2020 January Ethanol Producer Magazine by BBI International

JANUARY 2020

FUEL FOR THE FUTURE

The case for collaboration between oil, ethanol PAGE 14

PLUS

Moving Margins

PAGE 22

Expert Input PAGE 30

www.ethanolproducer.com

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Contents

14 JANUARY 2020 VOLUME 26

22 ISSUE 1

DEPARTMENTS 5

AD INDEX

EDITOR'S NOTE

EVENTS CALENDAR

DRIVE

FEATURES 14 ADVOCACY

Common Ground

Experts urge collaboration between oil, ethanol By Matt Thompson

2020 Tasks By Lisa Gibson

Fueling America's Future By Dan Sanders

In Europe, the Blend is the Trend By Emmanuel Desplechin

GRASSROOTS VOICE

BUSINESS BRIEFS

MARKETPLACE

Good Riddance, 2019 By Brian Jennings

FINANCE

Marginal Improvement

Margins slowly rise with plants idled, costs balancing By Matt Thompson

GLOBAL SCENE

EXECUTIVE OUTLOOK

Economics, Expectations and Exports

ON THE COVER

An oil pump sits in a corn field. PHOTO: ISTOCK

Industry experts share their struggles and hopes for 2020 By Lisa Gibson

Ethanol Producer Magazine: (USPS No. 023-974) January 2020, Vol. 26, Issue 1. Ethanol Producer Magazine is published monthly by BBI International. Principal Office: 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. Periodicals Postage Paid at Grand Forks, North Dakota and additional mailing offices. POSTMASTER: Send address changes to Ethanol Producer Magazine/Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, North Dakota 58203.

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EDITORIAL

ADVERTISER INDEX

Editor Lisa Gibson | lgibson@bbiinternational.com Associate Editor Matt Thompson | mthompson@bbiinternational.com Copy Editor Jan Tellmann | jtellmann@bbiinternational.com

Art Director Jaci Satterlund | jsatterlund@bbiinternational.com Graphic Designer Raquel Boushee | rboushee@bbiinternational.com

PUBLISHING & SALES CEO Joe Bryan | jbryan@bbiinternational.com

BASF Enzymes LLC

29 20-21

DuPont Industrial Biosciences

Ethanol Producer Magazine

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Fagen Inc.

Fluid Quip Technologies, LLC

Growth Energy

ICM, Inc.

9 35

Lallemand Biofuels & Distilled Spirits

Vice President, Marketing & Sales John Nelson | jnelson@bbiinternational.com Business Development Director Howard Brockhouse | hbrockhouse@bbiinternational.com

Marketing & Advertising Manager Marla DeFoe | mdefoe@bbiinternational.com

2020 National Ethanol Conference

Iowa Renewable Fuels Association

President Tom Bryan | tbryan@bbiinternational.com

Circulation Manager Jessica Tiller | jtiller@bbiinternational.com

D3MAX LLC

ART

Senior Account Manager/Bioenergy Team Leader Chip Shereck | cshereck@bbiinternational.com

2020 International Fuel Ethanol Workshop & Expo

Phibro Ethanol Performance Group

POET LLC

RPMG, Inc

Seneca Companies

ST Equipment & Technology

WINBCO

Social Media & Marketing Coordinator Dayna Bastian | dbastian@bbiinternational.com

EDITORIAL BOARD Ringneck Energy Walter Wendland Little Sioux Corn Processors Steve Roe Commonwealth Agri-Energy Mick Henderson Aemetis Advanced Fuels Eric McAfee Western Plains Energy Derek Peine Front Range Energy Dan Sanders Jr.

Customer Service Please call 1-866-746-8385 or email us at service@bbiinternational.com. Subscriptions to Ethanol Producer Magazine are free of charge to everyone with the exception of a shipping and handling charge for anyone outside the United States. To subscribe, visit www.EthanolProducer.com or you can send your mailing address and payment (checks made out to BBI International) to: Ethanol Producer Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-746-5367. Back Issues, Reprints and Permissions Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or service@bbiinternational.com. Advertising Ethanol Producer Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Ethanol Producer Magazine advertising opportunities, please contact us at 866-746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. Send to Ethanol Producer Magazine Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or email to lgibson@bbiinternational.com. Please include your name, address and phone number. Letters may be edited for clarity and/or space.

Please recycle this magazine and remove inserts or samples before recycling

ETHANOLPRODUCER.COM | 5

Editor's Note

2020 Tasks

Lisa Gibson EDITOR lgibson@bbiinternational.com

As this industry heads into a new year, we bring a few of 2019’s tasks with us. We continue to fight for the integrity of the Renewable Fuel Standard, we’re on guard waiting for a high-octane standard, and we’re doing the work to get E15 at more retail stations, postwaiver. It’s not all bad, but we are coming out of a tough year. We lead this issue with the possibility of working with the oil industry to maintain incentives for liquid fuels. It’s not our proposal. We’re just bringing it to you. We’ve heard industry leaders talk about the necessity of working with the petroleum industry instead of against it. A speaker at 2019’s National Ethanol Conference proposed it to unsuspecting ears. In our cover story on page 14, associate editor Matt Thompson explores what that teamwork might look like, who the players might be, and even gets their input. While there are areas where competition will remain, our sources tell us there also are opportunities to partner up. And we’re welcoming January still reporting on low margins. They are improving for some plants, as lowering input costs and maximizing efficiency are paying off. Crop condition plays a role, as well, requiring corn to move from west to east inside the Corn Belt. The crop hasn’t been consistent across the Corn Belt, so neither is feedstock supply. A multitude of factors will play a role, some still uncertain. Find out more on page 22. Finally, we look ahead into 2020 with an executive outlook. We’ve asked a few sources what they see coming this year in regard to a variety of topics, good and bad. Find those Q&As starting on page 30. It’s a new year, but the new calendar doesn’t wipe clean the slate of work the ethanol industry still faces from 2019. We’ll continue to cover what’s relevant and newsworthy, with input from experts in the thick of it. In January of 2020, the ethanol industry takes a fresh leap into the same tasks. We’ll be here to cover the progress. Happy New Year.

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Upcoming Events

2020 International Biomass Conference & Expo February 3-5, 2020 Gaylord Opryland Resort & Convention Center Nashville, Tennessee

Now in its 13th year, the International Biomass Conference & Expo is expected to bring together more than 800 attendees, 100 exhibitors and 100 speakers from more than 40 countries. It is the largest gathering of biomass professionals and academics in the world. The conference provides relevant content and unparalleled networking opportunities in a dynamic business-to-business environment. In addition to abundant networking opportunities, the conference is renowned for its outstanding programming—powered by Biomass Magazine–that maintains a strong focus on commercial-scale biomass production, new technology, and near-term research and development. 866-746-8385 www.BiomassConference.com

2020 International Fuel Ethanol Workshop & Expo June 15-17, 2020 Minneapolis Convention Center Minneapolis, Minnesota

From its inception, the mission of this event has remained constant: The FEW delivers timely presentations with a strong focus on commercial-scale ethanol production—from quality control and yield maximization to regulatory compliance and fiscal management. The FEW is the ethanol industry’s premier forum for unveiling new technologies and research findings. The program is primarily focused on optimizing grain ethanol operations while also covering cellulosic and advanced ethanol technologies. 866-746-8385 www.FuelEthanolWorkshop.com

