Ethanol Producer Magazine - December 2010

INSIDE: RESTRUCTURING IN THE INDUSTRY CONTINUES DECEMBER 2010

PERSPECTIVES

Ethanol industry leaders share their outlook for the year ahead Page 42

Plus

How do we squeeze more ethanol into a shrinking gasoline pool?

Page 56

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CONTENTS

FEATURES DECEMBER ISSUE 2010 VOL. 016 ISSUE 12

42

62

56

OUTLOOK

Outlook and Perspectives

Jeff Broin says market access is the defining factor for the decade ahead.

Chuck Woodside comments on the industry outlook as the new RFA chairman.

Niels Henriksen calls for more collaboration to ensure cellulosic success.

Bill Day describes the outlook of the nation’s largest oil refiner and now third largest ethanol producer—Valero.

Craig Stuart-Paul shares the perspective of one new cellulosic technology developer.

Doug Haugh explains an oil industry view as Mansfield Oil expands its role in ethanol distribution.

INDUSTRY

Plants in Transition

Some idled plants restart under new ownership while others head to the auction block.

BY HOLLY JESSEN

BY HOLLY JESSEN AND KRIS BEVILL

MARKETS

Filling Up

How do we squeeze more ethanol into the gasoline pool?

BY KRIS BEVILL

4 | Ethanol Producer Magazine | DECEMBER 2010

CONTENTS

70 DECEMBER ISSUE 2010 VOL. 016 ISSUE 12

72

EQUIPMENT

EFFICIENCY

Actuator Key to Plant Optimization

Low-Hanging Fruit

Using the right electric actuator can pay big dividends in process control, reliability.

BY JAY TANNAN

A little more water and energy can be coaxed out of a plant with relatively inexpensive modifications in the cooling tower.

BY RANDY MCDANIEL

CONTRIBUTIONS DEPARTMENTS 4

Editor’s Note

New Decade, New Look

BY SUSANNE RETKA SCHILL

20 Europe Calling

Uniting Producers

BY ROB VIERHOUST

14 The Way I See It

22 Talking Stalk

15 Events Calendar

24 Business Matters

16 View From the Hill

26 Business Briefs

Bogus Logic in E15 Suits

BY MIKE BRYAN

Upcoming Conferences & Trade Shows One Curtain Falls, Another Prepares to Rise

BY BOB DINNEEN

18 Drive

The First Crack in the Wall

BY TOM BUIS

Corn Quality

BY CHARLES HURBURGH

BACT to the Drawing Board

BY ERIC TRIPLETT

28 Commodities Report 30 Distilled 74 Marketplace 77 Ad Index

Ethanol Producer Magazine: (USPS No. 023-974) December 2010, Vol. 16, Issue 12. Ethanol Producer Magazine is published monthly. Principal Office: 308 Second Ave. N., Suite 304, Grand Forks, ND 58203.

Periodicals Postage Paid at Grand Forks, North Dakota and additional mailing offices. POSTMASTER: Send address changes to Ethanol Producer Magazine/Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, North Dakota 58203.

6 | Ethanol Producer Magazine | DECEMBER 2010

Jeff Tussey GENERAL MANAGER CASTLE ROCK RENEWABLE FUELS WISCONSIN, USA

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JEFF TUSSEY, 2010

”

Novozymes’ solutions help your plant run smoothly and your mind rest easy. Our enzymes give you higher ethanol yields, faster throughput, and lower overall processing costs. Add to that our unmatched technical expertise and our unique training programs, and you won’t find a better partner. www.bioenergy.novozymes.com

Novozymes is the world leader in bioinnovation. Together with customers across a broad array of industries we create tomorrow’s industrial biosolutions, improving our customers’ business and the use of our planet’s resources.

EDITOR’S NOTE

With the first decade of the century coming to a close, our cover story this issue features several industry leaders sharing their outlook and perspectives.

NEW DECADE, NEW LOOK SUSANNE RETKA SCHILL, EDITOR SRETKASCHILL@BBIINTERNATIONAL.COM

Two of them are rooted in the oil industry, two in corn ethanol and two in cellulosic ethanol development—providing an interesting spectrum of views on the opportunities and concerns for the year ahead. Complementing the cover story, Associate Editor Kris Bevill takes a look at the ethanol market, reporting on areas for possible growth, expected infrastructure expansions and the wild card—the impact of E15. In her feature story, Associate Editor Holly Jessen follows up on ethanol plants in transition. It appears that the stabilization of the economy and the ethanol industry has prompted owners and creditors of several ethanol plants to proceed with reorganization and sales.

This issue also introduces a design update for Ethanol Producer Magazine. Most sections have a fresh look, and one is totally revamped. In an age of timely Web-based news and, given our team’s Ethanol Week newsletter, we decided to move away from a straight news approach in the Industry News section of the print magazine. Now titled “Distilled,” the section will do just that—distill the news of the past month, look for trends, find interesting twists in the news and provide news analysis where appropriate.

We’ve added a new feature at the bottom of this page, with photos and short bios of the authors appearing in each issue, where we’ll present a snippet of information about our editors, columnists or contributors each month.

What is not changing is our commitment to covering the ethanol industry in depth, providing accurate and timely updates on policy issues and markets, new technologies and other developments as the ethanol industry matures. At the turn of the century, there were just 54 ethanol plants in the U.S. with an average capacity of 31 MMgy. At the end of this decade, there are 210 plants on our plant list with an average capacity of 64 MMgy. We expect a handful of corn ethanol plants will be built in the years ahead, filling out niches and expanding alternative feedstocks such as beets or sugarcane. As the commercialization of cellulosic ethanol develops, we also expect to be covering many projects that seek to make the ethanol industry more efficient and sustainable in the decade ahead.

FOR THE LATEST ETHANOL INDUSTRY NEWS VISIT WWW.ETHANOLPRODUCER.COM

ASSOCIATE EDITORS KRIS BEVILL has been a writer and editor for BBI International for three years, specializing in policy and regulations. She currently serves as an associate editor for Ethanol Producer Magazine.

8 | Ethanol Producer Magazine | DECEMBER 2010

HOLLY JESSEN is an associate editor for Ethanol Producer Magazine. She has been a journalist for 10 years, including two working for BBI International.

Her previous experience includes writing for weekly and daily newspapers.

EDITORIAL EDITOR Susanne Retka Schill sretkaschill@bbiinternational.com ASSOCIATE EDITORS Holly Jessen hjessen@bbiinternational.com Kris Bevill kbevill@bbiinternational.com COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com

ART ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com GRAPHIC DESIGNER Sam Melquist smelquist@bbiinternational.com

PUBLISHING CHAIRMAN Mike Bryan mbryan@bbiinternational.com CEO Joe Bryan jbryan@bbiinternational.com VICE PRESIDENT Tom Bryan tbryan@bbiinternational.com

SALES VICE PRESIDENT, SALES & MARKETING Matthew Spoor mspoor@bbiinternational.com EXECUTIVE ACCOUNT MANAGER Howard Brockhouse hbrockhouse@bbiinternational.com SENIOR ACCOUNT MANAGER Jeremy Hanson jhanson@bbiinternational.com ACCOUNT MANAGERS Chip Shereck cshereck@bbiinternational.com Marty Steen msteen@bbiinternational.com Bob Brown bbrown@bbiinternational.com Gary Shields gshields@bbiinternational.com Andrea Anderson aanderson@bbiinternational.com Dave Austin daustin@bbiinternational.com CIRCULATION MANAGER Jessica Beaudry jbeaudry@bbiinternational.com SUBSCRIBER ACQUISITION MANAGER Jason Smith jsmith@bbiinternational.com ADVERTISING COORDINATOR Marla DeFoe mdefoe@bbiinternational.com

EDITORIAL BOARD Mike Jerke Jeremy Wilhelm Commonwealth Agri-Energy LLC Mick Henderson Corn Plus LLLP Keith Kor Golden Grain Energy LLC Walter Wendland Chippewa Valley Ethanol Co. LLLP Cilion Inc.

Neal Jakel Illinois River Energy LLC Bert Farrish Lifeline Foods LLC Eric Mosebey Lincolnland Agri-Energy LLC Steve Roe Little Sioux Corn Processors LP Bernie Punt Siouxland Energy & Livestock Co-op

Customer Service Please call 1-866-746-8385 or email us at service@bbiinternational.com. Subscriptions to Ethanol Producer Magazine are free of charge to everyone with the exception of a shipping and handling charge of $49.95 for any country outside the United States, Canada and Mexico. To subscribe, visit www.EthanolProducer.com or you can send your mailing address and payment (checks made out to BBI International) to: Ethanol Producer Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to (701) 746-5367. Back Issues, Reprints and Permissions Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at (701) 746-8385 or service@bbiinternational.com. Advertising Ethanol Producer Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Ethanol Producer Magazine advertising opportunities, please contact us at (701) 746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. Send to Ethanol Producer Magazine Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or e-mail to sretkashill@bbiinternational.com.

Please include your name, address and phone number. Letters may be edited for clarity and/or space.

Please recycle this magazine and remove inserts or samples before recycling COPYRIGHT Š 2010 by BBI International

DECEMBER 2010 | Ethanol Producer Magazine | 9

Not just a new technology, but a new ethanol industry.

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Better Grain Quality

THE WAY I SEE IT

Bogus Logic in E15 Suits

By Mike Bryan

In a thinly veiled attempt to further line their pockets, the meat and poultry industry, and the grocery and convenience store associations, are once again trying to stop the advance of ethanol use in America.

Action filed in federal court by these groups, requests that the court overturn the ruling by the U.S. EPA to allow E15 blends. This action only further solidifies the well-established fact that to them it’s all about profit, not the consumer.

This consumer scam perpetrated by the Grocery Manufacturers Association is yet another attempt to raise food prices, while deflecting the blame. America is looking at the third largest corn production season in history.

To suggest that there is a shortage and that consumers are going to suffer because of ethanol production is such a bogus argument that it defies logic.

The U.S. ethanol industry produces over 25 million metric ton of high quality, distillers grains each year. This is the same feed that cattle feeders, poultry producers and hog producers use when feeding corn—only the starch has been removed to make ethanol, the protein and other valuable nutrients remain.

Ethanol production in America has added more than half a million jobs, and generates over $70 billion towards our gross domestic product, while eliminating $20 billion in money exported for oil. The track record of the ethanol industry has been exemplary. It has set a

14 | Ethanol Producer Magazine | DECEMBER 2010

standard for growth, technological advances and improved efficiencies that those industries making these ridiculous accusations should try to achieve.

Somehow these folks have conveniently ignored the fact that higher food prices are directly related to the cost of packaging, transportation and processing, which is largely driven by the price of oil, not the production of ethanol. To single out the use of corn for ethanol production as a driving factor in the rise of food prices is not just misguided, it’s fraudulent. If these groups truly were concerned about the well-being of the American consumer, they would align with the ethanol industry to support greater domestic production, fewer imports, expanded exports and a cleaner environment.

Instead, these industry fat cats have chosen to focus on their own self-serving needs for greater profits, while finding an easy scapegoat in the American farmer.

That’s the way I see it.

Author: Mike Bryan Chairman, BBI International mbryan@bbiinternational.com

EVENTS CALENDAR

National Ethanol Conference February 20-22, 2011

JW Marriott Desert Ridge Phoenix, Arizona Focused on vital marketing, legislative and regulatory issues, the theme of the 2011 NEC is “Building Bridges to a More Sustainable Future.” Join this premier ethanol networking event hosted by the Renewable Fuels Association to discuss the future of an industry that will be the bridge from a petroleum-fueled economy to one that is anchored in renewable fuels, sustainably produced from grains and cellulosic biomass.

(800) 258-6094 www.nationalethanolconference.com

Seattle to Host Regional Biomass Show 1/10

Biorefining and industrial process heat and power are two of the tracks planned for BBI International’s Pacific West Biomass Conference & Trade Show, produced jointly by Biomass Power & Thermal and Biorefining magazines, Jan. 10-12 at the Sheraton Seattle Hotel.

The mainland Pacific West—from southern California to the Washington/Canadian border—has huge amounts of biomass resources. The region is home to dozens of biomass power plants, advanced biofuels startups, research hubs and vital industry players. The Pacific West program will tap into those experts to present panel discussions on a number of critical issues.

Case studies and research will be presented in a panel on the Utilization of Wood Waste Streams for Heat and Power, where speakers will share their realworld experiences using solid and chipped wood as well as low-grade residues.

In Converting Woody Biomass and Ag Waste into Biobased Fuels and Chemicals: Our Progress, some of the region’s most involved biorefining players will discuss the enhanced value biorefining can bring to biomass feedstock, how utilization of forest residues for biorefining applications can specifically improve woodland health and human safety, decrease reliance on foreign-sourced crude oil, and increase energy security.

The rapid accumulation of municipal solid waste continues to stress landfills, and costly and hazardous incineration, landfill and burying methods can no longer be ignored. In addition to recycling and collection strategies that have been optimized over time, MSW is being eyed as a biomass resource. The panel, Attacking a Growing Municipal Solid Waste Problem via Biorefining, will highlight the importance of turning this liability into a value-added feedstock by discussing conversion processes, such as gasification, to produce a suite of products that are needed for economic stimulation and environmental stewardship.

Ethanol industry attendees will also find value in two other tracks directed at biomass electricity generation and biomass project development, including discussions on emissions, financing and incentives, hedging and off-take opportunities for biomass developers.

International Biomass Conference & Expo May 2-5, 2011

America’s Center St. Louis, Missouri The International Biomass Conference & Expo is the biomass industry’s largest, fastestgrowing event. Plan to join more than 2,500 attendees, 120 speakers and 400-plus exhibitors for the premier international biomass event of the year.

(701) 746-8385 www.biomassconference.com

International Fuel Ethanol Workshop & Expo June 27-30, 2011

Indiana Convention Center Indianapolis, Indiana Entering its 27th year, the FEW is the largest, longest-running ethanol conference in the world. Focused on commercial production of grain and cellulosic ethanol, operational efficiencies, plant management, energy use and near-term research and development, the FEW will attract 2,500 attendees. With five tracks, 32 panels, 100 speakers, 400 exhibitors anticipated in 2011, the FEW remains the ethanol industry’s leading production-oriented, educational, networking and business development forum.

(701) 746-8385 www.fuelethanolworkshop.com

DECEMBER 2010 | Ethanol Producer Magazine | 15

VIEW FROM THE HILL

One Curtain Falls, Another Prepares to Rise

By Bob Dinneen

Elections are as much about theater as they are about the real policy behind the candidates and parties for much of official Washington. This year’s election surely didn’t disappoint.

In an election of historic proportions, Republicans have retaken control of the House which means Speaker Pelosi will be replaced by Speaker Boehner and all the committee chairs our industry has worked with over the past four years will be replaced.

In the Senate, Republicans closed the gap but were unable to take full control. Effectively, this means any legislation that passes the Senate will have to be bipartisan in nature and incremental in scope.

What, if anything, does this all mean for U.S. ethanol?

The answer is everything and nothing. RFA personnel, and more importantly its members, will need to introduce themselves to these new lawmakers and their staffs. We will have to arm them with the facts as ethanol opponents will be seeking to do.

Regardless of the shift in power, we all knew that a more fiscally hawkish

mood would dominate the incoming Congress.

Efforts to rein in spending and balance the budget are the buzz phrases of the election and will dominate the rhetoric and agenda of the 112th Congress.

Ultimately, support for domestic renewable fuels is not a partisan issue. The RFA and the ethanol industry have successfully worked with both parties for nearly three decades to put sound, effective and forward-looking policy into place that facilitates the growth of domestic renewable fuel production.

In 1990, for instance, the RFA and the industry worked with a Democratic Congress and a Republican administration to get key amendments to the Clean Air Act passed, creating real market opportunities for ethanol.

In 2005, the RFA and industry worked with an entirely Republican federal government to establish the first renewable fuel standard (RFS). In 2007, with Democrats in control of Congress and Republicans in control of the administration, we passed a five-fold expansion of the RFS containing specific market opportunities for next generation and advanced biofuels. And, on numerous occasions with differing political power structures, the RFA and the industry have successfully extended key tax policies related to ethanol production and use.

As a veteran observer of previous power shifts and the resulting policy opportunities they create, I remain optimistic that this new power structure may ultimately yield thoughtful and productive policy. In much the same manner President Clinton was able to triangulate after the 1994 elections, I believe President

16 | Ethanol Producer Magazine | DECEMBER 2010

Obama has the temperament and desire to get things accomplished. Likewise, incoming Speaker Boehner and Democrats in the Senate clearly see how the American electorate reacts to gridlock and overly partisan bickering. They, too, see the value in getting policies passed with real world, measureable benefits.

In the end, which party is in power is less important than that the individuals in Congress understand the importance of domestic renewable fuels. The RFA remains committed to achieving the key objectives its members have outlined. These include an extension of current tax policy, including the Volumetric Ethanol Excise Tax Credit, support for cellulosic ethanol and other advanced biofuels through a refundable investment tax credit, responsible reform of tax policy, and the expansion of ethanol fueling infrastructure. The RFA also remains committed to ensuring that already enacted legislation, such as the renewable energy loan guarantee program, is implemented in a manner that will help, and not hinder, the commercialization efforts of advanced biofuel companies.

Make no mistake, there is still some good theater to be seen as races for leadership within each party, including leadership of committees, play out. But when the curtain rises in January, the RFA will be ready to hit the ground running and ensure that smart policies continue to underpin the steady growth of all domestic renewable fuels.

Author: Bob Dinneen President and CEO of the Renewable Fuels Association (202) 289-3835

DRIVE

The First Crack in the Wall

By Tom Buis

Two months ago, the U.S. EPA made a historic announcement.

For the first time in more than 30 years, the amount of ethanol that can be blended into our fuel supply will rise from 10 to 15 percent for cars 2007 and newer.

The EPA’s decision came in response to Growth Energy’s Green Jobs Waiver, a petition we filed in March 2009 to raise the “blend wall”—the artificial limit on the ethanol market—and create new market opportunity for the industry. After exhaustive analysis by the U.S. DOE on the effects of E15 on vehicle emissions, durability and performance, the first round of tests for new models confirmed what we’ve said and numerous independent studies have shown—that the science supports E15.

