The U.S. Ethanol Industry survived and overcame a difficult 2012 that saw the end of the ethanol tax credits.  Further hurting the ethanol industry was a drought that had a tremendously negative impact on U.S. corn production and prices, the primary source of fuel ethanol.  Despite the setbacks experienced by the Ethanol Industry, current trends in the market are encouraging for the industry.  Below is a look at late 2012 and early 2013 prices for ethanol futures, corn prices, and the national retail price of gas.

1)      In regards to 2013 Ethanol futures, the data is CBOT (Chicago Board of Trade) so these are what the futures are selling for not what the actual pricing is.  Prices are on the rise, but the actual trend slope is only 0.003.  Ethanol future prices have gone up by roughly 15% since December.

2)      Corn Prices had a trend slope of -0.003, however a 10% decrease in pricing since December cannot be ignored. Coupled with a 16% increase in ethanol pricing has to have a profound effect on margins to the OEM’s (Original Equipment Manufacturer). In gross terms, most of the OEM’s were running 0-3% margin in December. This means based on the cost of corn only the margin should rise to a point approaching 5%, increasing cash flow somewhere in the 1.5 percent range.

Corn Prices 1

3)      Gas prices are rising at a trend slope similar to ethanol.  Gas futures have risen 10% since December.  But the recent trend has been downward while ethanol shows a steady increase throughout the period. The gas spike between the middle of January and the middle of February is interesting, but the trend since the middle of February is down. Regardless ethanol continues to hold value for the blenders. RIN shortage is influencing blenders in a negative manner though.

Three Ethanol Tax Credits Are Extended For 2013

2013 begins on a positive note for the Ethanol,  Biofuel, and Wind Energy Industries as the American Taxpayer Relief Act of 2012 extended three ethanol tax credits for 2013 and extended the Wind Energy production tax credit.

Growth Energy, the group leading national awareness of ethanol,  released the following statement:

“I commend both the Senate and the House of Representatives for recognizing the importance of renewable fuels and acting to extend both the cellulosic producer tax credit and the alternative fuel infrastructure tax credit through 2013…”

The full statement can be read on Growth Energy’s Website

The major ethanol benefactor of these tax credits is cellulosic ethanol, which is produced using non-edible portions of plant life and other non-food sources, which include municipal waste.  Although still in the development stages cellulosic ethanol has great potential to be a viable source of fuel for the future.   A number of full scale production plants are in development in the U.S. and globally a number of cellulosic plants are operating successfully.

Algae which has shown tremendous promise in scientific studies as an ethanol producing agent was also another ethanol source material added to the tax credit.  Biodiesel production tax credits were also extended for the next two years.

The Wind Industry had put a number of projects on hold until the tax credits were reinstated .  The benefits of these tax breaks for the Wind Industry may not be felt until 2014 when a lot of these projects are completed.

In 2012 the standard corn producing ethanol tax credit in the U.S. expired.  Since its expiration the ethanol industry has struggled, largely due to a drought, but it has been able to sustain itself and the implementation of E15 will further help it to succeed. The goal of the tax credits is to encourage the production of new renewable sources of fuel that could have potentially long term benefits in helping the U.S. achieve fuel independence.

2012 U.S. Presidential Candidates Mitt Romney (left) and Barack Obama (right).

With the 2012 U.S. Presidential election coming up on November 6th, some people might be wondering where the candidates Mitt Romney and Barack Obama stand on energy issues.  Energy issues would include oil and gas, ethanol, alternative energy, etc.  Here is a short list of energy sources and issues and where each candidate stands with them.

Oil

Obama – Has opened more coastal area and federal lands to oil production, and has increased regulations on oil companies. Wants to eliminate tax breaks for oil companies.  Wants to expand environmental regulations and green house gas regulations in regards to producing energy.

Romney – Supports opening more federal land for drilling.  Wants to reduce regulations that would preserve environmental gains, but not paralyze the industry.  Supports tax breaks for oil companies.

Natural Gas

Obama – Initially opposed the building of the Keystone Pipeline over concerns for the safety and health of American citizens.  Will reassess the pipeline at the beginning of 2013.  Wants to continue expanding shale gas drilling, and wants to follow up on federal safety standards for hydraulic fracturing.

