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Valero has shut down two ethanol plants that it bought from Green Plains last year, and one of them might not be reopened, Bloomberg reports citing sources close to the company.
The ethanol plant in Riga, Michigan, has been shuttered with no details if it will ever reopen, and the other one, in Bluffton, Indiana, will reopen “as soon as favorable economic conditions exist,” the company said.
Valero owns, directly and through subsidiaries, 14 ethanol plants in the Mid-Continent with a combined production capacity of 1.73 billion gallons of the biofuel annually.
It bought the Michigan and Indiana plants, along with a third one in Lakota, Iowa, for $300 million from Green Plains last year.
In its latest quarterly financial report, Valero reported an operating loss of $43 million for its ethanol business division. That was down from a profit of $21 million for the third quarter of 2018. The refiner attributed the negative result to higher corn prices.
The higher corn prices were the result of a delayed harvest this year, Bloomberg notes, but the U.S. ethanol industry also suffered a blow from the trade war with China, which caused excess supply, which in turn pressured prices and dented bottom lines.
This prompted several sector players to lower production or temporarily shut down some plants. Green Plains, the seller of the Indiana and Michigan facilities, was one of them, and trading company Andersons was another. REX American Resources, which has six ethanol refineries, has reduced run rates at some of them to just 10 days a month.
Meanwhile, in its latest Short-Term Energy Outlook, the Energy Information Administration lowered its 2020 projection for U.S. ethanol production to 1.03 million bpd, flat on the current year and down from 1.05 million bpd in 2018. Even with the slight downward correction, production will continue to exceed consumption, the EIA said. This will average 940,000 bpd both this year and next.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.