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Drive

Fueling America’s Future

Dan Sanders

Chairman of the Board, Growth Energy Vice President, Front Range Energy 970.674.2910

drsanders@frontrangeenergy.com

When my father and I decided to build Front Range Energy in Windsor, Colorado, we were inspired by the incredible opportunities offered by biofuels production. We wanted to create something special that would serve as a clean energy hub for the Rocky Mountains, generate high-quality animal feed for Colorado livestock, and deliver higher-octane biofuel to motorists across the region. It didn’t happen right away. The tragedy on 9/11 shocked the world, but it also shocked the credit markets. New business start-ups struggled to find investment capital, and ours was no exception. But the attacks only reinforced our commitment to securing U.S. energy independence, and we persevered. By 2006, our state-of-the-art 40 MMgy dry-mill biofuel plant was producing several products, including American ethanol fuel. Since then, that drive for U.S. energy innovation has remained at the heart of our mission at Front Range, which is why I was proud to join Growth Energy more than 10 years ago. From farmer-owned cooperatives to those of us operating outside the Midwest, Growth Energy brings a diversity of voices and experiences under one voice to break down barriers to new markets at home and abroad. We’re doing the heavy lifting to grow E15 availability, drive consumer awareness and secure a pro-biofuels legislative and regulatory environment. Today, a unified voice is more important than ever, and I’m honored to help lead the charge as Growth Energy’s newest chairman. Together, we will build on the tremendous success of our decade-long battle that culminated in this summer’s federal approval for year-round sales of E15. And we will capitalize on the lessons we’ve learned in U.S. markets to fuel motorists around the world. Some of our battle lines have already been drawn. The U.S. EPA’s abuse of small refinery exemptions under the Renewable Fuel Standard destroyed the market for more than 4 billion gallons of biofuel over three years. And while we’ve made major inroads toward restoring integrity to the RFS, our critics in the fossil fuel industry remain undaunted in their quest to shut off new markets for ethanol and spread misinformation about 21st century biofuels. That’s why we must continue to build on our rural alliance and equip the employees, families and neighbors of America’s biofuel supply chain with the tools and resources they need to share the good news about ethanol. Whether it’s about emissions, infrastructure, exports, or market access, there’s no argument we cannot win because the facts are on our side. The ethanol we’re producing today represents the world’s best tool for decarbonizing the transportation sector while protecting healthy air for motorists and their families. It lifts rural communities, saves consumers money at the pump and continues to drive U.S. energy security. The biofuel industry is the only industry that can offer motorists a clean, homegrown alternative that improves engine performance while reducing fuel costs. We know that the path to higher blends is incumbent on the absolute success of E15, which is why we are working with the nation’s top retailers to provide our expertise for adopting the fuel. But to ensure all drivers can access better options, we must continue to secure valuable alliances, fend off oil industry attacks, and expand our work with retailers to offer E15 pumps at a pace never seen before. We have the facts. We have the octane. And we are positioned to fuel America’s future.

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Global Scene

In Europe, the Blend is the Trend

Emmanuel Desplechin

Secretary General ePURE, the European Renewable Ethanol Association desplechin@epure.co

Europeans continue to push their national governments and the European Union to raise the stakes in the fight against climate change. Several countries have found at least one way to respond to that outpouring of support with an action that can have an immediate impact on emissions reduction: adopting E10 as the standard petrol blend. And as new research shows, Europe could easily turn to even higher ethanol blends. In recent months, three EU member states—Slovakia, Hungary and Lithuania—have decided to increase their use of renewable ethanol in transport to meet national climate and renewables targets. When they officially switch to E10 at the beginning of 2020, those countries will join a growing list of member states that promote renewable ethanol use as a climate and air-quality solution. While most EU member states continue to use E5 petrol (containing up to 5 percent renewable ethanol), E10 is gaining traction. Nine countries across the EU already use E10 petrol to reduce emissions: Belgium, Bulgaria, Estonia, Finland, France, Germany, Luxembourg, the Netherlands and Romania. The most recent national rollouts of E10, including in October in the Netherlands, have gone smoothly and consumers have responded positively to the fuel. As the trend has grown, it’s become clear that all of the supposed obstacles to introducing E10 have been overcome: E10 has been introduced in countries with car fleets older than Europe’s average; it has been introduced in countries with two or three fuel grade choices at the pumps; and it has been introduced both before and after the introduction of fuel labelling at the pump and on new cars. In other words, there’s no reason E10 shouldn’t be standard in all EU countries, helping reduce emissions from cars with internal combustion engines, which will be prevalent on Europe’s roads for decades to come. Its rollout should also pave the way for higher blends, following the example of other countries around the world that have turned to renewable ethanol as an effective decarbonization solution. Fortunately, a new study shows Europe could quickly achieve this, reaping even greater emissions-reduction and air-quality benefits. Sustainable energy consultancy E4tech looked at scenarios involving countries adopting petrol blends with up to 20 percent renewable ethanol. It found that under two potential 2030 scenarios of increased demand for renewable ethanol—one with a mix of E10 and E20, and another maximum-demand scenario with 100 percent E20—EU supply increases are achievable. In other words, there is no barrier to EU countries increasing their use of renewable ethanol through the introduction today of E10 and tomorrow of a mid-blend such as E20 as a proven climate solution. “Renewable ethanol is expected to play a key role in the realization of the EU’s energy and climate ambitions,” the report’s authors write. “One of the main factors limiting the potential contribution of renewable ethanol to decarbonization of the road vehicle fleet is the level at which ethanol is blended into gasoline. One option to overcome this is through the standardization and use of mid-level ethanol blends.” The report concludes that such blends are a “valid option” for decarbonization. Already, EU ethanol delivers more than 71 percent average greenhouse gas emissions savings compared to fossil petrol. Blending more of it into petrol could increase emission savings for the existing petrol fleet and unlock the full potential of future engines. A conservative, yet optimistic, scenario with 20 percent market share of E20 would require an additional 3.2 billion liters of ethanol, a 58 percent increase compared to 2017 volumes. An extreme high-demand scenario, in which all petrol sold in the EU would be E20, would require tripling the volumes of ethanol (adding 11.1 billion liters) compared with today’s supply volumes. Europe’s need to reduce auto emissions is more urgent than ever, and renewable ethanol is already an important part of the solution. But EU countries could do a lot more by moving to E10 and higher blends such as E20. This new study shows there’s nothing holding them back.

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Grassroots Voice

Good Riddance, 2019

Brian Jennings

Executive Vice President, American Coalition for Ethanol 605.334.3381 bjennings@ethanol.org

