Headlines
April 20, 2009
Minnesota Auditor Recommends State End Corn-Based
Ethanol Subsidies
The state of Minnesota, which has been at the forefront of promoting ethanol policies, is being recommended by a legislative auditor to consider ending state subsidies for corn-based fuel and instead redirect the funds to programs that would have a larger impact on reducing fossil fuel use and greenhouse gas emissions.
Since 1987, Minnesota has offered a payment program to ethanol producers, providing approximately 20cts/gal of ethanol produced for the first 15 million gallons of annual ethanol production. For any individual producer, these payments were limited to $3 million/yr. Producers were limited to 10 years on the program for any new plant or expansion of a plant that increased the producer's annual production to at least 15 million gal.
Through fiscal year 2008, Minnesota has doled out approximately $314 million to 20 ethanol producers under the producer payment program, and the state is scheduled to spend $44 million from fiscal year 2010-2012.
"Minnesota's producer payment program provided important incentives to corn ethanol producers during the 1980s and 1990s, when corn ethanol was a relatively new and emerging industry. However, this program, by guaranteeing at least ten years of subsidies for any new plant or plant expansion up to a total production of 15 million gallons per year, has outlived its usefulness in stimulating ethanol production," according to the report by the Minnesota Office of the Legislative Auditor.
"While financial conditions for ethanol producers have deteriorated in the past year, it is unlikely that maintaining these payments will influence production decisions. The subsidies are only a little more than 1% of sales,"
the report noted.
Additionally, the producer payment program is not designed to maximize overall energy savings or reduce environmental impacts, according to the report. "While several producers have implemented significant energy and environmental improvements to reduce natural gas or electricity costs, the state's producer payment program had little impact on those decisions," the report continued.
In light of these elements and the state's current budget deficit, "[t]he legislature should consider ending the producer payment program for corn-based ethanol and redirecting the funds to programs designed to further reduce fossil fuel use and greenhouse gas emissions," the report explained. The report calls for specific emphasis on second-generation biofuels such as cellulosic ethanol.
"We recognize that any decision to end the current producer payment program is a 'close call' at this time. While the corn ethanol industry made significant profits in recent years, the condition of the industry has changed in the last year. However, we think the future of the producer payment program is an issue that should be debated within the legislature," the report noted.
In addition to ending the producer payment program, the report recommended the Minnesota Department of Employment and Economic Development should only provide ethanol subsidies under the Job Opportunity Building Zones (JOBZ) program if "it can be clearly demonstrated that subsidies are needed, and the proposed expansion provides significant economic benefits to the state relative to the costs of the tax breaks."
In a written response to the report, Minnesota Department of Agriculture Commissioner Gene Hugoson disagreed with the recommendation to end the producer payment program. "Allowing the program to sunset as set in statute rather than ending it prematurely will enable Minnesota to maintain its leadership in local ownership and progressive biofuels policy," he wrote, although it was not clear when the program is set to end under the statute.
Meanwhile, Hugoson is urging that future subsidies must continue to build a bridge between first- and second-generation biofuels. "[M]ost industry analysts agree that cellulosic ethanol technology is not yet commercially viable. In the meantime, Minnesota would do well to continue supporting its existing and increasingly innovative ethanol industry as a bridge to the future. ... Should the producer payment program end and Minnesota's plants suffer significant losses as a result, the state may forfeit the opportunity to produce cellulosic ethanol in the future," he wrote.
"The Minnesota ethanol program has had a profound positive impact on the state's economy," Hugoson added, noting that in 2007, the state's 850 million gallon ethanol industry was responsible for $2.27 billion in economic impact to the state and the creation of more than 4,300 jobs. Similarly, the state's 60 billion gallon biodiesel industry and supporting soybean production provided an economic impact of $928 million and an employment impact of more than 5,600 jobs in 2005, he noted.
To view the report, visit:
http://www.auditor.leg.state.mn.us/ped/pedrep/biofuels.pdf.
Meanwhile, Minnesota, which currently has 18 ethanol plants operating in the state, has been described as the most progressive biofuels state in the country. It was the first U.S. state to require every gallon of its gasoline contain 10% ethanol and in 2005, Gov. Tim Pawlenty (R) signed a bill requiring E20 in all gasoline by 2013, unless ethanol has already replaced 20% of the state's motor fuel by 2010.
