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Can't Happen Fast Enough

The ethanol industry is struggling and a number of players are facing bankrupcy:

The ethanol industry built tremendous production and transportation infrastructure. It was a "if we build it, they will come" strategy. Then, the world fell apart. Prices for gas at the pump are back down well below $3 instead of being headed toward $5 as they were in August.

Verasun says it will keep operating, but common shareholders have been crushed to death. The stock was at nearly $18 late last year. Now it is under $.40.


The only quibble I have is in the first sentence.  I would would have written the ethanol strategy as "If we seek rents, they will come."

Posted on November 1, 2008 at 08:36 AM | Permalink

Comments

Hey no worries.

The next president will save them from themselves. The ethanol industry may have to wait until the rising seas have been turned back or Osama's cave condo has been located, but they both believe ethanol is the magic fuel.

Posted by: Fred from Canuckistan . . . | Nov 1, 2008 10:20:41 AM

Seems like with the subsidies they'll still be around. It's just hard to see right now how they're going to possibly scale up the way they were planning to and become a major playing in the fuel market.

Posted by: Allen | Nov 1, 2008 11:09:46 AM

Not to worry.

The ethanol producers associations are asking states to mandate and/or subsidize more ethanol usage. They contend drivers demand more ethanol but the oil companies are selling lower blends, usually 10% ethanol.

One scheme. The state pays station owners to buy pure gasoline and then add whatever percent of ethanol each customers wants. The state pays for the new equipment the station owner needs to do this. The more ethanol the customer requests the cheaper the pump price per gallon. And the subsidies keep it cheaper for the service station too.

It would be simpler to order that ethanol is free. No cost to anyone, the state pays for it.

Posted by: K | Nov 1, 2008 2:59:00 PM

The fuel-ethanol industry has been nothing but a tax and subsidy scam from its very inception. The true economics can never compete with petroleum-based fuels. And the environmental rationale for adding oxygenates to fuel (significantly better combustion characteristics) had pretty much disappeared by the time those mandates were implemented... high-tech fuel metering systems in new, fuel-injected cars were well on their way to replacing the older carburetted systems that benefited most from the oxygenate additions.

I have zero sympathy for the failing ethanol-fuel industry.

DaveK

Posted by: DaveK | Nov 2, 2008 8:34:00 AM

DaveK says: "The true economics can never compete with petroleum-based fuels". Never say never?

I agree that there is an oversupply of ethanol and feel sorry for those companies such as VSE that are having liquidity problems. But ethanol is here to stay. We're past Peak Oil, IMHO, and crude is going away. Sooner, rather than later, demand will be exceeding all available supply.

I would say that today's low gas prices are more a consequence of market gyrations than a suddenly endless supply of crude. It'll go back up and up and up.

BTW, a Kroger's near me is kindly selling E85 for about 30 cents less than regular gas. I've been experimenting with various ratios of E85 to regular gas. It seems to take 40 to 50% with a slight loss of power but no "check engine" light. I'm too chicken to try 100% E85 because, without modification, an engine runs too lean which makes it run hot and does the valves and seats no good at all.

T.C.

Posted by: xpatUSA | Nov 2, 2008 11:20:04 AM

Until the envirofascists quit impeding the exploration for and extraction of petroleum, "Peak Oil" is a myth. Supply is artificially constrained by those who have a dystopian view of capitalist ideals.

Posted by: skh.pcola | Nov 2, 2008 11:38:48 AM

Ok, you're right... never say "never!" Especially when government subsidies are involved.

But the economics of ethanol production depend on an agricultural industry producing the feedstocks. That Ag industry requires energy to run it, not just for the mechanical "farming" aspect. There is also a lot of fertilizer involved, and that too requires energy... virtually all the affordable nitrogen fertilizers come from natural gas feedstocks. Then, too, you have to process the feedstocks to make the ethanol, so yet more energy is required.

So, the higher the cost of the fossil fuels, the higher the cost of producing ethanol.

Is ethanol cheap now? Sure, but that's a temporary issue of oversupply, coupled with vast government subsidies and fuel recipe mandates that have propped up the ethanol industry. Like I said, I have zero sympathy for the big ethanol companies who are now having problems. They knew from the beginning that the basic economics of their business were worse than shaky, but proceeded on the basis that the government would give them handouts.

And as far as agricultural ethanol ever being a long-term alternative to fossil fuels, that's such a joke. If fossil fuels ever get that expensive, we'll be turning to nuclear to provide the power we need, including for transportation. Solar, wind, hydro, and other energy sources will have their role, but the enormous scale of energy required to run a healthy economy is such that only nuclear could fill the hole. And once you make that switch, the need for something like ethanol as a fuel just about disappears.

So, in practical terms, ethanol can never compete.

Posted by: DaveK | Nov 3, 2008 2:44:18 AM

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