Maybe it was the weather, poor markets, or the depressing combination of both. Whatever the reason, most of us are eager to slam the door on 2019. A trace of good was offset by bad and ugly. The U.S. EPA issued a rule in May to finally allow the year-round sale of E15 and New York followed in November by adopting a regulation enabling retailers to sell the fuel in the Empire State. But 2019 was dominated by bad weather, bad markets, bad profit margins, the ugliness of trade wars, and EPA’s mismanagement of the Renewable Fuel Standard. For far too long, farmers and ethanol producers who have been trying to help EPA successfully implement the RFS have instead encountered an agency persistently siding with refiners to constrain ethanol use. Under former President Barack Obama, it was the E10 “blend wall” waiver. We sued EPA, and in 2017 the D.C. Circuit Court of Appeals ruled the agency must restore 500 million gallons to the RFS. EPA has yet to comply with the court order. Under President Donald Trump, it’s been the unchecked abuse of the RFS small refinery exemptions (SRE). We’ve sued EPA (again), legislation to combat SRE abuse has been introduced in Congress, and we hope the president convinces EPA to reallocate future waivers, but the painful reality is EPA and refiners have us constantly playing defense and losing the overall battle over the RFS. The weather is obviously out of our control, but the strategic direction we take in 2020 is not. Will we keep doing things the way we have always done them in hopes the outcome will be better this year, or will we turn the page and take a new approach? Instead of merely playing defense on the RFS and hoping E15 and export markets develop quickly, ACE has decided to go on offense with government relations strategies to increase ethanol use beyond current levels based on its high-octane and low-carbon advantages. Early this year, ACE will join a diverse set of agriculture, renewable energy and environmental groups to publish a white paper outlining the economic benefits of expanding the use of ethanol and other lowcarbon fuels in the Midwest and advising Midwest governors and state legislators on how to develop new clean-fuel programs. Despite the gridlock dominating Washington, D.C., many state-level elected leaders have a genuine interest in expanding the use of ethanol as a low-carbon fuel. Our white paper will serve as a roadmap for how to properly craft Midwest clean fuel programs to reward ethanol producers and farmers for being part of the solution to reduce greenhouse gas (GHG) emissions. As Congress focuses on climate change, ACE has been lobbying for bipartisan support of a new policy to expand ethanol use, reduce GHG emissions, and revitalize the rural economy called the Low Carbon Octane Standard. By increasing the octane rating of gasoline, the LCOS improves the efficiency of engine technologies, giving automakers a tool to comply with fuel economy standards. The LCOS would also require the source of octane to deliver significant GHG reduction benefits compared to gasoline as measured by the U.S. Department of Energy’s Greenhouse Gases, Regulated Emissions and Energy Use in Transportation (GREET) life cycle model. Defense of the RFS will remain a priority for ACE. We will ride herd on EPA’s “reset” rulemaking this year and try to get the program back on track. Expanding the use of E15 and developing the market for E85 and mid-level blends will continue to be our marketing priorities. ACE will also help support exports of ethanol by working in partnership with the U.S. Grains Council. While we keep at these core functions, ACE will lay the groundwork for increasing the use of ethanol domestically through the new low-carbon, high-octane legislative initiatives. To 2019, let’s say, “Good riddance.” It wasn’t nice knowing you. Together, let’s work to make 2020 a year for new and bold policy steps to expand ethanol use.

ETHANOLPRODUCER.COM | 11

BUSINESS BRIEFS PEOPLE, PARTNERSHIPS & PROJECTS

The Andersons Inc. adds member to board of directors The Andersons Inc. has named Pamela Hershberger to its board of directors. Hershberger retired from Ernst & Young in 2018 after 31 years of service. She began her career in the firm’s Toledo, Ohio, office as a staff auditor. She was later promoted to partner and served as a trusted advisor to several Fortune 1000 companies. In 2008, Hershberger was named Toledo’s office managing partner, a position she held until her retirement. Hershberger holds leadership positions on several community and institutional boards, including vice chair for Ohio Northern University, chair for the Toledo Alliance for the Performing Arts and

treasurer for the Toledo Community Foundation. She is also the former board chair for the Toledo Zoo and Aquarium. Hershberger received her bachelor’s degree from Ohio Northern University. She completed the Ernst & Young Executive Program at the Kellogg School of Management at Northwestern University. She is a certified public accountant. “Pam’s extensive accounting and financial background coupled with her leadership experience make her an excellent addition to our board of directors,” said Mike Anderson, The Andersons chairman. “We are very pleased with the combined skill set of our board and the strength it provides to our company.”

RFA receives grants for ethanol safety education The Renewable Fuels Association was awarded grants to support its safety education program through on-site seminars and webinars. Both grants were received via the association’s work with Transportation Community Awareness and Response (TRANSCAER), a voluntary national outreach effort that focuses on assisting communities to prepare for and respond to possible hazardous material transportation incidents. A $25,000 grant from the Federal Railroad Administration will support 10 ethanol safety seminars and four Train the Trainer webinars for first responders, and a $40,000 Assistance for Local Emergency Response Training grant from the Pipeline and Hazardous Materials Safety Administration will fund another 10 ethanol safety seminars and an update of RFA’s Ethanol Safety Tour video. “One of the strengths that sets our association apart is our whole-industry focus that includes high-quality technical assistance

such as our safety programs with TRANSCAER,” said Missy Ruff, RFA’s technical services manager. “As we seek to make ethanol more available to drivers nationwide, we want to ensure that ethanol producers, shippers, blenders and emergency response personnel all have the opportunity to learn more about best practices for safe handling of ethanol and responding to incidents. We are very grateful for the continuing support from TRANSCAER and other partner organizations.” All work on both grants must be completed by Aug. 31. Last year, RFA’s safety work with TRANSCAER involved hosting ethanol safety seminars in New York, Vermont, Mississippi, West Virginia, Louisiana, Maine and Virginia, reaching a total audience of 506 first responders and safety professionals; and four Train the Trainer webinars, reaching 259 participants in January, March, July and August.

USGC promotes Szabo to manager of global ethanol market development

Szabo

The U.S. Grains Council has promoted Lucas Szabo to manager of global ethanol market development in the organization’s Washington, D.C., headquarters, following Brian Healy’s promotion to director of global ethanol market development.

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Szabo joined USGC in June 2014 as global strategies coordinator. In June 2017, he was promoted to manager of export programs, assisting with the organization’s ethanol export strategies, market development programs and policy engagement. In his new position, Szabo will help design strategy and implement programs for USGC’s global ethanol market development effort.

Business Briefs

“Lucas has made critical contributions in executing the past three ethanol summits,” Healy said. “He has deepened his technical knowledge of ethanol, preparing him for further out-facing engagements that support our mission of expanded global ethanol use.” Before joining the USGC, Szabo worked for Amsco Global as an export trade specialist, where he exported industrial and safety materials to the oil and gas industries of the Middle East. Szabo also

previously served as a business management intern for CG/LA Infrastructure, where he conducted market research of global infrastructure projects and coordinated operations between the D.C. and Brazilian offices. Szabo has a bachelor’s degree in international business with a minor in Spanish from Marist College in Poughkeepsie, New York.

Midwest AgEnergy receives HIRE Medallion award Midwest AgEnergy, the parent company to ethanol biorefineries Blue Flint, near Underwood, North Dakota, and Dakota Spirit, near Spiritwood, North Dakota, has received the 2019 Honoring Investments in Recruiting and Employing American Veterans (HIRE Vets) Gold Medallion Award. Midwest AgEnergy is the first company in North Dakota to receive the award. The Department of Labor established the HIRE Vets Program under the Honoring Investments in Recruiting and Employing American Military Veterans Act, signed by President Donald Trump on May 5, 2017. The program recognizes employer efforts to recruit, employ and retain veterans. Employer-applicants meet-

ing criteria established in the rule receive a HIRE Vets Medallion Award. The program recognizes large, medium and small employers at two levels, platinum and gold, depending on the criteria met. Midwest AgEnergy employs seven military veterans of its total workforce of 89 between its two facilities. The veteran employees include: Trevor Goldade, mechanic technician; Darren Job, operator technician; Nicholas Milbrath, yard operator technician; Jake Ruff, operator technician; Fred Schauer, health, safety and environmental coordinator; Curtis Schestler, yard operator technician; and Mike Zimmerman, operator technician. “Veterans possess many of the key values that are part of our company culture at Midwest AgEnergy,” said Jeff Zueger, CEO of Midwest AgEnergy. “We are very proud of our veteran employees and honored to receive this recognition.”

