Economics, Expectations and Exports

December 24, 2019

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by Lisa Gibson (Ethanol Producer Magazine) Ethanol Producer Magazine talked to three experts about the past year, and what they see moving into 2020. -- 2019 brought a Reid vapor pressure waiver for E15, but it also brought excessive small refinery waivers and low margins for ethanol plants. The year ended with plenty of topics still on the table, hotly debated issues and battles still being fought.

Ethanol Producer Magazine asked for input from a producer, DJ Eihusen, president, CEO and board chairman for Chief Ethanol Fuels Inc. in Hastings and Lexington, Nebraska; an exports expert, Ryan LeGrand, president and CEO of the U.S. Grains Council; and an overall industry and policy expert, Monte Shaw, executive director of the Iowa Renewable Fuels Association. Opinions from these three bring well-rounded perspectives on markets, margins, predictions and expectations.

Here’s what they had to say.

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(DJ Eihusen)

Chief Ethanol believes that a return to the intent of the RFS and a normalization of trade would lead to positive results for the entire industry. There have been recent views expressed that the U.S. has too much production capacity. But Chief Ethanol believes that the demand structure has been compromised.

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This was supposed to be a banner year for E15 use, and while we’re grateful Trump directed EPA to finalize the rule allowing year-round access to E15 across the entire country, the reality is the SRE waivers have undermined that effort.

We’re also closely following the trade situation because exports are such a critical piece of the puzzle for Chief. We are hopeful a deal can get done with China because of their goal to eventually go to E10 nationwide. Resuming robust exports to China would be game changing for our industry.

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We also support efforts by groups such as the American Coalition for Ethanol and others to pursue new proactive legislative proposals to increase domestic demand for ethanol based on its high-octane and low-carbon attributes. We hope this legislative effort picks up bipartisan support in 2020.

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We know EPA asked for comment from stakeholders about the potential for E30 in future engine technologies, as part of the rule to determine the Corporate Average Fuel Economy greenhouse gas (GHG) standards for 2021 through 2026 model year vehicles, so we support comments that the industry made to EPA in favor of a new E30 high-octane fuel. However, we also know that EPA Administrator Andrew Wheeler has publicly poured cold water on the idea that his agency would issue a high-octane rule. Again, that is why we’re also supportive of efforts by various groups to pursue new proactive legislative proposals to increase domestic demand for ethanol based on its high-octane and low-carbon attributes. We’re not really picky on how we get to a new high-octane fuel, as long as we eventually get it done.

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(Ryan LeGrand)

Mexican fuel market is currently at 12.5 billion gallons, so at E10, the market potential for ethanol is over 1.2 billion gallons. Mexico will produce as much ethanol as they can with existing ethanol plants and new builds that are planned in their country, and we believe U.S. ethanol can serve to fill the gap between the total demand and the amount Mexico produces.

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(Monte Shaw)

The real pain has been for the communities where plants have idled or cut back production. Hundreds of jobs have been put in jeopardy, thousands of small-town investors are concerned, and thousands more farmers lost out on a valuable local market for corn just as harvest was starting. The last two years have been particularly frustrating, not just because of the negative margins and policy challenges, but also because the reverse should be true. The RFS should be driving adoption of E15 and higher blends, thereby driving demand and corn grind. The same should be true for exports, particularly to China. So to me, it’s not just what we’ve lost, it’s what we haven’t gained.

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Small refinery exemptions from the RFS are by far and away the biggest policy concern of 2019 for the ethanol industry. SREs have destroyed over 4 billion gallons of biofuels demand. Renewable identification number (RIN) prices and ethanol prices have both fallen. It is important that EPA start accounting for SREs based on the number of actual SREs granted in the past, not U.S. Department of Energy recommendations like the supplemental rule proposes, which have regularly been about half of the amount actually granted.

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IRFA supports the introduction of low-carbon octane standard legislation; IRFA wants all major biofuel/corn groups behind the bill; IRFA wants a low-carbon metric in the bill; IRFA wants a low-carbon metric that will not leave any ethanol plant out of the system (this does not mean all would necessarily benefit the same).

This concept provides the opportunity to bridge biofuels into a low-carbon energy future. But many challenges remain. First, Congress isn’t getting anything done right now and this would take a law to enact. Second, as nutty as it sounds, some environmental groups don’t want to make liquid fuels better. They want to put all their eggs in electric cars. We need to continue working with environmental groups that understand that in order to reduce carbon emissions from the transportation sector within the next two decades, you must decarbonize liquid fuels. Electric cars just won’t have the penetration needed to do it alone over the next two decades, which is the time frame in which the climate scientists say meaningful action must be taken.

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One technology we hear a lot about from our members is the ability to allow dry-mill ethanol plants to convert corn kernel fiber into cellulosic ethanol. That is being held up by the EPA right now, but there’s great excitement for it.

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E15 has the greatest market value of any fuel out there today, with higher octane at a lower cost. Currently offered at over 2,000 stations across the country, that number will only grow in 2020. Another USDA infrastructure effort could really provide a boost. But the biggest boost would come from a restored RFS where 15 billion gallons really needed to be blended. That would crack through the petroleum-created E10 blend wall and benefit ethanol producers and consumers alike. READ MORE0

Bunge sells stake in Iowa ethanol plant: Shedding Some Weight in the New Year (Biofuels Digest)

Fueling America’s Future (Ethanol Producer Magazine)

Good Riddance, 2019 (Ethanol Producer Magazine)

US ethanol sector cool as Brazil’s potency grows, China links deepen (AgriCensus)

Could Corn Be a Big Winner in a Phase 1 Deal with China? (AgPro)

China Expert Says Buying $40 Billion in U.S. Farm Goods Viable (Bloomberg)

Bunge sells stake in U.S. ethanol plant as biofuels industry struggles (Financial Post)

New York Harbor ethanol in steepest contango since May 2017 (S&P Global Platts)

Tags

High Octane Fuel (HOF) Transportation Fuels Policy ethanol/bioethanol E10 E30 China import/export BioRefineries/Renewable Fuel Production White House EPA (Environmental Protection Agency) small refinery exemption (SRE) Corporate Average Fuel Economy (CAFE) standards Legislation-Federal Regulations-Federal Mexico Canada markets/sales ethanol terminal Brazil Renewable Fuel Standard (RFS and RFS2) renewable volume obligation (RVO) Trade Policy RFS "reset" Cellulosic ethanol DDGS (distiller’s dried grains with solubles) protein E15 Department of Agriculture (USDA) E15 pumps Iowa market forces Fuel Retailers retail

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