RFA President Confident About Ethanol in 2008

AMSTERDAM – The United States currently has 139 ethanol plants in 26 states, with a total production capacity of approximately 7 billion gallons. An additional 91 ethanol plants are under construction or expanding at the moment with a total capacity of another 7 billion gallons. Undoubtedly, the supply side of the ethanol industry is growing at phenomenal speed. But it is not the supply side that worries investors at the moment, it’s the demand side. Because ethanol consumption is not keeping up with production growth, ethanol prices have dropped to as low as $1.55 per gallon, which at current corn prices results in tight, and sometimes negative, profit margins. Some analysts expect this to worsen because of two reasons. First of all, car manufacturers are currently not willing to provide vehicle warranties at ethanol blends beyond 10%, causing what is known as the E10 blend wall. Secondly, the Renewable Fuels Standard (RFS) target for 2012 is likely to be reached in 2008 and the Energy bill that could expand the RFS is struggling in the Senate. Therefore, the industry seems to be moving towards a structural surplus in production.

What you just read is a brief summary of what you have probably been hearing in the media for the past few weeks, or even months. The actual story is far more nuanced and it requires a Washington insider to tell it. Bob Dinneen, president of the Renewable Fuels Association, is much more positive about ethanol in the United States because he knows why consumption has been lagging behind, because he knows what are and what aren’t showstoppers for the industry, and more importantly, because he probably knows more about upcoming legislation than anyone else. In an interview with Ethanol Statistics he ‘announced’: “It will be a busy 12 months with respect to legislation in Washington, I suspect.”

Ethanol Market Opportunities: Beyond E10
People who oppose increased ethanol usage often refer to the fact that car manufacturers are currently not willing to provide vehicle warranties at ethanol blends beyond 10%. This would limit the consumption of ethanol to 10% of national gasoline demand, which is insufficient considering one of ethanol’s goals of energy security. But the state of Minnesota, in conjunction with the RFA, is engaged in a test program to determine the efficacy of moving forward with high level blends. The program looks at materials compatibility, drivability and emissions and its test phase is now largely completed.

“I need to preface my remarks with the fact that the reports have not yet been written up and I’ve not seen the data,” says Bob Dinneen, “but nobody at this point has told me that there is a real problem in the process. I am literally unaware of any showstoppers.”

Mr. Dinneen is realistically enough to admit that the test program does not answer every question there is going to be with respect to higher level blends. “We did not do durability testing, which will likely have to be done at some point, and we have not yet begun to do any analyses of the impact of higher level blends on small engines.” Coincidentally however, the Department of Energy has a test program that is indeed looking at those two aspects and Mr. Dinneen is hopeful that sometime next year, their will be a scientific and technical foundation that supports moving forward with a waiver request of the Environmental Protection Agency (EPA) for higher level blends. But despite being hopeful and confident about the end result, Mr. Dinneen shows that he understands how important public opinion is at this stage by adding, “The ethanol industry does not want to move forward with a higher level blend, if the end result is going to be a lack of consumer confidence in our product. We want to make sure that if these fuels are introduced into the market place, that consumers see the same high value, the same performance that they’re currently seeing. We don’t want to threaten the foundation of the industry.”