May 2013 Ethanol Producer Magazine

MAY 2013

Key Revenue Stream Corn Oil Keeps Plants Afloat When Margins Tight Page 34

ALSO

Q&A: Dupont’s Eric Sumner Talks AntibioticFree Solutions Page 32

Industry Defends RINs Mechanism Page 46 www.ethanolproducer.com

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contents

MAY issue 2013 VOL. 19 ISSUE 5

features 32 Q & A

40

A Man of Science Wears Many Hats Voice of the customer is top priority for DuPont's Eric Sumner

By Tim Portz

DEPARTMENTS 6

7

Editor’s Note

Making Customer-Driven Corn Oil Decisions

By TOM BRYAN

Ad Index

10 The Way I See It

34 COPRODUCTS

Corn Oil Makes the Grade

The Beat Goes On

By MIKE BRYAN

11 Events Calendar

Upcoming Conferences & Trade Shows

Corn oil is an important part of the profit equation

By Holly Jessen

12 View From the Hill

40 EVENT

14 Drive

FEW: 'Where Producers Meet'

The annual event returns to St. Louis June 10 -13

By CHRIS HANSON

Ending the Century of Subsidies

By TOM BUIS

16 Grassroots Voice

46 REGULATION

Annual Fly-in Exhausting

But Energizing By brian Jennings

18 Europe Calling

Ethanol RINs Market Explodes

The Battle Continues

By Rob Vierhout

D6 RIN prices average 37 cents from January to March

By Susanne Retka Schill

20 Business Matters

Don’t Share That Yard Track!

By James L. Pray

22 Business Briefs

CONTRIBUTIONS

24 Commodities Report

54 ECONOMICS

60 Talking point

64 BYPRODUCTS

Investment in time, attention, technology shows good payback

By Paula Emberland

Attention to quality would open new, high-value markets

By Joe Riley

Integrated biorefinery concept produces high-value, algae-based oils

By Dil Vashi

Corn Oil Adds Significant Profitability to Ethanol

Scaling the Wall … Again By bob dinneen

Corn Oil Industry Needs to Evolve

Tap, Enhance Process Streams to Create Value-added Products

Clarification The “Sorghum Readies to Advance” article in the April issue improperly identified the U.S. Sorghum Checkoff Program as working with the U.S. EPA on the sweet sorghum pathway. As a checkoff, USCP cannot work on regulatory or legislative matters. The National Sorghum Producers is leading the petitioning process for sweet sorghum and worked very closely with the EPA to establish a pathway for grain sorghum.

Ethanol Producer Magazine: (USPS No. 023-974) May 2013, Vol. 19, Issue 5. 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.

4 | Ethanol Producer Magazine | MAY 2013

26 Distilled 67 Marketplace

MAY 2013

Key Revenue Stream Corn Oil Keeps Plants Afloat When Margins Tight Page 34

ALSO

Q&A: Dupont’s Eric Sumner Talks AntibioticFree Solutions Page 32

Industry Defends RINs Mechanism Page 46 www.ethanolproducer.com

ON THE COVER

Corn oil pours into a glass beaker with samples of Renewable Energy Group Inc. biodiesel at left.

PHOTO: BOB MODERSOHN

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editor’s note

Nearly all companies claim they make decisions based on their customers’ needs, but I wonder how many really do. The failure rate of startups and small businesses indicates that

Making CustomerDriven Corn Oil Decisions Tom Bryan, PRESIDENT & EDITOR IN CHIEF tbryan@bbiinternational.com

most of them listen poorly or not at all. Each year, thousands of inattentive companies go belly up, offering products and services too few of us want or need.

Our industry is different. Ethanol producers listen to their customers, especially when it comes to coproduct specifications, because each of their customers has unique requirements. For the same reason, industry vendors listen and respond to the needs of the individual ethanol plants they call on. DuPont’s Eric Sumner, the subject of this month’s page-32 Q&A, says each of DuPont’s industrial bioscience products is born from VOC, or voice of the customer.

The concept of VOC recurs this month inside of two data-rich updates on the incredible upsurge of corn oil extraction in the North American ethanol industry. Today, about 70 percent of U.S. ethanol plants extract oil, in varying percentages. Rapid innovation in oil extraction technology has led to large increases in average corn oil yield over the past two years. In fact, average yield has increased more than 50 percent since the beginning of 2011 and is now well over a half-pound of oil per bushel. The most determined corn oil producing ethanol plants are getting eight-tenths of a pound per bushel at $700 to $750 per ton. But again, it’s all about listening to customers. As EPM Managing Editor Holly Jessen reports in her page-34 feature, “Corn Oil Makes the Grade,” most producers extracting corn oil aren’t simply maxing out, but rather setting their oil recovery targets at levels tailored to the fat content needs of their distillers grains customers. So, while one producer may go for maximum oil extraction, another may intentionally strive for a much lower number with VOC in mind.