The EPA’s initial decision to allow E15 in cars 2007 and newer is unquestionably a good step. It cracks that blend wall and allows us to immediately reduce our dependence on foreign oil, create jobs here in the U.S. and improve our environment. By moving to E15, we can open the fuels market where ethanol can displace foreign oil and take back some of the $300 billion we send overseas each year to import oil. Every dollar spent here on ethanol will create jobs in this country—jobs that cannot be outsourced. Economic studies say that more than 136,000 new jobs will be created and as much as 7 billion gallons of gasoline from imported oil will be displaced when the country moves to E15 for all vehicles.

The payoff from greater ethanol use goes further than our economy—though the economic impact alone is worth the effort to expand ethanol usage. It extends to our environment and, longer term, our national security. Clean burning ethanol produced 18 | Ethanol Producer Magazine | DECEMBER 2010

from corn can reduce greenhouse gas (GHG) emissions by 59 percent, compared to gas, and innovation in the ethanol industry will soon push that number even higher.

While there are those in the industry who view the EPA’s decision from the “glass-ishalf-empty” approach, we see this as real change. This is an evolutionary effort by Washington to realize the promise of ethanol to change America’s energy future for the better. And although we would have preferred immediate approval of E15 in all vehicles, we know this is just the first domino to fall.

The decision on 2007 and newer model years applies to 43 million vehicles; that is nearly 20 percent of the current U.S. duty fleet. A decision on cars 2001 to 2006—scheduled for this month—would add an additional 86 million cars, meaning that E15 could be allowed in all the cars manufactured in the past decade (equal to more than 54 percent of all the vehicles on the road today). And this number will only increase as older vehicles are replaced—at the rate of 10 to 15 million new cars each year.

There are many more steps we can take toward achieving our energy security and environmental goals, but every journey starts with a single step. We commend the EPA for setting us on the path toward energy independence and we urge it to quickly approve E15 for all vehicles, so that every American motorist has the opportunity to use a blend of fuel that is proven to be better for our economy, our security and our environment.

Have a safe holiday and a Happy New Year.

Author: Tom Buis CEO, Growth Energy (202)545-4000 tbuis@growthenergy.org

BUILDING BRIDGES TO A MORE SUSTAINABLE FUTURE FEBRUARY 20–22, 2011 JW MARRIOTT DESERT RIDGE RESORT & SPA | PHOENIX, ARIZONA

EUROPE CALLING

Uniting Producers

By Robert Vierhout

The eBIO brand is no longer.

For five years it served the European fuel alcohol industry well.

In those years, the industry has changed. Few players became many players and small players became big players. Fuel ethanol output quadrupled.

The European ethanol market underwent a structural change and so did the regulatory framework.

All these changes, and especially the regulatory, were instrumental in bringing about ePURE, the European Producers Union of Renewable Ethanol.

An expansion of eBIO, this new association will have a larger scope, representing traditional markets such as beverage and industrial use in addition to fuel ethanol.

EPURE is the result of a merger of two ethanol associations—eBIO and UEPA. The latter will not be familiar to most EPM readers, it was a much older organization set up in 1959 with a focus on traditional ethanol markets, though not exclusively. As ethanol production in Europe has always been and still is dominated by France, the main driver behind UEPA was the French industry.

In November 2008, the core members of both associations decided that the time was ripe to start talks on a merger. They understood that synergy was possible and necessary, but only through a united, single voice. Having several voices representing the interests of a single industry is not cost-effective, not efficient and often counterproductive. Different messages will be abused by the opponents and confuse the regulators.

EPURE’s structure is very similar to the Renewable Fuels Association. Ethanol producing companies form the core of the association represented by a board of directors. To make the organization lean and mean, however, an executive committee of 10 board members steers ePURE. There are also associate members representing companies with an interest in a strongly developing ethanol sector. Producing and associate members come together once a year in a general assembly. All members can contribute to the policy development of ePURE through several working groups that provide technical input to the board as it makes policy decisions. The organization has a support staff of six, most of them with a solid background in both EU affairs and the ethanol business.

The new association brings together 18 producing members operating in 13 EU member states and having an installed production capacity of close to 5.5 billion liters. This means that ePURE represents around 80 percent of total EU installed production capacity. Producers who are not (yet) members of ePURE are not organized. Some of them are operating in one of the remaining eight countries with production capacity. There are six EU member states that do not produce ethanol at all.

EPURE’s mission will be very similar to eBIO’s—defending the interests of European ethanol producers. Most of the work will go into

20 | Ethanol Producer Magazine | DECEMBER 2010

lobbying regulators, stakeholders, media and the general public to ensure the formation of policies and rules that promote the beneficial uses of ethanol in Europe. It means that the agenda of ePURE will not be much different from the one eBIO deployed. Most of ePURE’s work will revolve around issues related to biofuels, now supported by more producers and all the key players in Europe.

EPM’s readership will continue to receive insights on what is brewing in Europe in this column, now renamed “Europe Calling.” I will do my very best to keep you well informed. The only thing you need to get used to is the new logo.

For me, personally, to turn this merger into the same successful endeavour as was eBIO will be a big challenge. It took us some time in Europe to acknowledge the need for this merger but I am convinced this was the only way forward and it will be to the benefit of the ethanol industry. Speaking with one voice makes the sector powerful and heard. We need to pursue this in every country, region and at global scale.

We are not there yet. I hope we in Europe have for once set an example in the ethanol industry.

Author: Robert Vierhout Secretary-general, ePURE Vierhout@epure.org

TAKING STALK

Corn Quality

By Charles Hurburgh

Anyone who thought corn quality was automatically assured has had some learning experiences in the past 12 to 18 months. Let’s look at some of those and their meaning for future years.

Corn in 2009 was extremely wet and had low test weights (often 52 pounds per bushel and less) that did not increase significantly after drying. The situation was caused by a wet, cold growing season followed by a cloudy, humid fall, with just enough heat to put field molds in optimal growing conditions. This was the source of higher-than-normal damaged kernel levels out of the field, with progressively higher risk of vomitoxin, zearalenone and fumonisin from west to east in the Corn Belt. Mycotoxins do not go away in storage and will show up in carryover 2009 corn. Storage molds do not normally produce toxins to the extent that field molds do, but experience is limited in extreme high-damage cases. On the plus side, tests showed that higher moisture and lower test weight by themselves did not inherently reduce ethanol yield on a dry weight basis.

Low test weight corn does not store well; 2009 corn had about 50 percent of the normally expected shelf life. In the fall we had very aggressive storage molds that created distinctly bad corn, especially when put in bunkers. This summer, the same storability problem contributed to a rapid increase in less aggressive, but still problematic blue-eye mold (germ damage).

With much of the Corn Belt getting 150 to 200 percent of normal rainfall in summer 2010, even low moisture corn was at risk, and the air conditions were such that air movement through grain did little good. Blue-eye does not create heating, just spoiled grain.

In 2010, conditions were better, but not as good as originally hoped. Excessive rainfall and warm nights reduced corn yields. Quality is good but not excellent; expect 54 to 56 pound test weights, but little field damage. The warm, dry fall nearly eliminated artificial drying with most corn coming out of the field less than 17 percent moisture, and some below 14 percent.

No drying means fewer broken kernels and improved storage life. The 2009 carryover corn, however, will be blended over time to the extent that standards, as enforced by plant grading practices, will allow. Even if you grade accurately and consistently, expect damage at, or near, contract specs. There will be risk in not grading inbound corn well. Damage (mold) has potential to create fermentation problems that need increasingly controversial rescue antibiotic treatments.

Important corn quality factors, and their effects include: Composition: Ethanol yield can be estimated fairly accurately (0.04 gallons per bushel) by calculation from protein, oil and density measured with a near infrared analyzer. Protein and oil also affect distillers grains quality.

Damage: Mold interferes with fermenta-

22 | Ethanol Producer Magazine | DECEMBER 2010

tion; although published quantitative data is scarce. A good inbound grading program would allow individual plants to make measurements.

Fermentation problems cause distillers grains variability as well as lost ethanol.

Mycotoxins: Mycotoxins go directly into distillers grains with a multiplier of three, becoming a feed safety issue.

Do not assume inbound corn will on average have adequate quality. Individual fermenter batches will not always receive “average� corn, it may be the last 10-20 trucks run straight down through the bin. In a future article I will discuss some specific operational and data management strategies to improve grain grading without restricting receiving. As a starting point, focus on the factors that matter, use periodic composites (say a combination of 25 trucks) to establish a moving average; carefully grade those individual lots that look to be at or above specification, and, for mycotoxins, examine the individual sellers that contribute to a high composite. Many corn processors have found that professional third party inspection is cost effective.

High yields and smooth fermentations begin with quality raw materials; accurate grading with effective data management are preventive operations that can buffer the impact of increasingly variable corn quality. Climate experts predict continued weather extremes.

Author: Charles R. Hurburgh, Jr. Professor in Charge, Iowa Grain Quality Initiative Iowa State University (515) 294-8629 tatry@iastate.edu

BUSINESS MATTERS

BACT to the Drawing Board

By Eric Triplett

Now that the U.S. EPA has finalized its Greenhouse Gas Tailoring Rule, attention has shifted to implementation and what will constitute best achievable control technology (BACT) for sources subject to the Prevention of Significant Deterioration Program. On Jan. 2, the greenhouse gas (GHG) PSD program applies to “anyway” sources (sources already subject to demonstrating BACT). Significant questions remain regarding how a BACT analysis and emission measures will look. This process is certain to be difficult and will likely result in litigation and potentially delayed construction of new or modified sources.

Unlike the analysis/determination process for many regulated pollutants, it will not be possible to streamline a BACT analysis by referring to the RACT/BACT/LAER Clearinghouse—no BACT guidance yet exists for GHGs, and there are no widely available GHG controls. The lack of precedent has resulted in a wide range of views regarding what may constitute BACT for GHGs, which is a recipe for litigation.

Recent rulings in lawsuits by environmental groups seeking BACT for GHGs at power plants indicate EPA may require BACT analyses to consider fuel switching, integrated gasification combined cycle, and/or carbon capture and sequestration (CCS). Despite

24 | Ethanol Producer Magazine | DECEMBER 2010

these rulings, EPA recently denied that fuel switching or facility redesign would likely be required to meet BACT, but signaled it could include demand reduction and energy efficiency measures. Other possibilities include co-generation with waste heat, carbon offsets, coal drying and high-efficiency boilers. Energy efficiency is most likely given its lower cost relative to control technologies and BACT’s legal parameters.

The Climate Change Work Group’s interim Phase I report done in February highlights the difficulties in establishing BACT for GHG sources and the legal challenges that may arise. For example, the work group could not agree on whether: BACT analyses may consider units/ processes beyond those undergoing a modification; Production process changes would be permissible considerations; Commercial guarantees are sufficient evidence of technical feasibility; A more stringent emissions limit could be included in a permit under the assumption that a control technology would be available in the future; A source could be required to relocate to an area more favorable to CCS; How widespread CCS must be before it is “demonstrated” or “available;” and What cost-effectiveness threshold, if any, should be used (proposals ranged from $3 to $150 per ton CO2 equivalent).

One possible solution to the question of what constitutes best practices in a world without mature GHG control technologies is the use of the PSD program’s (ICT) waiver.

Although rarely used, this provision provides a source that implements an innovative control technology (technology that may achieve

greater emissions reductions than a demonstrated technology or similar reductions at lower cost or impact) with a longer time period to meet BACT emissions limits than would be applied to a demonstrated technology. As noted by the work group, it may also be possible to use the existing BACT process to issue permits with a range of permissible emission limits while a technology is optimized.

In its August Phase II report, the work group recommended that EPA encourage innovative control technologies through expanded use of the ICT waiver.

No one knows how sources will perform a satisfactory BACT analysis; how permitting authorities will make BACT determinations; the usefulness of EPA’s BACT guidance released Nov. 10; or the possible spectrum of GHG BACT that will result from early determinations. Given the numerous, subjective factors that go into a BACT analysis/determination, and the variation in political opinion and expertise within permitting authorities across the country, initial determinations are likely to encompass varied controls/measures, from energy efficiency to CCS. It is also fair to conclude that the initial sources have their work cut out for them and that litigation will result from some of the initial determinations. Perhaps these difficulties will convince Congress to take action, either by terminating the tailoring rule or passing a comprehensive national GHG program.

Author: Eric Triplett Attorney, Faegre & Benson (303) 607-3612 etriplett@faegre.com

Isobutanol builds on the success of the ethanol industry. It opens exciting new markets for the fermentation alcohol business in synthetic rubber, plastics — even jet fuel. Isobutanol is a platform chemical that can be sold neat or converted to a renewable, “drop in� hydrocarbon for dozens of applications.

Now, your production can follow the best opportunities.

With the Gevo/ICM, Inc. turnkey retrofit package, you can continue to produce ethanol during the conversion. And after the retrofit is complete, you can switch back and forth between butanol and ethanol after each batch run.

What is the future of biorefining? Visit gevo.com to find out.

‹ *HYR ,QF

BUSINESS BRIEFS People, Partnerships & Deals

his 25-year career with Shell Oil he worked primarily in supply, trading and distribution, including five years with its Motiva Enterprises LLC joint venture. Most recently, he held executive level positions with two biofuels companies.

Pursuit Dynamics PLC has appointed Richard Webster to replace Donald Bell who is retiring as finance director at the end of the year. Webster has held a number of senior finance positions in UK firms as well as serving as non-executive director at the UK Ministry of Defense from 2007 to 2009. Based in the UK with offices in Connecticut, Pursuit Dynamics offers energy efficiency solutions to the biofuels, brewing and other industries.

Building Markets John Gray will be applying his experience in distribution to help CHS grow its ethanol reach.

Dallas-based Weaver LLP has re-focused its leadership on specific industries.

Assurance partner Wade Watson is assuming responsibility for renewable and energy compliance. He plans to grow the practice through existing services, focusing on new regulations such as the U.S. EPA’s mandatory greenhouse gas reporting rule. John Mackel Assuring Compliance will oversee all of the Wade Watson leads the renewable and industry practices. Preenergy compliance viously he led Weaver’s practice at Weaver. energy services practice. Other partners in the accounting firm will focus on financial services; manufacturing, distribution and retail; oil and gas; the public sector; real estate and construction; and technology.

Maple Leaf Reforestation Inc. has signed an exclusive agreement to sell rights for unnamed patented ethanol production technologies in China. It has exclusive marketing rights for the cellulosic ethanol process as well as certain rights to a patented process for creating enzymes. China plans to blend 10 million tons of ethanol (3.3 billion gallons) into gasoline by 2020, according to Maple Leaf, but its current annual production rate is about 1.35 million tons, mostly using corn and wheat. China, the world’s third largest ethanol producer, expects to increase its non-fossil fuel component to 15 percent of energy demand by 2020, compared to 8 percent last year. Maple Leaf, a publicly traded Canadian company, hopes to pursue biofuel ventures in China, along with tree plantings and other environmental projects.

CHS Renewable Fuels Marketing has hired John Gray as market access manager to develop downstream logistics and infrastructure enabling CHS Inc. to penetrate markets and establish more efficient and effective market channels for renewable fuels.

Gray has nearly 30 years of distribution and logistics development/management experience with biofuels and refined fuels. During

Perdue BioEnergy, a wholly owned subsidiary of Perdue AgriBusiness Inc. will both supply feedstock and sell coproducts for Bionol Clearfield LLC’s 110 MMgy ethanol plant in Clearfield, Pa. Perdue BioEnergy will supply approximately 40 million bushels of corn, purchasing as much corn locally as possible. In addition, Perdue will market and sell the 385,000 tons of the

26 | Ethanol Producer Magazine | DECEMBER 2010

distillers grains to area feed mills serving Pennsylvania dairy, turkey and chicken operations as well as to international markets.

The Andersons Marathon Ethanol LLC, Greenville, Ohio, has agreed to supply CO2 to Continental Carbonic Products Inc. which plans to co-locate a 50,000-squarefoot dry ice manufacturing facility at Greenville. The 110 MMgy plant is a partnership between The Andersons Inc. and Marathon Petroleum Company LP. The Greenville plant will be one of CCPI’s largest among seven, producing 340 tons of CO2 products each day. The Andersons has a similar agreement with CCPI at its ethanol plant in Albion, Mich.

Algenol Biofuels Inc. celebrated the grand opening Oct. 19 of its 43,000-squarefoot research and development center built with the help of a $10 million grant from the Lee County (Florida) board of commissioners. The new facility houses Algenol’s advanced biology and engineering laboratories including 40 acres of land containing photobioreactors—containers used for its trademarked Direct to Ethanol process, which generates ethanol from algae, saltwater and carbon dioxide. A year ago, Algenol received a $25 million U.S. DOE grant to develop a pilot-scale, algae-based ethanol biorefinery in Freeport, Texas, in collaboration with Dow Chemical Co.

Sponsored by

Glycos Biotechnologies Inc. has developed a microbial technology platform that can convert fatty acids into ethanol, advanced biofuels and biochemicals. Paul Campbell, chief science officer, explained the company uses both E. coli and other microbes to achieve high conversion rates.“We’ve demonstrated one-to-one conversion, which would be the equivalent of taking one pound of fatty acid and making one pound of ethanol.” GlycosBio intends to scale the process up to pilot scale within the next few months at its facility in Houston.

Verenium Corp. has launched a new glucoamylase enzyme for the saccharification of liquefied starch from multiple substrates including corn, milo, barley, wheat and cassava. “Customers using both Verenium’s Fuelzyme(R) alpha-amylase and Deltazym (R) GA L-E5 have reported increased ethanol yields due to demonstrated synergies between the two enzyme products providing fuel ethanol processing plants with superior cost-performance benefits,” according to President and CEO Janet Roemer.

Newly re-opened Denco II has signed on with Mansfield Oil Co.’s C&N Companies for ethanol marketing. Energetix LLC has partnered with the local investment group that purchased the Morris, Minn., plant to oversee the business and facility operations at the 24 MMgy plant. Mick Miller, Energetix president and former Denco manager, will serve as the general manager for Denco II.

O.I. Analytical, College Station, Texas, has completed a brochure on instruments and chemical analyses used in studying and optimizing reactions in producing cellulosic ethanol, which includes a table summarizing the test methods and instruments for each step from pretreatment and hydrolysis through fermentation and final fuel blending.

