June 2010 Ethanol Producer Magazine

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contents

vol. 16 no. 6

features 44 CARBON Capturing Carbon Ethanol plants have partnered in markets finding value in their captured CO2.

–By Luke Geiver 52 COMPLIANCE Pushing Back on Violations Unprecedented fines have led to an unprecedented program by the Minnesota Pollution Control Agency.

–By Luke Geiver 60 USE Healthy Living: DDG’s New Function Distillers grains may find a new market for extracted protein and fiber to be used in functional foods.

–By Luke Geiver

68 PROFILE Not Satisfied with the Status Q Qteros CEO John McCarthy reflects on lessons learned at Verenium, the role of Big Oil and the future of cellulosic ethanol.

–By Holly Jessen

76 RESEARCH Behind the Cellulosic Scenes Researchers are working on new methods to release plant sugars from biomass and potentially boost plant growth.

–By Anna Austin

76 4

ETHANOL PRODUCER MAGAZINE

June 2010

contents departments

contributions

8 Editor’s Note See You in St. Louis

By Susanne Retka Schill 9 Advertiser Index North Dakota

10 Events Calendar

Minnesota Hankinson

14 The Way I See It Opportunities to Tell Our Story

By Mike Bryan

Wisconsin Michigan

South Dakota

Janesville Woodbury

Aurora

Welcome Charles City

Marion Hartley Dryersville

Albert City Fort Dodge

Ohio Linden

Iowa

Bloomingburg

Nebraska

Indiana

Albion Ord

Central City

Illinois

82 82 MANAGEMENT The Rise and Fall of VeraSun, Continued The assets of the bankrupt ethanol producer have been sold, but a shareholder law suit against management continues the drama.

–By Todd Taylor and James Dorsey

16 View From the Hill What a Difference a Year Can Make

By Bob Dinneen 18 Drive Just the Facts

By Tom Buis 20 eBio Spinning and Scaremongering

By Rob Vierhoust 22 Taking Stalk Prospects for Ethanol Feedstocks in 2010

By Daniel O’Brien 24 Business Matters RFS2: Just One of the Administration’s GHG Reduction Strategies

By David A. Crass, William J. Robinson and Anna J. Wildeman 26 Business & People 30 Commodities

86 86 BIOMASS Economic Drivers of Low-Carbon Energy Solutions for Ethanol Producers Conversion technologies get most of the attention, but there are other aspects to consider in using biomass as a feedstock or power source.

–By Scott McDermott

6

32 BIObytes 34 Industry News 90 Marketplace

Ethanol Producer Magazine: (USPS No. 023-974) June 2010, Vol. 16, Issue 6. 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.

ETHANOL PRODUCER MAGAZINE

June 2010

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See You in St. Louis

J

une marks the beginning of summer and for ethanol producers, the big event of the year—the International Fuel Ethanol Workshop & Expo, being held June 15-17 in St. Louis. We at BBI International have been working hard, along with help from our industry friends, to create a program worthy of your time, and an expo that truly represents the industry.

Along with networking, tours, a solid educational program and expansive expo, this year’s 26th annual gathering will continue the tradition of honoring two industry leaders. The Award of Excellence acknowledges technical contributions to the industry and the High Octane Award recognizes an exceptional industry leader.

The scholarship program has a new focus this year. It will now be offered as the Kathy Bryan Memorial Scholarship, in honor of Bryan, co-founder of the FEW, Ethanol Producer Magazine and former president of BBI International. Starting in the 1980s, she was a champion for ethanol and held a positive vision for stronger rural communities, a prosperous agriculture and environmental stewardship. Two $2,000 scholarships will be awarded to employees of any U.S. ethanol plant or a member of the employee’s immediate family headed to college, university or trade school this fall. The applicants are asked to explain how their career focus will help forward Bryan’s vision for rural America. A special fundraising effort to help fund the annual scholarships will be held this year, with commemorative mugs distributed during the FEW & Expo receptions by participating exhibitors.

The atmosphere at FEW promises to be upbeat this year—the economy has stabilized and the industry has seen some good months with healthy returns. There appears to be political support for renewable fuels, in spite of all the controversies—after all, President Barack Obama wouldn’t be touring a Midwestern ethanol plant if it were political suicide. As we put this issue of the magazine to bed, Associate Editor Holly Jessen returned to the office from covering the presidential visit to the ethanol plant at Macon, Mo. Look for her story in the July issue. And look for the EPM team at the FEW. We’d love to chat with you about what’s happening in your corner of the ethanol industry.

Susanne Retka Schill, Editor sretkaschill@bbiinternational.com

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ETHANOL PRODUCER MAGAZINE

June 2010

AdIndex www.EthanolProducer.com E D I T O R I A L Susanne Retka Schill Editor sretkaschill@bbiinternational.com

Holly Jessen Associate Editor hjessen@bbiinternational.com

Luke Geiver Associate Editor lgeiver@bbiinternational.com

Jan Tellmann Copy Editor jtellmann@bbiinternational.com

P U B L I S H I N G Mike Bryan

&

S A L E S

Chairman mbryan@bbiinternational.com

Joe Bryan

CEO jbryan@bbiinternational.com

Tom Bryan

Vice President tbryan@bbiinternational.com

Matthew Spoor

Vice President, Sales & Marketing mspoor@bbiinternational.com

Howard Brockhouse

Executive Account Manager hbrockhouse@bbiinternational.com

Jeremy Hanson

Senior Account Manager jhanson@bbiinternational.com

Marty Steen

Account Manager msteen@bbiinternational.com

Bob Brown

Account Manager bbrown@bbiinternational.com

Gary Shields

Account Manager gshields@bbiinternational.com

Jessica Beaudry

Subscriptions Manager jbeaudry@bbiinternational.com

Jason Smith

Subscriber Acquisition Manager jsmith@bbiinternational.com

Marla DeFoe

Advertising Coordinator mdefoe@bbiinternational.com

A R T Jaci Satterlund

Art Director jsatterlund@bbiinternational.com

Sam Melquist

Graphic Designer smelquist@bbiinternational.com

Elizabeth Burslie

Graphic Designer bburslie@bbiinternational.com

66 74 29 46 51 64 19 57 78 41 42 65 2 72 55 49 71 84 83 47 58 25 21 87 11 79 80 81 3 & 15 96 48 88 5 12 & 13 40 50 23 38 39 56 85 70 95 7 17 59 73 37 67 54 63 62 75 36 89 43

2010 Northeast BIOMASS Conference & Expo 2010 Southeast BIOMASS Conference & Expo 2011 International Fuel Ethanol Workshop & Expo Agra Industries Inc. ASI Industrial Angel Yeast Co., LTD Anhydro Inc. BetaTec Hop Products Biomass Magazine BrownWinick Law Firm Buckman Laboratories Inc. Buhler Inc. Burns & McDonnell Cereal Process Technologies Cima Energy, LTD Cloud/Sellers Cleaning Systems CPM Roskamp Champion Crown Iron Works Co. Davenport Dryer, LLC EISENMANN Corp. ethanol-jobs.com Fagen Inc. FCStone, LLC Ferm Solutions Inc. Fermentis - Division of S.I. Lesaffre Flottweg Separation Technology Gamajet Cleaning Systems, Inc. Gavilon Genencor® - A Danisco Division Growth Energy Hydro-Klean Inc. IBED 2010 ICM, Inc. Inbicon Indeck Power Equipment Co. Maas Companies MAC Equipment Marcus Construction Co. Martrex Inc. McC Inc. Nalco Co. Natwick Associates Appraisal Services North American Bioproducts Corp.

Novozymes Phibro Ethanol Performance Group Pioneer Hi-Bred International Inc. Premium Plant Services Inc. Pro-Environmental, Inc. Renewable Fuels Association Resonant BioSciences Scott Equipment Co. U.S. Tsubaki Verenium Vogelbusch USA, Inc. Wabash Power Equipment Co. WINBCO

SUBSCRIPTIONS Ethanol Producer Magazine is now 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 AND REPRINTS Select back issues are available for $3.95 each, plus shipping. To place an order, contact Subscriptions at (701) 746-8385 or service@bbiinternational.com. Article reprints are also available for a fee.

ADVERTISING For advertising rates and our editorial calendar, visit www.EthanolProducer.com or call (866) 746-8385.

Please send correspondence to: Ethanol Producer Magazine 308 Second Ave. N., Suite 304 Grand Forks, ND USA 58203 Phone: (701) 746-8385 Fax: (701) 738-4927 Advertising information online: www.EthanolProducer.com

LETTERS TO THE EDITOR We welcome letters to the editor. Send your letter to: Ethanol Producer Magazine Letters, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203 or e-mail to sretkaschill@bbiinternational.com. Letters should include the writer’s full name, address and telephone number, and may be edited for purposes of clarity and space.

ETHANOL PRODUCER MAGAZINE

June 2010

COPYRIGHT © 2010 by BBI International

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EVENTS CALENDAR

International Fuel Ethanol Conference & Expo June 14-17, 2010

Corn Utilization and Technology Conference June 7-9, 2010

2010 Farm to Fuel Summit August 11-13, 2010

America’s Center St. Louis, Missouri This Ethanol Producer Magazine-sponsored conference provides the global ethanol industry with cutting-edge content and unparalleled networking opportunities in a dynamic business-to-business environment. It is the largest, longest-running ethanol conference in the world. The event delivers timely presentations with a strong focus on commercial scale ethanol production, new technology, and near term research and development.

Atlanta Hilton Atlanta, Georgia The program has been expanded to include current topics related to corn such as land use issues and greenhouse gas emissions, aquifers, water quality and usage in corn agriculture, life-cycle analyses of new technologies and plenary sessions addressing these issues. They will include sessions on wet and dry milling processes, biocatalysts, gene transformation technology, health and nutrition, unique specialty corns, new products and revenue streams.

Rosen Shingle Creek Orlando, Florida This fifth annual summit is an opportunity for industry leaders and stakeholders to learn, network and strategize to advance the development of renewable energy in Florida. Florida’s Farm to Fuel initiative was developed to promote the production and distribution of renewable energy from Florida-grown crops, agricultural wastes and other biomass. More than 500 attendees from academia, industry and government participated in last year’s summit.

www.fuelethanolworkshop.com

www.corntechconf.org

www.floridafarmtofuel.com

June

Advanced Biofuels Workshop June 14, 2010 America’s Center St. Louis, Missouri In its third year, this BBI International one-day workshop focusing on advanced biofuels will be co-located with the International Fuel Ethanol Workshop & Expo to be held June 14 to 17 in St. Louis. The full range of advanced biofuels from biomass-based diesels to cellulosic ethanol and other biofuels will be covered in workshops dealing with research, project development, feedstock development, environmental performance and more. www.advancedbiofuelsworkshop.com

10

Aug

Northeast Biomass Conference & Expo August 4-6, 2010

Sept

World Energy Congress Montreal 2010 September 12-16, 2010

Westin Copley Place Boston, Massachusetts With an exclusive focus on biomass utilization in the Northeast U.S., this Biomass Magazine-sponsored event will connect current and future producers of biomass-derived electricity, industrial heat and power, and advanced biofuels, with waste generators, aggregators, growers, municipal leaders, utilities, technology providers, equipment manufacturers, investors and policymakers.

Montreal Convention Centre Montreal, Quebec The goal and objectives of the event are to work toward responsible growth that reconciles economic development, environmental protection and the reduction of global inequalities. The conference is held every three years and brings together more than 3,500 top world leaders in the field of energy. www.wecmontreal2010.ca

www.biomassconference.com/northeast

ETHANOL PRODUCER MAGAZINE ETHANOL PRODUCER MAGAZINE• June June2010 2010

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In 2009 we invited the world to explore the new metrics of The New Ethanol.™

Now it’s your turn to help shape them.

To open the first Inbicon Biomass Refinery last year, we opened a dialogue. It led to partnering with nine major firms. When international visitors from the Copenhagen climate summit toured our plant, they saw technology in the midst of evolution. Vogelbusch engineers turning the distillation to bring out its best.

Teams from Novozymes and Genencor working to bring enzymatic hydrolysis costs down. As we convert wheat straw to The New Ethanol, we work with the adjacent coal-fired power plant. Energy exchange will increase its efficiency to 71%.

In 2008 Mitsui Engineering & Shipbuilding (MES) came with questions about converting ag waste common to Southeast Asia and ended up planning Inbicon Biomass Refineries there. In the U.S., Minnesota’s Great River Energy is planning to cofire coal with our clean lignin. We’re also talking to innovative thinkers

about turning process streams into high-margin products.

Recent discussions are leading to projects that convert corn stover, sugar bagasse, and energy crops into ethanol. We invite Inbicon CEO Niels Henriksen and David investors, government agencies, and engineering and construction Saggau, CEO of Great firms for equally fruitful talk. Help us shape the new metrics of River Energy, are planning a 20 Mmgy successful business plans for customers worldwide.

Inbicon Biomass Conversations can lead to collaboration, collaboration to innovation, and innovation to sustainable solutions for a world shackled by with a Great River Energy power station fossil fuels and conventional thinking. To join the conversation, join in North Dakota USA. us at FEW. Or call Thomas Corle at 717-626-0557.

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The Way I See It

Opportunities to Tell Our Story Over the past 30 years, there never seems to have been a shortage of issues surrounding ethanol. In the early days of the industry it was automobile performance. Some of the most exaggerated claims you could possibly imagine were leaked to the media in an attempt to deter the progress of ethanol. I remember the 1-800 phone lines that were set up in Minnesota to handle the onslaught of calls from motorists when the state initiated a mandate for ethanol blends. Ralph Groshen from the Minnesota Department of Agriculture said that all hands were standing by—no one called. Similarly, California braced for consumer complaints when they established their oxygenated fuels program with ethanol. It was, perhaps, one of the biggest non-events in ethanol’s history.

Today it’s a whole new series of challenges—land use, food vs. fuel, the importation of Brazilian ethanol and the cattle industry blaming ethanol for the price of grain. While the arguments against ethanol are different than they were 10 and 20 years ago, not surprisingly, many of the players remain the same. So, we basically have the same actors, only different scripts.

Some may argue that all of these negative stories are terrible for the industry. Personally, I’m not so sure about that. While we certainly don’t need a lot of bad PR, in the long run, the opportunity they provide to tell our side of the story may well be to our advantage. If the food vs. fuel debate, for example, had never been surfaced, the ethanol industry would not have had the opportunity (painful as it may have been) to address the issue and put it to rest. The same is true for many of the technical

issues that have been raised over the years. They are opportunities to further solidify the benefits and sustainability of ethanol.

With 30 years of production and market experience, the ethanol industry has assembled some of the best and brightest talent in the renewable energy business. Young people who are ready to pick up the gauntlet for ethanol, working alongside others with many years of experience, together, are capable of tackling the toughest of challenges.

This may be wishful thinking, but it could actually be that at some point in the future, there will be little if anything left for which to attack ethanol. If not, I say to those who continue to try and hammer this industry down, give us your best shot. Come up with more wild and outlandish claims backed by flimsy studies, manipulated data and fuzzy math. It will only serve to make us better, sharper and more focused than ever before. Who knows, if we didn’t have these challenges, we just might get a little complacent.

That’s the way I see it!

Mike Bryan Chairman mbryan@bbiinternational.com 14

ETHANOL PRODUCER MAGAZINE • June 2010

VIEW FROM THE HILL

What a Difference a Year Can Make The notion that American ethanol production is leading to deforestation and other environmental calamities has been trumpeted by once-responsible environmental groups and their newly found friends in the oil, livestock and food processing industries since the widely refuted polemic by Tim Searchinger appeared in Time magazine more than two years ago.

Known as indirect land use change (ILUC), this environmental red herring has been used to slow, halt and even destroy America’s quest for a domestic renewable fuels industry. But what of this ‘science’? In the two years since, have we gotten any smarter? The short answer is yes. The longer answer is…compared to what?

A new study conducted by Thomas Hertzel, a professor at Purdue University and consultant to California’s Air Resources Board, calculates that the ILUC penalty for corn-based ethanol is nearly 1/10th that scratched out

by Searchinger and his cohorts. At less than 14 grams of greenhouse gas (GHG) emissions per megajoule of energy produced (13.9 g/MJ), Hertzel’s new findings are less than half those calculated by CARB in its low carbon fuels standard (LCFS) from just one year ago.

In successive years we have seen this so-called penalty of ILUC cut in half, and then halved again as real science begins to wrap its arms around the issue.

The new findings by Hertzel are significant for a number of reasons. They clearly demonstrate that the wild exaggerations made about the greenhouse gas impacts of domestic ethanol production were just that: exaggera-

tions. They also underscore the critical importance of using up-to-date data and real world assumptions when seeking to explore such complex issues. Seeking to portray worst-case scenarios in an effort to derail industries providing real jobs to real Americans under the guise of science is a dangerous and potentially costly endeavor.

Moreover, these findings should also inform the decision made by CARB to approve a LCFS that will purposefully exclude domestic ethanol from the California fuel market. In finalizing the rule, CARB made a big show of promising to update its findings should new science become available. Well, new science is now available. And this science is being provided by CARB’s lead consultant using the model CARB used in constructing the LCFS. If ever there was a case for review, this would be it.