Romney -  Supported the building of the Keystone Pipeline.  Wants to increase the amount of shale gas that is produced in the U.S. and wants to partner with Mexico and Canada in order to help do this.  Wants to help Europe develop shale gas so they can reduce their dependence on Russian gas.

Coal

Obama – Supports tougher rules for coal fired power plants.

Romney – Wants to streamline rules and regulations for coal plants.

Ethanol and Biofuels

Obama – Supports the Renewable Fuel Standard.  Wants to become energy independent and believes that by increasing biofuel production  over 300 million barrels of oil will be saved by 2022.  Supports increasing the blend of ethanol in gasoline and supports the development of biodiesel and other biofuels.

Romney -  Supports the Renewable Fuel Standard.  Wants the U.S. to become energy independent by 2020, and wants to eliminate regulatory barriers to the diversification of the fuel system.  No comments have been made on whether he would increase biofuel use in the U.S.

Nuclear Energy

Obama – Supports nuclear energy and the creation of more nuclear reactors.  Has used federal guarantees to reduce the cost of developing two new reactors in Georgia.

Romney – Supports nuclear energy and the creation of more nuclear reactors.  Wants to reform regulations on the Nuclear Regulatory Commission, and wants the commission to approve new designs for nuclear reactors within two years.

Alternative Energy

Obama – Announced 1 billion in tax credits for the production of alternative energy and trucks.  Supports alternate forms of fuel for vehicles, this includes ethanol, natural gas, and electric powered cars.  Also supports wind energy.

Romney – Supports renewable and alternative energy but not at the expense of traditional energy sources like oil, gas, and coal.  Would end the tax credit being given to wind energy producers.

Sources:

http://www.mnbiofuels.org/attachments/article/119/Candidate%20Positions%20on%20Biofuels%202012_2.pdf?utm_source=Final+of+Presidential+Candidate+Email&utm_campaign=Presidential+Candidate+Statements&utm_medium=email

http://2012election.procon.org/

http://www.cfr.org/united-states/candidates-energy-policy/p26796

http://www.usatoday.com/story/news/nation/2012/10/29/obama-romney-climate-energy-records/1654979/

http://www.usatoday.com/story/news/nation/2012/10/29/obama-romney-climate-energy-records/1654979/

First E15 Pumps Are In, But Still Facing Challenges

E15 is a new blend of fuel that uses 15% ethanol in its blend, and it is currently approved to be sold as a fuel alongside E10 (10% ethanol blend, the fuel you find in almost every gas station in the U.S.).  In July, the U.S. first saw an E15 pump appear in Lawrence Kansas signaling the beginning of a new type of fuel that will be able to be purchased by American consumers.  This event brought even more good news E15 will be selling at a cheaper price than E10 or gasoline without any ethanol.

Increasing the ethanol blends in U.S. gasoline was first brought to the table in 2009 and since then it is being heavily pushed to help the U.S. meet the Renewable Fuel Standard.  However, despite the fact that E15 is now EPA approved various lobbying forces still oppose E15 as a viable source of fuel in the U.S. and are working to remove it from the U.S. market.

On August 17th, 2012 the Washington D.C. Appeals Court threw out a lawsuit brought forth by the food industry’s, oil industry’s, and automobile engines industry’s lobbying groups.  Their goal was to stop E15 from entering the American markets.  The lobby’s arguments were that the EPA prematurely had E15 approved, and that it did not have the authority to decide that some vehicles could use the fuel while simultaneously denying the fuel to other vehicles.

The court threw out the suit saying the their was no standing for the lobbyists to be suing the EPA.  The lack of standing would be due to the fact that E15 has been the most tested fuel to ever be introduced to the American public, and the EPA is not telling car owners who can use E15, rather they have made recommendations stating that E15 should be used by cars manufactured after 2001.

Earlier in the year, testing on E15 ethanol blends was done by the Coordinating Research Council (CRC), a non-profit organization that received its funding from oil companies and automotive companies.  There test results claimed that E15 could damage valves in cars manufactured between 2001-2009.  With these results they argued that E15 should not be released to the public.

However, the Department of Energy found many flaws in the CRC’s testing methods.  The first and most significant was not establishing a proper control group.  All car engines that underwent the CRC’s test were tested with E20 first, then E15, and finally E0.  With no control group (an essential part to the scientific method), any experiment loses all validity.  The CRC also performed these tests on engines that were known to have durability issues, including a few engines that had been recalled in the past, so when the engines didn’t work properly in the tests they could blame E15.

