Ethanol producers are well aware that the industry gains momentum in the wake of high-priced gasoline. Proof dates back to the oil crisis of the 1970s when former U.S. President Jimmy Carter traveled to Decatur, Ill., and lobbied Archer Daniels Midland Co. to start producing ethanol. Then oil prices fell along with the impetus to produce the renewable fuel. Fast forward to the end of 2007, crude oil is again setting price records and the ethanol industry's capacity in the United States is larger than ever. Production is so strong that the nation is struggling to absorb the growing supply. Experts say there's more ethanol available than is being used, and the low price of distilled fuel supports their claims. Chicago spot prices were about $1.67 a gallon at press time.

Now look at Perth Amboy, N.J., Houston and El Segundo, Calif.—these port cities, among others, recieved shipments of ethanol from the Caribbean basin and Brazil continuously throughout 2007. It's no secret who imports what and where it comes from as the U.S. DOE's Energy Information Administration (EIA) publishes the names of the companies importing liquid fuels, and their origination every month. For example, CHS Inc. brings small amounts from Canada through its terminal at Portal, N.D.; Chevron brought 55,000 barrels into Houston from Brazil in August; Cargill ships in product from its dehydration facility in El Salvador. In fact, almost all of the major oil companies import thousands of barrels of ethanol every month.



A quick study would suggest that there's not enough of the fuel component to mix with reformulated blendstock for oxygenate blending, a product which is slightly different than conventional gasoline, and almost exclusively blended with ethanol for retail sales. High-profile ethanol companies, however, are scaling back their efforts and new plant construction is falling, when compared with 2006. Plant operating margins are squeezed and the supply is exceeding the demand. If there is such an over-abundant domestic supply of ethanol, why are oil companies still looking to purchase the oxygenate from foreign sources? The headlines have read: "Noble leads East Coast ethanol wave, early EIA numbers show," and "Citgo, Valero lead top 10 ethanol importing companies in first six months." Noble Americas Corp., however, says stories like this might be a little overblown. "We might have received two vessels in the same month, so we led for about that amount of time—a month," says Bill Covey, vice president of clean and specialty products for Noble, adding that import levels are in reality falling steadily.

Although Covey speaks candidly with EPM, the subject of imports is a sensitive one for a firm that sells gasoline components around the globe to oil companies, but also markets ethanol for U.S. producers, who have lobbied heavily to keep foreign competition at bay. "We are invested in the U.S. domestic market," Covey tells EPM. Because Noble Americas purchases materials from all over the world, along with importing and exporting ethanol from the United States, the corporation keeps a sharp eye on what is happening in the global market. "We have clarity of view that is substantial for our clients," he says. "For instance, exports are something no one seems to know anything about." Noble is the number one exporter of ethanol to the United Kingdom, Covey says and most of that product comes from U.S. producers. "The price is now making U.S. ethanol very competitive in the world market," he says, adding that the export market may become more important if the United States indeed finds an oversupply situation on its hands.

The Cheaper the Better
The truth is imports have been falling steadily all year, and that trend correlates with low-priced ethanol. Although Petrobras, Brazil's national oil company, continues to be active, importing 11.3 million gallons in August and leading imports for the month overall, the total volume of sugarcane-based fuel alcohol from the South American country is declining. Again, U.S. ethanol is simply becoming more competitive and the margins for blenders and refiners are good when ethanol is below $2 per gallon.

Furthermore, imports can provide certain logistical advantages for refineries on the East and West Coasts. In addition, oil refiners simply prefer tanker shipments to rail cars. "Refiners on the East and West Coasts can deal with ocean-going vessels easier than they can deal with hundreds of railcars from the Midwest," Covey says. "Bigger players like to take products by water. We supply our customers with imported ethanol because that is what they want … bigger shipments."

EIA officials agree with this assessment of refining logistics. "Imports, as well as exports, are often very opportunistic," says Mike Connor of the EIA. "If you're on the West Coast, you're a long way from ethanol [production centers] whether it's coming from South America or the Midwest." With the price of ethanol where it is right now in the United States, however, it's making less sense to bring ethanol in from outside. But don't forget about long-term contracts. "If good amounts of ethanol are still coming in, it might be because of old deals," Covey says.

It should be noted that there are a great many terminals where ethanol is blended that are associated with major oil companies than there are independent terminal operators that blend ethanol as a service to customers or oil companies storing gas there. That said, oil companies do benefit from the blenders credit of 51-cents-per-gallon. "It's a full-time job for a lot of us [at the DOE] keeping up with all that," Connor says. "It's very widespread as to who the actual players are." Nevertheless, even if oil companies have to pay the tariff to bring ethanol into U.S. ports, importing the fuel must still hold economic advantages over buying domestic once the blender's credit is collected—oil magnates don't do things that don't make money.

Ironically, low-priced ethanol could be the industry's strongest catalyst for growth, and the best way to fend off international competition. That has led Covey to conclude that this will be the biggest growth period for the ethanol industry. There is a huge benefit for blenders and refiners, at the moment, who are incentivized to use ethanol. "I understand this period may be painful for some plants," he says. "Soon Florida, the Carolinas as well as West Coast cities like Portland and Seattle will be using ethanol all year long, and the reason is great economics. This wouldn't happen if it wasn't for a little bit of pain."

Tariff Talk
No discussion of ethanol imports is complete without some comment on the import tariff. U.S. President George W. Bush and other opponents say that repealing the 54-cent-per-gallon tariff on imported ethanol would promote free trade, and improve economic situations in developing nations. Proponents of the tariff say that without this protection for domestic producers, the U.S. would be subsidizing foreign-made ethanol. So will there be more pressure to reduce or repeal the tariff on imported ethanol? "The U.S. ethanol lobby has been pretty good at protecting the status of the tariff," says John Duff, of the EIA. The tariff is set to expire in 2009. Although Noble Americas is a significant importer, the company thinks the tariff should stay in place. "It's good protection for the domestic industry," Covey says.

To sum it all up, the ethanol industry still needs to work on its transportation and distribution infrastructure if it wants to minimize the advantages of ocean-going shipments. Also, the pain caused by low ethanol prices will help U.S. ethanol grow and become more competitive in export markets. The steady decline in import volumes, suggest that the time is now for producers to find a way to capitalize on low prices. Producers could stand to benefit by seizing the moment and expanding the use of ethanol by blenders and the driving public. By driving up demand, prices should follow.

Nicholas Zeman is an Ethanol Producer Magazine staff writer.