Let’s be perfectly clear, penalizing domestic ethanol producers for land decisions made in sovereign nations half the world away is bad science. It has no place in state or federal regulation. As such, any reference to it should be removed. The fact that some continue to suggest it must be part of the discussion is evidence that the fight for sanity continues. At the very least, such penalties should be applied to all fuels equally. That is a far cry from today’s selective use against only ethanol.

However, the lessons we are learning from the ILUC debate should be taken to heart by policymakers and other opinion leaders alike. Sound science, not hyperbole and unproven theory, must dictate our energy choices.

Bob Dinneen President and CEO Renewable Fuels Association 16

ETHANOL PRODUCER MAGAZINE • June 2010

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DRIVE Buis

Just the Facts

By Tom Buis

ver the past few years, America’s ethanol industry has been defined by its opponents— whether by the food versus fuel propaganda campaign from Big Food or through the misinformation being parlayed through so-called institutions that owed their funding to hundreds of millions of dollars from Big Oil. That all ended April 12, the day Growth Energy went on the air with the American ethanol industry’s first-ever national, sustained television ad campaign. The “America’s Fuel” ad campaign is designed to promote the positive attributes of American ethanol—that we can strengthen our national security, create U.S. jobs and cut carbon emissions, all by producing and using more domestic ethanol.

The ad campaign is important because we are reaching out to people who have never before heard the positive message from American ethanol—people who have only heard oil’s side of the story.

We know the truth about domestic ethanol: we can create 136,000 jobs right here in the U.S. with the stroke of pen if the federal government approves Growth Energy’s Green Jobs Waiver for E15. Ethanol is a low-carbon fuel—59 percent cleaner than conventional gasoline. And every gallon of domestic ethanol we produce can displace a gallon of imported oil.

As of this month, we are near the half way mark of our six-month “America’s Fuel” campaign. Throughout the first three months of the campaign, we have seen positive feedback from the media and from our supporters, but we have also seen the continued resistance from opponents of the U.S. ethanol industry.

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Clearly, Big Oil and Big Food would have preferred that domestic ethanol—and all the families, farmers and businesses that tie their own fortunes to ethanol—would never have spoken up. But we have, and Growth Energy is determined to continue. This is only the first of several advertising campaigns you’ll see from Growth Energy.

The truth is that the ethanol is a fast-changing industry, and a lot of old information—as well as misleading rumors— still exists in people’s minds and on their lips. What we at Growth Energy are advocating through this campaign—and other efforts we make at Growth Energy to educate the public, policymakers and the press—are the real facts about domestic ethanol. These are undeniable: the fact that we can strengthen our national and economic security, the fact that every billion gallons of ethanol creates 10,000 to 20,000 new U.S. jobs that cannot be outsourced, and the fact that ethanol can help clean the environment for us and for our children.

The decision to go on the air required substantial resources, which the members of Growth Energy were ready to commit. I believe the decision to back this TV campaign— the first by America’s ethanol industry—demonstrates the leadership of Growth Energy’s membership.

Our campaign is called “America’s Fuel” because every message in our ad campaign demonstrates why ethanol really is the fuel for America. At the end of the next three months, we hope to have demonstrated these messages to the American public.

Tom Buis is CEO of Growth Energy. He can be reached at tbuis@growthenergy.org or (202) 545-4000.

ETHANOL PRODUCER MAGAZINE • June 2010

eBIO INSIDER Spinning and Scaremongering

By Robert Vierhout y year’s end, the European Commission is to report whether it believes there is convincing scientific evidence that biofuels contribute higher greenhouse gas (GHG) emissions because of indirect land use change (ILUC). In this investigation, several services of the EC, each with its own agenda, have asked various research institutes to look at ILUC modeling, with a public consultation to follow if needed. So far, so good.

It seems, however, not to be the preferred approach by some. A number of NGOs and journalists fear that some EC services might doctor the results and asked the EC to disclose all ILUC-related documents. We understand this pro-active strategy of the anti-biofuel lot—they know that the ILUC discussion is the end-game and the debate seems the ideal weapon to deliver a swift death to biofuels.

So far this strategy seems to be delivering.

The EC agreed to honor the disclosure request and, in February, made available several thousand pages on its Web site.

Not everything was released at once, because all documents required screening to avoid liability.

The first negative press reports came out quickly in large headlines: “EU drafts reveal biofuels’ environmental damage.”

The reports cited handwritten remarks of a top official on a letter saying that if the ILUC debate was not properly handled, it could kill the biofuel policy. The real message was not covered: all the scientific work done so far excluded important elements such as coproduct effects, yield increases, use of idle land, nor were new tough sustainability standards considered.

The group of NGOs (non-governmental organizations) was not happy with the partial disclosure, and sued the commission for not being fully transparent. This triggered more bad press— strangely enough with the same news agency repeating the same negative messages. It was intentional.

Last month another study prepared for the EC trade service was released with rather positive information. The researchers said up to 5.6 percent biofuel use would not lead to negative ILUC effects, which was still marginal at higher levels, though more data is needed for a firm conclusion. Again, the same press

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agency came out with a headline: “EU-report signaled a U-turn on the biofuel target”. Clearly there was no such U-turn by the EU, this was but one report, but the idea was planted. The spinning achieved its result because it was widely covered.

Preliminary conclusions can be made from the way in which the ILUC issue has been covered four times in less than three months.

There is a small group of NGOs—strong anti-biofuel campaigners—that is determined to continue releasing multiple, negative stories, linking the message to inconclusive scientific work. The spinning of these so-called conclusions is done in collaboration with a single press agency acting as a megaphone that guarantees wide coverage. The press agency’s strategy is to suggest the results are from EU reports, which gives the message credibility while at the same time underscoring inconsistencies in EU policy.

So far, EC services have not responded publicly because these are not final, official documents. But, with the commission not speaking out, it could be perceived by the public and politicians that the stories are true. The industry has issued press releases, but our message is seen as biased by definition, because we are reacting to negative coverage on our sector. The industry is put on the defensive and perceived as being not trustworthy.

Should our industry engage in this media spinning and fight the negative biofuel image being created?

The NGOs are quoted in the press calling for a proper debate on ILUC, but they are doing the opposite. A proper debate on an issue as complex as ILUC cannot take place through the media, and I am convinced these NGOs do not want such a proper debate.

What is needed quickly is the public consultation at which all stakeholders can present their case to bring balance into the discussion. The spinning and scaremongering, we hope, would come to a quick end.

Robert Vierhout is the secretary-general of eBIO, the European Bioethanol Fuel Association. Reach him at vierhout@ ebio.org.

ETHANOL PRODUCER MAGAZINE • June 2010

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TAKING STALK Prospects for Ethanol Feedstocks in 2010

By Daniel O’Brien urrent prospects for U.S. corn production in 2010 are for normal yields to be reached on increased planted acreage. Under average growing conditions, corn supplies are likely to be fully adequate to meet U.S. ethanol industry demand. It is likely that U.S. corn ending stocks for the 2010-’11 marketing year may increase compared to last year, and cash prices will see a normal seasonal low during harvest.

C

2010-’11 Marketing Year Prospects In USDA’s March 31 Prospective Plantings report, U.S. corn acreage was projected to be 88.798 million acres in 2010, up 3 percent over both 2008 and 2009. Considering the average difference between planted and harvested acres in the past three years of 8 percent, U.S. corn harvested acreage in 2010 can be projected to be 81.694 million acres. In February, USDA projected the 2010 average corn yields will be 160.9 bushels per acre, 0.9 bushels below the trendline for 19902009. The USDA reduced projected yield based on fertilizer price and availability issues, and the impact on corn yields on acres that would have been planted to winter wheat last fall.

Those projections multiply out to a 13.144 billion bushel (bb) 2010 corn crop. If the trendline yield of 161.8 bushels per acre were used, it would increase corn production by 74 million bushels (mb) to 13.218 bb. Using current 2009-’10 marketing year estimates of ending stocks (approximately 1.9 bb), and an estimate of 10 mb in U.S. corn imports, total supplies of U.S. corn for the 2010-’11 marketing year would be a record high of 15.054 bb.

Corn Use Prospects The USDA projected 2010-’11 corn usage for ethanol at 4.5 bb (up 200 mb from the 2009-’10 marketing year). It is reasonable to assume that non-ethanol food, seed and industrial use of corn will increase by 25 mb to 1.290 bb. Exports are conservatively projected to be 1.9 bb, unchanged from the 2009-’10 marketing. This estimate is 200 mb lower than the export projection in the USDA’s February Agricultural Outlook, mainly due to continued strengthening of the U.S. dollar.

Projected feed and residual use is 5.450 bb, unchanged from 2009-’10. Total use of U.S. corn for the 2010-’11 marketing year would be 13.140 bb.

Ethanol usage of 4.5 bb would constitute 34 percent of total U.S. corn usage, an increase from 30 percent in 2008-’09 and from 33 percent in 2009-’10.

22

Ending Stocks and Price Estimates Subtracting total use from projected total supplies leaves projected U.S. corn ending stocks of 1.914 bb for the 2010’11 marketing year. This would be a small increase of 15 million bushels over the April 9 USDA World Agricultural SupplyDemand Estimates for U.S. 2009-’10 ending stocks of 1.899 bb—a projected ending stocks–to–use ratio of 14.6 percent for 2010-’11, up from 13.9 percent in 2009-‘10, and the highest ratio since the 2005-’06 ratio of 17 percent.

With these marginal increases, it is likely that that U.S. average corn prices for 2010-’11 will be only marginally lower than prices in the current marketing year. With 2009-’10 projected prices averaging $3.50 to $3.60 per bushel, 2010-’11 marketing year U.S. average corn prices will likely be only 5 to 10 cents per bushel lower than the previous year, in the range of $3.40 to $3.55 per bushel.

Under these market conditions, U.S. corn prices would likely follow a typical seasonal price pattern, with cash prices declining into fall with a price low occurring in October-November. Then, grain prices would likely climb steadily beginning in December through May-June, 2011. After moving sideways during July, U.S. cash corn prices would either decline into fall harvest or move higher into the fall, depending on growing conditions during the summer months of 2010.

Contingency Plans If crop production problems occur this summer, it would take a decrease in U.S. average yields of 12.25 bushels to reduce U.S. corn production by 1 bb. With limited or no change in corn use, a 1 bb decrease in 2010 corn supplies would drop ending stocks to 899 mb for a 6.8 percent ending stocks-to-use ratio, the smallest since the 1995-’96 marketing year. Average cash prices for 2010-’11 would strengthen considerably, likely moving above $4.00 per bushel at a minimum.

In reality, this short-crop scenario would lead to rationing of supplies, with U.S. corn prices likely to move higher during the summer and fall months of 2010, and remain at high levels through the winter and early spring months, at least until production prospects for the 2011 corn crop are less in question.

Daniel O’Brien is an extension agricultural economist with Kansas State University Research and Extension. Reach him at dobrien@ksu.edu or (785) 462-6281.

ETHANOL PRODUCER MAGAZINE • June 2010

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Robinson

Wildeman

RFS2: Just One of the Administration’s GHG Reduction Strategies

By David A. Crass, William J. Robinson and Anna J. Wildeman ince the Obama administration took office nearly a year and a half ago, the regulatory environment has undergone a major shift—EPA has taken significant steps, in a short period of time, to regulate greenhouse gas (GHG) emissions. The agency’s recent actions include triggering EPA’s ability to regulate GHGs pursuant to its authority under the Clean Air Act (CAA) by finalizing the endangerment finding; finalizing the GHG Monitoring and Reporting Rule, the Motor Vehicle Rule and renewable fuel standard (RFS2); in addition to proposing a slew of other rules, including the so-called tailoring rule, which are generally geared toward monitoring and reducing GHG emissions from a number of sources, including vehicles and industrial emitters. For the ethanol industry, the impacts of RFS2, the Motor Vehicle Rule, CAA permitting requirements and the proposed tailoring rule, are coming into focus.

If ethanol-based engine technology can develop fast enough, and EPA makes progress pulling down the blend wall, RFS2 and GHG regulation under the Motor Vehicle Rule could work together to the benefit of the ethanol industry.

To generate renewable identification numbers (RINS) under RFS2, renewable fuels must meet a threshold of at least 20 percent less life cycle GHG emissions than the 2005 baseline emissions for the gasoline or diesel they replace. Under production pathways modeled by EPA, ethanol or butanol from corn starch emits 20 percent less GHG, ethanol from sugarcane emits 50 percent less GHG, and cellulosic ethanol emits 60 percent less GHG. The Motor Vehicle Rule requires vehicle manufacturers to increase fuel efficiency by upwards of 30-40 percent by 2016, starting with model year 2012. EPA estimates these motor vehicle efficiency standards will reduce GHG emissions by 960 million metric tons over the lifetime of the vehicles sold under the program.

In recent years, corn-based ethanol critics have attempted to give the industry a bad rap for poor fuel efficiency and performance in traditional engines. However, the combined effect of RFS2 (requiring use of renewable fuel that emits less GHG) and the Motor Vehicle Rule (requiring that vehicles emit less GHG)

S

24

should promote the development of vehicle engine technology that can utilize ethanol and increased biofuel blends more efficiently. This, of course, assumes changes in the blend wall.

The proposed tailoring rule would identify which industrial sources will be subject to CAA permitting requirements, and when, based on GHG emission thresholds. As initially proposed, this rule would require every stationary source emitting 25,000 tons of GHG or more annually to obtain a CAA permit. While EPA has since backed off that proposed mandate, indicating that it intends to subject only the largest GHG emitters to CAA permitting first, then phase-in CAA permitting requirements to smaller GHG sources by 2016, a significant number of ethanol producers are likely to be subject to this permitting requirement based on their GHG emissions. The tailoring rule was expected to have been finalized in March; however EPA had not yet published a final rule when this article was written.

While EPA’s GHG regulation under RFS2 and the Motor Vehicle Rule pose potential benefits for ethanol producers by supporting ethanol markets, the proposed tailoring rule appears likely to impose additional costs on the production of ethanol.

Producers will likely need to keep in mind these various federal efforts to regulate GHG emissions that, on the one hand, support production (such as RFS2) and, on the other hand, may restrict production (such as the tailoring rule) as they make strategic decisions about the feedstock, production pathways and technology they deploy.

David A. Crass is chair of Michael Best & Friedrich’s Agribusiness, Food Processing and Distribution Group and a leader in the firm’s renewable energy practice. Reach him at (608) 2832267 or dacrass@michaelbest.com. William J. Robinson is an associate in the firm’s Business Practice Group where he focuses on mergers and acquisitions and general corporate law matters. Reach him at (608) 283-2255 or wjrobinson@michaelbest. com. Anna J. Wildeman is a member of the Land and Resources Practice Group where she assists both buyers and sellers in assessing environmental issues. Reach her at (608) 283-0109 or ajwildeman@michaelbest.com.

ETHANOL PRODUCER MAGAZINE • June 2010

Business&People Ethanol Industry Briefs

Growth Energy is growing. The ethanol industry association announced five new hires in March. Katy Ziegler Thomas joined the group as chief of staff. She previously worked as vice president for government relations at the National Farmers Union. Roger Conway, chief economist at the ethanol group, is a former director of USDA’s Office of Energy Policy and New Uses. Houston Ruck, creative director, was a designer for U.S. News&WorldReport.Stephanie Dreyer, public affairs associate, had been deputy press secretary for Sen. Chuck Schumer, D-N.Y. Kelly Manning, vice president for development, was the general manager for KSFY TV.

Chinese Academy of Sciences and LanzaTech, headquartered in Parnell Auckland, New Zealand, have signed a letter of intent on a number of projects including technology services and technology innovation. LanzaTech was founded in 2005 to develop and commercialize proprietary technologies for the production of lowest cost fuel ethanol and high value chemicals. A delegation from the Chinese Academy of Sciences, led by Zhibin Zhang, director of the Bureau of Life Sciences and Biotechnology, visited the LanzaTech laboratory and pilot plant in New Zealand at the beginning of March, after which the agreement was forged.

AgriCharts, the agricultural division of Barchart.com Inc., which provides market data, Web site hosting and technology solutions to agribusinesses, launched GrainProfessional, a monthly print publication for grain merchandisers, procurement managers and other buyers of grain featuring topics important to buyers, hedgers and basis traders.

In addition to the print publication, GrainProfessional will offer weekly live educational webinars.

ICM Inc. hired Matt Gibson as vice president of the feed division. He brings an extensive 20-year history in the feed and livestock production industries to the company. His most recent positions were with Poet LLC, as the nutrition vice president of technical services and with the Gibson Dakota Gold Research Association as executive director.. The Deer Park, Texas, native was appointed to the National Grain and Feed Association Biofuels Committee

26

by chairman Hal Reed. “NGFA committees are one of the most important membership benefits offered by the association, as they proactively address, for the mutual benefit of the industry, issues that are of bottom line importance to all NGFA-member companies,” Reed said.