Trillium FiberFuels Inc. is working with an unidentified out-of-state pulp and paper mill in an attempt to crack the xylose utilization question. The pulp and paper mill is providing hemicellulose, to the Corvallis, Ore., Trillium lab where researchers plan to ramp up tests to 200 liter batches before year’s end and 4,000 liters early next year. “What we’re trying to do is use conventional yeast that is still tough and basically change the food so they can use it,” says Chris Beatty, president and one of four founding members of the company. Starting with an industrial enzyme used to make high fructose corn syrup, the company is working on perfecting its simultaneous isomerization. The patent-pending process converts sugar to a useable food for yeast and ferments at the same time. Trillium is halfway through a U.S. DOE grant period.

Brazil petrochemical company Braskem A.S. inaugurated a commercialscale plant in September to produce ethylene from ethanol at its Triunfo complex in the southern state of Rio Grande. The polymerization process converting ethylene

into resin is completed at an existing plant in the Triunfo complex. The new plant will consume around 462 million liters (120 million gallons) of ethanol per year. The company is the largest industrial consumer of ethanol in Brazil, absorbing around 700 million liters per year for the production of green polyethylene and the fuel additive ETBE. Braskem contracts with Brazilian ethanol producers will include a code of conduct establishing sustainability criteria.

Motiva Enterprises LLC, a refining, distribution and retail joint venture between Shell Oil Co. and Saudi Refining Inc., has expanded its Doraville, Ga., terminal to allow for delivery of Norfolk Southern Corp. unit trains transporting Midwest ethanol.

Motiva said the expansion will enable an 80car unit train to be off-loaded and returned to the supplier intact and will better serve ethanol producers supplying the Southeast market. “This is a major step in making the Motiva Doraville terminal the low-cost solution for ethanol distribution in the Atlanta metropolitan area,” said John Kraemer, Norfolk Southern group vice president.

Motiva currently operates ethanol hubs at terminals in New Jersey, Rhode Island, Louisiana and Florida and is considering adding rail capabilities to its ethanol hubs under development at Port Everglades, Fla., and Charlotte, N.C. SHARE YOUR INDUSTRY BRIEFS To be included in Business Briefs, send information (including photos and logos if available) to: Business Briefs, Ethanol Producer Magazine, 308 Second Ave. N., Suite 304, Grand Forks ND 58203.

You may also fax information to (701) 746-8385, or e-mail it to sretkaschill@bbiinternational.com. Please include your name and telephone number in all correspondence.

DECEMBER 2010 | Ethanol Producer Magazine | 27

COMMODITIES People, Partnerships & Deals

Natural Gas Report

Bears dominate as gas supply forecast to grow The bearishness in the market assumes constrained demand in 2011, which is likely to decrease if weather normalizes, mismatched with supply growth. Supply forecasts are based on pipeline models and the Energy Information Administration survey process. The most recent EIA survey for July showed a very modest month-over-month increase (+0.3 percent) after a significant decrease in June (-1.4 percent). This should have paused the bearishness, but the data is widely viewed as suspect. While in absolute terms the EIA estimate falls between the major providers of pipeline flow estimates for July, the growth rate in the pipeline models suggests much greater supply going forward.

Over the past six months, the annualized growth rates were almost double the expectations set by the EIA.

Supply will dictate price direction in the near and medium term. There are four main supply factors to monitor in forecasting a turning point in production: A) The gasdirected rig count remains inflated, averaging 977 over the past three months. Most analysts project a rig count between 750 and 800 to correct the oversupply, although producer efficiencies may still allow production to grow. For the third straight month, the EIA lowered its 2011 price forecast (-4 percent to $4.58) due to the lingering rig count and a less negative year-over-year supply picture. B) Producers still hold significant inventories of hold-by-production leases. Producer conference calls provide insight into lease inventory levels, expiration dates, and whether producers intend to drill or relinquish their rights.

C) Several infrastructure projects will come

BY BRAD SMITH

into service between now and the end of the first quarter, many geared toward releasing bottlenecks in the major shale basins, effectively releasing pent-up gas. The pace and volumes of well completions will become a factor in supply growth. D) The fourth factor suggesting continued production is the seemingly endless stream of joint ventures in which capital is invested to develop a producer’s holdings for a percentage return of the revenue over a specified period. The joint ventures typically guarantee continued production as gas sales represent the only revenue stream. Joint ventures, mergers and acquisitions of shale assets have totaled roughly $25 billion during the first half of 2010, and as yet, show no signs of abating.

Corn Report

Retreat in yield projections stuns market The USDA put a wow factor in the market the day the Oct.10 supply and demand report was released reducing national yield by 8.9 bushels per acre—well below traders’ expectations—dropping production 496 million bushels from the previous projection. The demand table was slightly altered as feed demand and export figures declined, due to price rationing. Remember that corn ending stocks were increased at the end of September, which offered some cushion to the punch the USDA delivered Oct. 8.

Nonetheless, the December corn contract was 25+ cents higher the day the report was released and traded to a contract high of $5.88 just days later.

The market will remain volatile going into the winter, with the international market adding to domestic trends. Any

BY JASON SAGEBIEL

perceived producUS Corn Yield (bushel/acre) tion issues during the 170 -8.9 Brazil or Argentina 160 growing seasons will 150 be a catalyst for a bull140 ish tone in Chicago.

130 Domestically, many 120 producers oversold their corn crop, have 110 plenty of cash and 100 may be more willing 90 to hold onto bushels 80 until after the new 70 year. What does this 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 mean for an ethanol plant or any end user? and spreads will need to do the work to Basis will be the next piece of the puzzle get corn to move. Despite the corn marthat will begin to encourage grain flow. ket rallying, ethanol prices responded as The cash market will be short this year, production margins increase. especially in the ECB, and basis, flat price

28 | Ethanol Producer Magazine | DECEMBER 2010

REPORT

Regional Ethanol Prices ($/gallon on Nov. 1) Front Month Futures (AC) $2.339

RACK

REGION

SPOT

West Coast

2.550

2.450

Midwest

2.440

2.450

East Coast

2.570

2.690 SOURCE: DTN

DDGS Report

Winter wet demand rises BY SEAN BRODERICK In early November, distillers grains were trending with corn futures, with the general feeling that prices needed to rally as winter approached. Nearby prices ranged between 70 to 80 percent of corn, and were expected to move to a seasonal 80 to 90 percent of corn values. Traditionally, we see increased feed demand around or just after Thanksgiving, and traders are expecting this year to be no exception. China has continued its record-breaking import pace, with the majority containerized. Some bulk is expected to trade later in the winter, but grains have been getting the lion’s share of available bulk elevation in the Gulf and the PNW. With both the Chinese and European crops being poor, the torrid pace of exports will continue.

Domestically, many beef feeders started using wet distillers grains much later than normal, as weather and pastures were good. Now that wet demand is starting, it would be expected that a lot of product previously being dried is now going wet, which will lessen the supply of dry distillers. Also, we have had no real issues with vomitoxin this year, which is a welcome change from last year and which has been bringing the hog market back to full inclusion in its rations.

Futures will have the greater effect on DDGS, but given the increasing importance of exports, logistics will also play a very important part.

Regional Gasoline Prices ($/gallon on Nov. 1) Front Month Futures (RBOB) $2.1045

REGION

SPOT

West Coast

2.077

2.372

Midwest

2.077

2.131

East Coast

2.119

2.249

RACK

SOURCE: DTN

DDGS Prices ($/ton) LOCATION

DEC. 2010

NOV. 2010

DEC. 2009

Minnesota

145

115

105

Chicago

165

140

133

Buffalo, N.Y.

162

135

135

Central Calif.

198

171

171

Central Florida

180

159

152 SOURCE: CHS Inc.

Corn Futures Prices DATE

(Dec. corn, $/bushel)

HIGH

LOW

CLOSE

Nov. 2, 2010

5.83

5.72 1/4

5.75 3/4

Oct. 1, 2010

4.94 3/4

4.65 3/4

4.65 3/4

Nov. 2, 2009

3.83 1/2

3.66 3/4

3.82 1/4 SOURCE: FCStone

Ethanol Report

Ethanol prices surge on higher corn futures BY RICK KMENT The scope of both the ethanol and grain markets changed significantly in October, with corn futures soaring 86 cents higher on the December futures market through October. This has sparked intense buying activity in ethanol markets, pushing prices 20 to 40 cents higher through the month in all markets. Ethanol producers are struggling to keep margins in positive territory, but buyers are aggressively looking for product and seem to be willing to pass the higher production cost on through the system. The strong rally in corn prices has placed a significant premium in the ethanol market once again while RBOB gaso-

line prices have remained stable over the past several days and weeks.

Even though ethanol prices have seemed to move through the roof due to the skyrocketing cost of production associated with corn price gains, energy markets have remained stable over the past month with both the gasoline and crude oil market stuck in a narrow trading range. This lack of fundamental speculative buying support in the market has created stability in the market not seen in several months. This continues to keep energy markets nearly flat lined at the end of the month of October in spite of the sharp gains in the ethanol market price.

Cash Sorghum Prices ($/bushel) OCT. 28, 2010 OCT. 1, 2010 OCT. 22, 2009 Superior, Neb. Beatrice, Neb. Sublette, Kan. Salina, Kan. Triangle, Texas Gulf, Texas

5.39 5.14 5.04 5.27 5.29 5.44

4.06 4.06 3.91 4.10 4.18 4.31

3.49 3.44 3.24 3.56 3.46 4.36 SOURCE: Sorghum Synergies

Natural Gas Prices

($/MMBtu)

OCT. 1, 2010 SEPT. 1, 2010 OCT. 1, 2009 NYMEX

3.84

3.65

3.73

N. Ventura

3.84

3.58

3.85

Calif. Border

3.80

3.49

3.72

SOURCE: U.S. Energy Services Inc.

U.S. Ethanol Production Output

(1,000 barrels)

Per day

Month

End stocks

Aug. 2010

870

26,963

17,340

July 2010

857

26,581

17,784

Aug. 2009

746

23,136

14,671

SOURCE: U.S. Energy Information Administration

DECEMBER 2010 | Ethanol Producer Magazine | 29

DISTILLED

Ethanol News & Trends

‘Action Now’

Is administration support enough to spur Congress to extend ethanol incentives?

Administration officials have recently voiced support for ethanol, but it remains to be seen whether that support will translate into ethanol-friendly Congressional action Ethanol Booster Secretary of Agriculture during the lame duck Tom Vilsack’s support session. is unequivocal, Most outspoken including a plan for 10,000 blender pumps. has been Secretary of Agriculture Tom Vilsack, who unveiled a USDA plan in October to cost share on the installation of 10,000 blender pumps in the next five years.

He supports an extension of the Volumetric Ethanol Excise Tax Credit and the ethanol import tariff. The revised renewable fuels standard (RFS2) will account for 1 million new jobs, he says. “I believe the state of the

rural economy and President Obama’s vision for rural America compels us to action now,� he explains. “I believe the goals articulated within the RFS2 mandate action now. And I believe the need for energy security, a cleaner environment and better economic opportunity in rural America make the case for action now.� Vilsack has urged the U.S. EPA to expand its E15 approval to include vehicle models 2001 and newer and says he expects that approval by the end of this year.

In a recent speech to members of the Renewable Fuels Association, Heather Zichal, deputy assistant to the president for energy and climate change policy, also emphasized the White House’s positive view of ethanol. “This administration is working to provide continued support for first-generation corn ethanol, which we believe is a critically important renewable fuel source,� she said. “At the same time, we’re

also looking forward and are working to accelerate the creation and rapid deployment of advanced biofuels, which we think will ultimately become one of the nation’s most important industries in the years to come.�

Zichal told RFA members the administration believes VEETC works, but it is seeking ways to reform it. “I always like to remind people that before President Obama was president, he came from Illinois,� she said. “So he’s no stranger to biofuels.�

Ethanol opponents have waged an aggressive campaign to sway Congressional members away from further ethanol support, citing reports that show a 12-month VEETC extension would cost $6 billion and claiming that increased ethanol usage in older vehicles will result in greater, rather than less, pollution. —Kris Bevill

Ethanol, Corn, Crude Price relationships, profitability

The corn market’s up, but how much that matters depends on other markets. The relationship between ethanol prices, corn prices and crude oil has evolved and shifted over time. In 2008, ethanol and corn were following crude oil. In 2009, that relationship weakened. This past year, ethanol and corn prices have dipped and risen together while crude oil has stayed relatively flat. The purple line on the bottom of the chart shows how these relationships play out in the profitability of a hypothetical ethanol plant modeled by the Ag Marketing Resource Center at ON THE WEB Iowa State University.

Prices, profitability and This chart is built from sever- supply/demand: www.agmrc.org/ al others updated regularly by the renewable_energy Ag Marketing Resource Center.

The converion factor used for Com/bushel to Corn/gallon is 2.8. —Susanne Retka Schill 30 | Ethanol Producer Magazine | DECEMBER 2010

Ethanol prices: Ethanol daily price, FOB the plant, converted into monthly average as reported by USDA Ag Market News in the Iowa Ethanol Plant Report.

Corn prices: Spot bid daily corn price converted to a monthly average at select ethanol plants in northern Iowa as reported by in the Iowa Ethanol Plant Report.

Imported Crude: Refiner average imported crude oil acquisition cost as reported

by U.S. Energy Information Administration in the Petroleum Marketing Monthly.

Ethanol net return over all costs: based on an economic model of a 100 MMgy ethanol plant using efficiencies typical of northern Iowa ethanol plants.

DISTILLED

For Now, E15 Still Illegal

RFA, Growth Energy work through multiple implementation steps With E15 approved for 2007 vehicles and newer, what’s next? Plenty, say the Renewable Fuels Association and Growth Energy.

It’s actually illegal to sell E15 for use in anything other than a flex-fuel vehicle (FFV), even though the U.S. EPA approved a partial waiver for E15 on Oct. 31. “There’s a lot of other steps that have to be taken before you’ll see E15 in commerce for 2007 and newer vehicles,” says Growth Energy CEO Tom Buis.

RFA President and CEO Bob Dinneen calls it a “complicated process and one that will not happen overnight.” The list of required steps is long, although Dinneen adds that work began months ago.

Growth Energy and RFA are working together to complete health effects testing and the fuel registration process required for any new fuel. The testing, which compares E10 to E15, was expected to be submitted to EPA by mid-November, Buis says. The testing will look at emissions and determine if any new chemicals are created as a result of increased ethanol content. Early testing has confirmed that won’t be the case, Dinneen adds.

RFA’s Ethanol Emergency Response Coalition is researching current firefighting tools and whether any techniques are needed to address E15. RFA will also work with local fire marshals, helping to ensure that existing fuel infrastructure can be used with E15.

The Federal Trade Commission and nearly all state laws require a fuel’s octane rating be certified—another step for E15 implementation. For comparison, E100 has an octane rating of 109 or more while a standard gallon of unleaded gasoline has an octane rate of 87. RFA is working with ASTM to develop the needed data to complete this, Dinneen says.

Overkill? EPA’s proposed E15 label is raising concerns about its color and tone.

Other technical issues include testing fuel dispenser equipment for E15 and changing various state laws and regulations.

The EPA’s proposed E15 label is also a concern. It’s critical, Dinneen says, that the label is clear, factual and non-threatening.

“The label is meant to instruct consumers on how to the use the fuel, not frighten them away from doing so,” he says.

There’s been a lot of chatter about misfueling and liability concerns, Buis says.

Growth Energy has been told multiple times by the EPA, that if the fuel pump is labeled, the retailer will not be liable. “I think people need to hold their horses and wait a little while until we get all the clarifications before going out there and saying the sky is falling,” he says.

At the same time that the industry works to get E15 to the marketplace, it is continuing to wait for the EPA to approve a waiver for additional model years for the fuel. If E15 is approved for model years 2001-’06 the increased blend could reach another 90 million vehicles. “Collectively that gets you about 55-56 percent of the U.S. fleet,” Buis says.

But he’d like to see the EPA go even further.

Growth Energy requested the waiver for all vehicles with no model year limits. EPA used U.S. DOE testing as the basis of its waiver

decision, however, and that organization has only tested model year 2001 and newer.

The EPA should start testing legacy vehicles immediately and amend the waiver later, Buis says.

The EPA is simply ignoring credible scientific data that demonstrates that E15 is safe for all light duty cars and trucks, Dinneen says. For example, a Ricardo Inc. study submitted to EPA shows that using E15 in model years 2000 and older would have no adverse affects. “It is previously unheard of for EPA to deny a waiver request for vehicles that are beyond their EPA-determined useful life, as all model year 2000 and older vehicles will be on Jan. 1,” Dinneen adds.

—Holly Jessen

Racing On E15 NASCAR chooses ethanol

While the debate rages on about E15’s compatibility with U.S. passenger cars and small engines, the National Association for Stock Car Auto Racing has made its choice. An estimated 70,000 gallons of homegrown corn ethanol will be used at three national touring series races next year. NASCAR investigated many fuels, including sugar cane ethanol and cellulosic ethanol, before settling on domestic corn ethanol because it is available immediately. NASCAR team engine builders have been testing the fuel for months, with many reporting ramped up horsepower thanks to E15.

DECEMBER 2010 | Ethanol Producer Magazine | 31

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Blender Pump Boom

Backing Brazil’s Bagasse

Two transportation fuel booms are happening simultaneously in North Dakota on opposite ends of the fuel spectrum. The western half of the state is in the midst of massive oil production growth, making the state one of the top five oil-producing states in the country.

Meanwhile, the state Filling Up A customer fills his flex-fuel vehicle with E30 at a Fargo, N.D., gas station. has also more than doubled its usage of blender pump initiative partners our westrenewable fuels in the ern oil fields with our eastern corn fields past year. According to the North Dakota and gives our citizens’ savings at the fuel Corn Council, the state consumed just pump through competition,” he says. “We over 167,000 gallons of renewable fuels in believe the blender pump initiative, along the first eight months of 2009. Between with investments in all our energy sectors, January and August this year, that number will provide our nation with a blueprint skyrocketed to more than 351,000 gallons. for energy independence.”