April 15, 2009
Canada Providing up to $14 Million Greenfield's Tiverton
Ethanol Plant
The Canadian government is providing up to C$14 million to help support top
Canadian producer Greenfield Ethanol's 25-million liter/yr (6.6-million gal/yr)
ethanol plant in Tiverton, Ontario, the government announced this afternoon.
The funding comes from the government's ecoENERGY for Biofuels program,established in 2007 to incentivize biofuel production, which in turn helps
provinces and the federal government meet and maintain various biofuel
mandates.
The biofuels program, which provides incentives of up to 10cts/liter for
ethanol and 20cts/liter for biodiesel plants, plans to invest up to C$1.5
billion over nine years, running from April 1, 2008-March 31, 2017. Recipients
are entitled to receive quarterly incentives for up to seven consecutive years.
The program is administered by Natural Resources Canada (NRCan).
"These funds will help GreenField Ethanol in our mission to utilize
innovative technologies to help broaden Canadians' fuel choices," said
GreenField President and CEO Robert Gallant. "This investment will also result
in greater workplace opportunities for the Tiverton community," he added.
The Tiverton plant, which has been in operation since 1989, helps Ontario
meet its previously enacted ethanol mandate, requiring 5% of the gasoline sold
in the province to contain ethanol.
According to NRCan's website, 21 other Canadian biofuel plants have signed
agreements to receive the federal producer incentives, including three others
operated by Greenfield Ethanol -- in Chatham, Ontario, Varennes, Quebec, and
Prescott, Ontario. It's unclear when Greenfield began receiving incentives for
its other plants, although NRCan notes that the agreements for the Varennes and
Chatham facilities were signed on the same day as the Tiverton agreement --
Nov. 21, 2008. The agreement for the Prescott plant was signed on March 17,
2009.
Meanwhile, NRCan does not list the amount of total funding that each plant
will receive, waiting instead for the company to divulge that information
through an official announcement. Another funding recipient, Permolex, which
operates a 41.5-million liter/yr (10.96-million gal/yr) ethanol plant in Red
Deer, Alberta, announced last week it will receive up to C$23.2 million from
the program.
The ecoENERGY for Biofuels program also varies the incentive rates by
quarter. For example, from April 1-June 30, 2008, ethanol incentives were
1.5cts/liter, rising to 7.8cts/liter from July 1-Sept. 30, 2009 and then to
10cts/liter from Oct. 1-Dec. 31, 2008. Rates for biodiesel were not provided,
in order to "protect confidential commercial information of the limited number
of recipients" eligible during the quarters, NRCan noted. According to the
NRCan list of plants that have signed agreements to receive
the incentives,
eight are biodiesel facilities, but only three were signed by the end of
last
year.
The rates for the quarter ended March 31, 2009 will be determined this
month, "as they are based on information provided to the program by eligible
recipients," an NRCan official explained to OPIS, and will be posted on the
agency's website. "The rates for future quarters will be determined in the same
manner," the official noted.
For more information about the incentive program, visit:
http://oee.nrcan-rncan.gc.ca/transportation/ecoenergy-biofuels/.
April 13, 2009
Biodiesel Gets Ready for the Marketing Masses
Scores of investors and entrepreneurs may have soured on biodiesel, but traditional fuel suppliers and marketers are now playing catch-up with the "green" product. In fact, one might say that biodiesel is about to enter the mainstream of U.S. fuel supply, with the spring blessing of two major players.
ExxonMobil made its intentions known at last month's National Petrochemical and Refiners Association (NPRA) meeting and circulated a final version of the specifications that the company will accept for biodiesel eventually sold in its system. Then this week, Kinder Morgan notified Plantation Pipeline shippers and customers that it will soon begin shipping B5 - a 5% bio blend with ultra- low sulfur diesel and call the fuel "68 grade." Pipeline batches should begin arriving in Georgia, North Carolina and Virginia as early as next month.
Interestingly, the B5 material will be commingled with ULSD in Plantation tankage and all bills of lading for ULSD will then indicate that fuel "may contain up to 5% biodiesel." (Georgia loads will mention 2% which is that state's labeling standard).
The ExxonMobil specs, meanwhile, are "tough, but prove that biodiesel is finally going mainstream," noted one southeastern marketer. The toughest specification relates to monoglyceride contents for both winter and summer.