Larry Russo Jr., with the U.S. DOE Biomass Program, suffered a massive heart attack and died March 20 at the age of 54. Russo had a strong industry background in the ethanol industry. He was a chemical engineer for the U.S. DOE in Washington, D.C., for the past five years and was involved in biomass conversion and bioenergy for nearly 30 years. He also had several patents, awards and publications regarding ethanol research and biofuels.

Gamajet Cleaning Systems, an automated tank cleaning company, has appointed Andrew Gallo as a sales manager dedicated to ethanol. Gallo will be responsible for the growth and development of ethanol industry service as well as the maintenance of current customers. “This is a new position, and a necessary one,” said Gerald Ryan, Gamajet’s vice president of sales. “Andrew has shown great interest within the industry

and we feel his energy will be appropriately directed in the rapidly growing ethanol industry.”

Fluid Components International has introduced a compact product for continuously verifying flows within liquid or gas process analyzer sampling systems. The FS10A Flow Switch/Monitor has a space-saving design incorporating advanced electronics and no moving parts to foul, clog or maintain. The FS10A Analyzer Flow Switch is designed for use with nearly all types of process and emissions sampling systems, including gas chromatographs, mass spectrometers, optical spectrometers, photometers and others.

Air Resource Specialists Inc. recently launched a “Compliance Tip of the Month” feature on its Web site. An environmental compliance project manager will prepare and post a short, useful tip monthly for in-

ETHANOL PRODUCER MAGAZINE • June 2010

Sponsored by

dustry managers regarding a wide variety of compliance or permitting needs. The tip will be a brief summary of a new or pending regulation, a reminder of an upcoming reporting deadline, or a useful hint to assist environmental managers with recordkeeping or training.

Extech Instruments, a wholly owned subsidiary of FLIR Systems Inc., recently announced several new handheld test and measurement tools.

The Extech EX845 with new trademarked Meterlink technology and a built-in infrared thermometer wirelessly connects to FLIR infrared cameras to quickly locate problems with electrical components such as motors, fuses, breaker panels and more.

The company also introduced its new MA620 and MA640c lamp meters, an infrared thermometer with “color alert,” the DT300 laser distance meter and RC200 Tweezer Multimeter.

Tom Kopp has joined Hawkeye Gold LLC as an ex-

port manager for Asian markets.

Most recently he served as vice president/general manager of North Star Grain International LLC. He has more than 20 years experience in export and domestic sales, merchandising, procurement, and marketing. He earned a bachelor’s degree in agriculture from the University of Wisconsin where he majored in ag education/dairy science and minored in business. Greg Hibner was recently named president of Hawkeye Gold, and Chris Ludwig and James Sneed are new members of the ethanol marketing team.

SST Systems, specializing in software solutions and services for piping design and analysis since 1983, has introduced HOTclash, a simulation software for PDMS (AVEVA’s 3D Plant Design software). HOTclash helps plant owners/operators avoid costly post-commissioning repairs and shutdowns by simulating “real-world” conditions so PDMS can pinpoint pipe clash issues with adjacent equipment, cable and duct trays, structural and concrete support structures, and other piping systems.

PowerStock, a provider of biomass feedstock solutions to renewable energy generation

ETHANOL PRODUCER MAGAZINE • June 2010

and advanced biofuels development, announced it has appointed Harrison Pettit, to the position of vice president of business development. Most recently, Pettit was director of business development for Pacific Ethanol Inc., where for four years he was instrumental in the development of the company’s 220 MMgy of ethanol production and was the lead developer for its 60 million gallon plant in Burley, Idaho, completed in May 2008.

GFI Group Inc. estab-

lished Latium Capital, a new commodities division, which trades in ethanol, natural gas liquids and other energy and agricultural markets. The team, based in New York, is comprised of five traders: Robert Esposito, Robert Rozzi, Evan Kornhauser, Joseph Verdi and Ron Deal. The new team has a combined 75 years of experience in the commodities markets, the company said.

Aventine

Renewable

Energy Holdings Inc. announced its successful emergence from a Chapter 11 bankruptcy and reorganization process. In February of 2009, Aventine filed for Chapter 11 bankruptcy in the

District of Delaware due to unfavorable markets, driven down by high corn prices and low petroleum costs. The company also announced it would resume construction at ethanol plants in Aurora, Neb., and Mt. Vernon, Ind., that were nearing completion when construction ceased in 2009.

With the renewable fuels standard now in place, all producers of ethanol, regardless of feedstock, will be required to register with the U.S. EPA. In an effort to help ethanol producers understand what they will need to do, the Renewable Fuels Association has created two informational documents—a rundown of the steps ethanol plant producers must take as well as a summary checklist of needed steps. These documents, intended for informational use only, detail necessary steps and the deadlines by which they must be completed.

North Sea Group, the largest independent fuel supplier in Belgium, the Netherlands and Luxembourg, has started a new subsidiary, North Sea Global Ethanol. The company will focus on ethanol sales and distribution. Located in Zug, Switzerland, the new group also hopes to maintain responsible and sustain-

27

Business&People Ethanol Industry Briefs

able CO2 reduction by concentrating on waste-based biodiesel and sugarcane-based ethanol.

In addition to the focus on fuelgrade ethanol, it will also develop industrial, pharmaceutical and cosmetic products.

Clean Burn Fuels LLC, the first corn-based ethanol producer in North Carolina, has partnered with Perdue AgriBusiness Inc. Perdue will source nearly 20 million bushels of corn as feedstock and merchandise approximately 175,000 tons of distillers grains from the plant located near Raeford, N.C. Perdue will purchase the corn mostly from local farmers and receive the rest via rail from the Midwest.

The distillers grains will go to area feed mills at North Carolina hog, turkey and chicken operations.

Qteros Inc. and University of Massachusetts Amherst announced that the U.S. Patent and Trademark Office has issued U.S. Patent titled “Systems and Methods for Producing Biofuels and Related Materials” describing the novel creation of products, including biofuels, through the fermentation of biomass by a unique, naturally occurring anaerobic microorganism.

The patent is based on the trademarked Q Microbe (Clostridium

28

phytofermentans). Qteros, the exclusive licensee of the patent, has demonstrated that their Q Microbe technology offers ethanol producers significant cost reductions by streamlining the biomass-conversion process.

Valero

Renewable

Fuels, the third largest ethanol producer in the U.S., donated more than $40,000 in money and equipment to 10 Midwestern fire departments located near existing Valero facilities. “At the ethanol plants, the staff isn’t big enough to have on-site firefighting operations,” said Bill Day, director of media relations at Valero. So, Valero will provide equipment such as firefighting foam and portable foam monitors, and will work closely with the local fire departments to ensure they are equipped and trained to respond to emergencies at the plants. In April, Valero also provided training for two members from each of the 10 departments.

Over the next seven years, the GreenField Ethanol plant in Vareness, Quebec, will receive

up to $79.75 million from the Canadian government’s ecoENERGY for Biofuels program. Besides the Varennes facility, which has a capacity of 39.6 MMgy (150 MMly), GreenField operates three other corn-to-ethanol ethanol plants in Ontario, including Chatham, Johnstown and Tiverton. GreenField Hensall, a fifth ethanol plant is under construction in Ontario. Canada’s ecoENERGY for Biofuels was established in 2008 and will run through March 31, 2017. The program will invest up to $1.5 billion to support biofuel production in Canada.

tion. “We want to be a problem solver for industries,” said Nagi Naganathan, dean of the College of Engineering.

GTL Resources and its

subsidiary, Illinois River Energy (IRE), announced changes in the senior leadership to augment the company’s combined business development resources.

Neal Jakel joined the IRE team as general manager. He Jakel is a chemical engineer by training and has worked for Cargill and Monsanto.

Vince Kwasnieski, The University past general manof Toledo, Ohio, has esager, is transitioning into the role of vice tablished an Institute for Kwasnieski president of busiSustainable Engineerness development ing Materials to bring together research teams to solve and commercial director for materials development-related GTl. EP problems, such as converting bioSHARE YOUR INDUSTRY BRIEFS To be mass sources to fuel. The insti- included in Business & People, send infortute was formed in response to a mation (including photos and logos if availgrowing corporate interest in en- able) to: Industry Briefs, Ethanol Producer Magazine, 308 Second Ave. N., Suite 304, vironmentally friendly products Grand Forks ND 58203. You may also fax and the development of sustain- information to (701) 746-8385, or e-mail it to able ways to manufacture goods. sretkaschill@bbiinternational.com. Please include your name and telephone number It will function as a separate of- in all correspondence. fice within the school’s College of Engineering and will bolster the school’s standing as a center for green technology and innova-

ETHANOL PRODUCER MAGAZINE • June 2010

Save the Date

27th ANNUAL

June 27 - 30, 2011

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ETHANOL PRODUCER MAGAZINE • June 2010

29

COMMODITIES REPORT

Natural Gas Report

The rush is on to develop wet, oily natural gas April 23—Is there a boom on the horizon for “oily” and “wet” natural gas, and what is the market? Due to the “oily”’ nature of the Eagle Ford shale play, there definitely is a rush on in south Texas from north of San Antonio to the Mexican border. The region is especially attractive because the gas released contains high levels of natural gas liquids (NGL) and condensates (ethane, propane and butane), otherwise known as “wet” gas. These liquids can be stripped out, mixed with oil, and sold on an energy equivalent basis to crude with a current profit potential three times that of dry gas. In the Eagle Ford shale play, the pace of drilling is increasing rapidly with reports of only a two-week gap between permit application and drilling. State records show the 22-county region permitted 28 horizontal drilling sites in 2008 and 120 in 2009. In 2010, 95 horizontal permits were issued through March. The arid region, one of the poorest in Texas, is enjoying its new-found wealth and tax base.

Granite Wash, in the Texas panhandle, is also resurging. Production in that field—exploiting traditional oil and gas reservoirs—dates back to 1954. For years, Granite Wash was considered a ‘mature’ area

By Brad Smith, U.S. Energy Services Inc.

with further development borderline or uneconomical. New horizontal drilling techniques in “tight sands” thousands of feet below the originally exploited reservoir have yielded lucrative natural gas liquids and oils. Takeaway and processing capacity exists in various forms, making the profit potential attractive. On April 13, Chesapeake said Granite Wash has the highest rates of return of any play in the company. Similarly, Apache reported drilling a well more than two miles underground containing enough oil and gas production to pay for itself in three months.

With natural gas prices down, it makes sense to drill in areas with more diverse and lucrative recoverables. However, despite crude at 20 times the price of natural gas, NGLs could face near-term price pressures. Demand is relatively soft and processing capability is near capacity. Lake Charles, La., recently commissioned a liquids extraction facility for importing NGLs with liquefied natural gas. While additional processing capacity and transport projects are in the works, increased supply could apply significant downward price pressures on NGLs in the near- and medium-terms. EP

Corn Report

By Jason Sagebiel, FCStone

Early planting promises yields above trend April 23—The corn market continues to find support despite bearish fundamentals even with planting underway. The USDA found an additional 100 million bushels of corn in its April report to increase the carry-out to 1.899 billion bushels. The increase came from a reduction in livestock feed demand. Ethanol usage is still pegged at 4.30 billion bushels. The USDA placed corn export demand at 1.90 billion bushels. Through week 33 of the corn marketing year, corn exports were 1.510 billion bushels versus 1.422 billion bushels the same period a year ago, indicating exports of only 390 million bushels (or 20.5 million bushels per week) are needed to reach current USDA projection.

Globally, corn carry-out increased to 144.20 million metric tons (mmt) versus the previous month’s estimate of 140.15 mmt.

Despite the U.S. carry-out increasing, global supplies are 3 mmt smaller this year versus last year mostly due to a reduction in Argentina and Brazil corn production a year ago.

The chart below illustrates the percent of corn planted by the second week of May and its relationship to yield trends since 1990. When corn is 70 percent planted in the second week of May nationwide, yields tend to run within 3 percent below to 112 percent of trendline. In 2004, corn was 90 percent planted nationwide by the second week of May which that year the USDA 30

placed yield at 160.4, 109.7 percent of trend. With this year’s early planting pace, some expect above trend yields this fall. The obvious caveat is summer weather as that season approaches. EP

ETHANOL PRODUCER MAGAZINE • June 2010

COMMODITIES REPORT

DDGS Report

($/gallon as of April 23) - Front Month Futures Price (AC) $$1.585

RACK

REGION

SPOT

West Coast

1.655

1.85

Midwest

1.565

1.75

East Coast

1.625

1.80

By Sean Broderick, CHS Inc.

DDGS markets strengthen, feeder margins up April 23—DDGS prices are appreciating. With China as the featured buyer, and traders and plants scrambling to get accustomed to the volume and breadth that country presents, values moved up almost $10 over the previous month. Barge prices moved the most, and with the river open all the way to St. Paul, more product is hitting the river. Bulk sale activity moved from the West Coast to the Gulf, as flowability of DDGS in railcars can be a challenge as the weather warms, and product moves more easily to the Mississippi River.

Feeders are enjoying good margins, with even the dairy folks in the black. Soymeal prices have escalated, creating value for DDGS protein. Having profitable customers has helped

Regional Ethanol Prices

with this winter’s challenging accounts receivables.

Planting weather has been phenomenal, with many areas 100 percent planted—by April 22! Although corn has yet to respond, the increase in DDGS prices has boosted plant margins, indicating a good supply of DDGS ahead. There is still a significant discount in forward prices, but plants and feeders have been more amenable to booking ahead as they both see better margins.

Last year, the summer market dropped. This year, with good feeding margins and more product sold ahead, the drop will not be as acute and, if China purchases continue, there may be no drop. In the end, weather will decide the market. EP

SOURCE: DTN

Regional Gasoline Prices ($/gallon as of April 23) - Front Month Futures (RBOB) $2.3531

REGION

SPOT

RACK

West Coast

2.3826

2.3608

Midwest

2.3665

2.3036

East Coast

2.2665

2.3168 SOURCE: DTN

DDGS Prices ($/ton) LOCATION

JUNE 2010

MAY 2010

JUNE 2009

Minnesota

105

90

124

Chicago

125

115

138

Buffalo, N.Y.

130

125

143

Central Calif.

155

148

167

Central Florida

148

140

156 SOURCE: CHS Inc.

Corn Futures Prices DATE

(July corn, $/bushel)

HIGH

LOW

CLOSE

April 26, 2010

3.67

3.59

3.59 1/2

March 26, 2010

3.69

3.66 1/4

3.67 1/2

April 27, 2009

3.84

3.70

3.80 3/4

Ethanol Report

SOURCE: FCStone

By Rick Kment, DTN Biofuels Analyst

Gasoline to ethanol spread widens

April 23—The seasonal push for higher gasoline prices was in full swing in April. Commercial and investment buying stepped in, looking to take advantage of the upward market potential, leading into higher demand from drivers planning summer trips with the economy looking slightly better.

Through April, gasoline prices posted a 20 to 25 cent-per-gallon rally in all markets, inching toward $3 at the pump.

Consumers seem willing and able to pay the higher prices. This may help push prices higher if market support develops in the stock market, as increased investment money filters into commodity markets. This could push prices well above $3 per gallon for consumers.

Typically, when gasoline prices move higher, positive results are also

seen in the ethanol market. This year the case has been very different. Even though gasoline prices jumped sharply in the end of March, ethanol prices were steady to 5 cents lower across the country than the previous month.

The softness in the corn market, as well as eroding ethanol margins, limited upward movement in all ethanol markets. Traders are not interested in stepping into longer-term purchases as they fear additional price pressure may be around the corner, leaving ethanol to be bought hand to mouth at a time when supplies are nearing burdensome levels. The wide price spread, currently at 77 cents per gallon, is creating concern that the market will not be able to rebound in the near future despite significant changes in production. EP

ETHANOL PRODUCER MAGAZINE • June 2010

Cash Sorghum Prices ($/bushel) APRIL 26, 2010 MARCH 25, 2010 APRIL 17, 2009 Superior, Neb. Beatrice, Neb. Sublette, Kan. Salina, Kan. Triangle, Texas Gulf, Texas

3.14 3.02 2.77 3.27 3.11 3.66

2.97 3.00 2.75 3.25 2.98 3.80

3.16 3.11 2.92 3.24 2.94 3.81 SOURCE: Sorghum Synergies

Natural Gas Prices

($/MMBtu)

APRIL 1, 2010

MARCH 1, 2010

APRIL 1, 2009

NYMEX

3.842

4.816

3.631

N. Ventura

3.93

5.00

3.52

Calif. Border

4.06

4.86

3.20

SOURCE: U.S. Energy Services Inc.

U.S. Ethanol Production Output January 2010

818,000

December 2009

788,000

January 2009

647,000

(barrels/day)

SOURCE: U.S. Energy Information Administration

31

BIObytes Ethanol News Briefs

DDGS demand growing in Canada

BIO asks for production incentives

Demand for distillers dried grains with solubles (DDGS) is increasing in Canada, the second-largest export market for the product. In 2009, Canada imported about 804,000 metric tons of U.S. DDGS and industry exports are cautiously optimistic

In a letter to House and Senate appropriators, the Biotechnology Industry Organization asked that production incentives for cellulosic biofuels be funded at the $25 million level for 2011. The existing cellulosic biofuel reverse auction program is a way to assist U.S. cellulosic ethanol producers in a targeted and affordable way, BIO said.