Most of the credit for increasing reEven with incentives, retailers newable fuels use is being given to greater wouldn’t install pumps to dispense ethanol availability of ethanol-blends through the blends if they didn’t believe the fuel would installation of blender pumps. The North sell, as evidenced by their response to Dakota Department of Commerce says E15. Therefore some of the credit for the 76 new blender pumps have been installed success of blender pumps in North Dakoin the past year through its $2 million biota should be given to consumers. Andrea fuels blender pump program, initiated last Holl Pfennig, the commerce department’s October. The 12-month program offers blender pump program administrator, retailers $5,000 in addition to tax incensays North Dakota citizens may be more tives for each blender pump installed. willing to accept ethanol because many of Applications for reimbursement are being them are aware of its benefits to the state’s accepted until May 1, 2011. As of Oct. 27, corn growers. “But we designed this prothere were 172 pending applications. If all gram to be a win for everyone,” she says. applications are approved, North Dakota “The ethanol producers, the corn growers could have more blender pumps per capita and the retailers.” than any other state.

Kent Satrang, CEO of Petro Serve In addition to the state’s incentive, USA, says he expects sales of ethanol to the North Dakota Corn Council has been dramatically increase at his retail stations offering a $2,500 per-pump matching as a result of blender pumps. “What we’ve grant. When combined, these incentives accomplished in the past year was to build cut the retailers’ installation costs in half. a pipeline right from the corn field to the Tom Lilja, executive director of the North flex-fuel vehicles of North Dakota,” he Dakota Corn Council, says the blender says. “The sales of ethanol next year in pump incentive program could serve as North Dakota are going to skyrocket.” a model for other states to follow. “The —Kris Bevill 32 | Ethanol Producer Magazine | DECEMBER 2010

PHOTO: KRIS BEVILL, BBI INTERNATIONAL

North Dakota’s tremendous growth sets an example

Potential profits are bringing in investments from around the world.

The sheer amount of sugarcane bagasse available in Brazil could be enough of an incentive to inspire global collaboration within Brazil’s ethanol sector.

Petrobras, the country’s largest energy corporation, is at the center of collaborative efforts, signing deals recently with Wyoming’s KL Energy Corp. and global enzyme manufacturer Novozymes A/S. Through the partnership with Petrobras, Novozymes will continue its ongoing efforts to develop enzymes capable of breaking down the tough lignin in bagasse. Meanwhile, KL Energy will focus on commercializing bagasse-to-ethanol production technology at its demonstration facility in Upton, Wyo. Petrobras will integrate KLE’s technology at one of its sugarcane mills before commercializing it at other locations.

Petrobras is just one of several firms competing to become the first to commercialize this technology. Royal Dutch Shell plc is backing Codexis’ efforts to develop a method to convert sugarcane bagasse to ethanol, along with Iogen Energy Corp., and recently signed agreements with Cosan S.A. to jointly commercialize bagasse-to-ethanol.

The potential economic benefit for those who can successfully commercialize bagasse-to-ethanol is enormous. According to several estimates, ethanol from bagasse could increase Brazil’s ethanol production by up to 40 percent. The country currently harvests about 600 million tons of sugarcane per year, according to Petrobras, and produces about 7 billion gallons of ethanol. —Kris Bevill

Advanced Demand

Rising demand for low-carbon, advanced biofuels to ramp up sugarcane-based ethanol demand The world faces a looming shortage in biofuels supply beginning in 2015, according to a recent study published by Hart Energy Consulting. Worldwide demand for biofuels is expected to increase by more than 100 percent over current demand levels by 2020 in response to increased regulatory requirements. As a result, global ethanol supply may be short by 5 billion gallons in 2020, a stark contrast to the oversupply situation experienced by U.S. producers in recent years.

“We view this as good news for the industry,” says Tammy Klein, global study leader and assistant vice president of Hart Energy Consulting. “We are projecting increasing demand for the product in the market and high utilization rates. However, we don’t expect a rush of new facilities or additional build-out in the industry. Rather, we think it’s more likely the producers will debottleneck, possibly expand facilities and run over nameplate capacity. We expect facilities will improve efficiency and this is meaningful for future potential low carbon fuel standard (LCFS) and renewable fuel standard (RFS) compliance. This is the challenge for producers—to make their process more ‘sustainable’ and ‘GHG [greenhouse gas] friendly’—and we think they will rise to that challenge.”

Klein says she expects only one billion gallons of U.S. cellulosic ethanol to be produced in the next decade, although she recognizes the situation could change rapidly as technological breakthroughs occur.

Poet LLC CEO Jeff Broin says the U.S. ethanol industry has consistently expanded to meet growing demand, and he expects that will remain the same in the future. He is also confident that U.S. cellulosic ethanol

Million Liters

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90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Supply

Demand

Supply

2010 Asia Pacific

Demand

Supply

2015 EU 27

Latin America

Demand 2020

North America

Increases Coming Industry analysis predicts that ethanol and biodiesel demand will outpace supply over the next decade, ramping up to an 8.5-million-gallon shortage by 2020.

SOURCE: HART ENERGY CONSULTING

producers will rise to the challenge of providing low-carbon fuel to meet regulations.

“There is a billion tons of cellulose available for ethanol production in this country and corn yields are projected to double in the next 20 years,” he says. “Those factors ensure that there will be plenty of available feedstock to produce the ethanol needed for our country’s renewable fuel goals.”

But despite the confidence expressed

by U.S. producers, Hart Energy’s report favors Brazilian sugarcane ethanol as the main source of low-carbon fuel. Ethanol imports to the U.S. from Brazil and through the Caribbean Basin Initiative are expected to ramp up to more than 2 billion gallons by 2020, nearly four times the average amounts imported between 2004 and 2008. Klein says U.S. entities will have to bid against European countries, Japan and China for the sugarcane ethanol. China will become the U.S.’s biggest competitor for Brazilian ethanol, doubling its demand from current rates to 2 billion gallons by 2020. “Obligated parties in the U.S. will find themselves competing for these volumes as never before,” says Frederick Potter, Hart Energy Publishing executive vice president. “We expect this to lead to continued price appreciation for sugarcane ethanol over the 2011-’20 period.”

To meet increasing demand for its ethanol, Klein anticipates that Brazil will double its supply capacity over the next 10 years. By 2020, she expects Brazil will have the capacity to supply 3.5 billion gallons to

2020 Forecasts Global ethanol supply to be

5 billion gallons short Brazil export capacity

3.5 billion gallons

China sugarcane ethanol imports

2 billion gallons

U.S. sugarcane ethanol imports

2 billion gallons

the global market. And while most Brazilian producers have been slow to complete the necessary RFS registrations required to import ethanol to the U.S., Klein says that will soon change. “Brazilian sugarcane ethanol in our view will be a key avenue toward compliance with the LCFS,” she says.

Hart Energy’s report was published prior to the U.S. EPA’s partial E15 approval, and it was estimated that market blending of E15 will reach 88 percent by 2020. —Kris Bevill

DECEMBER 2010 | Ethanol Producer Magazine | 33

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VeraSun Lives On

Formerly VeraSun Valero Renewable Fuels LLC Valero Renewable Fuels LLC Valero Renewable Fuels LLC Valero Renewable Fuels LLC Valero Renewable Fuels LLC Valero Renewable Fuels LLC Valero Renewable Fuels LLC Valero Renewable Fuels LLC Valero Renewable Fuels LLC Green Plains-Central City Green Plains-Ord Hankinson Renewable Energy LLC Big River United Energy LLC Guardian Energy LLC NuGen Energy LLC Carbon Green BioEnergy LLC

Bankrupt company reaches out as if from the grave Long after most people assumed it was dead and gone, VeraSun Energy Corp. is still going after money it paid out two years ago.

It raises the question, just who is VeraSun and what does it want?

VeraSun and its 24 subsidiaries, 16 of which were ethanol plants, filed for Chapter 11 bankruptcy in 2008. Today, VeraSun exists as a bankruptcy estate, says Todd A. Taylor, co-chair of clean technology group for Minneapolis-based Fredrikson & Byron P.A. All of VeraSun’s claims or any assets it still has are controlled by a creditors committee, appointed by the bankruptcy court.

At the end of September, the VeraSun estate backed off demands that corn producers return money that had been paid out to them during the 90-day look-back period before the company filed for bankruptcy. That doesn’t mean the efforts to collect money are over, however. “Really, the company itself won’t go away until the very end, all of the claims are settled or dealt with and there’s nothing left to be done,” Taylor says. “And that could take a long time.”

Albert City Albion Aurora Bloomingburg Charles City Fort Dodge Hartley Linden Welcome Central City Ord Hankinson Dyersville Janesville Marion Lake Odessa

IA NE SD OH IA IA IA IA MN NE NE ND IA MN SD MI

110 MMgy, up 10 110 MMgy, up 10 120 MMgy 110 MMgy 110 MMgy 110 MMgy 110 MMgy 110 MMgy 110 MMgy 100 MMgy, up 4 50 MMgy, up 5 120 MMgy, up 10 110 MMgy 110 MMgy 122 MMgy, up 12 50 MMgy

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Moving On All 16 former VeraSun plants have new owners. Six plants have increased capacities.

SOURCE: BBI INTERNATIONAL

The bankruptcy estate is determining if any preferential claims exist, says Roger McEowen, director of the Iowa State University’s Center for Agricultural Law and Taxation. Preferential payments are made within 90 days of the bankruptcy and give preference to certain creditors over others.

Under the bankruptcy code, these payments can be taken back and redistributed to creditors on a non-preferential basis, McEowen tells EPM. One defense to this, which corn producers used, is if the payments were made in the ordinary course of business.

Now the VeraSun estate is pursuing vendors and service providers. In the last 10

days of October alone, the bankruptcy estate filed more than 200 court documents, seeking to recover payments from companies that provided services or products such as chemicals, transportation, construction and even garbage services. The goal is to maximize the payment to creditors. “As a general rule, they will be very aggressive in going after any money they think they can get,” Taylor says.

“They will let a court decide, oftentimes, if it’s a marginal issue.” —Holly Jessen

www.vbusa.com office@vbusa.com (713) 461-7374

9RJHOEXVFK 86$ LQQRYDWLYH ELRWHFKQRORJ\ VROXWLRQV 34 | Ethanol Producer Magazine | DECEMBER 2010

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Biofuels Blame Game

Food vs. fuel misconception keeps raising its ugly head Every time the biofuels industry thinks it has successfully battled back the food vs. fuel argument, it crops up again.

The tired old argument resurfaced after an Oct. 8 USDA report forecast dramatic decreases in world coarse grain supplies, including corn. In the following days corn futures prices shot up to a high of $5.79, prompting some to predict food prices would soar.

The American Meat Institute, for example, quickly predicted that increased corn costs would mean increased prices for beef, pork and poultry and producers would pass on higher feed costs to consumers. AMI and other ethanol critics met with the White House Oct. 21 to oppose the extension of ethanol tax credits. “AMI has had longstanding concerns over the negative impact the rapid expansion of the subsidized corn ethanol industry has had on the meat and poultry sector and American food prices,” says AMI President and CEO J. Patrick Boyle.

What groups such as AMI ignore, however, is that one-third of the corn that goes into an ethanol plant comes out as distillers grains. In fact, in 2009, the ethanol industry produced the equivalent amount of distillers grains as was fed to cattle at U.S. feedlots last

year, says Bob Dinneen, president and CEO of the Renewable Fuels Association.

Another item that gets filed in the short term memory bank is the World Bank report that came out this summer. Authors John Baffes and Tassos Haniotis conclude that biofuels had a much smaller impact on food prices during the commodity price boom of 2006-’08 than initially reported. It’s clear, the report says, that U.S. corn-based ethanol production and, to a lesser extent, EU biodiesel production, affected market balances and land use. Worldwide biofuels only account for about 1.5 percent of the area planted with grain and oilseeds, however. “This raises serious doubts about claims that biofuels account for a big shift in global demand,” the report says. It also points out that corn prices didn’t change much at all as U.S. ethanol production first started increasing. Notably, prices actually spiked when ethanol use was decreasing in the U.S. So what did cause the food price spikes?

The report says that demand by developing countries probably didn’t put upward pressure on the prices of food commodities.

It may have, however, put some upward pressure indirectly through energy prices. It also

says the investment funds’ use of commodities, or the “so-called financialization of commodities,” may have been partly responsible for the food price spike in 2007-’08. Oil prices were a big factor, too. “A stronger link between energy and non-energy commodity prices is likely to be the dominant influence on developments in commodity, and especially food, markets,” the paper says.

Many in the ethanol industry say they have been vindicated. “This report should finally silence those that have blamed the biofuel producers for food shortages, food price increases and for committing a ‘crime against humanity,’” says Rob Vierhout, secretary general of ePURE, the Producers Union of Renewable Ethanol, formerly eBio. “It is about time these people recognize the facts.”

Tom Buis, CEO of Growth Energy, says the report would dispel myths and lies of food vs. fuel. “I applaud the World Bank for admitting the error of their ways and setting the record straight.”

The question now is when will the food vs. fuel argument actually die? —Holly Jessen

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DECEMBER 2010 | Ethanol Producer Magazine | 35

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VEETC is Vital

Credit lowers effective price of ethanol While ethanol prices were lower than gasoline for much of the year, in October that changed. Higher corn prices and growing ethanol demand inverted the relationship, pushing ethanol prices higher than gas prices.

The effective price of ethanol is still lower than the price of gasoline, however, says Geoff Cooper, vice president of research and analysis for the Renewable Fuels Association.

With the Volumetric Ethanol Excise Tax Credit, or as it’s commonly known, the blenders credit, gasoline blenders and refiners who mix ethanol with their gasoline claim 45 cents a gallon. “When the value of the tax credit is passed through to the consumer, it translates to a 4.5 cent per gallon savings at the retail level for gasoline containing 10 percent ethanol (E10) compared to gasoline without ethanol,” he says.

Chicago spot prices during the week of Oct. 17 show ethanol selling at 15 cents less than reformulated blendstock for oxygenated blending (RBOB), when VEETC is accounted for. Those numbers add up to a gallon of E10 being 1.5 cents cheaper at a retail store than unleaded gasoline with no ethanol blended into it. “In essence, VEETC is enhancing the ability of ethanol producers to manage sharply higher corn prices, while at the same time ensuring ethanol is priced competitively with gasoline and ultimately saving consumers money,” Cooper says. —Holly Jessen

Betting on Success

6 profitable quarters for GPRE Green Plains Renewable Energy Inc. CEO Todd Becker credits a successful hedging strategy for much of the company’s success in the third quarter of 2010. “We continued to take advantage of opportunities to lock away forward margins as they became available,” he told investors during a conference call to announce GPRE’s quarterly earnings.

“In the past few months, ethanol industry operating margins expanded as ethanol prices increased more than the recent increases in corn prices. As a result, we expect an even stronger fourth quarter.”

Net income at GPRE for the third quarter was $7.4 million, up nearly $2 million from the same period last year.

The quarter was the sixth consecutive profitable quarter for GPRE. According to Becker, the company had locked in margins for 76.5 million gallons of ethanol production for the next 12 months as of Sept. 30, assuring “price agnostic” operations for the coming year.

Additional production and marketing capacities and coproducts will also contribute to GPRE’s profitability in the future, Becker says. In October, GPRE acquired two former Global Ethanol LLC plants, increasing its production capacity to 657 MMgy. The company now also has the capability to market and distribute more than 1 billion gallons of ethanol annually. Within the next six months, corn oil extraction technology will be installed at all of GPRE’s existing plants.

Becker says the project should generate operating income of $15 million to $19 million annually, based on the production of 75 to 90 million pounds of corn oil. —Kris Bevill

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Hitting the Feed Wall

Without exports, U.S. DDGS will reach saturation point If concerns about a blend wall aren’t enough, U.S. ethanol producers should also keep their collective eye on a rapidly approaching feed wall.

In the 2010-’11 marketing year, U.S. dry mill ethanol plants are expected to produce 33.5 million metric tons of wet and dry distillers grains, according to Bob Dinneen, president and CEO of the Renewable Fuels Association. Wet mills will produce another 3 million metric tons of corn gluten feed and 500,000 metric tons of corn gluten meal.

If it weren’t for the distillers grains export market, those production numbers would be a problem. The U.S. livestock feed market will likely reach saturation with distillers grains when the industry produces 35 to 45 million metric tons. “You have heard talk of the ethanol blend wall that limits the amount of ethanol that can be used,” Dinneen said. “In much the same manner, we are rapidly approaching a feed wall in the U.S.” Dinneen tackled the subject at the Export Exchange, held Oct. 6-8 in Chicago. The joint conference put on by RFA and the U.S. Grains Council attracted nearly 500 producers, suppliers, importers and end-users of U.S. distillers grains and coarse grains. In the long term, he told attendees, distillers grains export growth will allow the industry to grow profitably, maintaining demand and prices and diversifying the customer base. Of the 33.5 million metric tons of distillers grains expected to be produced this year, 24.5 million will be consumed domestically and 9 million metric tons will be exported.

If E15 is approved, ethanol producers could, theoretically, produce more ethanol—and distillers grains. Not including wet mill products, Dinneen said E15 approval would raise distillers grains production to a maximum 51 million metric tons. However, if the U.S. EPA approves E15 for only certain model years, the impact will be less.

Dinneen emphasized these maximums were theoretical, as discussions with fuel retailers suggest that the market share would be much lower.

SOURCE: RFA

Finding new markets for distillers grains is vital, Dinneen stressed. “Ethanol production is fuel and feed. It is not either/or. And the success of one has a great impact on the viability of the other.”

In related news, a subcommittee of the International Maritime Organization in London approved a U.S. proposal that distillers grains be classified as nonhazardous cargo. The decision is expected to be ratified when the committee meets in December and will become binding in 2013. “This is a major step toward resolving confusion that has emerged about shipping requirements for DDGS,” said Erick Erickson, U.S. Grains Council special assistant for planning, evaluation and projects. —Holly Jessen

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Fueling Up on Education

Informing millions on the benefits of using alternative fuels One chilly mid-October day, as a steady stream of customers rolled into a Fargo, N.D., gas station, patient members of the Clean Air Coalition stood ready to distribute gift bags to E85 customers and to promote it to flex-fuel vehicle (FFV) drivers who aren’t using it. “What does the ‘E’ mean?” asked one obviously under-educated FFV driver. He was eventually convinced to try E30. Other drivers opted for regular gasoline despite the 60-cent-per-gallon discount on E85 that day. Some readily took advantage of the price break.