Despite these attempts to block E15 from the marketplace, more and more studies keep supporting the benefits of using ethanol in fuel.  In 2010 the University of Wisconsin found that E10 ethanol had saved consumers on average 89 cents a gallon, saving the average American household $800 a year.  Since ethanol sells at a cheaper wholesale price than oil, the higher the blend of ethanol in fuel means more money can be saved by consumers.  E10 has also reduced foreign oil imports and replaced them with jobs producing ethanol here in the U.S.  By increasing the blend of ethanol to E15 more American jobs can be created and more money can be saved at the pump.  Most importantly E15 allows consumers another choice of fuel to put in their cars besides oil based gasoline.

Sources:

Court Case Dismissal  http://www.growthenergy.org/news-media/ethanol-in-the-news/appeals-court-tosses-e15-lawsuit-on-lack-of-standing/

CRC study http://ethanolproducer.com/articles/8807/doe-ethanol-groups-big-oils-e15-testing-seriously-flawed

Gas Prices http://www.ethanolrfa.org/pages/ethanol-facts-consumers

Gas Prices http://www.ethanolrfa.org/exchange/entry/ethanols-role-in-reducing-gas-prices/

Investigation Dropped By Chinese Ethanol Plants After 18 Months

Dumping (in an economic context) usually occurs in International Trade when one country manufacturers a product and sells it to another country at a price below what they can manufacturer it at.

In China, three ethanol producers, AnHui Ethanol Co. Ltd., Jilin Fuel Alcohol Co. Ltd. and Meihekou Fukang Alcohol Co. Ltd., accused the U.S. ethanol industry of dumping Dried Distiller Grains (DDGS).  They filed an anti-dumping suit against U.S. Ethanol Producers in December of 2010.

Note: Dried Distiller Grains are a co-product that are produced by ethanol plants that use corn as  a feedstock during  the ethanol production process.  They are usually used as a food for livestock.

The Chinese ethanol producers argued that because corn in the  U.S. could be produced at a cheaper price and because imported DDGS  were being sold for cheaper than what Chinese manufacturers could sell them at that U.S. Ethanol Producers were dumping  DDGS in China.   Chinese ethanol producers were hoping to get the Chinese government to put an import tariff on U.S. DDGS imports.

The Chinese government launched an investigation into the DDGS dumping accusation.  They began the investigation by working in conjunction with USGC (United States Grain Council) and 80 U.S. ethanol producing facilities that volunteered to help.  The Chinese government personally selected Big River Resources, United Wisconsin Grain Producers, and Golden Grain Energy to help investigate U.S. DDGS production prices and costs in the U.S. ethanol industry.

With the investigation underway, the U.S. ethanol industry began preparing a defensive argument.  The ethanol defense argued that they weren’t injuring the Chinese DDGS markets, and they also argued that importing U.S. DDGS was improving the commodities market in China by bringing down high prices caused by a growing demand for food in China.  Helping keep food prices down in China was in the public’s best interest.

In June of 2012 China’s Ministry of Commerce dropped the investigation after the Chinese ethanol producers dropped the charges they had filed.  In the meantime no additional tariffs will be added to DDGS imported to China from the U.S.  Whether or not the investigation and defense argument played a part in the dropping of the case has not been determined.

U.S. DDGS imports into China are very important for the U.S. ethanol industry, as China imported more than 2.5 million metric tons of U.S. DDGS or about 28% of the total DDGS produced by the U.S. ethanol industry that year.  However, the suit  dropped U.S. DDGS imports into China by 15% from 2010 to 2011 due to fears of a tariff being instated.  Exports of DDGS went up by 84% in 2012, and with the announcement of the case being dropped it is likely that U.S. DDGS exports will continue to rise.

China is currently the largest importer of U.S. produced DDGS and this relationship is important to the continued growth of the U.S. ethanol industry and the Chinese commodities market.

Sources:

http://ethanolproducer.com/articles/8901/china-drops-ddgs-anti-dumping-case

http://www.world-grain.com/News/News%20Home/World%20Grain%20News/2012/6/China%20drops%20anti-dumping%20probe%20against%20US%20DDGS.aspx?cck=1

http://www.thegrainsfoundation.org/ddgs-information/2829-usgc-facilitates-industry-wide-response-to-chinas-anti-dumping-case