The U.S. DOE’s Section 942 program was established in the Energy Policy Act of 2005 and supports cellulosic biofuels by per-gallon payments through a reverse auction process. “This program, if closely coordinated with other federal programs, can stimulate the

that those numbers will continue to grow in 2010, according to the U.S. Grains Council March newsletter. Livestock producers in Canada used to include only 10 percent DDGS in animal rations—today 15 and 20 percent is the average.

private investment needed to build large-scale biorefineries to meet the energy production and greenhouse gas reduction goals of the United States,” said Brent Erickson, executive vice president for BIO’s industrial and environmental section. “Development of the advanced biofuels industry could produce hundreds of thousands of new green jobs, contributing more than $140 billion in economic growth by 2030. Rapidly increasing U.S. production of advanced biofuels is also a sound way to significantly reduce U.S. reliance on imported petroleum and carbon emissions associated with climate change.”

PHOTO: LALLEMAND

Minn. ethanol plant shuts down A 20 MMgy ethanol plant in Buffalo Lake, Minn., shut down in early April and laid off its employees. Minnesota Energy began production in 1997 and expanded in 2006, adding an agronomy business, which will remain operating.

Although plant officials weren’t

commenting, media reports indicated the plant was to be shut down indefinitely. Buffalo Lake Mayor Joyce Nyhus said it was possible the facility could be purchased for an alternate use—such as production of alcohol for human consumption.

Lallemand will provide the yeast strain from its own facility.

Verdezyne, Lallemand team up to create GM yeast A new joint venture between Verdezyne Inc., and Lallemand Ethanol Technology will result in genetically modified yeast. “This agreement represents a commitment on behalf of Verdezyne and Lallemand to provide superior yeast that will deliver improved prof-

32

itability and sustainability to our customers,” said Bill Nankervis, president of Lallemand Specialties Inc. Scheduled for completion in 2012, Verdezyne will use its metabolic engineering tools in the project to enhance the yeast, with a yeast strain provided by Lallemand.

Ferrari fuel contains Iogen cellulosic ethanol Ferrari’s Formula One race cars are now using a cellulosic ethanol-infused fuel. Provided

by Shell Co., the Shell V-Power fuel contains an advanced biofuel component made at Iogen’s Canadian demonstration cellulosic ethanol plant in Ottawa, Ontario. Since 2008, Formula One race fuel has been required

to contain by weight, 5.75 percent of a biocomponent. “At Shell, we are accelerating the research, development and demonstration of advanced biofuels,” said Lisa Lilley, Shell’s technology manager for Ferrari.

“We are committed to technical innovation through our motorsport activities.”

ETHANOL PRODUCER MAGAZINE • June 2010

Southeastern Illinois College adds online biofuels courses

rent industry professionals from Blendstar LLC and Green Plains Renewable Energy LLC, interim president of Southeastern, Jonah Rice, said chemistry, mathematics and communication skills are all aspects biofuel companies look for in new employees. The courses will cost $300 each and Dana Keating, vice president of academic affairs, said anyone could apply for the online course.

PHOTO: VIRENT

Southeastern Illinois College will offer biofuel-based courses this fall. Titled Energy 111-Introduction to Biofuels, and Energy 151-Ethanol Production, the courses will be taught by Renee Loesche, a visiting instructor. Loesche, who has trained with Genencor, Abengoa and Monsanto, plans to cover everything from indirect land use to the future of cellulosic ethanol. After visiting with cur-

PHOTO: LANCE NIXON, SDSU

The Virent Eagle plant will use a sugar beet feedstock to produce biogasoline.

Drop-in projects move forward Madison, Wis., is home to the world’s first biogasoline demonstration facility. Created through a partnership between Virent Energy Systems Inc. and Royal Dutch Shell plc, the plant, called “Eagle,” is capable of producing 10,000 gallons per year. Using sugars extracted from various biomass sources, the process to create the fuel is similar to a typical oil refinery, according to Randy Cortright, Virent founder and chief technical officer. By substituting a beet sugar feedstock into the fuel mixture, the Eagle plant can produce the same hydrocarbon mixtures used in standard transportation fuels. The goal is a fuel that can be added, or dropped-in to regular gaso-

line blends, including those containing ethanol.

The Pall Corp. is also working on a drop-in fuel project.

To help the U.S.DOE-funded project, the National Advanced Biofuels Consortium picked Pall to provide a total fluid management evaluation on the filtration and separation processes needed to create a hydrocarbon fuel from a biomass feedstock. “Our experience in advanced hot gas and liquid hydro separations for both conventional and alternative energy applications will enable us to help ensure a marketable outcome of the consortium’s work,” said Greg Helibrunn, senior vice president of global marketing for Pall Energy.

ETHANOL PRODUCER MAGAZINE • June 2010

South Dakota State University Professor Kasiviswanathan Muthukumarappan, front, and graduate research assistant Chinnadurai Karunanithy, back, work in the lab on a corn stover pretreatment process.

Corn stover pretreatment studied A South Dakota State University study has identified a pretreatment process for corn stover as a feedstock for cellulosic ethanol production that results in a 75 percent recovery of glucose, 49 percent recovery of xylose and 61 percent recovery of combined sugar.

Researchers used extrusion, a widely used pretreatment process in the snack food, feed and plastic industries, at different temperatures, screw speeds

and enzymes. The best results came at a screw speed of 75 rpm, barrel temperature of 125 degrees Celsius and a 1:4 combination of the enzymes cellulase and beta-glucosidase during hydrolysis. The results of the study, conducted by SDSU professor Kasiviswanathan Muthukumarappan and graduate research assistant Chinnadurai Karunanithy, were published in the Journal of Applied BiochemistryandBiotechnology.

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GHG regs fuel need for infrastructure The first-ever U.S. regulation of greenhouse gas (GHG) emissions has fueled an even greater urgency to expand E85 infrastructure.

April 1, the U.S. EPA and the Department of Transportation’s National Highway Traffic Safety Administration announced a program to regulate GHG emissions and fuel economy in light-duty vehicles. It was announced at that time that automakers can continue to get credits for making flex-fuel vehicles (FFV) through 2015, after which it must be shown that the fuel is being utilized.

Currently, there are more than 7 million FFVs on the road—more than any other type of alternate fuel vehicle, said Charles Territo, spokesperson for the Alliance of Automobile Manufacturers, which represents 11 car and light truck manufacturers, including the Big Three. With the phase-out date looming, it’s important that consumers have access to E85, Territo said. Otherwise, without the FFV credit or the ability to prove that E85 is being utilized, manufacturers won’t have the incentive to offer those types of vehicles.

President Barack Obama announced in May 2009 that a national program would be established to reduce GHG emissions and improve fuel economy. The final rule was a joint project, with the EPA finalizing GHG emissions and NHTSA finalizing its corporate average fuel economy (CAFE) standards. It applies to passenger cars, light-duty trucks, and medium-duty passenger vehicles, for model years 2012 through 2016. These vehicles will be required to meet an estimated combined average emissions level of 250 grams of CO2 per mile. That’s equal to a fuel economy of 35.5 miles per gallon, if the industry met this

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reduction through fuel economy improvements alone. The new standards are expected to gut GHG emissions by about 960 million metric tons and 1.8 billion barrels of oil.

Under CAFE, the maximum increase for FFV credits is an additional 1.2 miles per gallon for vehicles years 1993 to 2014, according to information from NHTSA. After 2014, the FFV credits decrease by 0.2 mpg each year— meaning there’s a 1.0 mpg credit in 2015 model year and 0.8 mpg credit in 2016 model year. By model year 2019, there are no more credits. In the final rule, the EPA provides methodology to calculate the national usage of all alternative fuels. However, if a manufacturer believes its vehicles use more alternative fuels than the national average it can go after greater credits by providing a basis for that belief.

According to an EPA fact sheet, mobile sources, including certain off-highway sources, were responsible for 31 percent of all GHG emissions in 2007 in the U.S. Transportation sources, which have been the fastest growing source of GHGs since 1990, accounted for 28 percent. In addition, in the same year, the CO2 emissions from light-duty vehicles represented about 94 percent of total transportation GHG emissions.

The changes will come at an estimated cost of $52 billion to automakers. The net benefit, however, was estimated at $240 billion due to reduced gasoline use and lower emissions. Other benefits mentioned by the EPA include decreased CO2 and particulate matter, improved energy security and less frequent refueling. Consumers will see a $985 increase in vehicle prices by 2016, however, vehicle owners will get that back in an average of three years due to increased fuel efficiencies, EPA administrator Lisa Jackson said. The

payback should be sooner when the vehicle is purchased on an extended payment plan. The average consumer who purchases a 2016 vehicle should save $3,000 during the life of the car, the EPA said.

The national program gives auto makers a single set of regulations so it can build a lightduty fleet that satisfies all requirements on the federal and state level. That’s good news for the Alliance of Automobile Manufacturers. A year ago the auto industry was facing a “regulatory maze,” said Dave McCurdy, president and CEO of the group. NHTSA was working on new fuel economy standards required by the Energy Independence and Security Act of 2007 and the EPA was preparing GHG standards under the Clean Air Act. To make it even more complicated, 14 states, including California, were planning their own state-specific programs. “When our engineers struggle with changing or conflicting laws, it derails efforts to introduce new technologies with longterm research and development timeframes,” he said. “The national program announced makes sense for consumers, for government policymakers and for automakers.”

The group said the new regulations will result in a 30 percent decrease in CO2 emissions and a 40 percent increase in fuel economy. “America needs a roadmap to reduced dependence on foreign oil and greenhouse gases, and only the federal government can play this role,” McCurdy said. “The federal government has laid out a course of action through 2016, and now we need to work on 2017 and beyond.”

—Holly Jessen

ETHANOL PRODUCER MAGAZINE • June 2010

Poet, Growth Energy launch TV ad campaigns New advertising and promotional initiatives launched by Growth Energy and Poet LLC, have brought ethanol out of the field and onto TV. Combined with another educational campaign on sugarcane-based ethanol by UNICA, the promotion of ethanol in the U.S. and South America has reached a level not seen before.

In April, UNICA started a national ethanol awareness campaign aimed at explaining sugarcane ethanol’s benefits. The educational efforts include a new Web site, www.

SweeterAlternative.com, along with print and radio advertisements, new research on sugarcane ethanol, and a partnership between UNICA and the Indy Racing League.

The Brazilian campaign costs “less than one-tenth” of Growth Energy’s efforts, according to James Hill, a UNICA spokesman, and will feature ads in publications such as Roll Call, National Journal, Congressional Quarterly and Politico throughout the month of April. The ads depict the Capitol building overlaid by a sugarcane field and a fuel dispenser nozzle, saying “It’s time to raise a little ‘sugar’ cane.” Hill notes that the largest portion of UNICA’s initiative is the Web site which features descriptive sections on the energy security, economic and environmental benefits of sugarcane-based ethanol.

During the same month, Growth Energy and Poet both kicked off new ethanolthemed commercials. At a press conference

unveiling the new commercials, Growth Energy CEO Tom Buis said the commercials tell the true story of ethanol. “For too long, we have allowed our opponents to define who we are. That ends today,” Buis said.

“We cannot match the other side dollar for dollar, but that is not going to prevent us from being in the fight. Ethanol is America’s fuel. Ethanol creates jobs, cleans the air and strengthens our national and economic security.”

The ads in the $2.5 million campaign from Growth Energy will air for six months beginning in April on Fox, MSNBC, CNN and HLN networks. The ads are simple, almost stark. The display on the screen shows a green backdrop with a single statement in the center such as “No beaches have been closed due to ethanol spills,” or “We won’t have to wait millions of years to replenish our ethanol reserves.” After the initial statement appears, that statement is replaced by a phrase such as “America’s Economic Fuel” or “America’s Renewable Fuel.”

“This campaign demonstrates the leadership of Growth Energy’s members, and shows a certain maturity in the ethanol industry,” said Jim Nussle, a member of the board of directors for Growth Energy.

“With this campaign we are talking directly to the public, in their living rooms, with a message that makes quite clear precisely why ethanol is America’s fuel.”

Airing on the same stations as Growth

ETHANOL PRODUCER MAGAZINE • June 2010

Energy, the Poet commercials present a positive face for ethanol. Echoing Buis’s comments, Poet senior vice president of communications Greg Breukelman said, “Poet and the ethanol industry as a whole have a great story to tell. It’s time we took our message to a broader audience, and this campaign allows us to do that.”

The three Poet commercials include a scientist, an ethanol plant manager and a farmer. Filmed in New York at prominent and well-known locations including Times Square, the ads play on the company’s name with the speakers reciting free-verse poetry.

The subject: ethanol. The scientist, a young woman in a white lab coat, stands in Times Square and speaks out loud to the array of people walking by. “I’m not the next top model. I won’t be America’s first female president, but that doesn’t make what I do any less important,” she says. “I turn waste into fuel…and one day, I’ll let you tell the Middle East where they can ship their tankers.”

To check out UNICA’s campaign for sugarcane-based ethanol visit their Web site and follow the links. To view the Growth Energy commercial series visit www.growthenergy.org/news-media-center/broadcast-media/americas-fuel-campaign. To view Poet’s visit http://www.youtube.com/poettv.

—Luke Geiver

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PHOTO: POET

Cellulosic ethanol projects move forward

Poet plans to complete installation of a $2 million pretreatment system at its Scotland, S.D., cellulosic ethanol pilot plant by the end of August.

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The end of April was a busy time for cellulosic ethanol news.

Poet LLC, Verenium Corp., Woodland Biofuels Inc., Amyris Biotechnologies Inc., Codexis Inc. and ZeaChem Inc. all made the news within the space of a week.

Poet talked about its goals for producing 3.5 billion gallons of cellulosic ethanol by 2022—20 percent of the cellulosic ethanol mandated in the renewable fuels standard. The company plans to nearly double its ethanol production at its 26 plants by co-locating them with cellulosic ethanol production using corn stover. “Our model that colocates grain and cellulose plants takes biomass from the same acres and gets us to the commercialization of cellulosic ethanol faster,” said Jeff Broin, CEO. In addition, Poet will license the technology to other corn ethanol plants and produce cellulosic ethanol from other feedstocks, either by Poet or through joint ventures. Pending U.S. DOE loan approval, the company’s first commercial cellulosic ethanol plant will be co-located with Poet’s corn-to-ethanol plant located in Emmetsburg, Iowa. Called Project Liberty, the 25 MMgy plant will produce ethanol from corn cobs.

A day later, Verenium announced that it had been awarded an additional $4.9 million from the DOE. The funding will be used to support on-going cellulosic technology and process optimization at its demonstration-scale facility in Jennings, La. The funding is an extension of a grant awarded to the company in July of 2008. Previ-

ETHANOL PRODUCER MAGAZINE • June 2010

ously, the company said a joint development program with partner BP plc was extended an additional four months. Through the extension period, Verenium will receive $2.5 million per month from BP to co-fund the cellulosic ethanol program.

Over the Canadian border, Woodland Biofuels was gearing up to begin construction on a cellulosic ethanol demonstration plant using its patented gasification technology. That company received $4 million through Ontario’s Innovation Demonstration Fund. The plant will be built over a 15-month period at the Bioindustrial Innovation Centre, in the University of Western Ontario’s Sarnia-Lambton Research Park. It is expected to have a capacity of 750,000 liters (roughly 200,000 gallons) of ethanol annually. Woodland has developed a patented process trademarked as Catalyzed Pressure Reduction—a process that gasifies a wide range of waste feedstocks with the resulting biogas reformed via catalyzed chemical reactions and distillation to produce a range of outputs including ethanol. The process can also be configured to produce hydrogen, methanol or chemicals such as vinyl acetate, acetic acid and formaldehyde. The standard commercial plant design will produce a little over 20 MMgy of ethanol annually, said Greg Nuttall, president and CEO of Woodland.

Other companies are hoping going public will do the trick.

Amyris Biotechnologies and Codexis, two California-based companies, both filed with the Securities and Exchange Commission for an initial public offering (IPO) of common stock. Amyris, which is focusing its initial efforts on ethanol from Brazilian sugarcane, hopes to raise $100 million and Codexis, which is working with cellulosic ethanol maker Iogen Corp., wants to bring in about $85.3 million.

Amyris works with genetically modified microorganisms, primarily

yeast, for the fermentation process. The plan is to build “bolt on” ethanol facilities to co-locate at existing sugar mills in Brazil, rather than building new ethanol facilities, according to the SEC filling from April 16. A 5,000 liter demonstration facility was established

by Amyris in Brazil last fall. This is the second try at going public for Codexis, which withdrew a first attempt in 2008. Codexis has an agreement with Shell to work with Iogen on enhancing the efficiency of the biocatalysts used in Iogen’s cellulosic ethanol production process. In addition, Codexis has worked with Shell on research in the U.S. and Hungary on biocatalysts for converting biomass directly into biofuels.

