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Kinder Morgan plans to increase the loading and unloading capacity of its ethanol hub in Argo, Illinois—which serves as a benchmark for global ethanol prices—in a bid to address concerns that ethanol trade at the hub could be vulnerable to manipulation, Reuters reported on Wednesday, citing three people with knowledge of the company plans.
At an industry conference in Florida last week, Kinder Morgan told ethanol traders that it was looking to at least double the amount of barges capable of loading and unloading ethanol at the two docks at Argo and allowing a third dock, for petrochemicals, to also load and unload ethanol, according to the three people briefed by Reuters.
The faster movement of ethanol volumes through Argo would diminish concerns that inventories at the hub could be driven up faster than being drawn down, thus driving down the price of ethanol.
“If you can send barrels in faster than you can take out, then you can drive down the price faster and for a longer period. This will help equalize that and level the playing field,” an ethanol trader told Reuters.
U.S. ethanol prices hit in November 2018 their lowest level in 13 years, due to oversupply. In addition, Archer Daniels Midland, a major commodities merchant, which was typically a big buyer of ethanol until late 2017, switched to a big seller last year, contributing to the excessive supply.
Pressured by low ethanol prices and unclear U.S. policies on biofuels, several ethanol plants have idled production or shut in recent months.
Scott Irwin from the Department of Agricultural and Consumer Economics, University of Illinois, wrote in Ohio’s Country Journal on Wednesday that the U.S. ethanol industry saw in 2018 its first losing year since 2012, due to overproduction.
“The fortunes of the U.S. ethanol industry are unlikely to improve until production and use are better balanced. This will require shuttering some production capacity, additional demand, or some combination of the two. The most optimistic scenario is additional demand for U.S. ethanol exports as part of a trade deal with China,” Irwin says.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.