Focus on Fuels 2-4-08
Submitted by DTN Ethanol Blog
When Capacity Outgrows Market, Then What?
By Gary Wilhelmi
DTN’s Man on the Floor of the CBOT, CME
It looks like the United States capacity for producing ethanol will reach about 13 billion gallons by the end of 2008. But the market for the product will be less than 12 billion gallons. So what gives?
If the price gravitates lower, some ethanol plants will have to scale back operations, or in the worst case shut down. Export channels must be opened.
The profitability squeeze is going to be tight and the higher corn goes, the tighter the margins will get. It would help greatly if ethanol could be transported via pipeline to the east or west coasts, but current technology has no answer for its corrosive nature. Once we get ethanol out of the Midwest, we will face the additional challenge of blending the fuel. New tanks will be needed and in some locations new rail spurs will be necessary.
All that takes money, which in turn requires profitability. An old friend of mine in the panhandle haggled for years to get a rail spur into a well-established cattle feeding operation. All these big projects take a lot of time and influence. E85 flex fuel cars are another example of the snail’s pace of putting the rubber on the road toward expanded usage.
Cellulosic raw materials for the production of ethanol are another long-term project aimed at producing 16 billion gallons of fuel by 2022. We are pecking away at the objective as cellulosic plants will receive funding in Missouri, Pennsylvania and Oregon. The raw materials involved will be corn fiber, corn stover, switchgrass and sorghum in Missouri, hard and soft wood residues in Pennsylvania and other forest products out west.
The problem is that all of these projects are just experiments at this time and all the trial and error fits and starts are ahead. This is, however just the nature of science. A problem we have nationwide today is the lust for instant gratification, which is akin to greed, and has helped bring us our hot money mortgage loan practices that have us over the barrel that is filed with a lot more than expensive crude oil, it contains our economic life blood. This I know for sure as I have spent a career in the brokerage business where company after company has gone belly up because of short-sighted management. Now those same hyper clowns have moved into bank leadership. This is what you need to be mindful off when evaluating investment in alternative fuel operations. Check out the management, their track record and business plan from sources that are objective and experienced as snake oil comes in many forms.
Talk about wildcats — keep an eye on the West Texas oil operations that have come back to life with near $100-per-gallon oil. If nothing else, the movie industry is going to have sensational fodder for new oil movie epics. How about Giant II, with an oily plot?
Gary Wilhelmi can be reached at gary.wilhelmi@dtn.com
(CZ)
Copyright 2008 DTN. All rights reserved.
Visit 1800blogger to see all of our industry leading blogs.
Is ethanol part of our future? We want to hear your thoughts. Register on Ethanol Blog now and get published within minutes. Before posting, it is recommended that you review our posting guidelines.