Lakewood, Colo.-based ZeaChem announced that it had successfully produced commercial grade ethyl acetate—reaching another milestone on the way to producing cellulosic ethanol. Ethyl acetate can be sold to chemical manufacturers or, through hydrogenation, converted into ethanol. “These results demonstrate ZeaChem’s ability to produce another valuable bio-based intermediate chemical on the road toward cellulosic ethanol production,” said Jim Imbler, president and CEO. The company said it would soon start building its 250,000 gallon-per-year demonstration scale cellulosic biorefinery in Boardman, Ore. It expects the plant to come online this year, initially producing ethyl acetate. Using a $25 million U.S. DOE grant ZeaChem received in December, the company will ramp up to cellulosic ethanol production.

—Holly Jessen

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PHOTO: FLAME DISK

Innovative new uses for ethanol

The FlameDisk burns for 45 minutes.

Ethanol continues to inspire new uses in unexpected ways.

Two companies have found new uses in the transportation sector in emissions control and ignition systems., and a Wisconsin-based company’s new trademarked FlameDisk shows that ethanol can even be used to grill up a burger.

Comprised of 93 percent pure ethanol, the FlameDisk is designed to produce a controlled and open flame suitable for grilling, according to Chad Sorenson, president of the company. The disk will create a grilling flame in less than two minutes. Marketed as a cleaner, renewable alternative to charcoal, the ethanol used in the disk comes from corn. “We buy it from one of several beveragegrade facilities in the country, primarily out of Iowa and Illinois,” Sorenson said. “We are investigating the suitability of local fuelgrade ethanol from other suppliers and may transition into that at some point in the future.”

Sorenson said the choice to use ethanol was based on several reasons. Because ethanol is renewable, he said, the consumers gain confidence that the disk is safe and a clean-burning fuel for food preparation and the product doesn’t need any type of “skull and crossbones” labeling. “Ethanol is abundant and relatively inexpensive, which allows us to profitably deliver a marketable product for under $5 retail,” Sorenson said.

The future of the disk doesn’t end at the dinner table. Sorenson said several world organizations have recommended the flame

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ETHANOL PRODUCER MAGAZINE • June 2010

PHOTO: FLAMEDISK

and volatility is believed to be the reason for disk for use in humanitarian efforts in places improved conversion numbers. like Haiti or after severe hurricanes as a simple, The system also benefits from E85’s abilstationary heat source. In 2011, the fuel process ity to withstand lower temperatures. With the FlameDisk uses will be seen in several new E85, the storage tank on the vehicle would products, Sorenson added. not require heaters and heated lines, simplifyAnother new product using ethanol fits ing the system. And, according to Tenneco, into a more traditional sector, transportation. urea used in a typical system would leave crysThe “pulse plug,” developed by Enerpulse Inc., an ignition products developer, increases fuel The solid FlameDisk uses 93 percent ethanol. tals in the exhaust system on the mixers and the inlet of the catalyst, a problem E85 use economy by up to 10 percent when used with ethanol blended fuel. With an ignition power of 1 million watts, will not create. The new system will function on diesel fuel during the plug is intended for use in the auto industry and functions in light loads, while E85 would be used during heavier loads and stopthe same way a camera operating on AA batteries does, producing and-go cycles. Tenneco’s new system will be available for coman intense flash of light off a small source of power, according to mercial use in 2012.

Even though the new NOx system from Tenneco is still on the Louis Camilli, president of Enerpulse. Because the plug can ignite the engine’s fuel in a larger spark gap area, flex-fuel vehicles using way, engineers from the company point out the real significance of E85 in combination with the “pulse plug” require less fuel. The their project. This could be the catalyst, the engineers said, needed plug has also been used in E-Fuel Corp.’s new Grid Buster, a gen- by the ethanol industry to crack the “chicken and egg” conundrum erator used to power the MicroFueler, a household appliance-sized often associated with E85 and compatible vehicle availability. For Sorenson, ethanol may be on the verge of expanding beyond the unit that creates E100 ethanol from organic waste.

E85 is part of a solution in the diesel world, too. Tenneco transportation industry. “It has significant potential with about 3.8 Automotive has engineered a hydrocarbon lean NOx catalyst (HC- billion grilling occasions in the U.S. every year and we are already LNC) system using E85 as a reductant. Tenneco’s HC-LNC sys- selling product overseas,” Sorenson says of the FlameDisk. ”We tem will combine both diesel fuel and E85 dosing in the exhaust think over time this could be a significant new use of ethanol that stream to help catalyze NOx emissions into tailpipe-out nitrogen may have not been considered prior to this.” and water. Although diesel fuel attains moderate reductant rates —Luke Geiver for NOx emissions, E85 can achieve significantly better conversion numbers, according to Tenneco. The presence of oxygen content

ETHANOL PRODUCER MAGAZINE • June 2010

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RIT study shows E20 reduces emissions A comprehensive guide to address the impact of the federal fleet on the environment has been released by the U.S. DOE. The “Federal Fleet Management Guidance” offers petroleum and GHG reduction strategies. Along with cutting back on vehicle miles traveled, support of bicycle and electric car use, the plan outlines the need for an increase in lower GHG-emitting and alternative fuels. Issued as part of Executive Order 13514 by President Barack Obama, “Federal Leadership in Environmental, Energy, and Economic Performance,” the guidance plan proclaims a single vision: “Federal fleets will lead by example to help create a clean energy economy that will increase our Nation’s prosperity, promote energy security, protect the interests of taxpayers, and safeguard the health of our environment.”

Each government agency will now be accountable for meeting that vision, and a recent study from the Rochester Institute of Technology, may prove that the goal of the guidance plan is actually attainable. Put together by the Center for Integrated Manufacturing Studies at RIT, the study indicates that E20 use reduces tailpipe emissions of hydrocarbons and carbon monoxide. Also important to the study, the research showed no discernible impact to vehicle drivability or the need for additional maintenance.

Working with the County of Monroe, N.Y., the research team is led in part by Brian Duddy, a senior program manager at the Center of Integrated Manufacturing Studies. The team tested E20 in 10 older gasoline vehicles not specifically intended for ethanol fuel. The vehicles tested included: a 1998 and a 2004 Ford F-150 truck, two 2001 Ford F-250 trucks, a 2002 Ford F-250 truck, a 2000 Chevrolet Impala sedan, a 2001 Chevrolet Silverado 1500 truck and a Suburban, a 2002 Chevrolet G3500 van and a 2002 GMC Sierra 1500 truck. Each vehicle logged more than 100,000 miles on E20 fuel with the starting mileage ranging from 20,000 miles to 120,000.

With no measurable stress on the operations or mechanics of the vehicles after 100,000 miles, the fleet averaged an emissions reduction of 23 percent for carbon monoxide and 13 percent for hydrocarbon emissions.

At the request of the U.S. Department of Transportation for a study on older, conventional vehicles that had not been previously run on ethanol, Duddy said, the county initially “splash blended” its own E20 in a dedicated tank that only the vehicles in the test used. Using E97 and eventually E85, they created an E20 blend.

The research team then frequently tested the blend to ensure the percentage of ethanol in the fuel. After the decision was made to

PHOTO: RIT

fuel all 300 vehicles in the Monroe County fleet with E20, its own “Green Fueling Station” was created, where biodiesel, hydrogen, E85 and compressed natural gas are also available, Duddy said.

“Currently, numerous commercially available gasoline brands contain 10 percent ethanol,” said Brain Hilton, senior staff engineer at the Center. “There have been concerns raised that any increase in blend would negatively impact internal combustion engines, however our data shows that vehicle performance remained constant, while carbon monoxide and hydrocarbon emissions were decreased even over E10 blends.”

Tom Buis, CEO of Growth Energy cited the RIT report findings as an indicator of what he believes ethanol-blended fuel can do. “This new study confirms what we’ve been saying all along. Increasing the use of ethanol in our fuel can help clean our environment, strengthen our national security and create jobs, all without any impact on the drivability of our cars,” Buis said. He also points to the results as a reaffirmation that blends greater than E20 should be allowed.

The research is not only being used by Growth Energy and Monroe County. The U.S. EPA is also using the results of the test to promote the renewable fuel standard, according to RIT. The E.O. 13514 says that agencies are required to annually report on their progress in meeting the goals of the order, and must make adjustments as necessary. The purchase of any vehicle for a federal fleet must also show that it supports the sustainability targets outlined in the order.

RIT and the County of Monroe, N.Y., fleet included emissions testing in the E20 study.

Duddy said the testing on the Monroe County fleet continues and should end in November. “We have also done a second round of back-to-back emissions testing with these vehicles,” Duddy said, “and confirmed the earlier findings that there is a decrease in carbon monoxide and hydrocarbon emissions when the vehicles run on E20.”

—Luke Geiver

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Tax incentive extension remains hot topic The fight to extend ethanol tax incentives took another step forward in April when the Green Jobs Act of 2010 was proposed in the Senate by Sens. Kent Conrad, D-N.D., and Chuck Grassley, R-Iowa.

If passed, the three tax incentives for ethanol and the U.S. tariff on imported ethanol would be extended through 2015.

It’s a companion bill to the Renewable Fuels Reinvestment Act introduced in the House at the end of March by Reps. Earl Pomeroy, D-N.D., and John Shimkus, RIll. Specifically, both bills would extend the current 45-cent per gallon Volumetric Ethanol Excise Tax Credit, or blenders’ credit, and the 10-cent per gallon Small Ethanol Producer’s Tax credit for five years. The bill will also extend the $1.01 per gallon Cellulosic Biofuel Producer Tax Credit by three years and push the ethanol tariff out five years. If not voted into law, VEETC, the

small producers credit and the tariff would all expire at the end of this year. The tax incentive for cellulosic ethanol would expire at the end of 2012 Grassley pointed toward the lapse in the biodiesel tax credit at the end of 2009, which has resulted in the loss of 29,000 jobs and put 23,000 more jobs at risk. “We can’t risk a repeat performance with ethanol, where 112,000 jobs are at stake,” he said. Conrad said extending the tax credit was a “step in the right direction” toward decreasing the county’s dependence on foreign oil and pursing alternate sources of energy on domestic soil. “Our country is in serious danger because of skyrocketing energy costs,” he said. “This growing crisis demands urgent action.”

Lawmakers highlighted the fact that it was bipartisan legislation in both the House and the Senate. As of late April, the bill in

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the House had a total of 32 co-sponsors and the bill in the Senate had six.

Renewable Fuels Association President Bob Dinneen said that tax incentives like these help the industry expand and are sound public policy. “Domestic ethanol use is lowering the price of gasoline, reducing imports of foreign oil, and helping stabilize and reinvigorate rural economies all across the country,” he said.

Tom Buis, CEO of Growth Energy talked about the need for this country to reach for foreign oil independence. He also mentioned the economic impact to the industry, should they not be extended.

“Extending these measures will ensure job growth and economic development across the entire country,” he said.

The issue of whether to extend the tariff on imported ethanol has received a

lot of attention. In early April, the Brazilian government temporarily dropped the country’s 20 percent tariff on imported ethanol until the end of 2011. UNICA, Sugarcane Industry Association of Brazil, has made no secret of the fact that it would like to see the U.S. drop its import tariff. The association has said it plans to petition the Brazilian government to permanently drop the tariff if the U.S. does the same. “Consumers win when industries compete,” said Joel Valasco, UNICA’s chief representative for North America. “Brazilian ethanol producers are willing to compete for consumers. What about American producers?”

RFA, Growth Energy and American Coalition for Ethanol disagree. Allowing the tariff to lapse, they have said, will mean the renewable fuels standard man-

dates for ethanol blending will be fulfilled by imported ethanol from Brazil, meaning a blow to the domestic ethanol industry, including lost jobs, particularly in rural areas.

One study, conducted by the University of Missouri’s Community Policy Analysis Center, projected that, if the tariff were not extended, within three years job losses would climb to more than 161,000 and the decline in economic activity would hit $36.7 billion.

Grassley also disagrees with UNICA. “The U.S. already provides generous dutyfree access to imported ethanol under the Caribbean Basin Initiative, but the CBI cap has never once been fulfilled,” Grassley said. “In fact, last year, only 25 percent of it was even used by Brazil and other countries.”

—Holly Jessen

ETHANOL PRODUCER MAGAZINE • June 2010

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CARBON

The Ensus facility will produce 300,000 tons of CO2, all of which will be captured and liquefied by Yara for future sale.

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ETHANOL PRODUCER MAGAZINE

June 2010

CARBON

Capturing Carbon The real issue with CO2 exists in policy debate, but that hasnâ&#x20AC;&#x2122;t stopped some ethanol plants from capturing and selling the greenhouse gas.

By Luke Geiver

ETHANOL PRODUCER MAGAZINE

June 2010

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CARBON

T

alk of CO2 in the ethanol industry garners mainly just that, talk. From the reporting requirements, cap and trade, and tailoring issues addressed in never-ending reports issued about the gas, the answer on CO2 policy always seems to be just around the corner, another month or two away. Some ethanol producers, however, don’t seem to be waiting, and have already taken CO2 action.

Pinal Energy LLC, Arizona’s only ethanol plant, may look like any other facility in the U.S. when driving by, but the Maricopa ethanol producer is actually capturing and selling CO2. In Wisconsin, Badger State Ethanol produces and sells 140,000 tons of raw CO2 per year, and Bonanza Bioenergy LLC of Garden City, Kan., has partnered with a Texas oil company to sequester the plant's emissions into an adjacent oil field. Across the pond, the Ensus ethanol facility in Wilton, England, which recently came on line, planned from the start to capture and sell the emission coproduct. It will produce and sell roughly 300,000 tons annually.

Each of these plants developed their system and business model for specific market conditions, demonstrating different approaches being taken by the growing number of ethanol plants monetizing the increasingly scrutinized gas.

Making Sense The constant grind for plant efficiency and coproduct utilization is nothing new for ethanol producers and is especially apparent at the Ensus facility. “We see ourselves as a re-

46

finery rather than just a biofuels producer,” says Alwyn Hughes, CEO of Ensus. “We want to be effective with all of our processes.” Before initial construction even Alywn Hughes began at the plant, CEO of Ensus Hughes says the facility planned on capturing and selling its CO2 coproduct. “It is a very important part of the plant. Our driving rational is to maximize the carbon we produce,” Hughes John Skelley says. “You don’t run general manager, a plant to make CO2, Pinal Energy but it makes sense to do this.”

John Skelley, general manager for Pinal, mentioned a similar reasoning for selling the CO2, and his plant was designed and outfitted with that capability. “We are trying to get value out of every product that comes from the production of ethanol,” Skelley says, “and especially for a plant that transfers its raw grain 1,100 miles from the Midwest.” Other plants might appreciate the extra revenue, even if they don’t receive their feedstock from such a distance. “In these tough times, every little bit helps,” Skelley says.

Along with the financial gain possible with selling the coproduct, most plants also feel the necessity to play a part in the reduction of GHGs and the dependence on fossil fuel.

ETHANOL PRODUCER MAGAZINE

June 2010

CARBON

Keeping Carbon Close For those ethanol plants capturing their GHG emissions, most CO2 emissions end up at an adjacent facility that liquefies and ships the coproduct miles and miles away. Some plants, however, choose a different end for their carbon emissions, injecting the gas back into the ground near the plant for a specific use or simply for storage.

Bonanza Bioenergy LLC, a Kansas plant, will partner with Houston-based PetroSantander Inc., to use CO2 in the hopes of extracting more oil. This first sequestration project specifically designed for oil extraction in a Kansas field will bury the plantâ&#x20AC;&#x2122;s 150,000 metric tons of CO2 into a nearby site containing aging oil wells northeast of Garden City. After being pressurized, the CO2 will be pumped into the site, which is expected to recover 10 to 15 percent more oil than otherwise possible, according to William F. Aspinwall, a land manager for PetroSantander. Costing between $17 and $20 million and due for completion in 2011, the Kansas project will ship the emissions to the site via underground pipeline. Conestoga Energy Partners, which manages Bonanza, has a project at another Kansas ethanol facility, Arkalon Energy, that redirects carbon to a Texas oil field for enhanced extraction.

In Illinois, Archer Daniels Midland Co. continues research to bury carbon in the ground. The Decatur, Ill.-based carbon capture and storage (CCS) project proposes to bury carbon from the Decatur ethanol plant into a saline reservoir capable of holding 30-110 billion metric tons of carbon. In a compressed liquid state, the plant will inject almost 1 million tons of CO2 over a three-year period into the site, which extends more than a mile underground.

The Mt. Simon Sandstone formation exists as the thickest and most vast saline reservoir in the Illinois Basin. ADM has partnered with the Midwest Geological Sequestration Consortium to test the geometry and internal structure of the reservoir. Through the survey, MSGC expects to determine any migration paths for the injected CO2 and any fault lines that penetrate or come close to the shale rock cap surrounding the reservoir. The survey uses sound waves to generate a three-dimensional image of the underground formation. The projected start date for the ADM project is similar to the Conestoga project, sometime in 2011.