ACE elects 2020 officers and executive committee During its fourth• Greg Krissek, secretary. Krissek is CEO of the Kansas Corn quarter meeting, the Amer- Growers Association. ican Coalition for Ethanol board of directors elected its officers and • Chris Wilson, executive committee member. Wilson is general executive committee for 2020. manager of Mid-Missouri Energy, a 50 MMgy plant in Malta Bend, Reelected to serve as officers on the 2020 executive committee are: Missouri. • Duane Kristensen, board president. Kristensen is the general Also elected to serve on the 2020 executive committee is Troy manager and vice president of operations of Chief Ethanol Fuels, Knecht, a South Dakota farmer representing Redfield Energy, a 50 which owns a 70 MMgy ethanol plant in Hastings, Nebraska, and a 40 MMgy ethanol producer in Redfield, South Dakota. MMgy plant in Lexington, Nebraska. “These industry veterans are dedicated to representing the in• Dave Sovereign, board vice president. Sovereign is chairman of terests of our grassroots members,” said Brian Jennings, ACE CEO. the board for Golden Grain Energy, a 120 MMgy ethanol plant in Ma- “ACE members can have great confidence in the leadership and experison City, Iowa. Sovereign also serves on the board of Absolute Energy, ence the executive committee will bring to our efforts to grow demand a 125 MMgy ethanol plant in St. Ansgar, Iowa. for ethanol domestically and around the world.” • Ron Alverson, treasurer. Alverson represents Dakota Ethanol, a 50 MMgy plant in Wentworth, South Dakota.

ETHANOLPRODUCER.COM | 13

Advocacy

COMMON GROUND The future of liquid fuels, whether derived from renewable resources or not, might depend on a collaboration between ethanol and petroleum interests. By Matt Thompson

COMING TOGETHER: Even though the ethanol and petroleum industries are competitors and at odds on several policy issues, some trade groups say collaboration to support all liquid fuels is beneficial. PHOTO: ISTOCK

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Advocacy While electric vehicles are gaining popularity, experts say a quick transition to a fully electric fleet isn’t likely, and liquid fuels for transportation will continue to be an important part of the energy equation. But that doesn’t

mean the ethanol industry should take the future of its product for granted. And executives of trade groups from both ethanol and petroleum industries say collaboration might be necessary to ensure corn ethanol continues to be a part of the nation’s fuel supply. In February 2019, the case was made at the National Ethanol Conference for the two industries to come together to agree on a national high-octane standard. “Our collective future is defined by both oil and ethanol working together in a more accelerated way to resolve open issues,” said Dan Nicholson, General Motors’ vice president of Global Propulsion Systems. “The auto and retail

sectors are pressing to ensure greater levels of engagement between oil and ethanol,” Nicholson said as he advocated for a 95 research octane number (RON) standard to NEC attendees. Many in the ethanol industry advocate for a 98 RON or higher. But, at the time, Geoff Cooper, RFA president and CEO, said there was a potential path forward with the petroleum industry. “It would be great if we could get to a point where we can sit down with the autos and oils and come to some agreement that works for everybody,” Cooper said. He still maintains that optimism. In a November interview with Ethanol Producer Magazine, Cooper outlined the importance of petroleum and ethanol working together. “We do think it’s critical that as fellow liquid fuel producers, the ethanol industry and petroleum refiners get together on a way to make liquid fuels the best that they can be moving forward,” Cooper says. And he’s not alone. Patrick Kelly, senior fuels policy advisor for the American Petroleum Institute, says, “We certainly have the

opportunity to work with the ethanol industry and there are opportunities that we should be exploring, particularly in supporting liquid fuels, broadly. ... I think there are opportunities and we’d like to explore those opportunities more.” Geoff Moody, vice president of government relations for the American Fuel and Petrochemical Manufacturers trade group, is on board, too. He says that while there have been disagreements on policy between the two industries, they shouldn’t be construed as opposition to ethanol in general. “We’ve long said that ethanol’s a great fuel, and without the Renewable Fuel Standard, our companies would continue to use ethanol,” he says. “Long term, we see ways to make policies work better for all stakeholders and to help improve the efficiency of the internal combustion engine, which we think is important. So it’s a critical relationship.”

Critical Cooperation

While policy goals between the two groups might seem directly in opposition,

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BRIDGING THE GAP: The Andersons, whose ethanol plant in Albion, Michigan, is pictured here, is one of several companies that have interests in both the petroleum and ethanol industries. FILE PHOTO

Cooper says there are issues where they can have a meaningful collaboration. In his dealings with the petroleum industry, he says, it’s clear both industries are advocates for increasing the octane ratings available in U.S. gasoline. “We’ve always believed that in order to get to more efficient vehicles and less carbon intensive internal combustion engines, we have got to have higher octane,” Cooper says. “And I think the refining industry agrees with that.” Kelly does. “We openly and fully acknowledge the benefits of ethanol as a lowcost provider of octane—adds to liquid fuel supply; domestically produced,” he says. “We fully expect ethanol to be part of the fuel supply for a very long time. For the long term, we see ethanol as playing a role.” But, Cooper says, there are still areas where the two industries are at odds. “There is a gap, and that gap is created by a desire to protect market share,” he says. “We are competing with the petroleum industry for the American driver’s gas tank and so there is going to be that competition and that conflict. But I think we’re moving rapidly into an era where we’re going to have to work together to continue to improve the environmental profile, and at the same time maintain the cost competitiveness of liquid fuels and internal combustion engines, or other alternatives are going to gain a leg up on us.” But ethanol and petroleum have successfully collaborated in the past. Kelly says

he’s worked directly with Cooper and the RFA on technical issues, specifically the transfer of Renewable Identification Numbers. “That conversation, actually, was largely driven by our members,” Kelly says. “A large ethanol producer and a large refiner were having a market issue, and they asked their two trade groups to get involved. I think, in the end, it was resolved satisfactorily.”

Current Collaboration

While a point of contention between the two industries centers around policy issues, some companies are successfully involved with both petroleum and ethanol, such as The Andersons and Valero. In fact, Moody says the refining industry owns about 20 percent of U.S. ethanol capacity. “When you look at the refining sector, and some of the major players in that sector, they do absolutely have ethanol production assets or relationships with ethanol producers,” Cooper says. “The fact that those companies have chosen to be in both markets shows they found that there are synergies within their own internal company,” Kelly says. “I think more broadly, even when it’s two different companies, I think there’s a lot of just opportunities to work together.” And recent news from The Andersons shows that structure can be beneficial. In October, The Andersons Inc. and Marathon Petroleum Corp. announced the formation

of The Andersons Marathon Holdings LLC, an entity formed by merging four of the companies’ ethanol plants. “We have enjoyed and benefited from our partnership with Marathon Petroleum in the ethanol business since 2006,” said Jim Pirolli, president of The Andersons Ethanol Group, in a statement. “In addition to other benefits, TAMH will provide an excellent platform for future growth.” During the company’s 2019 thirdquarter earnings call, Brian Valentine, The Andersons’ senior vice president and chief financial officer, said, “This will allow our commercial teams to trade corn, ethanol and distillers dried grains freely among the four facilities to achieve optimal profitability, and our procurement team to leverage the resulting larger purchase power.”