The day-long promotional event was part the National Alternative Fuel Vehicle Day Odyssey, a biennial nationwide educational effort held this year on Oct. 15. More than 100 events were held throughout the U.S., all focused on increasing public awareness about alternative fuels and vehicles.

Organized by the National Alternative Fuels Training Consortium, this year’s events were funded partially by the American Recovery and Reinvestment Act through a U.S. DOE

grant, and by the Clean Cities Learning Program. Retail stations offered discounts on E85, biodiesel and other alternative fuels in addition to hosting educational activities for customers.

In California, Pearson Fuels took the opportunity to give E85 away for two hours at pumps in Sacramento and Ventura. Coowner Mike Lewis says Pearson sold E85 at $1.85 per gallon for a 12-hour time period at five of its other locations, but decided to give it away at the newer pumps in order to attract customers. “Basically, we’re trying to take away every excuse for people not to try it,” he says. Pearson pumped about 1,000 gallons of E85 between the two locations that day.

“We could have given out much more, but that would have involved getting the word out much more in advance and I was a little leery about causing problems,” he says. “If we got the word out too much, traffic could be lined up … You don’t want to shut the pump off with 100 people in line.”

Lewis says he personally assisted two FFV drivers in fueling with E85 for the first time, potentially turning them into lifelong E85 users. “They just happened to pull up to the pump during the two-hour period that it was being given away, in a flex-fuel vehicle, and they didn’t even know what a flex-fuel vehicle was,” he says. “That shows you how much market is out there already with FFVs and the need to educate people that are driving cars right now that could be running on alternative fuel.”

“There is no easy solution for our addiction to petroleum, the state of our environment or health problems caused by greenhouse gas emissions,” Al Ebron, NAFTC executive director, says. “But when we use alternative vehicles powered by fuels such as ethanol, it is a step in the right direction.”

—Kris Bevill

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At a Glance

NREL online tool layers industry information on map The U.S. DOE’s National Renewable Energy Laboratory has expanded its online mapping tool, BioEnergy Atlas.

Two layers from the biofuels map are shown here—the dots show E85 stations and in the background the yellow indicates the density of flex-fuel vehicles, with heavier densities appearing in different colors around major metropolitan areas. Other layers can be added to the maps showing feedstocks such as sugarcane, stover, straw and woody biomass.

Additional layers include methane sites, brownfield sites, biopower and biofuels plant locations, and more. The atlas provides an overview of the U.S., but users can also select a state to view more specific information. The USDA, DOE and U.S. EPA ON THE WEB provided data BioEnergy Atlas: for the atlas, http://maps.nrel.gov/ which will be bioenergyatlas periodically updated.

SOURCE: U.S. DOE NATIONAL RENEWABLE ENERGY LABORATORY

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OUTLOOK

42 | Ethanol Producer Magazine | DECEMBER 2010

OUTLOOK

Outlook and Perspective Industry leaders share what’s on their minds as a new decade begins. What opportunities and challenges lie ahead?

BY HOLLY JESSEN AND KRIS BEVILL

2010 marks the end of a decade of expansion for the U.S. ethanol industry. In 2000, there were 54 plants with

a capacity of 1.7 billion gallons. Ten years later, there are 218 plants with just over 14 billion gallons of capacity. Average U.S. ethanol plant size has doubled from around 31 MMgy in 2000 to 64 MMgy in 2010. The decade saw hefty profits that helped fuel the mid-decade building boom, followed by a bust that toppled some of the largest players and introduced a round of consolidations and reorganizations.

An industry doesn’t flourish by looking back, however. The next decade belongs to those who look ahead. EPM asked industry leaders to share their perspectives on the opportunities and challenges they foresee as 2010 turns into 2011.

Market access will be the defining factor for the ethanol industry in 2011 says Jeff Broin, CEO of Poet LLC. Poet is seeking to solidify its corn ethanol base as it prepares to commercialize cellulosic production. In Nebraska, Chuck Woodside, CEO of KAAPA Ethanol LLC, is optimistic and encouraged by the commitment to renewable fuels and the innovation he sees throughout the industry.

The past decade was marked by the oil industry entering the ethanol industry in new ways.

Mansfield Oil CEO Doug Haugh shares his perspectives as a marketer and distributor of renewable fuels. Valero Energy Corp., of course, took the industry’s breath away when it snatched up a big share of the bankrupt VeraSun assets and became one of the top U.S. ethanol producers overnight. Media relations director Bill Day shares how the nation’s largest oil refiner views the year ahead.

As the corn ethanol industry stabilizes and matures, the cellulosic industry is just approaching its ascent. Inbicon A/S CEO Niels Henriksen says cooperation is as important as competition for the nascent industry to succeed. Fiberight LLC CEO Craig Stuart-Paul emerged from the waste management sector to lead his company into the cellulosic ethanol arena, using municipal solid waste as the feedstock.

In the next few pages, each of these industry leaders shares his perspective and outlook for the second decade of the 21st century.

DECEMBER 2010 | Ethanol Producer Magazine | 43

PHOTO: POET LLC

OUTLOOK

A Poet’s Vision for 2011 Jeff Broin, CEO, Poet

The market for ethanol is a topic of concern never far from Poet LLC CEO Jeff Broin’s mind. The ethanol blend wall, infrastructure issues, demand and implementation of E15 will combine to be the defining factors of the ethanol industry in 2011, he says, and the industry needs to band together to compete on a level playing field with the oil industry.

“Market access is far and away the most important issue the ethanol industry will face in 2011,” he says. “Without the ability to compete for more market share, we will be unable to get the cellulosic ethanol industry off the ground, fulfill the RFS [renewable fuel standard] or continue to grow the industry. We face a lot of challenges in the coming year, but all of them pale in comparison to the lack of market access for our product.”

44 | Ethanol Producer Magazine | DECEMBER 2010

Market access is a big issue for Poet.

It’s already one of the top three ethanol producers in the U.S., and it plans to expand its corn ethanol capacity in 2011 as well as to become one of the first commercial-scale cellulosic ethanol producers. Poet’s total annual production capacity will increase to 1.7 billion gallons next year when it brings its newest acquisition online in Cloverdale, Ind. The 90 MMgy plant, formerly owned by Altra Biofuels, was purchased by Poet in June after Altra shut it down due to difficult financial conditions. Approximately $30 million in upgrades and retrofits were necessary to improve operation flaws and prepare it for Poet’s fermentation technology. That work is expected to be complete in the spring.

OUTLOOK

Breaking ground at Project Liberty, the company’s 25 MMgy cellulosic facility, and commercializing cellulosic ethanol will be Poet’s biggest goals as a company next year, Broin says. It’s made some great progress toward advancing cellulosic technology in the past year, but it will be difficult to make commercial-scale production a reality without market and governmental support.

“Currently, market access for ethanol and U.S. DOE loan guarantees (so that the first few plants can be built) are the most critical needs,” he says. “A small investment from the government today could reap huge returns for our country in the future, but we can’t afford to delay any longer. Poet is ready to start construction on Project Liberty once a loan guarantee is approved and we are confident a future market is assured.”

Broin sees the federal government’s recent partial approval for E15 use as a promising sign of market expansion, but more will be needed to alleviate pressure on the blend wall. “Industry growth depends on opening that market further, through E15 approval for legacy vehicles, proliferation of blender pumps, flex-fuel vehicles [FFVs] and dedicated ethanol pipelines,” he says. “Infrastructure and FFVs are critical for ethanol to compete head-to-head with gasoline in the future.”

If the EPA’s October approval of E15 for 2007 and newer vehicles is expanded soon to include 2001 and newer models, as many in the industry believe will happen, that will provide some breathing room for producers. “This will give the industry an opportunity to continue growing next year, but without a long-term strategy, we will hit the blend wall again,” Broin says.

And what is an appropriate long-term strategy for the ethanol industry? As a co-founder of Growth Energy, Broin fully supports the group’s policy initiatives and expansion plans for ethanol. A large part of Growth Energy’s agenda consists of its Fueling Freedom plan—a long-term outline released earlier this year that consists of diverting money from the Volumetric Ethanol Excise Tax Credit to invest in blender pumps, FFVs and ethanol pipelines. The plan was initially met with skepticism by other ethanol groups, but a slightly

modified version appears to be growing in popularity. Broin says the Fueling Freedom plan would solve the industry’s blend wall issue and he will devote much of his time in 2011 to passing legislation at the state and federal levels that will support that plan. “While some industry groups and media outlets were initially critical of the Fueling Freedom plan, I’m encouraged that all of the major groups representing the industry have united around a very similar plan,” he says. “The future success of our industry depends heavily on political progress that needs to be made in 2011.”

Expanding the market for ethanol may be the most critical issue facing the ethanol industry in the short-term, but it’s not the only area of concern. The USDA’s October reduction in expected corn stocks, combined with a spike in corn futures, left some ethanol producers feeling a bit uneasy about future feedstock supply.

Looming greenhouse gas (GHG) regulations, which could include indirect land use change considerations for ethanol, could also change the face of the industry in 2011. Broin is strategizing to combat all of these factors. If the USDA’s reduced corn stocks prediction holds true, he’ll work to convince farmers to plant more corn in the spring. Through Growth Energy, Poet and other producers are negotiating with politicians to ensure that ethanol is treated fairly in any future GHG legislation, but he says it will take the entire industry to disprove the ill-conceived notion of indirect land use change. At the plant level, Poet’s engineers are constantly striving to improve the ethanol production process in order to further reduce its environmental impact. “Ethanol is a low-carbon fuel, and Poet’s proprietary BPX process that eliminates cooking produces an even lower carbon fuel,” Broin says. “In addition, we are developing new technology to lower our GHG emissions even further. … The industry itself continues to become more efficient, and our country’s farmers do as well.”

Author: Kris Bevill Associate Editor, Ethanol Producer Magazine (701) 850-2553 kbevill@bbiinternational.com

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Chuck Woodside, CEO of KAAPA Ethanol LLC in Minden, Neb., sees both opportunity and challenges ahead in 2011. Overall, the chairman of the Renewable Fuels Association is optimistic about the future of the ethanol industry and encouraged by what he sees as a “tremendous commitment” to renewable fuels. “It’s still a relatively young industry, and that creates, along with all the challenges, the opportunity as well,” he says.

One example is the increased ethanol exports in 2010. By the end of the year, U.S. ethanol producers are expected to export 300 to 400 million gallons of denatured and nondenatured, nonbeverage ethanol. That’s not insignificant, Woodside says, especially considering it wasn’t many years ago that the ethanol industry didn’t export much product at all.

Woodside, who was elected chair-

man of the RFA in September, succeeds Chris Standlee, executive vice president of Abengoa Bioenergy, who served three one-year terms. KAAPA Ethanol, which has been operating for seven years and now produces 60 MMgy, has been a member of RFA since the beginning, he says.

It’s an exciting time for ethanol producers. All around him, Woodside sees ethanol producers finding ways to drive down the cost of production or explore technologies to access other parts of the value chain. “You can’t talk to a plant that isn’t doing something innovative in how they approach their marketplace,” he says.

He also sees opportunities for producers to work together. He pointed to the former VeraSun plant at Janesville, Minn., which KAAPA and five other companies were involved in purchasing a

OUTLOOK

Model Effort In operation seven years, Kappa Ethanol recently bought a share in a Janesville, Minn., plant.

year ago. By banding together, the group was able to add value for all members.

“That model has worked really well and it’s something we’ll continue to look at as we move forward,” he says.

The other side of the coin is risk.

Ethanol producers are subject to more political risk than many businesses, particularly due to the future of governmental policies such as the Volumetric Ethanol Excise Tax Credit, the renewable fuel standard and California’s low carbon fuel standard (LCFS).

Woodside sees the extension of VEETC as an important short-term challenge. VEETC is a proven program that, while the tax incentive doesn’t go directly to producers, still provides an incentive for blending and building infrastructure.

There’s been a lot of talk in recent months about the blend wall. It wasn’t too many years ago when the major market constraint occurred at terminals, Woodside says. Once VEETC is extended for one year, RFA does want to have a good discussion on possible changes to VEETC. Any change that is implemented, however, needs to be well thought through.

This, of course, has been a recent industry issue. RFA, the American Coalition for Ethanol and the National Corn Growers Association have focused on the importance of extending VEETC while Growth Energy has called for reforms in

exchange for access to the marketplace.

When people ask him about the RFA/ Growth Energy thing, and they do often, Woodside says both organizations support the growth of the biofuels industry. “We can all argue about how things should be done, but at the end of the day, everyone wants to advance the renewable fuels effort,” he says. “I don’t think there’s a whole lot of disagreement on where we need to get to, the difference is the tactics of how we get there.”

Another huge issue on the list is E15.

Getting the higher level blend is only the first step, next comes addressing the individual state issues that will crop up with selling a blend greater than 10 percent. Woodside is also frustrated with the fact that the U.S. EPA has only approved E15 for some vehicles so far, saying it will confuse consumers. “We need to get beyond this 2007 and newer model year approach,” he says.

KAAPA’s location in Nebraska means California’s LCFS is looming large with Woodside, perhaps larger than ethanol plants located in the eastern portion of the corn belt or the state. It’s something all producers should be concerned about, however. “If other states start to pick up that model, everybody is going to be faced with that same issue,” he says, adding that’s why RFA worked with Growth Energy to file a lawsuit in federal court against the regulations. “We need to make sure that there’s good science out there.”

Addressing the issues facing the industry is what Woodside considers one of the RFA’s biggest strengths. It’s fun, he says, to work with an organization full of so many passionate and committed people. Although lobbying is important, RFA offers so much more—research, technical services and development are examples Woodside offers. “All of those things go way beyond just Washington,” he says. “It is truly a producer-run organization, and I think that’s really critical.”

Author: Holly Jessen Associate Editor, Ethanol Producer Magazine (701) 738-4946 hjessen@bbiinternational.com

PHOTO: INBICON

OUTLOOK

Cooperation is Primary Niels Henriksen, CEO, Inbicon

For the health of the ethanol industry, Niels Henriksen, CEO of Inbicon A/S, sees cooperation as being just as important as competition. The company, which developed Inbicon Biomass Refinery technology, has a narrow focus on converting biomass to renewable energy. Still, the company sees a need for broad and diverse cooperation within the ethanol industry. “In the two years since we’ve been moving into commercializing our technology, I’ve realized we can’t go down this path alone,” he stresses.

Henriksen appreciates all those who prepared the way by establishing a market for ethanol, building political connections and getting E10 mandated, among other things. “So many differ-

48 | Ethanol Producer Magazine | DECEMBER 2010

OUTLOOK

ent individuals, companies and organizations have plowed the field and tilled the soil and made it ready for our technology to be planted,” he says. “So many more will be needed to help us grow to commercialization and beyond.”

In addition, Inbicon recognizes that it can, and should, help the ethanol industry continue to grow. One way to do that is to show support for U.S. DOE and USDA policies for ethanol and share knowledge with those agencies. Inbicon also supports the efforts of industry groups such as the Renewable Fuels Association, Canadian Renewable Fuels Association, Growth Energy and American Coalition for Ethanol. The company can speak out to help get E15 approved for all cars, Henriksen says. It also supports the Blend Your Own campaign for blender pumps as a good idea to help stimulate consumer choice. Attending conferences is another valuable way to make connections. “We have formed more collaborations among companies we’ve met through conferences than any other single way, and this has accelerated our move to commercialization,” he says.

To encourage cooperation among cellulosic ethanol producers, Henriksen suggests a roundtable discussion on ways to accelerate commercialization. After all, on close examination, competitors often don’t compete in every area. Inbicon could share knowledge gained through 15 years of biomass gathering, storage and logistics experience it has in Denmark. “Our parent company has developed the logistics and mechanization to handle 1.6 million tons of wheat straw and wood chips a year, which is used in power stations to generate electricity,” he says. “We might share some of that knowledge in exchange for specific knowledge of American or Canadian biomass. That would get us both to commercialization faster. And commercializing cellulosic faster will revitalize the entire ethanol industry.”

Henriksen’s fear for the future is that the opportunity for cellulosic ethanol will come and go without the ethanol industry seizing the moment. He points to a report that says the Chinese government invested $38 billion in clean energy last year. It would be amazing to see the results if only a fraction of that money could be funneled into the effort to commercialize cellulosic ethanol, he says.

Although Inbicon is working to license its technology globally, the company sees the U.S. as the best market for commercialization, followed by Canada. “Anything that stands in the way of cellulosic commercialization in North America is an important issue, whether it’s the blend wall or the lack of consumer choice in fuels,” he says. “If the ethanol industry, together with the government agencies and private investors, can show we’re all moving quickly to commercialize cellulosic, that would be huge.”

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Agricultural Commodities D<;geeg\ala]k `Yk Z]]f gf] g^ l`] d]Y\af_ e]j[`Yf\ak]jk Yf\ ljY\]jk g^ _jYafk$ gadk]]\k Yf\ ja[] af afl]jfYlagfYd Y_ja[mdlmjYd [geeg\alq eYjc]lk kaf[] )0-)& Af Y\\alagf lg ]phgjl Yf\ \ge]kla[ \akljaZmlagf Y[lanala]k$ o] g^^]j [mklgear]\ jakc eYfY_]e]fl kgdmlagfk lg eYfY_] [geeg\alq hja[] jakck&

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Author: Holly Jessen Associate Editor, Ethanol Producer Magazine (701) 738-4946 hjessen@bbiinternational.com

DECEMBER 2010 | Ethanol Producer Magazine | 49

OUTLOOK

A New Normal

Bill Day, media relations,Valero

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Valero Energy Corp., parent company of Valero Renewable Fuels, sees the transportation fuels market as being an area of critical importance in 2011, but has a different slant on the market compared with a pure-play ethanol producer. “Valero is one of the largest ethanol producers in the country now—we have the capacity to produce 1.1 billion gallons of ethanol every year—but it’s a relatively small part of Valero’s overall business,” says Bill Day, media relations director for Valero. “Our refining business is much larger, so we’re also facing challenges on the petroleum/refining side with greenhouse gas regulation, lack of demand for refined products and an oversupply.”