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June 2010

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Tom Willis, CEO of Bonanza Bioenergy, spoke about the role of the plant in reducing both. “We live in a time where carbon footprints are important,” he says. “Whether you buy into [global warming] or you don’t, it’s definitely a concern.” Echoing that, Hughes says, “Our rational is to refine wheat with an underlying objective [to make] a contribution to climate change. CO2 produced in our process is sustainable. If we are going to reduce our dependence on fossil fuels, we have to do what we can to get away from that.”

To realize the financial gains and environmental impact that the capturing and selling creates, the plants have to understand the targeted market. Hughes explains that part of the

reason his plant is in the market is because of its proximity to bottling facilities using CO2 in their products.

For Pinal, Skelley says the plant is in a similar situation, located close enough to a bottling facility. The plant in Arizona has a bit more opportunity, however, being the only ethanol facility in the state that can supply a constant source of CO2.

While the importance of recognizing what the local market for CO2 is, who the other suppliers are, and how many vendors need the coproduct, an ethanol facility still has an opportunity to sell the coproduct regardless of the local demand. Yara Industrial, the Norway-based chemical company that runs the CO2 operations at the Ensus plant, says that

ETHANOL PRODUCER MAGAZINE

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CARBON

'If we are going to reduce our dependence on fossil fuels, we have to do what we can to get away from that.'

Alywn Hughes, CEO, Ensus

“That pipeline brings it across the road to the Yara processing facility.”

Buist explains the captured gas is cleaned in processes that include pressurization, carbon bathes and molecular sieves. The end result is a liquid product that is transported in a cooled tanker at minus 25 degrees Celsius. The ethanol plant operations have been integrated with the CO2 facility at Ensus, as they have at the Pinal and Badger State facilities. At Ensus, "the operation has been integrated into the control room of the ethanol plant,”

ethanol facilities have a major draw and advantage in the CO2 market because the facilities' shut-down periods are very short.

Wiebe Buist, vice president of Yara, says companies like his need a reliable source of CO2 year-round. Yara mainly receives its product from ammonia fertilizer plants, but those plants do not run year long. Buist explains the Norway-based company contacted Ensus for this reason. “We wanted to diversify our raw gas sourcing portfolio and not be solely running on ammonia plants,” Buist says. Now, the partnership supplies liquid CO2 to beverage companies and other vendors that use the product in fire extinguishers, to extract nicotine for low-nicotine cigarettes and in greenhouses to stimulate the growth of plants, Buist says.

Buist says. “We have provided training to the Ensus operators so they are able to operate the plant on our behalf.”

The Wilton plant produces a large amount of raw gas per year, but Buist says the capture of CO2 for sale can be downsized and fit to each plant no matter the size. Badger State produces less than half of what Ensus does at 140,000 tons.

Regardless the size of the plant, Hughes says, “the industry is looking for ways to maximize a reduction for plant emissions.

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CARBON

When the GHG regulation eventually takes effect in the U.S., the carbon scene will forever be altered, but plants such as Pinal or Badger State have already started taking action to utilize their emissions even though the focus on carbon is on policy and less on current use. “If you looked at the set-up (of the Pinal plant) you would think this is one big plant,” Skelley says about the co-located ethanol and CO2 facilities, noting that most people don’t even know it’s there. “We are virtually one plant.” EP

PHOTO: ENSUS

Luke Geiver is an associate editor of Ethanol Producer Magazine. Reach him at (701) 738-4944 or lgeiver@ bbiinternational.com.

The Ensus facility will produce 300,000 tons of CO2, all of which will be captured and liquefied

by Yara for future sale.

COMPLIANCE

PUSHING BACK ON VIOLATIONS Minnesota’s new Ethanol Initiative Compliance Team will work face-to-face with producers on a first-of-its-kind program to rein in the state’s growing number of fines.

By Luke Geiver

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n 2008 the Minnesota Pollution Control Agency issued fines to Minnesota ethanol facilities totaling $25,450. The total for 2009: $2,326,410. Yes, more than $2 million. Sparked by the drastic spike in fines, the MPCA has taken an unprecedented approach to lowering the fine totals, creating a task force to work with Minnesota ethanol facilities to improve their compliance performance.

With 22 permitted ethanol plants producing more than 1 billion gallons of ethanol per year, Minnesota ranks as the fourth largest ethanol producing state. An MPCA Citizens Board met in February seeking an answer to why the large sum of fines was issued to more than half of Minnesotaâ&#x20AC;&#x2122;s facilities. There was no clear conclusion. Peder Larson, an attorney working with the Minnesota Coalition of Ethanol, spoke at the meeting, explaining the changes to the industry as one possible reason for the fines. â&#x20AC;&#x153;This has been a drastically expanded industry,â&#x20AC;? Larson said at the meeting, adding that there is no other industry in Minnesota that has expanded more since 2005 than the ethanol sector.

Jeff Connell, MPCA compliance and enforcement manager, also attempted to explain what caused the huge uptick in fines. â&#x20AC;&#x153;We couldnâ&#x20AC;&#x2122;t put our finger on a systematic reason for the noncompliance,â&#x20AC;? Connell said.

Now, without a clear resolution to resolve the compliance issues, the new task force, unofficially called the Ethanol Initiative Compliance Team, will search for a cause, while creating what the team says is crucial for a reduction in future finesâ&#x20AC;&#x201D;an open line of communication between the MPCA and Minnesota ethanol producers.

Team Members The new outreach program will consist of three individuals from within the agency.

With various backgrounds ranging from compliance enforcement, prevention assistance and vehicle emissions testing, the members, Rocky Sisk, Sarah Kilgriff and Kim Grosenheider say they have a lot of valuable experience to draw from for the new program. â&#x20AC;&#x153;We hope these facilities can become a hundred percent compliant,â&#x20AC;? Sisk says. He previously worked with salvage yards, assisting with com-

pliance issues. Kilgriff earned her environmental science degree from the University of Minnesota College of Natural Resources, and Grosenheider completed her masPatricia Sharkey, terâ&#x20AC;&#x2122;s degree working on environmental beneficial uses of coal lawyer, McGuire Woods fly ash.

Even with extensive backgrounds, the team has virtually nowhere to look for an example on how an ethanol compliance program should be run.

Many states have alternative fuels divisions in their individual pollution control agencies, but Sisk says this compliance program is the first of its kind, although he notes there are similar programs to learn from, such as those aimed at the metal plating and mining industries. Sisk says the most important place to go for guidance is the ethanol industry itself.

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COMPLIANCE

To reach a better compliance level, the team plans to provide a number of tools and services to any ethanol producer wanting assistance, many of which were suggested by the ethanol industry. The team has already created and sent out the first edition of “The Grist: News for Minnesota’s ethanol industry.” Kilgriff says the creation of the newsletter has been the easiest part of the program so far. Based on suggestions from members of the ethanol industry, Kilgriff and the team will include topics of interest to the industry.

Kilgriff says he hopes that recipients of the letter will suggest topics for the future, making the subject matter more useful. The first issue describes the purpose of the letter while future editions will touch on topics such as spill reporting, and enforcement.

Along with the newsletter, the team will organize monthly webinars on a wide range of ethanol-related topics. Initially, members from the MPCA will present during the sessions, but Grosenheider says she hopes eventually people from the ethanol

ETHANOL PRODUCER MAGAZINE

June 2010

PHOTO: MPCA

Team Tasks

Rocky Sisk, Sarah Kilgriff and Kim Grosenheider will work as the ethanol compliance team for Minnesota producers.

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Standing for “something that can be turned into one’s gain," the newsletter will feature both MPCA-and producer-based content.

world will present too. “We also want people to share their experiences in a forum,” Grosenheider said. “People in the industry want to hear from their peers.”

The newsletter, webcasts and forum dis-

cussions are all something the team thinks will help producers understand and find answers to various problems they face. But, if that isn’t enough, the team will perform face-toface visits and on-site audits for any producer

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who requests assistance. Although the thought of producers inviting the EPA in for an audit may seem unlikely, rendering the program ineffective, Sisk says there are already plants signed up. “Producers want to make sure they are reporting information the right way, to the right agency, at the right time and frequency.” Understanding the complexities of each permit along with other aspects of compliance is something Grosenheider says can be difficult. “You can’t understand it looking at this stuff an hour a year,” she said, “It takes time and we can help.”

An obvious concern related to the onsite visit is the chance that a team member finds a compliance issue or violation. “Every state is different and every region of EPA is different,” says Patricia Sharkey an environmental lawyer for McGuireWoods LLP. “The differences between California, Alabama and Minnesota are large.” Sharkey, based in Illinois, says the on-site visits need to be clarified as the plants take on a large risk volunteering for the visits. The Minnesota program sounds like a beneficial option and has a good chance of success, she says. “I think it is a good thing to provide outreach and training for the facilities.”

Sisk, who says part of the on-site visits will include training on how to comply with air and water permits, thinks that Minnesota is a state that wants to work with the producers. “Our intention is to work with the facilities. We can’t guarantee unconditional immunity if we see something blatantly wrong,” Sisk says. “We’ve told producers that. But, unless we see an imminent threat to human health and the environment, we won’t take action.” Instead, Sisk actually expects to find minor problem areas, and it’s these areas where he hopes to help the plant both understand and fix. “We have a lot of discussion on where to draw the line in the sand. We expect that line to be pretty far out there.”

Final Objectives The team hopes to achieve 100 percent compliance among ethanol facilities, but Kilgriff adds that gaining the trust of producers is also important. In the past,

ETHANOL PRODUCER MAGAZINE

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COMPLIANCE

'Producers want to make sure they are reporting information the right way, to the right agency, at the right time and frequency.'

Rocky Sisk, Minnesota Ethanol Initiative Compliance Team

featured a speaker who claimed officials put some “cowboy” in charge who doesn’t know how to comply at an ethanol plant, Larson responded. “The doors of ethanol facilities are open. I’d like you (referring to the speaker) to talk with them about how they comply,” Larson said. “Then you can judge whether they are “cowboys” or people who want to do the right thing.”

“Most plants didn’t know they were doing things wrong. The violations did not occur out of malice,” Sisk says describing the 2009 situation.

Kilgriff worked as an enforcement officer, but hopes her work on the team will highlight her new role as more of a compliance assistance officer. Connell says by working with the producers, the team can also help provide much needed training that is currently absent at some facilities. Sisk points out that the ethanol task force can also help plants find ways to become more flexible with permits. “Maybe they can modify permits,” Sisk says. “If they think something is wrong we will work with them on the permit to see if there is something to modify or find a way to help solve a problem.” The team is not taking over all permitting duties in the state, however, he adds.

During the MPCA Citizens Board meeting, the problems of permitting along with gaining trust was an issue brought up that the team hopes to ease. With the creation of the ethanol task force, all three members hope to run the program for one year and do whatever they can to cut back on the compliance issues. Kilgriff notes that one of the other main concerns of the producers is how the MPCA operates and enforces, an area she thinks will be better understood through this program promoting communication and trust building.

Larson, speaking for the Minnesota Coalition of Ethanol, thinks the program will help people outside of the ethanol industry understand the high number of fines, and even spoke out against those who think ethanol plants knew they were in violation during 2009, or are simply incapable of operating a plant. Referring to a report from Minnesota Public Radio that

ETHANOL PRODUCER MAGAZINE

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Pleased with the implementation of the program, Larson also spoke about the trend in fines. “Don’t expect this trend to be representative of anything that goes into the future.”

As for the team from Minnesota, they hope to do everything they can to comply with Larson’s prediction. EP Luke Geiver is an associate editor of Ethanol Producer Magazine. Reach him at (701) 738-4944 or lgeiver@bbiinternational.com.

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SDSU research Padu Krishnan is developing fiber and protein food additives from DDGS. PHOTO: SDSU

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ew research in the $60 billion functional food industry, coupled with a study from The Boyd Company Inc., a New Jersey-based location consulting firm, points to a promising new role for distillers grains (DDG): improving our health.

Though distillers grains today find their way into animal feed, John Boyd Jr., vice president of The Boyd Company, believes the coproduct’s potential for improving human health will provide a new function above and beyond what we think the ethanol coproduct can be used for today. Boyd’s study, “Functional Food Industry Costs and Ties to Ethanol Coproduct,” compares the cost of operating a functional food facility in 35 U.S. and Canadian cities. The study outlines the relationship between DDG and the functional food industry, exploring possible partnerships between the food industry and ethanol producers. “This is a new way for thinking about the ethanol industry,” Boyd says, “This is a way to distinguish a market.”

blends with the properties of another, resulting in functional The functional food market foods—with added protein, exhas existed in countries such as tra fiber or extracts, all of which Japan for some time now, acboost the food’s contribution cording to Boyd. In February towards wellness. Although the 2009, the Functional Food Cenuse and development of functre at Oxford Brookes Univertional foods is not new, the use sity, in England, began working John Boyd exclusively with the development, vice president, The of DDG is. Henry believes the idea is a good one and worthy research and promotion of func- Boyd Company of support. “Are there things tional foods. “A functional food that we can extract to use for is a food system that has an admore than just feeding pigs and vantage to your health, over and cattle?”

Boyd answers in the affirmative. beyond the food’s normal health contribu“This is a cutting edge area at the academic tions,” explains center director Jeya Henry. level, but people are living longer and want “Take cranberries for example. We didn’t alto be healthier,” Boyd says. The need to be ways know what amounts of the fruit conhealthier, however, is only one aspect drivtributed to our health. We now know the ing the use of ethanol coproduct in funcquantity needed for health benefits.”

Henry’s work utilizes this understand- tional foods forward.

Food science researchers at South Daing of the quantities required for a food to aid in health issues such as reducing high kota State University, Brookings, the “Cacholesterol or in boosting low fiber counts. dillac” of universities engaging in end-use Henry focuses on using the selective prop- applications for agricultural materials, as erties of certain foods to make optimal Boyd says, have begun answering the question already. Padu Krishnan, a professor in

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the department of nutrition, food science and hospitality at SDSU, is developing a functional flour using DDG. Krishnan explains that as feed markets become satuJeya Henry rated, new avenues director, and markets should be Functional Food Centre explored for alternative revenue streams.

“The use of corn as a food crop is not an alien concept,” he says, “However, the use of ethanol residues and byproducts by the food industry has been slow in developing.” Krishnan points out the importance of the venture for ethanol producers. “Finding economic value for an underutilized agricultural material will reduce the cost of ethanol production and directly benefit ethanol producers,” Krishnan says.

DDG’s New Function Krishnan is working on a higher value

PHOTO: SDSU

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SDSU researchers bake samples of flatbread with varying amounts of extracted DDG protein and fiber in the flour to check for color and palatability.

use for DDG in a flour blend he’s named Alice-DDG. “Alice is a variety of white wheat flour that we produce at SDSU for the Asian noodle market,” he says, “but it has tremendous possibilities as a bread

wheat also.” The promise of Alice-DDG is related directly to the value of important corn components. After the removal of fermentable carbohydrates and the drying process during the ethanol production

USE

those components are concentrated, Krishnan says. “The key things in distillers grain are the things that came from the corn to begin with.”

The concentration of both protein and fiber in the corn gives the DDG a quality the Boyd study says will be sought after for those producing functional foods, and in the case of the SDSU team, is already being utilized. After grinding the DDG into a fine flour, it is mixed in varying proportions with the wheat flour to create different versions of Alice-DDG.

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The composition and physical properties of the developed flour were determined through standard laboratory methods. The results showed the product to have very low heavy metal and mycotoxin levels, making the Alice-DDG flour safe for human consumption with its added fiber and protein levels.

Krishnan notes corn is already a food and people should not reject eating a modified food if the added material comes from a pre-existing, food-based substance.

“There are many unconventional sources

of fiber with various uses in foods like guar gum, xanthan, carrageenan, locust bean gum, etc., but ‘corn-based dietary fiber’ has a familiar ring to it,” Krishnan says. “Our research is intended to strike a balance between ingredient functionality and aesthetic traits that make a food product desirable.” Part of the goal for Krishnan and his team is to create a DDG food ingredient that remains flavor neutral, color neutral, and odor neutral to maintain the ingredient’s versatility for introduction into multiple products, something he notes, sawdust can’t do.

As the research by the SDSU food science “Cadillac” team continues, Krishnan expects good results. “Our ultimate goal is to use part of the DDG stream in an ethanol plant for the production of wholesome, food-grade DDG that can meet the specifications of a food ingredient.”

Boyd expects this goal will be seen sooner than later. He projects a high amount of venture capitalist money to go into the functional food market. “In five years we won’t be able to go to a supermarket without seeing other alternatives,” he says. “Consumers want it, people want to eat food that promotes healthy living. We project the functional food industry to grow by 25 percent over the next five years.”

