Ethanol plants caught in 'blend wall'
On Highway 20 outside of Atkinson in north-central Nebraska, semis with trailers full of corn roll past the NEDAK ethanol plant.
The plant, which was built by local investors in 2008, has been offline since June 2012 when the drought pushed corn prices to new highs. When operating, the plant made 44 million gallons of ethanol per year from 17 million bushels of corn.
“We had corn coming in as far as 130 miles out,” said Jerome Fagerland, NEDAK's president and general manager.
But today, no trucks cross the scales. Towering steel grain bins sit empty. Instead of filling the equivalent of 38 full-time jobs, nine staff members keep the plant on what’s called a “warm idle.”
High corn prices and low demand for ethanol have shut down about 30 of the nation's 211 ethanol plants over recent months. Together they account for about 2 billion gallons of ethanol production. Corn prices are part of the problem, Fagerland said, but not the whole story.
“We definitely, as an industry, have an ability to produce more than what our domestic demand is at this time,” said Fagerland. “There’s no questions about that. That’s obvious with the plant idle.”
Ethanol has run into the so-called “blend wall.” Each year the federal government’s Renewable Fuel Standard mandates an increasing amount of ethanol be used in the fuel supply. Ethanol plants respond by producing more to meet those goals. But fuel consumption in the U.S. declined in the recession and has remained flat.
A 10 percent blend of ethanol to gasoline, called E10, is nearly ubiquitous at the pump, but not enough E10 is sold to meet the government’s standard of 16 billion gallons of ethanol in the fuel supply in 2013.
Moving up to 15 percent ethanol in gasoline, or E15, would push the industry beyond the blend wall, according to Bob Dineen, president and chief executive officer of the Renewable Fuels Association.
“You’d have another 6 or 7 billion gallons of ethanol demand," Dineen said. “Clearly you would be able to restart the 2 billion gallons of capacity that is currently not being utilized and there’d be room for growth as new cellulosic or other biofuels come into marketplace.”
The Environmental Protection Agency gave E15 the green light last year, but Dineen admits most drivers probably have not noticed.
“The growth has been pretty slow,” he said. “We’ve got about a dozen stations, maybe 15 stations today in Kansas, Nebraska, Iowa, Illinois. Clearly ethanol friendly parts of the country.”
With no room for more ethanol in the market, prices fall and plants shut down. Meanwhile, in Washington, D.C., E15 is running into roadblocks.
Testifying before a House subcommittee, Robert Darbelnet, chief executive officer of travel group AAA, said “allowing the sale of E15 at this time is premature and irresponsible.”
AAA supports a proposal from Rep. Jim Sensennbrenner, a Wisconsin Republican, to require more research on whether E15 could damage car engines. It’s one of several bills aimed at blocking E15 or cutting back the Renewable Fuel Standard.
EPA approved E15 only for cars and trucks made in 2001 or later, based on government research.
Darbelnet told lawmakers that, according to industry-funded research, some approved cars are still open to engine damage. Ford and GM recently said only their newest models would have warranty coverage for E15.
“Virtually every OEM, or auto manufacturer in this country, virtually all of the OEMs have said 'do not put this fuel in your tank unless you are accepting of the fact that it will void your warranty',” Darbelnet said.
Dineen, at the Renewable Fuels Association, called the debate over E15 a case of marketplace politics as the government forces oil companies to hand a larger share of the fuel market over to ethanol. Ultimately, he said, ethanol still has political support where it counts.
“In the Senate and with the administration there’s still strong support for ethanol,” Dineen said. “And they’re not going to roll back this important program, period.”
In Atkinson, Neb., NEDAK ethanol is not just on standby, it's for sale. The plant went into foreclosure in January and the creditors are looking for a new owner. Jerome Fagerland believes there will be a place in the industry for ethanol from Atkinson in the future. But like other idle ethanol producers, it may have to wait for a break in the drought and a breakthrough at the pump.