Third parties "will have to do a really good job in cleaning up impurities in the process," one expert told OE, adding that "you won't see any French fry oil making it into fuel sold at an Exxon or Mobil station." Some very daunting limits are also included for winter Cloud Point and any cold flow additives will have to be approved by ExxonMobil.
It's not known how many existing U.S. producers of B100 (all bio component) will be able to meet the test put forward by the major. ExxonMobil's spec sheet requires that suppliers be BQ9000 certified, and only about twelve marketers can meet the BQ9000 threshold established by the National Biodiesel Board.
More refiners and suppliers are expected to declare what they'll accept for biodiesel soon. And hundreds of marketers will have to get accustomed to handling the fuel in about eight months. Pennsylvania law requires that any on- road diesel sold after Jan. 1, 2010 include at least a 2% bio-component. One volume study suggests that the state accounts for about 96,000 b/d of on-road diesel, which adds up to a requirement of nearly 701,000 bbl, or more than 29 million gallons of B100.
Massachusetts also has an upcoming biofuels mandate, although the effective date is July 1, 2010. The Clean Energy Biofuels Act establishes a timetable for a gradual transition to biofuels (including heating oil as well as transportation diesel) with an initial move to a B2 blend.
April 8, 2009
Analysts Downgrade ADM Due to Global Economic Weakness
Two ethanol analysts have downgraded shares of Archer Daniels Midland (ADM)
this week to "sell" in response to global market conditions, ahead of the
company's next quarterly earnings conference call, scheduled during the first
week in May.
"We are downgrading ADM shares from Hold/High Risk (2H) to Sell/High Risk
(3H), following our visit with ADM management in Decatur, Ill., which confirmed
our belief that fundamental trends are deteriorating across ADM's major
businesses," wrote Citigroup Inc. Analyst David Driscoll in an April 6 note to
clients.
"The 50,000 foot view of the situation at ADM's major businesses reveal
deterioration.
In some cases, the deterioration has been extremely rapid --
agricultural services
and oilseed processing -- while in other cases, the
deterioration has been a bit
more moderate, such as in the firm's wheat and
cocoa processing division,"
Driscoll continued.
"Slowing agricultural demand and overcapacity are negatively impacting
volumes and margins in ADM's Oilseeds and Ag. Services businesses," Driscoll
noted. He said the first significant declines in ADM's Oilseeds and Agriculture
Services divisions will be posted in ADM's upcoming fiscal third quarter
report, and pegged the company's earnings per share for FY2010 dropping from
$2.87 to $2.00.
ADM currently has seven U.S. ethanol plants on line and is expanding two of
those facilities -- in Cedar Rapids, Iowa, and Columbus, Neb. -- by a
collective 550 million gal/yr. The company previously announced that the newly
expanded Columbus plant should be on line during Q3 2009 (previous estimate was
Nov. 2008), while the Cedar Rapids plant should be on line by Q1 2010 (previous
estimate was to be Aug. 2009).
In ADM's December quarter, the company's ethanol business (which is
included under its corn processing division) posted an operating loss of $111
million, driven by $60 million in inventory write-downs and weak ethanol
production margins. "Given market conditions, we believe that ADM will likely
incur further ethanol inventory write-downs, although they are expected to be
modest relative to the December quarter," Driscoll noted.
"However, industry supply/demand fundamentals within the ethanol [industry]
remain weak and spot ethanol production margins have remained close to break-
even levels, although ADM management indicated that ethanol blending economics
have improved in recent weeks as petroleum and gas prices have risen," Driscoll
explained.
Similar overall comments came from Ian Horowitz with Soleil Securities. "We
are lowering our F2009 and F2010 revenues and earnings estimates for ADM, as it
appears that the global economic weakness is impacting ADM's business lines
more than we initially expected," he said in a note to clients this
morning. "We are
also lowering our target price from $33.00 to $22.00, and
reducing our rating from BUY to SELL," he added.
"We suspect that the March 31 (F3Q09) earnings call, which takes place
during the first week in May, will show that the first three months of the year
were very difficult for the broader agricultural industry and ADM
specifically," Horowitz said in the note.
Horowitz agreed with Driscoll that a downturn in ADM's oilseed processing
and agricultural services divisions are expected, and also of an increase in
ethanol margins. The corn processing division "will likely be a surprise going
forward, as we expect ethanol margins to improve as we near (and eclipse) the
volume increase in 2010 mandated by RFS II," he said.
