Inside Insight

December 27, 2017

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by Lisa Gibson (Ethanol Producer Magazine) To kick off the new year, we rounded up a few experts to discuss five main industry topics: exports, policy, production, finance and technology. Find out what they said. -- As we head into 2018, ethanol producers have plenty to think about and likely have predictions for how the year will play out. This month, Ethanol Producer Magazinerounded up a few experts to discuss five main industry topics: exports, policy, technology, production and finance. They look ahead, compare 2018 with 2017 and provide a roadmap for the new year. Here's what they have to say.

Exports

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Our partner markets are generally countries looking to enhance their use of biofuels to meet policy goals that include greenhouse gas emissions reductions to achieve Paris Agreement commitments (Canada, Brazil and Japan) or countries with large and growing populations and serious air quality issues also seeking to boost rural economic benefits (Mexico, China and India).

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Increasing ethanol exports from the U.S. will require strong infrastructure in both our own supply chain and at destination locations. We know from promoting grains for more than 60 years that well-functioning infrastructure—fast, reliable, maintains quality of the product—is critical to meeting our customers’ expectations and keeping them buying from us. The U.S. industry sees exports as the future growth opportunity and is making investments accordingly. We also work with our domestic partners to ensure the ethanol industry’s needs make it into the federal prioritization process. Like building demand, improving infrastructure requires intensive planning and long-term engagement.

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Policy

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Due to an outdated EPA regulation, retail gas stations are essentially prohibited from selling E15 in more than two-thirds of the nation’s gasoline market during the summer ozone-control season, from June 1 to Sept. 15. EPA’s nonsensical and disparate Reid vapor pressure regulation of allowing E10, but not E15, during the summer months offers no consumer or environmental benefit whatsoever. Whether through legislative or administrative action, securing equal RVP treatment for all ethanol blends remains our top priority.

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Another high-priority issue for RFA in 2018 is to ensure there is free trade of ethanol around the world, ending nonsensical tariff and nontariff barriers to trade, such as those imposed by China and Brazil, and continuing to grow the production and use of conventional and cellulosic biofuels.

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A high-octane, low-carbon ethanol blend in optimized engines would be the lowest-cost means of achieving compliance with fuel economy and greenhouse gas standards in the future.

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Technology

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Plants also have an interest in reducing emissions and reducing the cost of compliance, and this has driven interest in exploring emerging CHP technologies with the potential for reduced emissions.

• Renewable energy projects, including solar and wind. Solar received the most inquiries due to continued price declines improving project economics.

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Onsite power generation can be a diversification play, in addition to being an economic or financial investment.

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Key technology investment drivers will likely include:

• Cost reduction: Plants are paying increased attention to the bottom line as the industry has matured and become more cost competitive.

• Resiliency: Facilities are taking steps to be able to stay online even when the grid is down, through some form of onsite power production.

• Value maximization: Plants are exploring ways to increase the value of their ethanol product, through improved efficiency and lower carbon intensity (CI). Lower CI lets plants produce RINs for volumes above the grandfathered level.

• Increased production: Many plants are seeking capital-efficient ways to produce more ethanol. CHP, in particular, is a potential vehicle.

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Production

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Looking forward to 2018, corn supplies look to be low priced again and other input costs look to be flat.

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Several new production technologies that improve efficiency have been developed that reduce energy, enzyme, yeast, and other chemical use at plants, improve yields and result in new coproducts.

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Programs and private businesses that install blender pumps deserve much support. These are critical infrastructure investments that have to be made.

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Efforts to educate potential ethanol fuel blenders and retailers are a priority.

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And because ethanol fuel has unique attributes (low life-cycle GHGs, high octane and oxygen content) that provide transportation sector GHG and toxic emission reductions, we actively support strong federal Corporate Average Fuel Economy standards, low carbon fuel programs, and other transportation fuel emission reduction efforts.

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Finance

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The most profitable 25 percent of plants in our survey reached over 20 cents per gallon, and even the least profitable 25 percent were able to deliver some earnings on average. The marketplace has concerns about overproduction for 2018, creating some downward pressure on prices. We are optimistic that continued interest from the global market, and increased availability of higher-blend products like E15, will help keep margins relatively stable in the year ahead.

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About a quarter of plants have held essentially no long-term debt for the past several years. ... On average, long-term liabilities for an average ethanol plant were about 13 cents per production gallon in 2017, a number that has decreased steadily over the past few years. Even plants with substantially higher debt levels were able to pay them down in 2017. ... But some plants are opting to make investments or dividends a priority over further debt reduction.

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While we’re still seeing projects that focus on production increases and debottlenecking, we’re starting to see increased investment in value-added coproducts to diversify revenue streams. Energy efficiency investments are also on the rise, as plants seek to reduce cost and the carbon impact. And many plants are approaching or beyond the 10-year age mark, so they are starting to look at replacing large capex items.

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Some successful smaller plants are also finding that local initiatives such as E30 campaigns, or partnerships with fuel stations to place and brand more E15 pumps, are meeting with success. READ MORE

Ethanol producers hail opening of Japan’s market, expect sales to top last year’s (Omaha World Herald)

Excerpt from Omaha World Herald: Japan late this year decided to begin importing U.S. ethanol, which is 35 percent cheaper than the sugarcane-based Brazilian ethanol the country has been relying upon as an oxygen booster for clear gasoline and additive to the motor-fuel supply environmental advocates say burns cleaner than clear gas.

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Japan is expected to use about 132 million gallons of ethanol in 2017, most coming from Brazil. But the Brazilian sugar cane crop has recently been plagued by poor harvest conditions, making it more expensive than corn-based ethanol.

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But for now, it’s full-speed ahead to Japan. Omaha-based Green Plains, the second-largest ethanol producer with 17 U.S. plants, figures that Japan will begin importing about 250 million U.S. gallons initially and grow from there as the country increases ethanol usage in an attempt to reduce greenhouse gases by 50 percent in coming years.

“As far as Green Plains, we will certainly work to add it to our list of opportunities and believe that our addition of a Gulf Coast export terminal, which went operational at the start of December, gives us some competitive advantage to Japan and other export markets,” spokesman Jim Stark said. READ MORE