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Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

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U.S. Doubles Down On Ethanol Despite Glut

Despite finding itself the midst of a massive glut, the United States ethanol industry is set to see three new plants come online over the next year, adding a combined annual production of 270 million gallons to the nation’s already ballooning ethanol oversupply. The industry has been plagued by overproduction and low demand since 2015.

Over the past 5 years, ethanol production has increased by 10.5 percent, rising from 14.3 billion gallons in 2014 to 15.8 billion gallons in 2017. This is despite the fact that only one new ethanol plant began production in the years between 2015 and 2018. The increase is in large part due to more efficient means of production, allowing producers to get more fuel out of each kernel of corn, and the expansion of existing plants in lieu of building new plants from the ground up.

Now there will be three new plants coming online all within a span of mere months. Atlantic, Iowa will be home to 120-million-gallon-a-year dry mill ethanol plant Elite Octane, LLC before the end of 2018. Ring-Neck Energy & Feed, LLC will go online in Onida, South Dakota in early 2019, and ELEMENT, Inc., a 70-million-gallon-a-year ethanol plant, is currently under construction in Colwich, Kansas.

In an effort to reduce the U.S. ethanol glut, which is undeniably about to skyrocket even higher, the industry has been strategizing aggressive campaigns to boost demand. It has become abundantly clear that in order to return to its strong profit margins of 2013-2014, the U.S. ethanol industry will need to look overseas. Part of the ethanol industry’s auto-resuscitation plan involves increasing its market share of liquid fuel in the U.S. by promoting higher ethanol blends like E15 (15 percent ethanol to a gallon of gas), E30 (30 percent), and E85 (85 percent), but this angle alone will not produce nearly enough demand to contend with supply. Related: Middle East Crude Oil Prices Tumble After Global Sell-Off

Advancements in U.S. production of ethanol have simply outpaced growth of demand domestically, but this growing gap has been catalyzed to an extreme degree by politics. Despite outcry from the agricultural industry and representatives of Big Corn states like Iowa’s Republican Senator Chuck Grassley, the Trump administration has largely acted in the interest of Big Oil. The Environmental Protection Agency (EPA) has been rolling back Obama-era biofuel blending guidelines and granting an unprecedented number of hardship waivers, allowing refiners to ignore biofuel requirements contained in the Renewable Fuel Standard.

Now, in order to save itself, the U.S. ethanol industry will have to turn their focus to exports. The industry has already seen major growth in international markets, breaking records with nearly 1.4 billion gallons of exports last year. These numbers are particularly impressive when you consider that Brazil instated a quota and duties on U.S. imports and China slapped major tariffs on U.S. sales. Related: The IEA’s Warning To Oil Producers

While 1.4 billion gallons still pales in comparison to the 14 billion gallons of fuel ethanol the U.S. burned last year, the international market show way more potential for growth, while letting the pressure off of U.S. production glut and contributing to a much-needed overall demand growth. The most likely candidates for increased consumption of U.S. ethanol are Brazil, Canada, India (who are already the biggest buyers of U.S. ethanol), as well as China, Mexico, and Japan. The last three nations listed, while they are not already major buyers, all have publicized goals to blend 10 percent ethanol (E10) into their fuel over the next few years. While China has largely cut off imports of U.S. ethanol thanks to tariffs introduced in the escalating trade war, if they were to re-enter the market they could boost U.S. exports by as must as 200 million to 300 million gallons.

While the ethanol industry has already been expanding its exports, it will need to seriously speed up growth. Even with the progress the industry has already made, demand continues to lag behind production, and that’s without the new plants ready to come online over the next year. In order to close the gap, the international markets will need to start buying aggressively, or something in U.S. politics will need to see a major shift.

By Haley Zaremba for Oilprice.com

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Leave a comment
  • Tom Blazek on October 26 2018 said:
    Haley, thankyou for the very well written article. While you suggest that the ethanol industry is overbuilt because it needs to export ethanol, I would point out that so is the US Oil Industry from that same point of view, because it also requires product exports to soak up all its refinery production.

    I would not agree that requiring exports is a sign of being overbuilt. Exports are a way of life for many industries, as they strive to serve more markets and expand production.

    Ethanol provides a very clean, low cost source for fuel Octane. Ethanol is an ultra-clean fuel, that reduces vehicle emissions. As an investor I keep asking myself, what is the Oil Industry doing to clean up their fuels to compete head to head with the electric vehicles that is coming at them with accelerating speed? My answer to date is - nothing.

    The Oil Industry is actually the main thing blocking greater use of cleaner fuels like ethanol.

    So, if you use the idea of exports as a sign of being over built, who is more overbuilt, an industry that is providing cleaner fuels, for a clean fuel future, or an industry that doesn’t seem to have any interest in cleaner fuels.

    Personally, I believe ethanol has a bright future, and I use E-85 in my two Flex Fuel Vehicles.

    Its all about the carcinogens I don’t want my grandchildren to have to breathe, how about you?

    Are your going to pump BTEX Carcinogens into the air for your Grandchildren to breathe, or are you going to give them cleaner air to breathe than we have had, with ethanol?

    Thank You for your balanced, well written Article!
  • Matt on October 26 2018 said:
    Ethanol is insane. Nothing but a bribe for Iowas 6 electoral votes and a subsidy fof big ag. Produces no significant net energy return.
  • John on October 26 2018 said:
    I can't wait until EVs become a significant enough amount of vehicles to stop the ethanol boondoggle.
  • Pete Bauer on October 26 2018 said:
    Ethanol is the 2nd cleanest fuel after Methanol and its use is expanding worldwide with China and India planning to implement E10 in 2020. India is going to import lots of Ethanol from USA and this will provide plenty of farm jobs. This will also help India in reducing the trade imbalance with USA without impacting their balance of payments as they are going to shift from OPEC oil to US Ethanol.

    In USA, after E10, its time to move on to E15 gently. In Brazil all cars are using E27.5 as the standard with many vehicles running on E100 as well.

    Electric vehicles are great, but they are still very expensive for many and Ethanol is the best mid term bet.
  • JULIE PRATT-WILLEY on January 28 2019 said:
    Electric vehicles are fueled by electricity, which predominantely comes from COAL BURNING power plants! There is nothing cleaner about electricity! If you are one of the unfortunate people who have one of those plants in your backyard, you realise this fact all too well; the exhaust from the plant literally eats the paint off your house and car! I can just imagine what it's doing to your lungs.

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