Transcript Current Status of Ethanol: Causes of the Crisis & Emerging Challenges By Dr.

Current Status of Ethanol:
Causes of the Crisis &
Emerging Challenges
By Dr. Robert Wisner
Biofuels Economist & University Professor
Ag Marketing Resource Center
Iowa State University
Ames, Iowa U.S.A.
Current Environment
• Several major bankruptcies: VeraSun,
Pacific Ethanol & others
• About 15% of the 170 U.S. ethanol
plants are idle
• The remainder operating at avg. 80-85%
of capacity
• Plants under construction (17),
completed, or nearly completed could
add about 20% to capacity
• Approximately $1.25/bu. drop in corn
prices since June 11 helps returns
Factors Behind Bankruptcies
• Excess industry capacity due to rapid
growth & failure to fully assess impact
of growth on corn market
• Excessive debt
• Plant design defects
• Poor risk-management strategies
– Protecting price of feedstock rather than
protecting margin
– Use of pricing tool unsuited for extreme
market volatility
Ethanol Break-even Price, $/Gallon With
Credit for DGS Value
(Corn price locked in @ June '08 level
to April '09)
$3.00
Fixed Costs
Other var. cost
Natural Gas
Net Corn Cost
$ per gallon
$2.50
$2.00
$1.50
$1.00
$0.50
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Net Corn Cost After DGS Credit
Source: Iowa Ethanol Report, EIA
Assumes all consumers are willing to use ethanol
Will big ethanol returns reoccur? Probably not.
• Slower market growth with ethanol as
gasoline substitute
• Ethanol may soon be largest user of U.S. corn
– Large % increase in ethanol a few years ago
had small corn market impact
– That’s no longer true
– Will it be true in the future? Depends on corn
yield trend
• Cellulose ethanol: higher cost + competing
in E-85 market
Ethanol Contribution to Energy
Self-sufficiency
• 2008: ethanol equivalent to 4.2% of U.S. crude oil
use & 6.3% of crude oil imports -- on a volumetric
basis
– Energy-equivalent basis: 2.8% of crude oil use &
4.2% of U.S. crude oil imports
– Use of petroleum in ethanol production is not
deducted from these numbers, so actual
contribution is less
• Conclusion: view ethanol as one element in a
portfolio of potential contributions to U.S. energy
self-sufficiency
Conclusions
• Ethanol industry will struggle with overcapacity until blending wall is eliminated, &
possibly longer
• Future growth depends on GHG & blending
policies, corn yield trend, cellulose
technology break-through
• Industry to become more integrated with
petroleum, have fewer firms
• Future of cellulose ethanol questionable
– Mandates next 3 yrs. 100, 250 & 500 mil. Gal.
Thanks!
Questions?
Contact info.: [email protected]
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