Re-evaluation of Ethanol Production

09-10-2006 | |

The precipitous decline in the price of crude oil from approximately $80/barrel in late July to $60/barrel by mid-September stimulated a major re-evaluation of the feasibility of ethanol production. By Simon Shane

The precipitous decline in the price of crude oil from approximately $80/barrel in late July to $60/barrel by mid-September stimulated a major re-evaluation of the feasibility of ethanol production .
The share price of Pacific Ethanol, the leading producer has declined from a peak of $45 in May to $15 with proportional declines in the share price of VeraSun, ADM and Aventine Renewables. Hawkeye Holdings postponed a public offering, supporting a consensus that ethanol production had assumed the proportions of a bubble.
Dangers of over reliance on ethanol potential
For some time, agro-economists and social commentators including Lester R. Brown of the Earth Policy Institute have warned on the dangers of over reliance on the potential of ethanol to solve the problems of availability, of fuel, principally for automobiles. Diversion of more than 13% of maize harvested in the USA into ethanol will result in significant escalation in the cost of producing poultry and pigs. It is estimated that 55 million tons will be used for ethanol production from the 2006 maize crop of 330 million metric tons.
Subsidies promote USA growth in ethanol production
Unprecedented expansion in ethanol production in the USA, the world’s largest exporter of maize, is stimulated by a government subsidy of €0.10/liter to refiners to add 10% ethanol to petrol. Approximately 115 ethanol plants are in operation with a concentration in Iowa, Indiana and the Dakotas. It is estimated that an additional 1.25 m. Ha of maize will have to be planted to meet increased demand for ethanol production and presumes that maize will trade at $126/m.ton.
Increased yields of ethanol production forecast
A number of conferences have been organized by the US Department of Agriculture and the US Department of Energy to review forecasts and to gather opinion to guide public policy.
Proponents of ethanol production have forecast increased yields due to application of biotechnology and improved conversion in plants due to cultivars with high starch content. Currently 3,700 liters of ethanol can be produced per Ha harvested. Given anticipated increases in efficiency, this value might rise to 6,000 liters/Ha by 2015. The optimistic projections presume that an average yield of 9.2 tons/Ha will be attained as predicted by the National Corn Growers Association . A 5% increase in yield from 464 liters/m.ton to 440 liters/m.ton is attributed to fermentation of the fiber content of maize although there is speculation that additional ethanol can be extracted by fractionization of the feedstock and in addition by reclamation from distillers’ grains.
The needs of the human v the machine
Irrespective of technical considerations, it is evident that competition will develop between the needs of automobiles and humans who consume maize as a dietary component. The impact will be most pronounced in developing countries with populations relying on relatively low priced US corn exports. The situation in Asia will be exacerbated by increased industrial conversion of maize to produce starch, lysine and ethanol in the People’s Republic of China. In that country, demand is currently balanced by increases in planted area and there is considerable potential to improve yields in China by applying modern technology.
Limiting food resources to produce fuel
The most challenging statistic relating to ethanol production concerns diversion of 70% of the incremental 20 million m.tons of maize to be produced in the USA during 2006. Clearly some limits will have to be placed on food resources such as maize to produce fuel. Alternative programs such as in Brazil to convert sugar cane to ethanol are more acceptable as is the trend in the EU to manufacture biofuels from vegetable oils leaving the protein fraction of sunflower, canola and soybeans to be used for human and livestock feeding. Widespread diversion of maize and other coarse grains into fuel production, especially when stimulated artificially by government subsidies will create more problems than are solved and will further widen the disparity in quality of life between industrialized and developing nations.

By: Simon Shane