Coming to a Consensus

“I think for us, the future and the bestcase scenario is a low-carbon, high-octane fuel program,” Cooper says, acknowledging that coming to a consensus won’t be easy. “It’s going to take a lot of work to get there and it’s going to take some compromise and some work with the refiners to get to that place, but we think, ultimately, that’s the best place for all of us who are in the liquid fuel sector.” Kelly says his organization’s ideal outcome is broader. “I think just generally supporting liquid fuels in the marketplace and ETHANOLPRODUCER.COM | 17

Advocacy liquid fuels in export markets, as well,” he says. “We certainly agree with the ethanol industry on a lot of trade issues, but domestically, I think there are opportunities where we could work together to push back against some of the market-distorting effects of subsidies for electric vehicles or other things that are intended to hurt the industries.” Moody says both strategies are important for the industries, adding they must work together in opposition to policies that seek to

phase out the liquid fuels industry. “Electric vehicles don’t run on ethanol, they don’t run on petroleum, and so we have concerns with policies that are seeking to end our industry through mandates and subsidies,” he says, adding AFPM is not against electric vehicles as a product, but it does oppose some of the polices that help that industry. Moody also says trade is a topic of interest for both ethanol and petroleum. “We support free trade and opening markets for

all products,” he says. “When you get into tariffs and trade, we certainly have an interest in keeping market access open.” He also agrees with Cooper that collaboration will take some effort. “We’re going to be spending time getting the message out that we do think [a 95 RON octane standard] is better and why. It doesn’t happen overnight,” Moody says. But in his conversations with ethanol groups, he sees a willingness to collaborate, he says. “I’d broadly characterize it as saying there’s a lot of interest in talking.” In addition to advocating for an octane standard, Kelly says both industries can support the environmental benefits ethanol offers. “Millions of people across the country are benefiting from our improved air quality and so I think when you consider that in the context of these electric vehicle subsidies, you really need to consider that there are emissions benefits from newer vehicles that are being realized every day,” Kelly says. Cooper says collaboration will be critical for the future of liquid fuels. “I think we’re headed into an era where things are going to have to change,” he says. “I think there is growing recognition of that, and I think there is growing recognition that we need to be working together and doing more to ensure that liquid fuels remain economically competitive and continue to improve in terms of their environmental footprint. Otherwise, there are other emerging options out there.” Moody agrees. “From my perspective,” he says, “we’re going to have significant disagreement on some of the RFS issues nearterm, which shouldn’t take away from the need to work together on issues of common interest, long-term,” he says. “If we don’t find a way to work together, find a better path forward, this is going to be everybody’s reality. More and more fighting, which we don’t view as productive, and I don’t know that anybody does.” Author: Matt Thompson Associate Editor, Ethanol Producer Magazine 701.738.4922 mthompson@bbiinternational.com

18 | ETHANOL PRODUCER MAGAZINE | JANUARY 2020

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Finance

MARGINAL IMPROVEMENT Margins at some plants have begun to rise, but they’re still tight, and factors like crop condition and harvest progress will have an impact. By Matt Thompson

When Donna Funk, principal at KCoe Isom, compares the ethanol industry’s current low-margin environment to similar difficulties in the past, she says the differences are in which factors are contributing to the slim margins, and how long those factors have been present. Previous periods of challenging

margins have been a result of one factor, but the industry’s current difficulties have

22 | ETHANOL PRODUCER MAGAZINE | JANUARY 2020

been exacerbated by multiple challenges: trade disputes, oversupply of the market, weather and growing conditions, and small refinery exemptions. “This year, it’s just been one [thing] after another, and none of which an individual plant can control,” Funk says. Another difference, she says, is the role ethanol inventories have played. “I do think the difference is really more on managing production levels this time around than maybe it has been in the past,” she says. The Renewable Fuels Association reported in November that ethanol stocks in

the U.S. had declined to 20.5 million barrels, the lowest they’ve been in nearly three years. Experts say that has led to a slight improvement in margins. “I think we are starting to see a little bit of an improvement, which is probably a combination of some of the production that’s been offline as well as just some improvement in the spread between grain cost and fuel cost,” Funk says. She adds that it will be interesting to watch how the plants that have closed or idled in recent months react to the improving margins, as managing those inventories will be paramount to

COMMODITY CONCERNS: While margins have improved slightly, experts say this season's corn crop, plagued by poor weather in some areas, will affect production moving forward. FILE PHOTO

maintaining more favorable margins. “Until some of the export markets get opened back up, I think that inventory supply is a critical piece of managing these margins,” she says. Jamey Cline, business development director with Christianson PLLP, agrees. He says in order for the industry to manage its inventories, demand will need to increase, which will likely come from exports, as well as E15. “All of those things have to move forward in order to make room for the increased production,” he says. Cline says margins experienced an uptick toward the end of 2019, but they re-

main tight. And with some plants idled or shut down, the long-term impacts for rural areas could be dire. “Overall, rural economic health is extremely important,” he says. “We definitely hope this is a short-term thing, because in the long-term, that would affect taxes and different things in the area, let alone corn pricing.”

Inputs and Efficiency

Funk says the adages of increased efficiencies and decreased input costs are important. But, she says, it’s also important to take a holistic approach to a plant’s cost structure. “It’s really just continuing to

monitor and manage that overall input balance, and not just for your immediate ethanol output, but it’s also on your distillers output,” she says. “If you’re in an incredibly strong distillers market, for some plants it makes sense to produce a little more ethanol, because they need that distillers output because they’re in a strong distillers market. So it’s the total balance.” Pam Miller, board chair of Siouxland Ethanol, a 90 MMgy plant in Jackson, Nebraska, says the plant’s efforts to lower costs and maximize efficiency have been key components of operations. “I think maintaining a low cost structure makes a

ETHANOLPRODUCER.COM | 23

Finance difference when margins are tight, so we’re doing a lot of drilling down on ingredient costs and different pieces of the puzzle of the operation. We’re looking always to how we can lower our carbon score so we can participate in the markets that reward the low carbon score. “It’s really made the difference for us, being able to go to California and be rewarded with a low carbon score,” Miller says. “The value that we’ve seen because of those credits has made the difference in our bottom line.” That will become increasingly important for ethanol plants, Funk says, as more regions adopt a carbon system like California’s. “There’s going to be more and more California-like places that you’re going to have to ship to, it’s just finding those incremental improvements that you can pay for either through the improved price, betting on what the carbon index pricing’s going to be and/or you get a lower carbon score,

24 | ETHANOL PRODUCER MAGAZINE | JANUARY 2020

but you improve your operational efficiency, which doesn’t necessarily mean you produce more gallons. Maybe you produce the same number of gallons with less input costs, those types of things.”

Commodity Concerns

Cline says corn prices have been steady, but a factor in that price will be the crop condition as harvest wraps up. In November, Cline said much of the corn that had been harvested to that point was wet. “Now we have a lack of LP in order to dry it, and you’re seeing a lot of corn go into bunkers and things like that. So, corn quality is going to become an issue, potentially, and we’ve got some corn that has not hit physiological maturity, or what they call black layer, and that’s going to affect corn quality as well, as we start the season,” he says. And data from the U.S. Department of Agriculture shows the condition of 2019’s corn crop is far below that of previous years.