"It is our contention that the darkest days for ethanol production are
behind us (for this cycle at least). ... ADM should be well positioned to take
advantage of this upswing in ethanol economics," Horowitz wrote. "We expect
that any additional capacity shut-ins over the near term will be from marginal
production, whether it is inferior by location, technology, operation or
balance sheet. Being a larder in global agriculture, ADM's dry grind and wet
mill ethanol plants hardly fall into this category, and should remain producing
far longer than their weaker competitors. ... We expect the business to improve
toward F1Q10, as blenders prepare for the higher RFS, as well as some stability
in sweetener volumes," he added.
Shares of ADM plunged on Tuesday in response to Driscoll's report, down 9.9%
in afternoon trading, to close at $25.66. At presstime, the shares were trading
at $25.78.
April 6, 2009
IRS Extends Deadline for Cold-Soak Filtration Test to Oct. 1
The Internal Revenue Service (IRS) is providing U.S. biodiesel producers a
six-month extension before they have to start meeting the new ASTM
specification for cold-soak filtration, the IRS announced on Friday. The
deadline, which was to have been April 1, will now go into effect on Oct. 1.
In October 2008, ASTM officially adopted the cold-soak filtration test,
designed to improve the fuel's operability in cold weather. Specifically, the
biodiesel is chilled down to 40 degrees F for 16 hours and then allowed to warm
up on its own back to ambient temperature. The fuel is then tested to see if it
can pass through a filter without clogging. The cold-soak filtration applies to
B100 used for blending.
IRS allowed a four-month transition period for biodiesel blending credit
claims if the biofuel was produced, sold or used before April 1, 2009 as long
as there was an accompanying certificate from the producer stating the
biodiesel met ASTM D6751 standards as they were either before or after Oct. 13,
2008.
As of April 1, if the batch of B100 didn't meet the ASTM D6751 spec, which
includes the cold-soak filtration test, then it wouldn't qualify for the $1/gal
federal biodiesel blenders' tax credit.
"This guidance extends the transition rule...through Sept. 30, 2009," the IRS
said in its April 3 notice. "Therefore, if a taxpayer's claim for biodiesel
incentives relates to the production, sale or use of biodiesel or a biodiesel
mixture and the production, sale or use occurs before Oct. 1, 2009, a
certification that the biodiesel covered by the claim meets the requirements of
ASTM D6751 is valid if the biodiesel meets the requirements of ASTM D6751 as in
effect either before or after the October 13, 2008 revision that added the cold-
soak filtration test for biodiesel," the notice continued.
"If a claim relates to the production, sale or use of biodiesel or a
biodiesel mixture and the production, sale or use occurs on or after October 1,
2009, a certification that the biodiesel covered by the claim meets the
requirements of ASTM D6751 is valid only if the biodiesel satisfies the
requirements of ASTM D6751 as in effect after the October 13, 2008, revision
that added the cold-soak filtration test for biodiesel," the IRS notice
concluded.
No information in the IRS' three-page statement was provided on why the
extension was being made, and calls to the agency were not returned by
presstime.
However, as OPIS previously reported, some biodiesel producers were
concerned that the cold-soak filtration test might be too challenging for some
to meet. According to several biodiesel-related sources, producers using palm,
canola or animal fats may have a hard time passing the cold-soak filtration
test. "The reality is, there are some producers that aren't going to meet
this," one biodiesel source previously told OPIS.
One major factor at play is that while Minnesota's previously enacted cold-
soak filtration spec uses a 1.5 micron filter during the test, the ASTM test
uses a 0.7 micron filter.
"The pore size is significantly smaller" and some of the non-soy feedstocks
will remain as slush during the test and easily block those smaller pores, a
second biodiesel source previously told OPIS. Meanwhile, the test calls for the
fuel to be brought back up to room temperature, however the saturated
monoglycerides in the palm oil and animal fat can stay as a solid during that
timeframe, the source said.
Additionally, some 20% of soy-based biodiesel may have a problem passing the
test as well, noted the first biodiesel source.
However, all of the biodiesel sources OPIS previously spoke to said the
National Biodiesel Board was aware of the concerns among the industry and had
taken proactive steps to address questions, by forming a working group to
address issues and holding conference calls with members to discuss the matter.