The biggest contributing factor toward declining gasoline demand in the U.S. has been the recent economic slowdown, according to Day. An aging population that drives fewer miles, increased production of fuel-efficient vehicles and a rising ethanol mandate compound the issue, but the economy will be the main driver in bringing back demand for gas, which will in turn influence Valero’s ethanol plans. “We have been looking for recovered strengths in economic demand for awhile now,” Day says. “We had a pretty good summer driving season this year. We would hope that 2011 will be even better. But we need people to get back to work.

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OUTLOOK

Third in Production Valero Renewable Fuels operates 10 ethanol facilities in the U.S., including this 110 MMgy plant in Albert City, Iowa.

Demand for fuel is directly tied to the economy, so thatâ&#x20AC;&#x2122;s what weâ&#x20AC;&#x2122;ll be looking for in 2011â&#x20AC;&#x201D;increased signs of economic growth.â&#x20AC;?

But while gasoline demand may be decreasing, ethanol demand will continue to grow through 2022 thanks to the renewable fuel standard (RFS). It was this mandate that spurred Valero to enter the ethanol industry and it will continue to provide support to the blossoming ethanol industry, according to Day. â&#x20AC;&#x153;Valero recognizes that ethanol is going to be an important part of the transportation fuel mix in this country going forward, no question about it,â&#x20AC;? he says. â&#x20AC;&#x153;The government has made it clear that it will increase the amount of ethanol required for blending in gasoline, there are millions of flex-fuel vehicles on the road and that number is increasing, and weâ&#x20AC;&#x2122;re seeing increased locations where products like E85 are being sold. If weâ&#x20AC;&#x2122;re going to be required to blend ethanol and gasoline anyway, we might as well be on the production side.â&#x20AC;?

Day declined to speculate whether vertical integration by

refiners will continue in 2011, but says refinersâ&#x20AC;&#x2122; interest in producing ethanol should be viewed positively by the industry as a sign that ethanol is becoming accepted as part of the national fuel mix. â&#x20AC;&#x153;I think people realize now that weâ&#x20AC;&#x2122;re in it to stay,â&#x20AC;? he says. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s an important part of our business and we bring certain advantages to the industry that companies hadnâ&#x20AC;&#x2122;t had before.

We have a lot of expertise in product trading and dealing with markets and commodities.

We have a trading floor at our headquarters in San Antonio where traders do nothing but buy and sell commodities like crude oil, gasoline, diesel, and now ethanol. Weâ&#x20AC;&#x2122;re buying

and selling corn and corn products.

With that level of expertise, plus other synergies such as purchasing and logistics, it adds up to a lot of advantages.â&#x20AC;?

According to Day, the successful ethanol producers in 2011 will be those who can produce a product efficiently and at a low cost, regardless of whether theyâ&#x20AC;&#x2122;re backed by a major corporation. â&#x20AC;&#x153;Fuels production, whether itâ&#x20AC;&#x2122;s ethanol or refined products, has traditionally been a cyclical business and a low-margin business and thatâ&#x20AC;&#x2122;s the environment we find ourselves in now,â&#x20AC;? he says. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re back to the new normal.â&#x20AC;?

Author: Kris Bevill Associate Editor, Ethanol Producer Magazine (701) 850-2553 kbevill@bbiinternational.com

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OUTLOOK

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While many operating ethanol producers see market demand as the No. 1 issue of 2011, producers who haven’t yet introduced their product to the market have another perspective on what’s really important. Craig Stuart-Paul, CEO of Fiberight LLC, isn’t very concerned about the ethanol blend wall because he says the renewable fuel standard (RFS) will provide plenty of demand for his municipal-solidwaste-based ethanol. Instead, he, like many other cellulosic ethanol producers, is losing sleep over simply getting the plant to operate at a profitable level. “There’s always a fear of the unknown,” he says. “We have done huge amounts of work to de-risk the technology, we’ve got thousands of sets of data that says it’s going to work, but until you turn the thing on, you don’t truly know. That’s the point we’re at: we’ve made some cellulosic ethanol, but now we’ve got to make it day after day and make a profit doing it.”

OUTLOOK

The price paid for cellulosic renewable identification numbers [RINs] could be the determining factor in whether Fiberight and other cellulosic producers can turn a profit. StuartPaul says the industry needs clarity on the value of its RINs, which should conceivably be $3 per gallon, before it can accurately assess the economic viability of its processes. The difficulty is that RIN values can’t be proven until physical transactions occur, creating a chicken-and-egg predicament. Cellulosic ethanol has to be produced and sold before RIN values can be assured, but producers need to know how much those RINs are worth before they can determine if their process is profitable.

“The only way that we’ll be able to say to a financial counter-party that we’re going to get this much value is by actually transacting at $3 per gallon,” he says.

“I think that’s a highly likely outcome, but you can’t take it to the bank yet.” He believes the issue should be resolved by the second quarter of 2011, when RINs that were allowed to be carried over from 2010 expire and buyers will need to begin purchasing cellulosic D3 RINs. 2011 will likely prove be a pivotal year for Fiberight and the cellulosic industry overall. Fiberight is expected to not only begin commercial operations next year, but also to be the largest cellulosic contributor to the RFS next year— providing 2.8 million gallons to the total goal. The company is also working with U.K.-based TMO Renewables Ltd. to design and construct 15 commercialscale municipal-solid-waste-to-ethanol facilities across the U.S. within five years.

Stuart-Paul says the demand for waste solutions and waste-based biofuels is “huge” and there is ample feedstock available, so the only hurdle remaining before a rapid build-out of facilities can occur is the first commercial process demonstration. His sentiments on commercial expansion echo that of many future ethanol producers. “Once you have the first plant going you’ve got a

commercial history, you know what you sell it for and you’ve de-risked the technology and can get performance guarantees for the next five plants,” he says.

Recent advancements made in the academic and private sectors to increase the conversion efficiencies of advanced metabolic pathways are an encouraging sign that the industry is moving toward commercial viability, according to Stuart-Paul. The USDA’s increased participation in financing biorefineries is a positive indicator that funding issues are being addressed and will

soon be alleviated. There is still much work to do, however, and Stuart-Paul says his company is willing to cooperate with future competitors in order for the entire industry to succeed. “If people need to de-risk a process, our plant might be available to work with them,” he adds. “We see that a rising tide lifts all boats. The more success there is, the more momentum we gain to become a legitimate industry.”

Author: Kris Bevill Associate Editor, Ethanol Producer Magazine (701) 850-2553 kbevill@bbiinternational.com

DECEMBER 2010 | Ethanol Producer Magazine | 53

OUTLOOK

An Interesting Year Ahead

Doug Haugh, CEO, Mansfield Oil

Mansfield Oil Co. doesn’t currently own or operate any ethanol plants and doesn’t intend to in the future, says CEO Doug Haugh. What the company does, and does well, is market and distribute renewable fuels. In the past year and a half, the company acquired California-based ethanol fuel distributor Western Ethanol Co. LLC and C&N Co., a biofuels distribution and marketing company in Minnesota.

In all, the company has offtake agreements with 11 ethanol facilities and works with biodiesel as well.

Renewable fuels accounts for 20 percent of Mansfield Oil’s business and continues to be the fastest growing sector of the business. “Renewables is going to be a big part of our business and it will stay that way for a long time,” he tells EPM. Although he doesn’t want to sound too pessimistic, Haugh does see some big barriers to the further growth of the ethanol industry. “2011 is going to be interesting,” he says.

The No. 1 hurdle for the ethanol industry is regulatory uncertainty. If the Volumetric Ethanol Excise Tax Credit does not get extended by Congress—and, from what Haugh was hearing in October it didn’t sound promising—it will likely mean some closed ethanol plants.

Haugh doesn’t anticipate the ethanol industry will be as hard hit as the biodiesel industry, however. Ethanol can still be profitable without VEETC, but it will take an increase in prices for renewable identification numbers (RINs). What will happen is a differentiation between plants that are operated efficiently and those that not, he says. Ethanol plants with an edge, such as

good rail transportation and corn supplies close by, will continue to operate profitably while other plants may have to shut down and/or declare bankruptcy.

What scares Haugh the most is that the renewable fuel standard could be revoked. In fact, in early October he heard reports of a Congressman putting that very thing on the table. At this point, that’s not likely to happen, but just the fact that it’s being discussed shows a dangerous shift in thinking.

He also points to the U.S. EPA’s July decision to cut the cellulosic volume for 2011. While the RFS2 called for 250 million gallons of cellulosic biofuels by 2011, the EPA predicted that the achievable volume range would actually be 5 million to 17.1 million gallons. At what point, Haugh wonders, will several years of missing the production targets for cellulosic make it easier politically to just repeal that part of the RFS2—or even the whole thing?

He also strongly believes that corn ethanol should remain an important part

54 | Ethanol Producer Magazine | DECEMBER 2010

of displacing gasoline, not just cellulosic ethanol. Progress would have been stymied if, 80 years ago, the U.S. had restricted itself to producing straight cut gasoline from one kind of crude oil. “We’d all still be driving horse and buggy,” he says.

The corn-to-ethanol industry does need to become more sustainable, however. Haugh has seen good things happening but more needs to be done, he says. The difficulty is getting funding for projects, something that has plagued more than just ethanol in this economy. It’s pretty hard to put up capital for a project when the company doesn’t have that money available, even if it would save money, energy, and improve overall sustainability in the long run, he asserts.

Author: Holly Jessen Associate Editor, Ethanol Producer Magazine (701) 738-4946 hjessen@bbiinternational.com

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MARKETS

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56 | Ethanol Producer Magazine | DECEMBER 2010

MARKETS

Filling

Up Though the blend wall is looming and E15 is a wild card, the ethanol industry is finding areas for market growth. BY KRIS BEVILL

There is only one statement that can be made with any certainty regarding the ethanol market in 2011.

More ethanol will be produced than will be required to be blended under the renewable fuel standard (RFS). Thatâ&#x20AC;&#x2122;s an easy prediction to make because the industry is already making more ethanol than refiners are required to use. The total RFS requirement for 2011, which includes all renewable fuels, is 13.95 billion gallons. Current estimates show that the national ethanol capac-

ity is more than 14 billion gallons, and millions of additional gallons are expected to come online next year. Production is not expected to become a concern for several years, and even that is debated by members of the industry who insist that ethanol producers will continue to rise to meet demand at any level. So the million dollar question will continue to be: how do we squeeze more ethanol into the shrinking gasoline pool?

DECEMBER 2010 | Ethanol Producer Magazine | 57

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58 | Ethanol Producer Magazine | DECEMBER 2010

Filling the Gaps Most of the U.S. is nearing E10 saturation, although a few areas remain underutilized. Texas is probably the largest U.S. market that has not yet been penetrated by ethanol marketers. Less populated areas of the Rocky Mountains, as well as parts of Louisiana, Mississippi and Alabama also still have room to grow.

Market Expansion Recently, ethanol usage has grown fairly steadily despite lower overall gasoline consumption. Because the cost of ethanol has remained competitive compared to traditional gasoline, refiners have engaged in significant amounts of discretionary blending in markets that were previously untapped. In addition, new state mandates, particularly California’s requirement that increased ethanol blend requirements from 5.7 percent to 10 percent, have also helped increase ethanol demand. Chris Highsmith, senior commodities research and strategy analyst for ethanol marketing firm Eco-Energy Inc., says demand for ethanol increased by about 2 billion gallons in 2010 compared to the previous year. “A lot of markets have picked up,” he says. “California going to E10 was instrumental to that. It’s the largest gasoline market in the U.S., so that accounted for a big piece of it.”

Areas in the Southeast have experienced recent increased demand for ethanol, but Highsmith says Florida and many of the coastal markets are saturated. Parts of Mississippi, Louisiana and much of Alabama, however, offer room for expansion. “You have areas down there that still have growth room that are relatively large

gasoline markets, but the impact would come in a place like Texas,” he adds. He expects Texas, the second largest gasoline market in the country, to provide a new growth area for ethanol over the next two years. “It’s been growing and will probably continue to grow,” he says.

“If Texas started blending ethanol in all of its gasoline, that would pick up 250300 million gallons of ethanol.” Texas has traditionally been an anti-ethanol state, so the prospects of it implementing an E10 mandate are not Conquering Logistics likely, but the fed- Eco-Energy Inc. CEO eral mandate may Chad Martin says company is now soon not leave Texas his focusing on distribution blenders any choice. constraints in mid-size “Historically, the markets. mandate has been less than 10 percent of the gasoline pool, but that’s changing,” Highsmith says.

“We’re ramping up to 15 billion … 15 billion gallons is already over 10 percent of the gasoline pool and that pool is falling.”

PHOTO: MANSFIELD OIL

MARKETS

Expanding Options Lacking infrastructure has kept refiners from blending E10 in some areas of the United States, but that may soon change as blending requirements increase and gasoline demand lags.

On a smaller scale, western states such as New Mexico, Utah, Idaho and other relatively remote locations in the Rocky Mountains have been so far been left untapped.

Highsmith says these markets lack blending infrastructure and refiners have not had the incentive to begin blending heavily in these markets. But as the blend wall creeps closer “they’re going to have to blend ethanol in every gallon they can to meet the RFS2 obligation,” he says, and E10 may begin to be utilized those areas as well. The long shot for ethanol blending will continue to be Alaska, which accordAnalyze This Chris Highsmith, ing to some estimates research analyst at currently uses E10 for Eco-Energy Inc., says there remains a bit only about 10 percent of wiggle room in the of its total gasoline ethanol blend wall. supply.

Infrastructure Modifications Eco-Energy markets a little more than 1 billion gallons of the ethanol produced in the U.S., according to CEO Chad Martin.

In order to ensure that his business, and, consequently, the ethanol industry, continues to grow, Martin says Eco-Energy places an emphasis on overcoming logisti-

cal issues in new markets. Eco-Energy had a hand in solving infrastructure problems in large markets on the East Coast such as Washington, D.C., and Atlanta as well as in the Carolinas, he says. The company is now focusing on hurdling logistical barriers in mid-size markets, which Martin believes is the next level that needs infrastructure work. “That’s an area of focus for us and our marketing partners, to make sure that we can get their product into some of these markets and create solutions,” he says. “If there are logistical constraints or issues, we work with the terminal operator to try and find a solution. If we can’t find a solution with the terminal operator, we look for a trans-load operator or a development opportunity to make sure we can get product into some of the more difficult-to-reach markets.”

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E85 and Mid-Level Blends The wild card for ethanol marketing in 2011-’12 will be E15. If the partial waiver for 2007 and newer vehicles is not expanded to include older models, its chances of impacting the ethanol market are slim.

Highsmith’s early prediction is that, at most, 5 percent of retail stations will offer E15 to their customers. “That’s probably even a high number,” he adds. “It really depends how fast they can work out some

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MARKETS

of the liability issues. There will be some parties blending it, maybe some jobbers and smaller stations. But any large operation that guarantees their fuel isn’t going to want to put themselves out there for that liability. It also depends on price. If there’s incentive, people will find a way to blend it.”

Highsmith’s sentiment is echoed by Kent Satrang, CEO of Petro Serve USA, a cooperative retail fuel provider that operates about a dozen fueling stations in North Dakota and Minnesota. He says he is con-

sidering offering E15 at just one of the company’s fleet of stations. “I think E15 is well-intentioned, but it really isn’t going to be very effective when it’s only for 2007 and newer cars because we have to offer gas to all cars, not just to 2007 and newer,” he says.

“It’s a great first step, but we’re going to have to get to where all cars can use E15.” He doubts that fuel retailers in North Dakota will offer E15 even if the waiver is extended to include vehicle models 2001 and newer.

The problem lies in station infrastructure,

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he says. Many of Petro Serve’s stations have blender pumps, but that doesn’t make a decision to add a new blend any easier. “I don’t know what we would take out to put in E15,” he says. “I’ve asked a lot of people in the ethanol industry and really haven’t gotten a good answer yet. I don’t think there really is one.” The one station that Satrang will consider offering E15 at has a pump with five dispensers and he would replace E20 with E15. But there are very few stations with equipment that offer so many options.

From a retail perspective, Satrang believes blender pumps will be the ethanol industry’s best bet to increase market share.

In 2007, Petro Serve had the No. 1 E85selling station in the U.S., dispensing an average 50,000 gallons of the fuel per month.

Following that success, and with the help of a North Dakota legislative incentive, the company began installing blender pumps at its locations last year. The company now offers regular gas, E10, E30 and E85 at most of its stations. The results have been “spectacular,” according to Satrang. “It has been amazing,” he says. “Where we had E85 before and where we’ve put in blender pumps, our sales for renewable fuels are up 500 percent.”

If the USDA follows through with its recently announced promise to cover half of the costs associated with installing 10,000 blender pumps over five years, success stories like Petro Serve’s may become more common. But it will take time.

According to Growth Energy, there are currently only about 250 blender pumps nationwide. With more than 150,000 retail fuel stations located in the U.S., there is a clear need for aggressive campaigns to increase blender pump installations, particularly in large markets, and all of the industry’s representative groups have waged efforts to do just that. The Renewable Fuels Association and the American Coalition for Ethanol teamed up last year to form the Blend Your Own Ethanol campaign, which is geared toward informing marketers and retailers of the benefits of blender pumps and what incentives are available. Robert

MARKETS

White, market development director for the RFA, says blender pumps give fuel retailers a chance to one-up their competition by offering a fuel that others may not have. And what benefits the retailers will, in turn, benefit the ethanol industry. “Between the blender pumps goals of the BYO Ethanol campaign and that of USDA, ethanol blended above 10 percent will be greatly more available in the coming year,” he says.

Growth Energy also believes in the power of blender pumps. This summer the group began lobbying for its Freedom Fueling plan, which includes a proposal to incentivize 200,000 blender pumps and to require all vehicles sold in the U.S. be flex-fuel capable.

Uncertainty Remains For the short-term, discretionary blending by refiners will continue to be the key for keeping the blend wall at bay.

In late October, however, several unresolved factors left room for speculation as to whether price incentives would continue to tempt refiners to overblend.