Funk says corn conditions across the Midwest aren’t uniform. “I think there’ll be some areas that maybe are going to be in a better position from a corn perspective, compared to the nation than they’ve been in the past. Just based on when they were able to plant and how much and what the yields turn out to be.” Cline adds that one of the biggest factors will be the movement of corn from the western Corn Belt to the eastern Corn Belt, where growing conditions were worse for corn farmers. He says Christianson saw evidence of that movement even before last year’s harvest began. “I don’t know how harvest has affected that, but to see that movement as we began to run short on last year’s stocks was very interesting to us,” Cline says. One area that is so far faring better than others is Nebraska, Miller says. She says the ground pile in November was the biggest in the plant’s history, at 2.2 million

POSITIVE TURN: Benchmarking data from Christianson PLLP shows margins improved slightly in recent quarters for leaders, while laggards experienced variability. SOURCE: CHRISTIANSON PLLP

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Finance bushels. “We’re actually having a good year. The crop is coming in on time and it also has a high yield per acre.”

Uncommon Competition

As Brazil ramps up its ethanol production, it continues exports to California, Cline says. “Right now, there’s definitely arbitrage due to some of the RIN pricing to bring in ethanol to California,” he says. “That mostly has been from a sugarcane perspective, because they’re treated as an advanced biofuel.” Funk says it’s important to look at Brazilian imports to California in comparison to exports. “I think where the challenge comes up is how much are we importing versus how much are we exporting to Brazil,” she says. “There have certainly been times where we’ve imported a lot of Brazilian ethanol into California, but then a bunch of U.S. ethanol gets sent to Brazil for use down there. So it’s really, I think, that balance of imports versus exports.”

Energy Economics

Both Cline and Funk say that, while they don’t follow natural gas markets closely, they haven’t heard of any issues, beyond the seasonal weather, that might impact

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26 | ETHANOL PRODUCER MAGAZINE | JANUARY 2020

prices. “I’ve not heard anybody talk about any concerns, at least in the short run—you never know what’s going to happen if you get too far out—but there do not seem to be concerns about the current price of natural gas from an input cost,” Funk says. And forecasts from the U.S. Energy Information Administration don’t show any alarming trends. The EIA forecasts the average industrial natural gas price will top out at $3.70 per thousand cubic feet in 2020. The agency says, despite forecasted colder weather in the early part of November, futures prices at the end of October rose only minimally, thanks to higher-thanaverage storage injections. According to EIA’s Short-Term Energy Outlook, released in November, “Lower forecast prices in 2020 reflect a decline in U.S. natural gas demand and slowing U.S. natural gas export growth, allowing inventories to remain higher than the five-year average during the year even as natural gas production growth is forecast to slow.” Miller says Siouxland has hedged its natural gas costs by signing a year-long contract. “Our prices are locked in for the season,” she says. It’s a strategy that she says worked well last year, as well. She adds that Siouxland expects natural gas prices to re-

main steady, noting that weather, like the polar vortex of two years ago, could change that outlook. The EIA also expects gasoline prices to remain steady in 2020, averaging $2.62 per gallon during the year. In October 2019, the average price for a gallon of gasoline in the U.S. was $2.63. While margins may be improving slightly, Miller says more certainty, from trade or from the government, is critical. “Until we have either a trade deal with China or some positive sign from the U.S. EPA through the White House that small refinery exemptions will be curtailed, or at least addressed reasonably to restore gallons into the Renewable Fuel Standard, I think we’re in a holding pattern right now,” she says. Funk agrees. “Every plant can do the best that they can to try to manage things, but if policies get undercut, it’s pretty hard to be successful if you have your knees cut out from underneath you at the 11th hour,” she says. Author: Matt Thompson Associate Editor, Ethanol Producer Magazine 701.738.4922 mthompson@bbiinternational.com

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presents Women in the Ethanol Industry 2020

WENDY Wendy has worked in the ethanol industry for 15 years, CLIKEMAN all of it as lab manager at Pine Lake Corn Processors.

Lab Manager Pine Lake Corn Processors, Steamboat Rock, IOWA

She started a couple of months before the ethanol plant started up in March, 2005. She’s been there ever since.

On working in ethanol I like my job. I get to use a lot of science, which is what I went to school for. I have an undergraduate degree in microbiology with a minor in chemistry. I also have a masters in plant breeding and genetics, which doesn’t seem very related, but in a masters degree you learn a lot about statistics and project management. When I applied for the position, I had been driving quite far to my job with a plant breeding research group at Iowa State University. I was encouraged to apply at the ethanol plant, and I literally thought it would be boring work. It isn’t at all. It’s fast paced and the impact I have is greater here than my old job. We’re providing a market for local farmers to sell their crop into and we’re providing jobs. The day to day I spend most of my time these days crunching numbers, although that has changed over the years. Most of my focus is on the front end, from the corn coming in and on through fermentation, although I work on a lot of different things throughout the plant. I have three techs who take samples in every part of the plant and run tests. First we look at quality, making sure it is in line and meets what we said we’d do. That’s on everything—ethanol, distillers grains, corn oil. And then we check the quality of the process, looking at yields. Sometimes I’m looking at baseline data and comparing it to run charts to see how things are doing. If we make a change in a product or use a different dose or even do things differently, I’m looking to see how it impacts every part of the process. On working with industry partners I like working with BASF. Our technical rep, Tami Fraser, has been with us since the start and she’s very helpful and trustworthy. When we run a trial on a yeast or enzyme, or anything really, BASF will look at the data, too. Having another set of eyes is really valuable. As part of the BASF Biofuels Buyers Group, I’ve gone to San Diego several times. It’s lovely to go there, but the most valuable thing I’ve found is the roundtable discussions with people from all the different plants across the nation. I like talking to peers whenever I can. It is always helpful because we’re all very isolated from one another. We’re constantly trying to improve our plant performance. It’s been challenging lately because we more than doubled our capacity in 2017 and there’s so much more to think about and take care of. I’m trying to learn new statistical analyses. I’m also working to better utilize my analytical skills to help the plant. As a woman in ethanol It can be a challenge to work in a male-dominated workplace. For the whole time I’ve worked here, I’ve been the only woman in the room in management meetings 90 percent of the time. But I’m well respected for my abilities and from the very beginning upper management set a good environment. I think it’s a good field for women to go into, although sometimes when I talk to women who’ve never been out here, they ask how can I stand it? It’s a processing plant. There’s corn everywhere and it’s noisy. It’s not going to be like your home, but it’s a good place to work.

Executive Outlook

ECONOMICS,

EXPECTATIONS AND EXPORTS Ethanol Producer Magazine talked to three experts about the past year, and what they see moving into 2020. By Lisa Gibson

2019 brought a Reid vapor pressure waiver for E15, but it also brought excessive small refinery waivers and low margins for ethanol plants. The year ended with plenty of topics still on the table, hotly debated issues and battles still being fought. Ethanol Producer Magazine asked for input from a producer, DJ Eihusen, president, CEO and board chairman for Chief Ethanol 30 | ETHANOL PRODUCER MAGAZINE | JANUARY 2020

Fuels Inc. in Hastings and Lexington, Nebraska; an exports expert, Ryan LeGrand, president and CEO of the U.S. Grains Council; and an overall industry and policy expert, Monte Shaw, executive director of the Iowa Renewable Fuels Association. Opinions from these three bring well-rounded perspectives on markets, margins, predictions and expectations. Hereâ&#x20AC;&#x2122;s what they had to say.

DJ Eihusen, President CEO and Board Chairman Chief Ethanol Fuels Inc.