The growth of the ethanol industry supplying food companies with food grade DDG may, however, be much further off, says Scott Kohl, technical director of research and development at ICM Inc. He recognizes the possible partnership between functional food and ethanol coproducts. Kohl has worked on food production concepts for Lifeline Foods LLC, a joint venture of ICM and AgraMarket Quality Grains, a farmer cooperative. Lifeline utilizes ICM’s dry fractionation technology to separate the endosperm, germ and pericarp into usable fractions, with the remaining portion of the endosperm being used for ethanol production. Kohl says there are difficulties with the functional

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food concept. “It is very unlikely for an ethanol plant to make either a food product or, in this case, a functional product. But, what a plant could do is Scott Kohl make raw ingreditechnical director, ents that a manuresearch and development, ICM facturer could put into a product.”

Kohl explains one of the main reasons for the lack of ethanol plants producing food relates directly to regulations in the food industry. “The average ethanol plant can’t do any of these things, producing food on site,” Kohl says, “because you have to keep the corn in a food grade state.

Regulations in the food industry would make this very difficult.” He suggests that front-end fractionation may be the best approach to developing functional foods. “Lifeline is a facility that does this,” he explains. “The same process could be used to produce DDG for functional food use. Because of sanitation issues and food regulation it would be much easier.”

Krishnan explains his approach is to create a food ingredient, and not a food. To produce Alice-DDG, Krishnan addressed the food regulations in the first steps of his process, preparing the DDG by washing it with a variety of food grade solvents and sterilizing the flour in a portion-controlled sealed can in a food-grade steam sterilizer.

As Kohl infers, the idea of an ethanol plant producing food onsite may be unrealistic, but the Boyd study paints a positive outlook for functional foods from DDG. “The massive increase in ethanol production in the U.S. has also resulted in a similar increase in its most valuable coproduct: DDG,” the report says, and the future mass production of nutrient rich ingredients from DDG is on the way. Not surprisingly, the Boyd report indicates the best places for food facility operations are located in the highest ethanol-producing

Midwestern states with Sioux Falls, S.D., topping the list. The report also lists major food and beverage companies heavily involved in functional food research which include General Mills Inc., ConAgra Inc., PepsiCo, Kraft Foods Inc., and many others. Bioscience firms Syngenta, Monsanto Co., DuPont and others are also involved in researching the concept, according to the report.

Lifeline Foods promotes the idea of “Fueling America, Feeding the World,” and Boyd would not disagree. On the future of ethanol plants helping to feed the world and

do it in a way that provides added human benefits, Boyd believes that DDG usage and functional food companies are a “perfect marriage.” For researchers Henry and Krishnan, using ethanol coproducts for functional foods seems to be a healthy one. EP Luke Geiver is an associate editor of Ethanol Producer Magazine. Reach him at (701) 738-4944 or lgeiver@bbiinternational.com.

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PROFILE

John McCarthy Jr. has stepped in as president and CEO of Massachusetts-based Qteros. Will he bring Big Oil to the investment table in as dramatic a way as he has in the past?

By Holly Jessen

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n the past 20 years, John McCarthy Jr. has used a self-described passion for science to leverage funding for scientific companies.

More recently, he’s turned his attention specifically to alternative energy companies. “I love bringing together great scientists with great business people,” he tells EPM. That’s exactly why Massachusetts -based Qteros brought him on as president and CEO. The industry veteran spoke with EPM shortly after he took the helm at Qteros, which is perfecting its trademarked and patented Q Microbe for converting cellulosic biomass directly into ethanol in a single step.

Qteros’ announcement of McCarthy’s new position with the company, crowed about its new leader’s history of managing “transformational growth” and raising more than $1 billion in capital for various life science and bio-based chemical companies.

Board member and investor Jason Matlof of Battery Ventures agreed.

“John's proven leadership commercializing technologies in the biotech and biofuels industries is a perfect fit with Qteros as we move from the R&D stage and into development,” he tells EPM. “We are thrilled to have John on board.”

Thrilled indeed. McCarthy is perhaps best known in biofuels circles for helping broker a $90 million strategic partnership between multinational oil company BP plc and Verenium Corp., a Cambridge-based cellulosic ethanol firm, that was announced in 2008. BP’s investment wasn’t the only source of funding to help further Verenium’s research. When McCarthy started working there, it was a small, privately held company, and when he left it was a publically traded company.

Steve Goldby, Qteros board member and partner at Venrock Associates, recognized that experience in a statement when Qteros announced its new CEO. "John's experience building pioneering companies in the biofuels industry such as Verenium, together with

Smaller scale companies just don’t have the reach and breadth to get where they want to go alone. To advance their technology they need partners and investors with big scale experience and balance sheets.

his proven track record of developing and managing complex strategic corporate partnerships make him uniquely qualified to lead and position Qteros for significant growth," he says.

Lessons to Learn So what’s McCarthy’s view on bringing Big Oil or Big Industry to the biofuels investment table? It’s a must do for both sides, he says. Smaller scale companies just don’t have the reach and breadth to get where they want to go alone. To advance their technology, they need partners and investors with big scale experience and balance sheets, such as BP provides for Verenium.

“That’s the size of the organizations that are going to make a difference,” he says.

Looking back at the precedentsetting deal between BP and Verenium, McCarthy recalls everything happening rather quickly. He joined the company in early 2007, about the time of the merger of Celunol and Diversa to form Verenium. By the end of a year and a half, BP and Verenium were strategic partners. At the time, for Verenium, it might have felt like the process was going slowly, he acknowledges, but not so for BP. “For them, they were moving at light speed,” he says.

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PROFILE

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But it’s not a one-way street benefiting only biofuels. In McCarthy’s view, it’s clear biofuels have never threatened Big Oil. Even the combined total ethanol production of the United States and Brazil is only a drop in the bucket for any one of the major petroleum players.

However, those companies can no longer afford to ignore the industry either, McCarthy says.

Take oil giant Exxon Mobil Corp.

It wasn’t long ago that its CEO went on record as saying the company had no plans to get involved in alternative fuels. Then, last summer, Exxon made a $600 million investment into algaebased biofuels.

The investment was significant for the energy research at Synthetic Genomics Inc., for sure. For Exxon, on the other hand, that $600 million didn’t

mean much in hard numbers. “Directionally and meaningfully,” however, it was a huge step for the oil company.

“Exxon cannot not be in this business,” McCarthy says.

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Bird’s-Eye View Before joining Qteros, McCarthy was chief business officer of Microbia.

His resume includes senior executive positions at Xanthus Pharmaceuticals, Synta Pharmaceuticals, Exact Sciences, Concentra Managed Care and Morgan Stanley. Graduating with high honors from Lehigh University, McCarthy received a master's degree in business administration from the Harvard Business School, but it wasn’t until four or five years ago that he started concentrating on the alternative energy space. “I wish I could tell you that back in high school

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PROFILE

Qteros’ research is done at its lab in Massachusetts, where the university researchers isolated a promising microbe for cellulosic ethanol production.

or college, I had a perfect crystal ball,” he says.

In recent years, McCarthy, along with the rest of the industry, has watched large industrial agricultural and fuel companies step into the alternative fuels marketplace in a very real way. Especially during his time at Verenium, he’s had a “bird’s-eye view” of just how rapidly the industry could evolve. In working on the deal for Verenium, McCarthy talked to almost every major oil company, getting a good sense of where those companies stand on biofuels. He has, in fact, a lot of respect for many of those companies, specifically BP. So how did he get from there to here? When Qteros approached McCarthy about leading that company, there were two things that attracted him.

One was the list of investors already on board including Venrock Associates, Battery Ventures, Soros Fund Management LLC and Valero Energy Corp. BP is also an investor, though it’s through BP Technology Ventures, not the same arm of BP that is a strategic partner of

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Verenium. Qteros has a group of solid investors from broad areas of interest. â&#x20AC;&#x153;That collection of investors â&#x20AC;Ś is extremely important to me,â&#x20AC;? McCarthy says.

The other reason he took the job was the science. Qteros has a unique organism and technology platform.

Thatâ&#x20AC;&#x2122;s power he can recognize. â&#x20AC;&#x153;All of that wrapped to what I thought was a really compelling opportunity,â&#x20AC;? he says.

Qteros had its start in 1996 when University of Massachusetts microbiologist Susan Leschine and her lab assistant, Tom Warnick, found a microbe to break down plant waste. After gathering samples all over the world, the super bug they found was in their backyard at the Quabbin Reservoir in western Massachusetts. Ten years later, Leschine and others formed SunEthanol, a name later changed to Qteros in recognition of its beginning at Quabbin.

The difference between Verenium and Qteros, besides $90 million from Big Oil, is their business models. Vereniumâ&#x20AC;&#x2122;s focus is producing clean ethanol. The company has built pilot and demonstration plants and is working toward commercial-scale production.

Qteros, McCarthy says, is looking for partners that want to use its technology and organism to produce ethanol.

To use a computer analogy, Verenium is targeting the hardware, while Qteros is focusing on the software, although both have developed conversion technologies.

Asked if he planned to take Qteros public, like Verenium, McCarthy didnâ&#x20AC;&#x2122;t say yes or no. At this point, he says, thereâ&#x20AC;&#x2122;s no reason the company should or shouldnâ&#x20AC;&#x2122;t be publically traded. If, at a later date, it makes sense to take it public, thatâ&#x20AC;&#x2122;s what theyâ&#x20AC;&#x2122;ll do. Going public, McCarthy says, is simply another finance tool. And, itâ&#x20AC;&#x2122;s a tool heâ&#x20AC;&#x2122;s clearly comfortable wielding, having taken three companies public and managed four publicly traded companies.

Either way, Qteros offers current and potential investors significant val-

ue. McCarthy believes that some of the major players could very well find a good partner in the company. â&#x20AC;&#x153;Iâ&#x20AC;&#x2122;d like to think that there are opportunities for that,â&#x20AC;? he says.

Over the short term, his plans are to hit the Qteros accelerator as rapidly as possible. That means both in the research lab and in discussions with possible partnerships.

McCarthy says he feels confident about the cellulosic industry as a whole, too. Ethanol production has gone through some â&#x20AC;&#x153;gut-wrenching changes,â&#x20AC;? from Midwest farmers with the know-how to produce ethanol from corn, to more complex second generation ethanol developments.

It was a rapid learning curve that evolved naturally, he says.

Corn-based ethanol has been under the spotlight lately, as smaller companies became larger. Some companies went public, only to go bankrupt and then get

bought up by other, larger companies, at barrel-bottom prices. â&#x20AC;&#x153;Frankly some of them blew up because they couldnâ&#x20AC;&#x2122;t manage the growth,â&#x20AC;? he says.

Now, cellulosic ethanol is on the path of growth as the future unfolds. The cellulosic ethanol industry is a lot closer now to full-scale commercialism than it was, even two years ago. â&#x20AC;&#x153;Iâ&#x20AC;&#x2122;m excited about where the industry is today,â&#x20AC;? he says, adding that heâ&#x20AC;&#x2122;s talking about both the U.S. industry and worldwide. â&#x20AC;&#x153;I canâ&#x20AC;&#x2122;t think of a better place to be.â&#x20AC;? EP Holly Jessen is associate editor of Ethanol Producer Magazine. Reach her at (701) 7384946 or hjessen@bbiinternational.com.

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RESEARCH

Researchers in Wisconsin and the UK are developing new techniques to augment various aspects of cellulosic ethanol production.

By Anna Austin Arabidopsis cells before and after overexpression of CLE41.

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RESEARCH

W

hether evaluating the metamorphosis of the Model-T to a Mustang or a rotary dial landline to a Blackberry Pearl, itâ&#x20AC;&#x2122;s clear that the evolution of technology is inevitable. While hype surrounds the latest innovation, there is always someone behind the scenes, working quietly to further advance it, even when something more efficient or inventive cannot be imagined. Without fail, what is advanced today will be considered a stepping stone tomorrow.

Many companies that have successfully demonstrated cellulosic ethanol production processes at bench, pilot and semicommercial scales are now embarked upon commercial-scale operations, some determined to accelerate progress in order to help meet the renewable fuel standard, which has a cellulosic biofuel requirement of 6.5 million gallons in 2010. Meanwhile, researchers behind the scenes continue to tweak, refine and optimize key processes, from sugar extraction to beefing up feedstocks.

For example, a research team at the University of Wisconsin-Madison recently developed a chemical method to liberate the sugar molecules trapped inside inedible plant biomass, an approach that can convert three-quarters of the sugars locked up in raw corn stover into simple, fermentable sugars. The researchers believe the process could enable crude biomass to be the sole source of carbon for a scalable biorefinery. Ron Raines, a UW-Madison professor of biochemistry, says the process is

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The chemicals used in the new process are more robust and less expensive than enzymes and require no pretreatment of the biomass sample.

extremely efficient, and has distinct advantages over chemical and enzymatic processes currently used for producing sugars from biomass.

A New Chemical Approach Raines, an author of more than 320 published papers and abstracts and holder of 20 U.S. patents, co-developed the process with UW-Madison graduate student Joe Binder. Their project was supported by the Great Lakes Bioenergy Research Center, a U.S. DOE bioenergy research center located at UW-Madison, as well as with a National Science Foundation Graduate Research Fellowship awarded to Binder.

The process they have developed, which Raines says is ready for the right entrepreneur, relies on a mixture of an ionic liquid

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RESEARCH

(a salt in liquid state) and dilute acid, both of which can slip past lignin to dissolve the long chains of sugars in biomass into individual molecules of glucose and xylose.

Over the course of the reaction, water is added to prevent unwanted byproducts from forming. After two rounds of such treatment, a sample of corn stover released about 70 percent of its glucose and 79 percent of its xylose, producing an overall sugar yield of about 75 percent. From there, Raines and Binder used ion-exclusion chromatography (a mixture separation technique) to allow the recovery of the ionic liquid and delivery of sugar feedstocks to support the vigorous growth of ethanologenic microbes (bacteria or yeast).The sugar yields obtained using this method, Raines says, approach those typically achieved using enzymes to break down raw biomass.

Raines and Binder fermented the sugars they collected into ethanol, and, using this process, they were able to convert half the sugars in the plant biomass to liquid fuel. There are additional benefits, one being that the chemicals used in the new process are more robust and less expensive than enzymes and require no pretreatment of the biomass sample. "In the biofuels race, I feel this sort of chemical approach has a good shot at winning,â&#x20AC;? Raines says. Furthermore, chloride and hydrochloride produce high sugar yields in hours at just 105 degrees Celsius (221 degrees Fahrenheit), compared to enzymatic hydrolysis that can take up to 16 days. Also, many current pretreatment methods require much higher temperatures, at 160 to 200 C.

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RESEARCH

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Compared to acid hydrolysis, the process avoids the use and recycling of large amounts of hazardous concentrated acid by using catalytic amounts of dilute acid. The ionic liquid used is likely to be far easier to handle as well. The target cost of the ionic liquid is 13 cents per liter of ethanol product, or 50 cents per gallon, which equals the anticipated cost of enzymes for a process based on enzymatic hydrolysis.

Though small-scale research innovations can show great promise, duplicating those results at a larger scale is always a challenge. Raines acknowledges that, and realizes certain hurdles will need to be overcome in order for the process to become economical. These include ensuring the near-perfect recovery of the costly ionic liquid, and the possibility that the larger-scale fermentation of hydrolyzate sugars might reveal inhibitors not detected in smaller–scale experiments.

Despite these and other possible challenges, Raines believes the research, which was described in the March 9 issue of the Proceedings of the National Academy of Sciences, could have substantial short-term and economic political impacts.

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Meanwhile, across the Atlantic Ocean, researchers at Manchester University are working on a different element of cellulosic production—fattening up feedstocks. Continuing a research program that began in 2003, Simon Turner, head of Manchester University’s Plant Science Group and chair of the university’s biological safety committee, says the original intent of the research was to evaluate how plants control the orientation and direction in which plant cells divide, rather than research aimed at increasing biomass for biofuel conversion.

Though the plant Turner and fellow researchers have worked with does not physically resemble a tree, the small, flowering Arabidopsis has a similar vascular system which circulates resources such as sugar and water throughout the plant. “We wanted to know how the cells divided to produce this [vascular] pattern, how they knew which side to divide along, and we found that it was down to the interaction of

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two genes,” Turner explains. The resulting research paper, called “The PXY-CLE41 receptor ligand pair defines a multifunctional pathway that controls the rate and orientation of vascular cell division,” was published online Feb. 10 in Development Journal.

By investigating growth in the vascular bundles, he and his team found that the genes PXY and CLE41 dictate the amount and direction of cell division. “Our work has identified these two genes that make plants grow outwards,” he says. “The long, thin cells growing down the length of a plant divide outwards, giving that nice radial pattern of characteristic growth rings in trees. So you get a solid ring of wood in the center surrounded by growing cells.”

During experiments, it was found that the over-expression of PXY produced more cells, but they were very disorganized and not useful because the orientation was affected, according to Turner. “It is in understanding how the both of the genes control both the amount of cell division and the orientation of division that allows us to manipulate it in a useful way,” he says. When over expressing CLE41, a greater amount of growth in a well-ordered fashion was seen, thus potentially increasing biomass for biofuel or other uses. “Now we know what genes are dictating the growth process, we can develop a system of increasing growth so that it is orientated to produce more [wood],” Turner says.