If an extension is not granted for the Volumetric Ethanol Excise Tax Credit, margins may be less attractive and refiners may be less likely to partake in discretionary blending. Likewise for the 54-cent-per-gallon import tariff on Brazilian ethanol. If it’s allowed to expire on Dec. 31, it could impact the use of domestic ethanol by refiners. Or, it could not. It all boils down to nickels and pennies for fuel companies. “It really depends on what happens with [Brazil’s] currency,” Highsmith says. “Their currency has been very high against the U.S. dollar compared to where it’s been historically. At that level, their exports don’t look so great.”

On the flip side, U.S. exports of ethanol reached an all-time high in 2010 and that could continue into next year, but it’s doubtful that export levels will increase enough to impact supply and demand issues domestically. The U.S. DOE’s Energy Information Admin-

istration said in October that the U.S. will consume 35.5 million gallons of ethanol this year, which is just a little more than 10 percent of the total gasoline supplied. For 2011, the EIA predicts a slight increase for both gasoline and ethanol consumption, and virtually no increase in ethanol’s percentage of the market. But in a letter sent to U.S. EPA Administrator Lisa Jackson to announce its 2011 predictions, EIA Administrator Richard Newell admits the agency’s forecasts are “inherently uncertain” and compares actual

2010 data with predictions made in 2009 to illustrate how the markets can change.

Actual gasoline supplied in 2010 decreased by 0.7 percent compared to the EIA’s 2009 forecast. Meanwhile, ethanol consumption increased by a full 7 percent, up 55,000 barrels per day over the EIA’s 2009 prediction.

Author: Kris Bevill Associate Editor, Ethanol Producer Magazine (701) 850-2553 kbevill@bbiinternational.com

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INDUSTRY

Give me a Bid Scott Steffes, president of Steffes Auctioneers Inc. of Fargo, N.D. auctions equipment at the former Alchem Ethanol Plant, Grafton, N.D. PHOTO: JACKIE LORENTZ

62 | Ethanol Producer Magazine | DECEMBER 2010

INDUSTRY

Plants in

Transition Restructuring in the ethanol industry continues with several ethanol plants heading to the auction block and a handful of other plants restarting or preparing to restart. BY HOLLY JESSEN After the difficulties of 2008, the ethanol industry went from booming construction to a new reality, where greenfield construction is a rarity. No new construction projects broke

ground in 2009 or 2010. Instead, the past two years have seen changes to existing plants including a handful of ethanol plant auctions.

As of late October, the only ethanol plant to actually sell at auction was the 10.5 MMgy Alchem ethanol plant in Grafton, N.D. Minnesota

resident Jim Borchart, owner of Borchart Steel Inc., and other investors purchased the idled legacy plant for $577,500 on Sept. 29. After auction, three groups approached him about buying part of the plant to possibly relocate within North Dakota for production of pharmaceutical-grade products, move it out of country or piece it out.

“We’re basically going to make a decision when we get a clear title,” he says, adding that could happen in November. Regardless whether Borchart sells, odds are very large that the plant will

DECEMBER 2010 | Ethanol Producer Magazine | 63

PHOTO: JACKIE LORENTZ

INDUSTRY

For Sale The former Alchem ethanol plant was one of several on the auction block this year.

be moved from Grafton, he says. The basic configuration of the plant is out of date and it would require complete restructuring to operate again. It hasn’t been decided yet if the equipment from the plant, some never used after the last upgrade, will be used to produce ethanol. “I would say 50/50,” he says.

The action the latter part of this year wasn’t all about auctions, however. Four idled plants either restarted or were working toward restart, with a fifth plant purchased with no specific plans announced. Finally, three plants, at which construction was halted before startup, saw work resume.

Some of these plants represent the work of companies clawing their way out of bankruptcy and resuming normal operations, as with Aventine Renewable Energy Holdings LLC and Pacific Ethanol Inc. Other plants were purchased for pennies on the dollar of what it cost to build them. Despite that, is it still positive news to see a once-shuttered ethanol plant on its way to producing ethanol again? The answer depends on who is asked.

Todd Sneller, administrator for the Nebraska Ethanol Board, sees the bright side. Some good things have been happening in the ethanol industry in that state in the past year.

“There’s been a little more sunshine on the horizon than there’s been a in a little while,” he says. It’s all part of a trend Sneller sees in Nebraska and believes is representative of what’s happening nationally. Idled ethanol plants are being purchased and restarted. Other companies are strategically investing small amounts of capital for greater efficiency or to diversify coproducts. “We’re seeing a little more confidence,” he says.

Last summer, three former VeraSun Energy Corp. ethanol plants in Nebraska were acquired and restarted. Green Plains 64 | Ethanol Producer Magazine | DECEMBER 2010

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Renewable Energy Inc. purchased plants in Central City and Ord and is now in the process of installing corn oil extraction technology. Valero Renewable Fuels LLC acquired the plant in Albion and has initiated improvements, Sneller said. Another good news story happened this spring, when Aventine emerged from bankruptcy and restarted construction at its Aventine Renewable Energy Aurora West LLC plant in Nebraska, as well as at a plant in Mount Vernon, Ind. In fact, Sneller is optimistic that by the end of 2011, all 26 plants in the state will be back up and operating. That includes the idled E3 BioFuels LLC, a 25 MMgy plant in Mead, Neb, which filed for bankruptcy in 2007. Ten months after an auction in 2009, a sale agreement finally worked its way through bankruptcy court.

The buyer, AltEn LLC of Kansas, was working on closing the sale in late October and expects to restart the plant.

Douglas Durante, executive director of the Clean Fuels Development Coalition, doesn’t want to be the “old grump” of the group, he says, but he sees things a little differently. Has the past year been a time of more opportunity for the ethanol industry? Talk to two people and get two different answers, Durante says. Does he believe the ethanol industry rebounded?

Maybe. Some of the idled ethanol plants may come back online, yes, but overall, Durante advocates a slow deliberate re-

covery versus the “gold rush mentality” of the past. “Nobody wants to do that again,” he says.

Some describe the renewable fuel standard (RFS) as a floor for ethanol production, not the ceiling. Durante disagrees, saying that he wouldn’t want to be the ethanol producer that’s producing the gallons over and above what the RFS calls for. “As soon as you get more ethanol than you need, the oil guys, who are the people that buy ethanol, hold the price down,” he says.

There’s no doubt there are some big issues facing the industry today. It’s a time of political uncertainty, tight finances, low oil prices and high commodity prices. In October, after the USDA lowered corn yield estimates, corn futures shot up to nearly $6 at the highest point. “Not to be negative but all of those things are out there,” he says. Corn futures climbing up over $5 is one thing that drove the bankruptcies in 2008, Durante points out. Besides that, the industry simply overbuilt, like many other industries such as housing, during the time when it was easy to get a loan. “A lot of stuff was financed that never should have been financed,” he says, adding many projects need refinancing.

Unfortunately, banks are very hesitant. For new projects, banks are requiring much bigger down payments and a much faster payoff rate—terms that are simply

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INDUSTRY

Sold! Auctioneer Scott Steffes, owner of Steffes Auctioneer Inc. proceeds with the second day of the former Alchem Ethanol Plant in Grafton, N.D.

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not doable. “Lots and lots of banks I talk to just simply aren’t interested in running the risk,” he says.

When an idled plant is purchased and restarted, it’s good news for a variety of reasons, not the least of which is the fact that it gets people back to work. However, Durante says he can’t celebrate too much when a plant built for $100 million is purchased for $10 million. “It’s just shameful how these plants were devalued,” he says. “There was definitely a bad case of people saying, let’s see if it gets to be a little lower.”

On the good news side, demand for ethanol still exists. “We’ve always overcome these challenges as an industry,” he says.

On the subject of profitability, Rob Carringer of CRG Partners says there are three tiers among ethanol industry competitors. The first tier includes ethanol plants built two or three years ago with a debt of $2 to $2.50 a gallon— who struggle to service that debt. The second tier has restructured and carries around 80 cents to 90 cents in debt per gallon. The third tier includes the large companies that have multiple plants and the advantage of scale. It’s clear that ethanol plants in the first categories will have a much tougher time remaining profitable than the other two, Carringer points out.

Restarts In Lima, Ohio, the former Greater Ohio Ethanol LLC plant is expected to get new life in 2011. PEA Lima, a wholly owned subsidiary of Paladin Ethanol Acquisition LLC, purchased the plant for $5.75 million in the spring, and this fall the company was approved for a 40 percent, five-year tax credit. In exchange, PEA has committed to operating the 54 MMgy plant continuously for eight years and creating 22 full-time jobs. The goal is to restart the facility in the first half of 2011, says Mourad Yesayan of Paladin Capital Group. In late October, there were 10 employees on site, with a total of 30 to 35 employees

INDUSTRY

expected when the plant is producing again.

In early October, Pacific Ethanol Inc. spent $23.3 million to purchase a 20 percent ownership in New PE Holdco LLC, which owns Pacific Ethanolâ&#x20AC;&#x2122;s four facilities. The move means Pacific Ethanol once again has a controlling ownership and will allow the company to restart its two California plants. The company plans to restart its 60 MMgy Stockton, Calif., plant at the end of the year and have it running at full capacity less than 60 days later, says Paul Koehler, the companyâ&#x20AC;&#x2122;s vice president of corporate development. The company also hopes to restart its 40 MMgy plant in Madera, Calif., possibly in the first quarter of 2011. The two other Pacific Ethanol plants, in Burley, Idaho, and Boardman, Ore., were not idled.

In Morris, Minn., the Denco II LLC plant restarted in October. The 24 MMgy plant was in cold idle for 20 months before being purchased by a group of local investors, many of them farmers.

Aventine has been busy too, starting this spring when construction resumed at two 113 MMgy plants in Aurora, Neb., and Mount Vernon, Ind. The projects are expected to wrap up the end of 2010, although reports are the Nebraska plant wonâ&#x20AC;&#x2122;t actually restart until spring. In addition, this summer the company purchased the 38 MMgy Riverland Biofuels ethanol plant in Canton, Ill., for $16.5 million.

Although company officials have indicated it would be operational again, no timeline for restarting the idle plant has been announced.

Another construction project that was halted before completion is expected to move forward in early 2011 after Murphy Oil Corp. purchased the former Panda Ethanol plant near Hereford, Texas, in mid-September. Construction and a retrofit of the plant, which has been renamed Hereford Renewable Energy LLC, is expected to begin before the end of 2010, says Barry Jeffery, director of investor rela-

tions for Murphy Oil. The goal is to start up the plant at its nameplate capacity of 105 MMgy in the first quarter of 2011. â&#x20AC;&#x153;Once we have achieved a stable, reliable operation at nameplate capacity, then we will explore the full capability of the facility and expect to achieve higher rates towards 115 MMgy with improved operational efficiencies,â&#x20AC;? he says.

On the Auction Block The sale of the Gateway ethanol plant in Pratt, Kan., was still pending in late October. An auction planned for the end of September was cancelled when a potential buyer stepped forward. The buyer, who has expressed interest in restarting the idled 55 MMgy plant, remained anonymous as it worked through its due diligence.

A buyer wasnâ&#x20AC;&#x2122;t found before the Nov. 10 auction date, and Renova Energy Idaho, a partially-constructed 20 MMgy plant in Heyburn, Idaho, was sold in bits and piec-

es. Another auction set for Feb. 1 is unique because the facility is still operating. North County Ethanol, a 25 MMgy facility in Rosholt, S.D., filed for bankruptcy in October 2008 and has been operating for the past year.

A fifth auction was scheduled this fall for a small ethanol plant in Parker, S.D. Built in 2008 adjacent to a feed lot in Parker, S.D., the 2 to 4 MMgy Genesis Ethanol I plant was operated less than a year, according to Maas Companies, which handled the auction. â&#x20AC;&#x153;Although the micro ethanol plant began operations, it was not able to sustain its momentum with overwhelming external factors affecting the industry as well as some operational issues,â&#x20AC;? Maas explained in its auction brochure.

Author: Holly Jessen Associate Editor, Ethanol Producer Magazine (701) 738-4946 hjessen@bbiinternational.com.

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Actuator Key to Plant Optimization Using electric actuators on critical applications improves control and reliability. BY JAY TANNAN A quality feed coproduct is vital to the success of an ethanol plant, therefore attention paid to critical sections in the distillers grains drying process is of utmost importance. As in any combus-

tion process, the main objective is to maximize efficiency and in so doing, maximize product quality.

There are many factors to be considered when improving the efficiency of a dryerâ&#x20AC;&#x201D;drying time, air temperature and surface temperatureâ&#x20AC;&#x201D;all impacting quality.

Some studies have linked the variations in dried distillers grains with solubles (DDGS) moisture content to its digestibility in animals. Moisture content also affects the DDGS shelf life. Better dryer temperature control leads to less variability, more consistent product and better energy efficiency.

To achieve better dryer performance, air and fuel flows must be controlled precisely and consistently throughout the process.

Traditionally, pneumatic actuators have

been used to control the various throttling dampers and valves that regulate air and fuel flow, but pneumatic actuators donâ&#x20AC;&#x2122;t have the consistent positioning capabilities required to optimize process control. Many ethanol plants are following the lead of the electric utility industry and installing specialty electric actuators. Choosing the right type of electric actuator capable of continuous modulation control can pay big dividends in terms of improved process control, product quality and efficiency.

Means for Good Actuation What makes up a superior quality actuator and how can its performance influence the efficiency of a process? Since actuators come in a variety of different designs and sizes, one has to focus on specific application requirements. Actuators required for optimal process control must be capable of continuous modulation and provide consistent, precise positioning of the damper or valve over time and in varying conditions.

70 | Ethanol Producer Magazine | DECEMBER 2010

An actuator needs to provide this control regardless of the number of starts and stops or changes in load and environmental conditions. Furthermore, the response of the actuator should not be affected by stiction (sticking caused by friction) that leads to a stick and slip response which adds dead time and causes overshoot and cycling.

With the inconsistent nature of damper and valve loads, and the simple fact that industrial equipment is not frictionless, pneumatic actuators will typically experience stiction. These actuators use compressible air for balancing dynamic and static loads which tends to trigger irregular control and positioning.

Electric actuators do not typically have issues with stiction. Most designs, however, incorporate induction motors that present another limitation. Every time an induction motor starts there is a high in-rush current that generates a lot of heat. This type of electric actuator design requires built-in thermal protection that turns the motor off if

EQUIPMENT

valve applications: bleed-off, combustion, recirculation air damper and other fan dampers. These are primarily used for flow and pressure control in the dryers. In some cases, flue gas recirculation dampers are also being controlled by electric actuators to reduce nitrous oxide emissions by recirculating flue gas to the combustion chamber.

Given that many of the processes in an ethanol plant require precise control, the desire to have a continuous duty actuator that will not coast or over-shoot the demand is extremely important. By regulating flow rates and pressures through various dampers and valves, electric actuators can improve efficiencies on many applications. Besides the dryers, the molecular sieve process and various tanks represent other opportunities for Real Time Operating data shows the time lag in responding to demand. Choosing the right actuator permits more precise flow control. actuator upgrades. These applications involve SOURCE: HAROLD BECK the controlling of gases and liquids through the temperature rises too high. The problem and under all conditions. This allows the con- a multitude of valves, which, if controlled eftrol system to maintain the process demands, fectively, could increase overall efficiency and with this motor design is that the actuareduce operating costs. avoiding inconsistencies caused by poor torâ&#x20AC;&#x2122;s ability to start and stop, or modulate, With a volatile global economy, one positioning of the final control element. is limited by motor temperature rise rather has to look in every direction for potential Having good control makes a huge than by what is required to optimally control upgrades and improving automation is one the process. Therefore, in order to maximize difference in the operating efficiency of a key area. Maximizing returns in an increasprocess. Good control is a function of how control performance, care must be taken to ingly competitive environment is key to plant closely the dampers and valves can follow avoid selecting electric actuators that utilize success. One of the most critical, but often induction motors with duty-cycle limitations, the demand and depend upon actuators that are capable of tracking the demand. In a misunderstood parts of optimizing process and select an actuator rated for continuous combustion process typical of a DDG dryer, control performance and efficiency is selectmodulating duty. ing the correct actuator. Installing reliable optimal control results in lower fuel conAn electric actuator that can precisely electric actuators that are designed for contrack the closed-loop demand is best suited sumption and more stable product quality. tinuous modulating service, while providIn addition, optimized control leads to less for modulating applications. The actuator equipment fatigue caused by both mechanical ing precision positioning consistently over should respond quickly to demand changes and thermal cycling. Therefore, maintenance time and changing conditions, is an absolute without any dead-time, lag or overshoot. necessity. In the end, improving a plantâ&#x20AC;&#x2122;s costs are reduced and the actuators, dampThis not only requires an actuator capable of continuous duty but also the ability to ers and valves will last longer, provide better performance can be as simple as investing in better actuator performance for the DDGS make small, consistent position adjustments. control and reduce unplanned shutdowns. drying section of an ethanol plant.

If chosen correctly, an electric actuaMany typical electric actuators are incapable tor will respond instantaneously to demand of making changes less than 0.5 percent of Author: Jay Tannan Sales Application Engineer changes without any overshoot or stiction. travel, and pneumatic actuators can be far Harold Beck and Sons Inc. worse over time combined with the potential It will also provide a 100 percent continu(215) 968-4600, jtannan@haroldbeck.com effect of changing loads and conditions. Care ous duty motor that never overheats and should be taken to select actuators capable is capable of unlimited starts and stops.

Currently, electric actuators are being used in position changes in the range of 0.10-0.15 ethanol plants on many critical damper and percent of full actuator travel consistently The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Ethanol Producer Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).

DECEMBER 2010 | Ethanol Producer Magazine | 71

EFFICIENCY

CONTRIBUTION

Low-Hanging Fruit Relatively inexpensive modifications to the cooling tower and RO can save energy and water. BY RANDY MCDANIEL cussion deals with the location of the cooling tower blowdown. Are you blowing down relatively hot or cold water?

