Brownfield, MO
10-01-07
Ethanol industry consolidation likely, normal
by Peter Shinn
Ethanol industry expansion has brought billions of gallons of additional capacity
to market in a handful of years, with much more coming. So much ethanol is
being produced, its price has fallen to little more than $1.50 a gallon on the spot
market.
That's been good news for gasoline consumers, because lower ethanol prices
have been one factor helping to keep a lid on gasoline prices, even as crude oil
prices have hit record highs. But it's been a much less welcome development for
ethanol producers, as the low price of ethanol, combined with the high price of
corn, has dramatically reduced their profitability.
And more ethanol production capacity is coming quickly. Renewable Fuels
Association President Bob Dinneen told Brownfield that capacity is set to double
in the next 18 months, which is why he doesn't think some degree of industry
consolidation is, by definition, harmful.
"I think the marketplace to say, you know, where is all this going and take a little
breather is maybe not a bad thing," Dinneen said. "It doesn't mean that there's
going to be this rampant consolidation or this real big shake-out."
The degree of consolidation that's likely to occur in the ethanol industry may be
an open question. But according to Dr. Bruce Babcock, Director of Iowa State
University's Center for Agricultural and Rural Development, there's little
doubt such consolidation is in the offing.
"Given that the ethanol industry is having low margins, one would think that
consolidation should take place like it would with any commodity," said Babcock.
In fact, Babcock said, ethanol industry consolidation would increase industry
unity and efficiency. He also suggested greater consolidation would help focus
ethanol production regionally in areas where high demand for ethanol exists.
"The more that ethanol can go to the markets where it's in highest demand, the
stronger will be the industry," said Babcock. "And consolidation will certainly help
that."
In the meantime, Dinneen said the ethanol industry is on the verge an explosion
of capacity from the development of commercially viable cellulosic ethanol
production processes. He noted that several RFA member-firms will be
presenting on their progress on that front during RFA's annual meeting in
Washington D.C. on October 2nd. And according to Dinneen, that progress on
cellulosic ethanol technologies is making the U.S. petroleum industry very
nervous.
"You know, you might see 20, 30, 40 or 50 billion gallons of ethanol," Dinneen
predicted. "And suddenly, the oil companies are saying, 'Whoa! Let's back up on
this a little bit.'"
Dinneen also accused the oil industry of mounting a negative public relations
campaign as ethanol increasingly becomes a competitive threat to petroleumbased fuel. On the other hand, the Bush administration's support for renewable
fuels is largely beyond question. Indeed, Acting USDA Secretary Chuck Conner
is slated to make remarks at the RFA's Forum on Cellulosic Ethanol Technology.