On quantifying the amount of growth seen, Turner says it’s difficult to convey for the Arabidopsis plant. “[because] some tissue undergoes cell divisions (and radial growth) that do not normally divide,” he says. “In vascular bundles, they have somewhere between two and three times as many cells.” In addition, outcomes may vary considerably when applied

to the vascular systems of trees, which could largely be influenced by location.

“Trees are responsive to a lot of things,” Turner points out. “They stop growing in winter and start again in spring, and this changes according to the amount of light and the day length. It might take a tree 150 years to grow in Finland, but only 10 years in Portugal.”

As for its applicability in other biomass crops, apart from trees, the researchers know the process works in tobacco, and although tobacco is not yet considered a biomass crop, it has made them confident it will work in any dicot crop such as soybeans or alfalfa. “What will happen in monocots such as maize or switchgrass is less clear, but we are currently testing this,” Turner tells EPM. Now, he and his team are growing poplar trees in the laboratory to determine if they fit the Arabidopsis model.

Eventually, this research could aid in quickly growing biomass for biofuel, particularly in countries with growing energy needs or mandates. Turner points to estimates that, in order to reach current U.S. mandates, which call for one-third of all liquid fuel to be generated from renewable sources by 2025, about 1 billion metric tons of biomass will be needed. "This work could have substantial short-term economic and political impacts," he says. EP Anna Austin is an associate editor for Biomass Magazine who regularly contributes to Ethanol Producer Magazine. Reach her at aaustin@bbiinternational.com or (701) 7384968.

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The Rise and Fall of VeraSun, Continued A shareholder suit against the board and management of the former VeraSun illustrates important considerations for all ethanol producers.

By now, the story of VeraSun’s rise and fall is familiar to everyone in the ethanol industry. At its peak, VeraSun Energy Corp. was the largest ethanol producer in the U.S., and it was often talked about as the acquirer of choice for any single-plant ethanol company looking to cash in, even as the market started to turn down.

As a result, the swift fall for VeraSun was a shock to the industry. What is happening now with

VeraSun and some of its very unhappy shareholders may also cause shockwaves throughout the industry.

In VeraSun’s public announcement Sept. 16, 2008, that it found itself on the wrong side of both the corn and ethanol markets, VeraSun concluded that it expected “to incur a net loss for the third quarter of 2008 in the range of between $63 million (40 cents per share) and $103 million

(65 cents per share).” Conditions rapidly went downhill and Oct. 31, 2008, VeraSun declared bankruptcy. Eventually, its plants were sold off and its assets liquidated in the bankruptcy. VeraSun creditors recouped what they could from the sale of those assets and walked away licking their wounds.

Unfortunately for the VeraSun shareholders, they received nothing.

Shareholders File Until recently, this seemed to be the end of the story. Some VeraSun shareholders, however, are now fighting back by going after VeraSun’s former executives. This development could have implications for other ethanol companies facing hard times, whether or not they are publicly held companies. In a complaint filed in United States District

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).

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Court for the Southern Disper bushel to a low of under $5 trict of New York on Nov. 10, per bushel in mid-August 2008. a number of shareholders of As a result, we were required unVeraSun brought a class action der the accumulator contracts to lawsuit for securities law violapurchase additional amounts of tions. VeraSun escaped being corn at prices that proved to be named only because it is prohigher than prevailing market tected by the bankruptcy laws. prices.”

Todd Taylor Donald L. Endres, VeraSun’s attorney, According to the complaint, chairman and CEO, Danny C. Frederikson & VeraSun’s statements before the Herron, the chief financial of- Byron Sept. 16, 2008, announcement ficer, and Bryan D. Meier, the failed to disclose the true nature chief accounting officer, were of the risks facing the company. not so lucky and are all named Specifically, they allege that Vedefendants. raSun failed to disclose the folThese shareholders claim lowing adverse facts: (i) VeraSun that from March 12, 2008, to was a speculative commodities Sept. 16, 2008, VeraSun and the trader; (ii) VeraSun engaged in defendants made statements speculative and risky derivative that failed to disclose informatransactions that exposed it to James Dorsey tion about the company that substantial financial and liquidwould have put the market on attorney, ity risk; (iii) VeraSun experienced Frederikson & notice about the risks facing the Byron substantial loses on speculative company. derivative transactions causing As referenced above, in margin pressures on the com2008, sharply rising corn prices caused Vera- pany; (iv) as a result of those margin presSun to take certain actions it believed neces- sures, the company sold out of a large short sary to protect its margins. On Sept. 16, 2008 position in corn and incurred substantial VeraSun stated: losses; (v) the company entered into highly “In July 2008, after corn prices had ris- risky “accumulator” contracts that obligated en from approximately $6 per bushel at the VeraSun to purchase increasing amounts end of May 2008 to almost $8 per bushel of corn after the price of corn fell; and (vi) due to extraordinary weather conditions in VeraSun’s financial condition and especially the Midwest and broader market commod- its liquidity were negatively impacted as a ity trends, we effectively priced our corre- result of speculative commodity transacsponding physical purchases of corn at the tions, ultimately causing the company to file then-current market price, which proved to for bankruptcy. According to the complaint, be significantly higher than today’s market these alleged misrepresentations and/or prices for corn. In addition, based on market omissions occurred both in the reports that forecasts that prices would continue to rise, the company filed with the Securities and we entered into a number of “accumulator” Exchange Commission and in various press contracts relative to corn requirements for releases and public comments made by the the third and fourth quarters that, in each company. case, allowed us to purchase a specified volFurther, according to the plaintiff ’s ume of corn at prices below then-prevailing lawyer: “On September 16, 2008, VeraSun market rates, but also required us to purchase announced that it commenced a public ofthat same volume of corn (in addition to the fering of 20 million shares of its common initial purchase) at one or more lower prices stock to raise money for ‘general corporate per bushel should market prices decline to or purposes.’ The true purpose of this public below those lower levels over the duration of offering was to raise capital in an effort to the contract. Shortly thereafter, corn prices prevent a disastrous impact from the huge commenced a sharp decline from almost $8 losses experienced by the Company as a ETHANOL PRODUCER MAGAZINE

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MANAGEMENT. BY TODD TAYLOR AND JAMES DORSEY result of its speculative trading and risky bets on the price of corn. In response to the Company’s announcement on September 16, 2008, shares of the Company’s stock fell $3.81 per share, or 70 percent, from a close of $5.22 per share before the announcement, to close at $1.41 per share on September 17, 2008, on extremely heavy trading volume.”

The plaintiffs are alleging that VeraSun knew or should have known of these risks and failed to inform its investors about these risks

and the consequences should the risks materialize. As a result of these risks and the failures to disclose them, the plaintiffs allege that they suffered the loss of all the value of their shares.

According to the most recent SEC filing by VeraSun, as of Oct. 31, its total shareholders’ equity was a negative $26,479,000. The plaintiffs are seeking damages equal to the difference between the price they paid for their shares and the price today—essentially they want all of their money back.

It is also important to consider how your decisions may be viewed in retrospect ... having a well-reasoned process for making decisions is often just as important as the decision itself.

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While the VeraSun saga is interesting in its own right, it is also valuable as a learning tool for other ethanol plant board members and executives. VeraSun’s executives are being sued because they allegedly lied to their shareholders about the nature of VeraSun’s business and the risks associated with that business. Every board member and executive officer of a company, registered with the SEC or not, has a duty to speak truthfully to their shareholders when they speak at all. If they are unwilling or unable to disclose all of the material facts, they should not speak. This includes shareholder meetings, shareholder newsletters, letters to the editor of the local paper, and coffee shop chats with friends about the company.

VeraSun, as an SEC-reporting company, had a duty to speak and provide information through its SEC reports, which is not the case for non-SEC-reporting companies. But its duty to disclose all material information when it spoke is the same duty that applies to any company, even privately held ones. Also, because VeraSun was trying to sell shares, it had to describe its business and risks in full detail, so the investors could make informed investment decisions. Every ethanol plant that has raised equity capital had that same

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duty, and that is why the disclosures in a prospectus are important if the business starts to suffer. These disclosures, if done properly, can help protect the company, the board and executives from securities fraud claims.

Because shareholders’ main source of information about a company comes from the board and executives, shareholders rely on them to provide accurate and honest information that allows them to determine how to vote in board elections and whether to buy or sell shares. Being careful about shareholder communications, even casual discussions, can help avoid these issues.

Therefore, many companies prohibit board members and executives from publicly discussing any material information about the company and appoint a designated spokesperson. Directors and executive officers who are either required to disclose certain information under SEC rules, or who chose to do so voluntarily, must be careful to give the full picture, not just the good news. This becomes even more important when times are tough, as shareholders may call their director and officer friends looking for information and advice on what to do. Painting an overly optimistic picture can definitely land a director or officer in trouble.

It is also important to consider how your decisions may be viewed in retrospect.

VeraSun’s executives likely believe they made good and reasonable business decisions and disclosed the material facts. While they are not being sued for breaches of fiduciary duty, those claims regularly accompany securities fraud claims and it is important to realize that having a well-reasoned process for making decisions is often just as important as the decision itself, as it can help establish that you fulfilled your fiduciary duty of care should an unexpected event suddenly lay waste to your best laid plans.

A few years ago during a board meeting for an ethanol client that was doing an equity drive, a board member rather hotly questioned just how much disclosure about risks was really needed. He asked if any ethanol company had ever been sued for fraud.

He was told that it was just a matter of time.

Well, that time is up. EP ETHANOL PRODUCER MAGAZINE

(Note: Neither the authors nor the law firm of Fredrikson & Byron, represent the plaintiffs, defendants or VeraSun, and the authors expressly disclaim any opinion regarding the merits of the allegations against the defendants, nor should any such opinion be inferred by the reader.)

June 2010

James E. Dorsey practices in the area of commercial litigation at Frederickson & Byron and is the chair of the valuation dispute and litigation group, which encompasses shareholder disputes, condemnation, and real estate tax matters. Reach him at (612) 492-7079 or jdorsey@fredlaw.com. Todd A. Taylor is the co-chair of Fredrikson & Byron’s clean technology group and focuses on biofuels and biomass projects. Reach him at (612) 492-7355 or ttaylor@fredlaw. com

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85

BIOMASS. BY SCOTT MCDERMOTT Contribution

Economic Drivers of Low-Carbon Energy Solutions for Ethanol Producers A forward-looking approach is needed to understand the current and potential macroeconomic drivers for the utilization of biomass as a feedstock for coal-fired boilers, biomass gasification and cellulosic ethanol.

There are many intelligent researchers focused on the technology of converting biomass to energy in all of its forms.

What seems to be less understood are the economics and business challenges of biomass origination, logistics, storage and handling. We are in the early stages of the evolution of the biomass-to-energy supply chain. While woody biomass residues, crop biomass residues and energy crops

will be distributed across the country, their economics vary greatly.

Ascendant Partners Inc. has been working with a number of ethanol plants to better understand and implement options for lowering energy cost, for energy diversification and for lower-carbon energy. These options include anaerobic digestion of influents from inside and outside the ethanol plant, a parallel biomass de-

livery system for coal-fired boiler systems, biomass gasification to parallel a natural gas boiler system, cellulosic ethanol technology, as well as other minor energy improvement add-ons. What makes this analysis different today from past economic and business energy assessments is that many of the fuel sources considered today were rarely considered even three years ago. It takes a forward-looking ap-

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).

86

ETHANOL PRODUCER MAGAZINE

June 2010

Chart 1

proach to understand the current and potential macroeconomic drivers of a structurally higher energy-price environment and the growing body of greenhouse gas legislation, including the renewable fuels standard, the California low-carbon fuel

standard and possible legislation regulating greenhouse gas emissions.

An important point to keep in mind regarding the economic drivers of biomass acquisition is that all of the potential feedstocks being considered as a fuel

source are either not being utilized today, or they are being utilized in other applications because of their relatively high cost and technical challenges. Most agricultural residues are returned back to the soil because of their nutritive benefit in the TM

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crop-production cycle. Forest and wood residues are often either left in the forests or used as a base for compost, mulch and animal bedding, or are recycled or landfilled. It is yet to be seen if energy crops’ agronomic and indirect land use characterization will drive their cultivation in traditional crop production areas or in new growing areas.

Pricing Strategy If energy prices continue to rise and carbon emissions become more regulated, it is inevitable that the value of these biomass energy resources will rise as more groups attempt to utilize them.

Thus a key economic driver for any group looking to use biomass feedstocks will take into consideration a long-term strategy to manage biomass acquisition costs. Many such groups observe the current market pricing structure and assume it will stay constant. They will lock counterparties into contracts that will not stand the test of time or believe they will have time to renegotiate contracts when prices start to rise. A more prudent approach would be to work directly with prospective feedstock suppliers in contract relationships for some part of the biomass feedstock requirements.

The long-term goal of these contracts

should be energy competitiveness relative to an energy index such as natural gas that will allow the biomass supplier to participate in higher prices while prices are depressed.

Bulk Density The other economic drivers for biomass sourcing include bulk density and moisture content, storage, handling, logistics and energy quality. It does not matter if the discussion concerns energy crops, wood residue, agricultural residue or traditional agriculture and energy products, the fundamental economic drivers are the same. Bulk density defines how much mass can be loaded into a truck, train, barge or ship. Chart 1 shows a range of transportation costs per dry ton given different distances.

The cost to move coal 120 miles can be compared to transporting other fuels the same distance—the cost for wood chips being almost three times that of coal and the cost for wood shavings being nearly five times that of coal on a dryand moisture-adjusted basis. That is why densifying the biomass to manage acquisition costs when moving biomass long distances can be the lowest-cost biomass feedstock option.

ETHANOL PRODUCER MAGAZINE

June 2010

Many groups looking at biomass as a feedstock observe the current market pricing structure and assume it will stay constant. A more prudent approach would be to work directly with prospective feedstock suppliers.

No one wants the additional expense of densification; but if the biomass is being moved a long distance, this option may have to be considered.

Typical processes increase density while driving moisture levels down. Another consideration favoring the added step is that densified biomass products can often be moved in an established handling and storage infrastructure. As stated previously, the biomass-to-energy supply chain is in its early stages, and efficient, feedstock-specific collection, storage and handling systems have yet to be developed. Being able to leverage existing infrastructure and technology can lower the capital requirements for new biomass-to-energy systems in the interim.

Energy Quality The concept of energy quality may seem strange, but when it comes to biomass energy feedstocks, it is important.

Unlike fuels such as coal, biomass energy feedstocks are susceptible to the elements and can degrade over time. This is a particularly important consideration for energy crops and agricultural residues because they degrade relatively quickly as they are exposed to weather, which has implications in additional storage and handling costs, as well as the required capital to minimize degradation.

ETHANOL PRODUCER MAGAZINE

Energy Content The final economic driver to consider is the energy content of the biomass.

Powder River coal, for example, has an energy content of about 11,000 Btu per dry pound which compares to wood or agricultural residues at 7,500 to 8,500 Btu per dry pound. Chart 2 shows a range of transportation costs per million Btu (MMBtu) given different distances.

If the previous analysis is extended to include energy cost per MMBtu, the cost to move wood chips 120 miles increases to 3.75 times greater than coal, and wood shavings to almost 5.75 times that of coal. If the biomass feedstock is stored where it is susceptible to the elements, it can lose as much as 25 percent of its energy content, increasing the transportation cost disadvantage to 5 and 7.5 times, respectively.

In the end, utilizing the best technology to convert biomass feedstock to energy is important, but there are other factors that also drive the competitiveness of different low-carbon energy solutions. An ethanol producer considering low-carbon biomass energy resources should understand the fuel’s economic competitiveness and the business challenges of sourcing, storage, handling, transportation, infrastructure and energy quality and content, in addition to conversion and purchase price. It is important to consider the biomass economic drivers in context of a forward-looking view about how the biomass feedstocks will compete in future energy price environments, and quantifying the lowercarbon fuel benefits under current and proposed greenhouse gas and carbon regulation regimes. This combination will be beneficial in calculating the timing and best energy mix for the facility over the long term. EP Scott McDermott is a partner of Ascendant Partners Inc. Reach him at custserv@ ascendantpartners.com or (303) 221-4700.

June 2010

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ETHANOL PRODUCER MAGAZINE

June 2010

With all contact information placed in one convenient location, Ethanol Producer Magazine not only contains top editorial content but also a useful directory in each publication. Whether a first-time advertiser wanting to raise awareness of your business or a frequent display advertiser looking for added exposure, EPM Marketplace is the perfect solution.

ICM, Inc. 877-456-8588

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ETHANOL PRODUCER MAGAZINE

June 2010

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ETHANOL PRODUCER MAGAZINE

June 2010

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93

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With all contact information placed in one convenient location, Ethanol Producer Magazine not only contains top editorial content but also a useful directory in each publication. Whether a first-time advertiser wanting to raise awareness of your business or a frequent display advertiser looking for added exposure, EPM Marketplace is the perfect solution.

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