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CHICAGO—Poet
LLC will become the largest US ethanol producer when it
begins output at its
Portland,
Indiana,
plant on September 18.
The
$105-million plant will produce 65 million gallons of
ethanol from 22 million bushels of corn annually,
increasing combined capacity at the company’s 21
distilleries to 1.1 billion gallons a year, Poet said.
Doing so will supplant Archer Daniels Midland Co., based
in Decatur, Illinois, as the largest producer.
Production by Sioux Falls, South Dakota-based Poet,
formerly known as Broin, is starting as
US
ethanol supply exceeds annual demand. Including imports,
supply is approximately 7.2 billion gallons against
demand of 6.7 billion, according to Andy Lipow,
president of Lipow Oil Associates LLC in
Houston.
The
imbalance has boosted the price of corn, the primary
feedstock, and undercut the price of ethanol, squeezing
producer profits and pulling down share prices of some
makers.
“Margins
certainly have tightened over the last year and will
continue to do so in the near future,” Jeff Broin, Poet
chief executive officer, said in a September 10
telephone interview.
Poet
will tap its 20-year ethanol experience to overcome any
slumps, said Broin. “We were the only company to build
plants in 1996 when corn went to $5,” he said. “That’s
the nature of a commodity business, and we have
weathered these storms.”
Producer
shares have fallen as margins thinned. Some expansion
projects are being shelved. Aventine Renewable Energy
Holdings Inc., the sixth-largest US ethanol company by
capacity, has fallen 48 percent this year, while VeraSun
Energy Corp., the third-largest, has dropped 39 percent.
Pacific Ethanol, which counts Microsoft chairman Bill
Gates as one of its investors, is down 30 percent.
Little
Sioux Corn Processors LLC is delaying an initial share
offering and plant construction. Others are moving
ahead.
Central
Indiana Ethanol LLC will this week begin production at
its 40-million-gallon-a-year plant in
Marion, Indiana.
Ethanol
has fallen more than 36 percent this year, closing last
week on the Chicago Board of Trade at $1.608 a gallon.
Producers say the lower prices have a positive side;
they expect more blending in new markets, such as the
Southeast US and California.
The
additive is mixed with more costly gasoline to spur
profits for wholesalers and meet federal and state clean
air mandates. Blenders earn the price difference between
ethanol and gasoline, plus a 51-cent tax incentive.
Ethanol has been trading at a discount to gasoline since
April.
“New
markets are going to come and that they’re going to be
important to the industry,” Gordon Ommen, chief
executive officer of US BioEnergy Corp. said in an
August 30 telephone interview. “The infrastructure is
predominately owned by the blenders and refiners, and
the blending economics that are very strong right now
provide them an incentive.”
Conventional gasoline blended with ethanol has increased
1.8 percent over the last four weeks to 1.71 million
barrels a day, according to a September 12 Energy
Department report. That’s 37-percent higher than the
1.25 million reported a year ago.
By
increasing capacity, Poet is positioning itself to take
advantage of the potential new markets or an expanded
federal Renewable Fuels Standard, said Broin.
“The
opening of new markets is a major player, and the
government playing a role in expanding the use of
ethanol is certainly a player,” he said.
The US
Senate in June passed an energy bill that calls for 36
billion gallons of renewable-fuel use by 2022. Current
legislation requires the use of 7.5 billion gallons of
renewable fuels, such as ethanol, by 2012.
There
are 129 ethanol distilleries in the US, with 85 under
construction, according to the Renewable Fuels
Association in Washington. (Bloomberg) |
