An ethanol history lesson

The Ethanol 101 seminar on the Monday before the FEW attracted 100-some people. The majority attending have less than three years in the industry -- the primary intended audience for this primer on ethanol.
By Susanne Retka Schill | June 04, 2012

Larry Johnson, Minnesota’s Ethanol Answer Man, and Todd Sneller, administrator of the Nebraska Ethanol Commission, go way back to the early days of the fuel ethanol industry. On Monday, they each gave a quick overview of how the industry got its start in the ‘70s and ‘80s, when the primary mission was to educate consumers that ethanol was safe. They were part of the Ethanol 101 seminar on the Monday before the Fuel Ethanol Workshop. Most of the 100-some people in the room have less than three years in the industry—the primary intended audience for this primer on ethanol.

Hearing Larry and Todd speak puts some perspective on the industry – both in how far it’s come, but also on how little has changed. Their first battles were to counter the misinformation and concerted campaigns to discredit ethanol. Sound familiar? Yet, when they started their careers in ethanol, one of their big jobs became encouraging the growth of ethanol production in their states. Figuring out ways to incentivize the building of ethanol plants. Todd gave an interesting statistic, the ethanol promotion program that just ended in Nebraska cost $350 million and helped to stimulate $5 billion worth of investment in the state. Ethanol has been a tremendous economic development tool in rural America.

Mark Yancy, vice president of BBI Consulting, also spoke on the panel, covering the decade beginning in 2000. He started working for BBI during that time, helping to conduct feasibility studies and write business plans. In 2001 there were 35 ethanol plants with a production capacity of 1.8 billion gallons a year, and ADM had a capacity of about 750 MMgy. Minnesota had the most plants. The major market driver in the early part of the decade was the adoption of reformulated gasoline (RFG) to reduce air pollution, which required the addition of oxygenates. The oxygenate of favor for the oil industry, MTBE was found to be a real pollutant, if it leaked out of underground gas tanks into the water supply. California and New York were the first to ban it in 2004, followed by a nationwide ban in 2006. That created a demand for ethanol, a nontoxic oxygenate, that drove up prices and stimulated the build out of the ethanol industry. The growth in 2005, 2006 and 2007 was impressive, in 2008 51 plants started up. The next year it was just a handful – the bust occurred virtually overnight.

Bob Randle, now working in business development for Genera Energy, was working for Staley early in his career. Staley built a wet milling plant in Loudon, Tenn., which was subsequently purchased by Tate and Lyle. The wet milling industry grew in the 70s and 80s out of a new Japanese patented process making high fructose corn sugar from starch. The HFCS market for soft beverages was seasonal, so ethanol production was added to keep the plants running in the offseason. Today, the U.S. wet mills account for about 2.2 billion gallons of production, or about 15 percent of the total fuel ethanol capacity.

For ethanol producers, the challenge today is that the 10 percent blend wall has been met. When cellulosic ethanol enters the market, it will be crucial to find new markets for that ethanol. There is both a need to expand the market for fuel ethanol by increasing the use of higher blends in FFVs and the adoption of E15, but also in beginning to move towards the production of more intermediate chemicals from ethanol.

It seems like an almost insurmountable hurdle, but when one listens to the guys in this panel, one realizes, it is only the latest in a series of hurdles the industry has had to overcome.