Q. Chief Ethanol was Nebraska’s first dry-grind ethanol plant, correct? How has the company been a pioneer in the state’s ethanol industry? A. Chief Ethanol Fuels Inc. in Hastings, Nebraska, was the state’s first dry-grind beginning production in late 1984. This was the only commercial operating ethanol facility in Nebraska until the early- to mid-1990s. The Hastings plant has undergone many upgrades and expansions over the years to keep it modern and competitive. Chief Ethanol acquired a Lexington, Nebraska, facility in May of 2016. Q. How has Chief Ethanol coped with low margins? A. The last several months have been extremely difficult for etha-

nol production. The continued undermining of the Renewable Fuel Standard and continued trade wars have taken a toll on the industry. Chief Ethanol believes that a return to the intent of the RFS and a normalization of trade would lead to positive results for the entire industry. There have been recent views expressed that the U.S. has too much production capacity. But Chief Ethanol believes that the demand structure has been compromised. Also, we are fortunate in that Chief Ethanol is a business unit within Chief Industries Inc., a diversified corporation. The diversity of the parent company has helped us to navigate through a difficult margin environment within the ethanol industry.

Q. Has the idling and closing of ethanol plants as a result of low margins affected the market and demand for Chief Ethanol’s production? A. Chief Ethanol has a long history of continual operations for their facilities. Certainly, there have been many occasions of negative margins due to drought, supply and demand issues, logistics, etc. over the years but Chief has persevered. Currently, many other locations have had a miserable 2019 crop production year leading them to a higher basis or lack of crop supply. This has resulted in better ethanol pricings overall. Q. Has this been one of the worst years for the ethanol industry in the company’s memory? Why or why not? A. Absolutely, this has been a difficult year. In the past, most is-

sues have had a short or specific time period. For example, the 2012 drought year, supply-and-demand market actions, and the next growing season created some painful months but there was an end in sight. Currently, with the Washington, D.C., double-speak and misinformation, the ethanol and related industries don’t know when and if there will

be a resolution for the RFS and trade issues. This has led to a muchprolonged period of difficulty for the industry.

Q. How did the 2019 corn crop affect operations at Chief Ethanol, and what is the outlook for 2020? A. As mentioned before, 2019 has not been a good year for crop production. In south-central Nebraska, we did have an overabundance of rainfall during the normal planting time period. However, the local farmers did a stellar job in getting a crop planted and produced. It appears south-central Nebraska is the garden spot of the country. It sounds like many other areas of the country are not as fortunate as we have been. We will have adequate corn supplies for the coming year and optimistically look forward to 2020. Q. What policy issues have you been following in 2019, and what will the big battles be for the ethanol industry in 2020? A. Obviously, the U.S. EPA’s mismanagement of the RFS is something we continue to carefully monitor, specifically their abuse of small refinery exemptions (SREs) and failure to reallocate those waivers in a meaningful way. We are hopeful the Supplemental Rulemaking to the 2020 Renewable Volume Obligation will fulfill President Donald Trump’s promise that 15 billion gallons means 15 billion gallons by reallocating the actual average of waived volume from 2016 to 2018. This was supposed to be a banner year for E15 use, and while we’re grateful Trump directed EPA to finalize the rule allowing year-round access to E15 across the entire country, the reality is the SRE waivers have undermined that effort. We’re also closely following the trade situation because exports are such a critical piece of the puzzle for Chief. We are hopeful a deal can get done with China because of their goal to eventually go to E10 nationwide. Resuming robust exports to China would be game changing for our industry. Related to trade, we’re also hopeful Congress will ratify the U.S.-Mexico-Canada Agreement (USMCA) before the end of the year. Canada is our most reliable export market for ethanol over the course of time and we believe there is a big potential for increasing exports to Mexico in the coming years. In addition, 2020 is an election year. We will pay attention to what Trump and Democratic candidates have to say and do on ethanol-related issues. We also support efforts by groups such as the American Coalition for Ethanol and others to pursue new proactive legislative proposals to increase domestic demand for ethanol based on its highoctane and low-carbon attributes. We hope this legislative effort picks up bipartisan support in 2020. Q. Are you in favor of a high-octane rule? Why or why not? A. In short, yes but we actually believe there are a couple of ways

to get to a higher-octane fuel. One of those certainly involves EPA using its existing authority to issue a rulemaking to require a minimum octane in future fuel. We know EPA asked for comment from stakeholders about the potential for E30 in future engine technologies, as ETHANOLPRODUCER.COM | 31

Executive Outlook part of the rule to determine the Corporate Average Fuel Economy greenhouse gas (GHG) standards for 2021 through 2026 model year vehicles, so we support comments that the industry made to EPA in favor of a new E30 high-octane fuel. However, we also know that EPA Administrator Andrew Wheeler has publicly poured cold water on the idea that his agency would issue a high-octane rule. Again, that is why we’re also supportive of efforts by various groups to pursue new proactive legislative proposals to increase domestic demand for ethanol based on its high-octane and low-carbon attributes. We’re not really picky on how we get to a new high-octane fuel, as long as we eventually get it done.

What technology opportunities do you see being important in the year ahead?

A. Technology advances have been critical for the ethanol industry, lowering the carbon footprint while increasing yields and plant efficiencies that push this renewable fuel to the forefront of providing a high-octane, cleaner-burning fuel for today and the future. Chief continues to look at new and improved processes to implement for the future. Ryan LeGrand President and CEO U.S. Grains Council

Q. What is the outlook for progress in establishing the Mexico market in 2020? Is this the year we could see large volumes heading across the border? Why or why not? A. We do expect to see larger volumes begin to ship to Mexico in 2020. Some privately owned fuel terminals will be opening in 2020 and the value proposition is right for Mexico to import and blend ethanol into their fuel matrix, so we do expect to see larger volumes start to flow south of the border in 2020. Q. What is holding up approval of E10 in Mexico’s three largest cities, and what has been done to get that approval? A. There have been a number of factors, but I think it can be

attributed to the fact that the Energy Regulatory Commission, the government entity which establishes fuel specifications, saw a large turnover in their commissioner ranks in the last year. They have just recently filled the vacated commissioner positions and we believe they will see the evidence before them, including a recent study by the Mexican Petroleum Institute that proves E10 will not adversely affect their air quality, and they will proceed to open their three largest cities for E10 blending.

Q. What is the potential market in Mexico overall, and when do you foresee that full opportunity being present for U.S. ethanol? 32 | ETHANOL PRODUCER MAGAZINE | JANUARY 2020

A. It is hard to say when that full potential can be reached, but the Mexican fuel market is currently at 12.5 billion gallons, so at E10, the market potential for ethanol is over 1.2 billion gallons. Mexico will produce as much ethanol as they can with existing ethanol plants and new builds that are planned in their country, and we believe U.S. ethanol can serve to fill the gap between the total demand and the amount Mexico produces. Q. Will the foreign market opportunities for ethanol change in 2020? Why or why not? A. Many countries around the world are starting to see the benefits ethanol can provide in terms of greenhouse gas (GHG) reductions, vehicle emissions reductions and foreign expenditure savings. We recently held our Global Ethanol Summit, bringing together more than 400 government and industry attendees from 60 countries to learn about these benefits. Many direct connections were made with U.S. exporters at this event, which led to onsite sales and set opportunities for future sales. The Council will build off of this momentum to increase global ethanol trade, providing enhanced opportunities in 2020 and beyond for U.S. exports. Q. What is the outlook for tariffs and trade issues with Brazil and China? A. We hope to see improved opportunities in both Brazil and China going forward. Brazil has a tariff rate quota (TRQ) in place, which hasn’t served to limit exports to a large extent, but it has increased the price paid in Brazil for U.S. ethanol. We want the Brazilian government to repeal their TRQ and allow duty-free imports of U.S. ethanol, which is the same treatment given to Brazilian ethanol imported into the U.S. Switching to China, we are optimistic that a deal can be reached with them and that they will begin importing U.S. ethanol once again. We are hopeful the two sides are able to come to an agreement in the near future. Monte Shaw Executive Director Iowa Renewable Fuels Association

