ethanol from corn, as well as the benefits of switching to cellulosic ethanol in the long term. Makes some very good points. Philip Braser writes about agriculture policy
and issues for the Register.

It should be no surprise to anyone that ethanol production set a record in 2005. The Renewable Fuels Association released the official figures today from the U.S. Energy Information Administration (EIA). The total for the year came in at just under 4 billion gallons (3.904 billion gallons) and averaging nearly 255,000 barrels of ethanol production daily (b/d). The month of December also set production and demand records. Ethanol production in December rose 5,000 b/d from the previous month to 280,000 b/d. Demand skyrocketed to 310,000 b/d, breaking the old record of 297,000 b/d. And if I was a betting person, I would say that 2006 will be another record breaking year for ethanol production.

Apparently this was Veridium’s week to send out press releases – here is the third in the series, this one announcing its new patent-pending technology for the conversion of exhaust carbon dioxide from the fermentation stage of ethanol production facilities back into new ethanol and biodiesel. This is high-technology using algae – yep, that nasty slimy stuff that grows in stagnant water. Apparently, according to the release, they discovered a new strain of iron-loving blue-green algae thriving in a hot stream at Yellowstone National Park. The algae use the available carbon dioxide and water to grow new algae, giving off pure oxygen and water vapor in the process. David Winsness, chief executive officer of Veridium’s industrial design division explains, “The algae convert exhaust carbon dioxide and sunlight into biomass. This biomass is a very efficient feedstock for ethanol production and is itself a concentrated source of the primary ingredient of ethanol.”
Way cool.

An editorial in the Wall Street Journal this week entitled “What’s Wrong With Free Trade In Biofuels?” questions the need for tariffs on low cost ethanol from Brazil if we are really serious about energy security in this country. As Hollman W. Jenkins words it – “The U.S. imposes a 54-cent-a-gallon tariff on Brazilian ethanol, to discourage competition with domestic ethanol, which receives a 54-cent subsidy from taxpayers. … This should lay bare the fraud that what’s going here has anything to do with energy security. It has only to do with the agricultural lobby masquerading its interests behind foolish and misleading rhetoric about energy security.”
I would suspect that the tariff is likely to go away at some point, assuming that someday a World Trade Agreement will be reached. In the meantime, I will make a couple of points in support of the tariff in the short term.
First of all, as anyone knows, Brazil has access to an abundance of cheap labor – due mainly to the fact that they don’t have the stringent labor laws that we do here in the United States. No requirements for workers comp, unemployment, health insurance, etc. That is one of the main reasons they can produce ethanol so cheaply. So, the tariff is a way of “leveling the playing field” – at least for now. It’s one of the major reasons we have a tariff on Brazilian orange juice, for example.
Second, the point is made that we are talking about energy SECURITY. That would mean trying to have most of our energy come from sources here in our own country. Why would we want to transfer our energy dependence from the Middle East to some other country because they produce alternative fuel cheaper than we do? Doesn’t make any sense to me. It does make sense to help the domestic industry grow with reasonable subsidies and such – but I think there should at the same time be a plan to wean from that assistance once the industry gets old enough.
People can complain about farm subsidies all they want, but the fact is that our country without question has the safest, most abundant and most affordable food supply in the entire world. And that is very much due to the fact that we have helped to support our farmers so that our country would not have to rely on other countries for our food supply – in other words, so we would have “food security.” The portion of the national budget that goes to “farm subsidies” is less than one half of one percent. Even within the USDA budget, only about 22 percent goes to farm and commodity programs, while 56 percent goes to domestic food assistance programs – and most of the rest to conservation, forestry, research and rural development. (source: USDA) The pay off is that we spend less than ten percent of our disposable personal income on food – an incredible bargain by anyone’s standards. Maybe with a little bit of subsidizing the same thing can be done for energy.

An Associated Press story with a Kansas dateline is getting some good pick-up around the country. The article focuses on the ethanol distribution business and it mentions numerous big companies in the ethanol business including Colwich, Kan.-based ICM Inc., the nation’s largest designer of ethanol plants. The article notes that a small group of fuel distributors and ethanol barons stand to make a mint shipping the alternative fuel from the Midwest, where it’s made, to major urban markets on both coasts. In other words, as this ethanol business grows, the Midwest stands to become the next Middle East – holding a pretty big piece of the production pie. Let’s face it, the vast majority of the 95 ethanol plants currently in operation are located in the Midwest. There’s only a handful of mostly small facilities located outside of the corn belt, with a few more planned. Even taking those into account, total non-Midwest ethanol production capacity is about five percent of the nearly 6.5 billion gallons per year estimated for the country as a whole (source: RFA) So, point being, even once the industry starts using more sources other than corn to make ethanol – the majority of the plants will still be located here in the nation’s mid section, giving a great boost to our rural economies. Not a bad thing in my book.