In some plant configurations, cyclonic filtration is utilized on the cooling tower supply. This makes there are ways to squeeze a little sense as it reduces the suspended more water and energy out of the Configuring solids loading to the plant, thus plant as well. Two projects provide Conservation Finetuning water reducing the risk of heat exconservation opportunities that temperatures reaps changer fouling. Sludge build up savings, says Randy require minimal investment with McDaniel, area in the cyclone filter is removed immediate return. manager, Weas via blowdown. Some plants have Engineering. utilized this as the primary source Project 1: of cooling tower blowdown. The Cooling Tower Blowdown downside is relatively cold water gets utilized I am going to bypass the obvious choice for cooling tower blowdown. to discuss ways to increase cycles of concenThe cooling tower supply is designed tration to reduce the amount of blowdown to be at least 10 degrees Fahrenheit cooler required. All respectable water treatment than the cooling tower return. However, it companies should already be working diliis commonly at least 13 F cooler. Assuming gently to maximize cycles of concentration while preventing the adverse impacts of scale the plant requires about 75 gpm of cooling tower blowdown to maintain the appropriand corrosion, as this can deliver significant ate cycles of concentration, blowing down water and chemical savings. Instead, this dis-

It is no surprise that plenty of research and focus is spent on squeezing as much ethanol as possible out of every bushel of corn. Although not as glamorous,

72 | Ethanol Producer Magazine | DECEMBER 2010

the cooling tower supply that is 13 F cooler wastes 11.71 million Btu per day. The math used to figure that waste appears below and can be applied to your situation.

Blowdown gpm X 1440 minute/day X Density of Water X Tower Range = Btu 75 gallons/minute X 1440 minute/day X 8.34 pounds/gallon X 13oF = 11,709,360 Btu

Since about 1,000 Btu are removed in a cooling tower per pound of water evaporated, this project will conserve 11,709 pounds of water for evaporation each day.

This equates to 1,404 gallons per day. Over 365 days, this conserves 512,460 gallons of water for evaporation. Assuming four cycles of concentration, the reduced evaporation also reduces the required blowdown by 468 gallons per day since Blowdown = Evaporation / (Cycles â&#x20AC;&#x201C; 1). The cooling tower make-up requirement is reduced by 1,872 gallons per day since Make-up = Evaporation

EFFICIENCY

+ Blowdown. As a result, this project actually conserves a total of 683,280 gallons of plant water per year. Beyond the water conservation, there is a reduced thermal load on the cooling tower, which may reduce electrical use by the cooling tower fans.

The goal should be to use the hottest water possible for blowdown to conserve the most water. This project typically requires minimal piping and control changes.

There is a note of caution when implementing this project. Since the plant will be blowing down warmer water, there is the potential to have an impact on the water discharge permit. This is especially true if the discharge has little retention time prior to being directly discharged.

Project 2: Free Cooling RO Preheater Reverse osmosis (RO) membranes are designed to operate at 77 F. Designers account for machines to operate below 77 F by over-sizing machines or installing cold water membranes. It is normal for an RO to operate with about 55 F water. This project evaluates the opportunity to pre-heat the RO feedwater closer to 77 F, which is very common as the benefits are numerous. The twist discussed here is to utilize cooling tower return as the heat source using a plate and frame heat exchanger.

In order to evaluate the benefits, it is necessary to establish a few assumptions: Current RO feedwater usage is 500,000 gallons per day and some of the RO permeate is used in the cooling tower to increase cycles of concentration. In this example, cooling tower adds about 100 gpm RO permeate.

Current RO feedwater temperature is 55 F. Proposed RO feedwater temperature of 70 F. In this example, there are about 62.55 million Btu available from the cooling tower to be transferred to the RO feedwater. These

Btu reflect a â&#x20AC;&#x153;free coolingâ&#x20AC;? opportunity for the cooling tower and a direct load reduction on the tower. As seen in Project 1, reducing the Btu load on the tower can conserve water.

One must subtract the Btu increase, however, from the RO permeate added back to this cooling tower to help increase the cycles of concentration and determine the total available free cooling Btu. In this case, it is 18.01 million Btu. As a result, the total available free cooling is 44.54 million Btu. Since about 1,000 Btu are removed in a cooling tower per pound of water evaporated, this project will conserve 44,540 pounds of water for evaporation each day. This equates to 5,340 gallons per day. Over 365 days, this conserves 1,949,100 gallons of water for evaporation. Assuming four cycles of concentration, the reduced evaporation also reduces the required blowdown by 1,780 gallons per day since Blowdown = Evaporation / (Cycles â&#x20AC;&#x201C; 1). The cooling tower make-up requirement is reduced by 7,120 gallons per day since Make-up = Evaporation + Blowdown.

As a result, this project actually conserves a total of 2,598,800 gallons of plant water per year.

Although this project conserves more water, it also requires a slightly higher capital investment. In order to make it work, a heat exchanger is required in addition to piping and plumbing. There are plenty of other benefits associated with this project.

Since the RO operates at a higher permeate flow rate as it approaches 77 F, an existing RO will operate for fewer hours to produce the same quantity of water. This reduces the electrical demand for the high pressure RO pump, along with mechanical wear and tear on the machine. Should a new RO be used, the designer can select a smaller unit instead of oversizing. As a result, the initial capital investment is smaller.

Additionally, there is a benefit to having higher temperature RO permeate, assuming it is used for boiler make-up. It should also be stated that if operating an ethanol plant with

an RO where the permeate is not used for make-up to the boiler or heat recovery steam generator (HRSG), there may be an even bigger opportunity for savings in the form of increasing boiler cycles of concentration. Increasing the RO permeate from 55-70 F using Btu from the cooling tower means fewer Btu are necessary from natural gas. Assuming the boiler make-up rate is 120 gpm and the boiler efficiency is 80 percent, 27.02 million Btu can be conserved daily. The math is shown below.

120 gallons/minute X 1440 minute/day X 8.34 pounds/gallon X 15oF / 0.8 boiler efficiency = 27,021,600 Btu

Assuming natural gas cost is about $5 per 1 MMBtu, this also conserves $135.11 daily for natural gas or $49,314 annually. The natural gas reduction for a HRSG may not be as easily calculated due to the nature of the HRSG. If supplemental natural gas is used in the HRSG in order to provide steam load, the natural gas savings would be similar. If the HRSG is only generating steam from the waste heat, a large portion of the Btu may end up exiting the stack.

Increasing ethanol yield in fermentation by 0.1 percent is as thrilling as watching Peyton Manning hit Reggie Wayne on an 80-yard touchdown pass against the Patriots.

Neither of these projects will deliver that kind of excitement, but they are fairly simple and inexpensive to implement. Call it the linesman approach. Delivering incremental and continuous improvements in the utility is my goal because saving electricity, water and fuel is good for business and the longevity of the industry. With a thorough understanding of the plant operation, it is possible to maximize every gallon of water, every kilowatt of electricity, every therm of fuel and make the plant work to the last Btu. Author: Randy McDaniel Area Manager, Weas Engineering (317) 867-4477. randy.mcdaniel@weasengineering.com

The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Ethanol Producer Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).

DECEMBER 2010 | Ethanol Producer Magazine | 73

EPM MARKETPLACE Associations/Organizations Growth Energy 202-545-4000

www.growthenergy.org

Clean Cities

Premium Plant Services, Inc. 888-549-1869 www.premiumplantservices.com

Fans Hydro-Klean, Inc. 515-283-0500

Red River Valley Clean Cities 651-227-8014 www.CleanAirChoice.org Twin Cities Clean Cities Coalition 651-223-9568 www.CleanAirChoice.org

Premium Plant Services, Inc. 888-549-1869 www.premiumplantservices.com

Filter Media Hydro-Klean, Inc. 515-283-0500

Chemicals

www.hydro-klean.com

www.hydro-klean.com

Anti-Microbial Ferm Solutions 859-402-8707

Heat Exchanger www.ferm-solutions.com

Desiccant Interra Global 847-292-8600

www.interraglobal.com

Enzymes CTE Global, Inc. 847-564-5770 Novozymes 919-494-3101

www.cte-global.com www.novozymes.com

Yeast Ferm Solutions 859-402-8707

Plate-Frame

www.ferm-solutions.com

Hydro-Klean, Inc. 515-283-0500

Cleaning Dryer Systems Hydro-Klean, Inc. 515-283-0500

Hydro-Klean, Inc. 515-283-0500 www.hydro-klean.com

Premium Plant Services, Inc. 888-549-1869 www.premiumplantservices.com Seneca Companies 800-369-5500

Seneca Companies 800-369-5500

Hydro-Klean, Inc. 515-283-0500

Ductwork Hydro-Klean, Inc. 515-283-0500

www.hydro-klean.com

Emergency Spill Response Hydro-Klean, Inc. 515-283-0500 Seneca Companies 800-369-5500

www.hydro-klean.com

www.hydro-klean.com www.senecaco.com

Hydro-Klean, Inc. 515-283-0500

Railcars Hydro-Klean, Inc. 515-283-0500

www.hydro-klean.com

www.hydro-klean.com

www.hydro-klean.com

Scrubbers Hydro-Klean, Inc. 515-283-0500

www.hydro-klean.com

Smoke Stack Hydro-Klean, Inc. 515-283-0500

www.hydro-klean.com

Tank Cleaning Equipment www.senecaco.com

Evaporators Hydro-Klean, Inc. 515-283-0500

Railcar Spill Response

Hydro-Blasting www.senecaco.com

www.hydro-klean.com

www.hydro-klean.com

74 | Ethanol Producer Magazine | DECEMBER 2010

Cloud/Sellers Cleaning Systems 800-234-5650 www.sellersclean.com Gamajet Cleaning Systems Inc 877-GAMAJET www.gamajet.com

EPM MARKETPLACE Westmor Industries 320-589-2100

Tank Cleaning Services Hydro-Klean, Inc. 515-283-0500 Seneca Companies 800-369-5500

www.hydro-klean.com www.senecaco.com

Andy J.Egan Co. 616-791-9952

Process Design

Environmental

ADF Engineering Inc. 937-847-2700

Cantley Inc. 865-360-4080

Fabrication www.agraind.com www.andyegan.com

Plant Construction

Golden Specialty 888-472-9898

www.goldenspecialty.com

ICM, Inc. 877-456-8588

www.icminc.com www.senecaco.com

www.harrisgroup.com

Management Services www.icminc.com

Plant Optimization Harris Group Inc. 206-494-9422

www.harrisgroup.com

ICM, Inc. 877-456-8588

www.icminc.com

Harris Group Inc. 206-494-9422

www.harrisgroup.com

Rail Safe Training, Inc. 712-212-4145 www.railsafetraining.com

www.flaktwoods.com

Aaron Equipment 630-350-2200 www.aaronequipment.com

Harris Group Inc. 206-494-9422

www.harrisgroup.com

ICM, Inc. 877-456-8588

www.icminc.com

Kahler Automation Corp.

507-235-6648 www.kahlerautomation.com

Intersystems 800-228-1483

www.intersystems.net

Superior Industries 320-589-2406

www.superior-ind.com

Delta Cooling Towers, Inc. 800-BUY-DELTA www.deltacooling.com

S.E Weinstein Company 800-258-1701 www.seweinstein.com

Corn Oil Recovery

SearchPath of Chicago

ICM, Inc. 877-456-8588

www.searchpathofchicago.com

815-261-4480,x111

www.icminc.com

DDGS Diesel

RenewableEnergy-Careers.com

J.C. Ramsdell Enviro Services, Inc. 877-658-5571 www.jcramsdell.com

FlaktWoods 716-845-0900

Recruiting

815-261-4403, x100

www.agraind.com

www.eco-tec.com

Cooling Towers

Employment

Agra Industries, Inc. 715-536-9584

Eco-Tec, Inc. 905-427-0077

Conveyors–Mechanical

Safety

www.atecsteel.com

Biogas Scrubbers

Conveyors–Drag

Project Development

ATEC Steel 620-856-3488

www.icminc.com

Control Systems

ICM, Inc. 877-456-8588

Tanks

ICM, Inc. 877-456-8588

Centrifuges

Harris Group Inc. 206-494-9422

Railroad Tracks

adfengineering.com

Blowers & Fans

Seneca Companies 800-369-5500

www.agraind.com

www.burnsmcd.com

Equipment & Services

Feasibility Studies

Agra Industries, Inc. 715-536-9584

Burns & McDonnell 816-333-9400

Consulting Aquaterra Environmental Solutions, Inc. 877-913-8200 www.aquaterra-env.com

Construction Agra Industries, Inc. 715-536-9584

www.westmor.biz

RenewableEnergy-Careers.com

Total-Yield Diesel from Distillers 402-640-8925 www.total-yield.com

Engineering

Distillation Equipment

Design/Build Agra Industries, Inc. 715-536-9584

www.agraind.com

SRS Engineering Corpration 951-526-2239 www.srsbiodiesel.com

DECEMBER 2010 | Ethanol Producer Magazine | 75

EPM MARKETPLACE Dryers-Fluid Bed

Laboratory-Testing Services

Buhler Aeroglide 919-851-2000

www.aeroglide.com

Foundation Analytical Laboratory 712-225-6989 www.foundationanalytical.com Midwest Laboratories, Inc. 402-829-9877 www.midwestlabs.com

Dryers-Rotary Drum

Custom Rotary Driers for DDGS & Biomass Feedstocks

Loading Equipment Determan Brownie, Inc. 800-835-6074

With rotary drying technology

by Ronning Engineering www.aeroglide.com/ethanol or call +1 919-851-2000

www.determan.com

Maintenance Software ICM, Inc. 877-456-8588

www.icminc.com

Millwright ICM, Inc. 877-456-8588

www.icminc.com

Dryers-Rotary Steam Tube ICM, Inc. 877-456-8588

www.icminc.com

Quality Kiln and Dryer Inc 318-335-2001 www.qualitykilnanddryer.com

Fermentors

www.agraind.com

Molecular Sieves Grace Davison Renewable Technologies 410-531-8731 www.gracebiofuels.com ICM, Inc. 877-456-8588

www.icminc.com

Parts & Services

WINBCO Tank Company 641-683-1855

www.winbco.com

Fluid Engineering 814-453-5014

ICM, Inc. 877-456-8588

www.icminc.com

Thermal Oxidizers

Filtration Equipment

Process Control www.fluideng.com

Fractionation-Corn Buhler Inc. 763-847-9900

Agra Industries, Inc. 715-536-9584

Harris Group Inc. 206-494-9422

www.harrisgroup.com

Productivity Enhancements www.buhlergroup.com/us

ICM, Inc. 877-456-8588

www.icminc.com

Cereal Process Technologies 217-779-2595 www.cerealprocess.com

Pumps

Crown Iron Works Company 651-639-8900 www.crowniron.com

PeopleFlo Manufacturing 847-929-4774 www.peopleflo.com

ICM, Inc. 877-456-8588

Structural Fabrication

www.icminc.com

Grain Handling & Storage Agra Industries, Inc. 715-536-9584

www.agraind.com

dgskouseco@aol.com

Miller Insulation Co., INC 701-297-8813 www.millerinsulation.com

ATEC Steel 620-856-3488

www.agraind.com

www.agraind.com www.atecsteel.com

Spokane Industries Inc. 509-921-8868 www.spokanemetalproducts.com

76 | Ethanol Producer Magazine | DECEMBER 2010

for VOC, CO & PM ABATEMENT EISENMANN Corporation Crystal Lake, Illinois

Tanks Agra Industries, Inc. 715-536-9584

Insulator DG Skouse Company 816-779-7427

Agra Industries, Inc. 715-536-9584

PROVEN RELIABILITY

815.455.4100 es.info@eisenmann.com

EPM MARKETPLACE Wastewater Treatment Services

Transportation

ADI Systems Inc. 1-506-452-7307

Marine

www.adisystemsinc.com

Odin Marine, Inc. 203-969-3400

Hydro-Klean, Inc. 515-283-0500

AdIndex www.odingroup.com

www.hydro-klean.com

19 2011 National Ethanol Conference

Rail

ICM, Inc. 877-456-8588

www.icminc.com

Water Treatment H2O INNOVATION 763-566-8961 www.H2OINNOVATION.com

Finance

40 2011 International Fuel Ethanol Workshop & Expo

69 2011 International Biomass Conference & Expo

Ameritrack RailRoad Contractors, Inc. 765-659-2111 www.ameritrackrailroad.com

78 2011 International Biorefining Conference & Trade Show 44 Agra Industries Inc.

Rail Consulting

50 ATEC Steel

Rail Safe Training, Inc. 712-212-4145 www.railsafetraining.com

53 BetaTec Hop Products 37 Biomass Power & Thermal

Railcar Gate Openers

Appraisals Natwick Associates Appraisal Services 800-279-4757 www.natwick.com

41 Biorefining

The Arnold Company 800-245-7505 www.arnoldcompany.com

67 BinMaster Level Controls 52 Brock Grain Systems 39 BrownWinick Law Firm

Due Diligence

2 Burns & McDonnell

Harris Group Inc. 206-494-9422

Reach your customers

www.harrisgroup.com

68 CHS Renewable Fuels Marketing 45 & 65 CPM Roskamp Champion

Your Solution. Advertise Today.

Insurance

60 Crown Iron Works Co.

EPM MARKETPLACE

ERI Solutions, Inc. 316-927-4294

61 EcoEngineers 47 EISENMANN Corp.

erisolutions.com

13 Fagen Inc.

Mergers & Acquisitions

48 FCStone, LLC

Marketing Fuel Ethanol CHS Renewable Fuels 651-355-6271

www.chsinc.com

Miscellaneous Maas Companies 507-424-2640

www.maascompanies.com

Research & Development Engine Testing Roush Industries 734-779-7736

www.roush.com

bs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.c

WOHLSIFER & ASSOCIATES, P.A. 850-219-8888 www.wohlsifer.com

www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jo

Attorneys

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Moglia Advisors 847-884-8282

66 Gavilon 17 & 23 Genencor速 - A Danisco Division 25 Gevo 80 Growth Energy 46 Hydro-Klean Inc. 5 ICM, Inc. 10 & 11 Inbicon 38 Indeck Power Equipment Co. 35 Kennedy & Coe LLC 21 Lallemand Ethanol Technology 36 Lindquist & Vennum PLLP 49 Louis Dreyfus 59 Natwick Associates Appraisal Services 79 North American Bioproducts Corp.

7 Novozymes 12 Pioneer Hi-Bred International Inc. 51 Premium Plant Services Inc. 55 Renewable Fuels Association 64 Tri-State Ethanol Co. 34 Vogelbusch USA, Inc. 58 Wabash Power Equipment Co.

DECEMBER 2010 | Ethanol Producer Magazine | 77

78 | Ethanol Producer Magazine | DECEMBER 2010

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