Q. How has the idling and closing of ethanol plants as a result of low margins affected the market and demand for ethanol in Iowa? A. It’s important to remember how rare it is for ethanol plants to be forced to shut down in the heart of corn country. We’re in an extreme situation and it’s made all the more frustrating because it is a man-made calamity. It’s also important to remember that most plants are operating, even if at a loss. So the impact on demand for ethanol in Iowa is minimal. Iowa only consumes about 135 million gallons of

ethanol and we produce over 4 billion gallons. The real pain has been for the communities where plants have idled or cut back production. Hundreds of jobs have been put in jeopardy, thousands of small-town investors are concerned, and thousands more farmers lost out on a valuable local market for corn just as harvest was starting. The last two years have been particularly frustrating, not just because of the negative margins and policy challenges, but also because the reverse should be true. The RFS should be driving adoption of E15 and higher blends, thereby driving demand and corn grind. The same should be true for exports, particularly to China. So to me, it’s not just what we’ve lost, it’s what we haven’t gained. Having said all of that, I am privileged to work for companies that are not afraid to take on challenges—they’re working to take market share from the world’s most profitable and powerful industry, after all. Often, when my frustration boils over, it’s IRFA’s members who set the example. They just keep putting one foot in front of the other. Just keep working. Never give up. We have a better product and with the determination of the people in the ethanol industry, I’m still very optimistic we will win in the end.

Q. How did the 2019 corn crop affect operations, and what is the outlook for 2020? A. While 2019 was clearly one of the most challenging years in a while for farmers, at the end of the day, farmers do what they always do and that’s produce. As I write this, we don’t know the final numbers on

the 2019 harvest but most folks I’ve talked to are pleasantly surprised. My understanding from plants is that the new crop quality is good, and some are even seeing increased corn oil output compared to old crop corn. But as tough as it was in Iowa, we’re much better off than some areas in the eastern Corn Belt or even South Dakota. I think the lack of production in those areas has already had a negative impact on ethanol producers there and we expect that to continue throughout 2020. And that puts pressure on all plants, but you’d much rather have a plant in Iowa than Indiana right now. I get no pleasure in saying that, it’s just a fact. My heart goes out to those farmers and ethanol folks.

Q. What policy issues have you been following in 2019, and what will the big battles be for the ethanol industry in 2020? A. Small refinery exemptions from the RFS are by far and away the biggest policy concern of 2019 for the ethanol industry. SREs have destroyed over 4 billion gallons of biofuels demand. Renewable identification number (RIN) prices and ethanol prices have both fallen. It is important that EPA start accounting for SREs based on the number of actual SREs granted in the past, not U.S. Department of Energy recommendations like the supplemental rule proposes, which have regularly been about half of the amount actually granted. We will have our eye on this going into 2020 to ensure waived gallons are properly accounted for and demand destruction is avoided. A real test case for EPA will be how they adjudicate the 2019 compliance year SRE requests in the spring and summer of 2020.

ETHANOLPRODUCER.COM | 33

Executive Outlook Trade is another big issue for the ethanol industry going into 2020. If a trade agreement is worked out with China, that could open up a 1 billion-gallon market for U.S. ethanol. Mexico is also looking at bringing more ethanol into their fuel supply, increasing the importance of USMCA for ethanol producers. While the outcome of the SRE debate is the bellwether, there is a long list of other issues to watch in 2020. Will EPA finally begin approving more pathway requests for corn kernel fiber? How will EPA handle the RFS reset rule? Will the U.S. Department of Agriculture roll out a meaningful E15 infrastructure program that works? Will EPA follow through on Trump’s commitment to remove E15 regulatory barriers? Will Congress restore the cellulosic and biodiesel tax credits? This is just a start.

Q. Are you in favor of a high-octane rule? Why or why not? A. The IRFA board has discussed the notion of a low-carbon

octane standard in great detail. To be clear, this is as a next step beyond the RFS, not a replacement for the RFS. There was board consensus to continue to engage in the discussion based on the following four principals: IRFA supports the introduction of low-carbon octane standard legislation; IRFA wants all major biofuel/corn groups behind the bill; IRFA wants a low-carbon metric in the bill; IRFA wants a low-carbon metric that will not leave any ethanol plant out of the system (this does not mean all would necessarily benefit the same). This concept provides the opportunity to bridge biofuels into a low-carbon energy future. But many challenges remain. First, Congress isn’t getting anything done right now and this would take a law to enact. Second, as nutty as it sounds, some environmental groups don’t want to make liquid fuels better. They want to put all their eggs in electric cars. We need to continue working with environmental groups that understand that in order to reduce carbon emissions from the transportation sector within the next two decades, you must decarbonize liquid fuels. Electric cars just won’t have the penetration needed to do it alone over the next two decades, which is the time frame in which the climate scientists say meaningful action must be taken.

Q. What technology opportunities do you see being important

in the year ahead?

A. One thing I always say is that IRFA does everything it can for the biofuels industry except the business of the industry. We don’t tell plants when to buy corn. Or when to sell ethanol. Or what technology is a good investment. That’s not our job nor our strength. But it’s clear that the technological improvements for ethanol production are just beginning. One technology we hear a lot about from our members is the ability to allow dry-mill ethanol plants to convert corn kernel fiber into cellulosic ethanol. That is being held up by the EPA right now, but there’s great excitement for it. Also, dry-mill ethanol plants will continue to look at new ways to lower their carbon scores and add value to existing coproducts. Therefore, technologies that help plants improve efficiency and create new or more valuable coproducts 34 | ETHANOL PRODUCER MAGAZINE | JANUARY 2020

will continue to be important in the coming years. We see lots of activity in various energy efficiency and in-house energy and electricity generation. We also see many folks looking at options for a higher protein distillers grains.

Q. What progress in expanding E15 markets do you see for 2020? A. U.S. drivers have trusted E15 to power over 11 billion miles

and counting. With year-round sales finally approved, we saw a 46 percent increase in E15 sales nationwide in summer 2019 compared to 2018. We expect that trend to continue as more and more consumers learn that E15 has the greatest market value of any fuel out there today, with higher octane at a lower cost. Currently offered at over 2,000 stations across the country, that number will only grow in 2020. Another USDA infrastructure effort could really provide a boost. But the biggest boost would come from a restored RFS where 15 billion gallons really needed to be blended. That would crack through the petroleum-created E10 blend wall and benefit ethanol producers and consumers alike.

Q. Will the foreign market opportunities for ethanol change in 2020? Why or why not? A. We are hopeful that an agreement is worked out with China to reopen that market for U.S. ethanol producers. That would be a meaningful demand boost. We also expect the market in Mexico to grow as retailers expand E10 use. IRFA was proud to help host some of the largest Mexican retailers this summer so they could talk with U.S. retailers about the success of E10 here. The speed of adoption there will have a lot to do with how quickly the necessary blending infrastructure can be put in place. It would be good if Brazil would end their unreasonable tariff on U.S. ethanol as well. But there are literally dozens of other markets that, combined, will be just as important. IRFA is a member of the U.S. Grains Council and will do whatever we can to assist them in achieving their goal to grow U.S. ethanol exports to 4 billion gallons. Author: Lisa Gibson Editor, Ethanol Producer Magazine 701.738.4920 lgibson@bbiinternational.com

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