According to Paula Emberland, author of our page-54 summary of Christianson & Associates’ recent benchmarking excerpt on corn oil production and revenue trends, about 23 percent of total plant revenues are now derived from distillers grains and corn oil. That number is remarkable given the fact that the industry average just four or five years ago was 16 percent. In fact, in 2011 it was still just 18 percent. Yes, distillers grains prices have risen, but corn oil sales have been the real difference-maker.

The details in both stories are telling. The bottom line, however, is that plants that produce corn oil simply earn more from coproduct sales than plants that don’t. And the most ambitious corn oil producers—those with unique opportunities to pursue eighttenths of a pound per bushel—have done well by it. Simply said, U.S. ethanol plants that extract corn oil—especially with VOC in mind—have maintained positive margins over the past few years.

For industry news: www.ethanolproducer.com or Follow Us: 6 | Ethanol Producer Magazine | MAY 2013

twitter.com/EthanolMagazine

AdIndex

EDITORIAL PRESIDENT & EDITOR IN CHIEF Tom Bryan tbryan@bbiinternational.com

72 2013 International Fuel Ethanol Workshop & Expo

Vice President of Content & EXECUTIVE EDITOR Tim Portz tportz@bbiinternational.com

SENIOR EDITOR

3 2013 National Advanced Biofuels Conference & Expo

Susanne Retka Schill sretkaschill@bbiinternational.com

MANAGING EDITOR Holly Jessen hjessen@bbiinternational.com

NEWS EDITOR Erin Voegele evoegele@bbiinternational.com

STAFF WRITER

58 Methes Energies 55 Mist Chemical & Supply Company

69 2014 International Biomass Conference & Expo

44 Murex Na Ltd.

30 American Coalition For Ethanol

52 Nalco, an Ecolab Company

48 Aggreko

15 Phibro Ethanol Performance Group

31 Ashland Hercules Water Technologies

71 POET, LLC

5 BetaTec Hop Products

36 QUALSPEC

Chris Hanson chanson@bbiinternational.com

COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com

ART ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com

GRAPHIC DESIGNER Lindsey Noble lnoble@bbiinternational.com

PUBLISHING

28 Buckman

59 Renewable Fuels Association

37 Cloud/Sellers Cleaning Systems

38 RPMG, Inc.

65 Crown Iron Works Company

26 Salco Products, Inc.

45 DuPont Industrial Biosciences

70 Syngenta: Enogen

21 DuPont Pioneer

22 Tower Performance Inc.

42 EcoEngineers

39 Tranter Phe

19 Fagen Inc.

17 U.S. Water Services

CHAIRMAN Mike Bryan mbryan@bbiinternational.com

CEO Joe Bryan jbryan@bbiinternational.com

SALES VICE PRESIDENT, SALES & MARKETING Matthew Spoor mspoor@bbiinternational.com

EXECUTIVE ACCOUNT MANAGER Howard Brockhouse hbrockhouse@bbiinternational.com

ACCOUNT MANAGERS Marty Steen msteen@bbiinternational.com Andrea Anderson aanderson@bbiinternational.com Kelsi Brorby kbrorby@bbiinternational.com Tami Pearson tpearson@bbiinternational.com

CIRCULATION MANAGER Jessica Beaudry jbeaudry@bbiinternational.com

ADVERTISING COORDINATOR Marla DeFoe mdefoe@bbiinternational.com

2 Growth Energy

Senior Marketing Manager John Nelson jnelson@bbiinternational.com

EDITORIAL BOARD Mike Jerke, Chippewa Valley Ethanol Co. LLLP Jeremy Wilhelm, Cilion Inc. Mick Henderson, Commonwealth Agri-Energy LLC Keith Kor, Pinal Energy LLC Walter Wendland, Golden Grain Energy LLC Neal Jakel Illinois River Energy LLC Eric Mosebey Lincolnland Agri-Energy LLC Steve Roe Little Sioux Corn Processors LP

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 of $49.95 for any country outside the United States, Canada and Mexico. 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 hjessen@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

61 United Sorghum Checkoff Program

51 Himark bioGas

27 Vecoplan LLC

64 Hydrite Chemical Co.

49 Victory Energy Operations, LLC

50 Hydro-Klean LLC

56 Vogelbusch USA Inc.

11 ICM Inc.

23 Wabash Power Equipment Co.

8 & 9 Inbicon

63 WB Services, LLC

43 INTL FCStone Inc.

57 West Salem Machinery

53 Iowa Economic Development Authority

29 WINBCO

13 Lallemand Biofuels & Distilled Spirits

COPYRIGHT Š 2013 by BBI International TM

MAY 2013 | Ethanol Producer Magazine | 7

6 high-alpha producers wanted for 6 New Ethanol projects.

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the way i see it

The Beat Goes On

By Mike Bryan

With all of the opposition surrounding biofuels, we just keep slogging on through the mud like old work horses. Thousands of people still show up at conferences, with unbridled enthusiasm. Groups

continue to get dollars to conduct more cutting-edge research into advanced biofuels. Almost every day, new developments in the production of biofuels are announced, making biofuel production better, faster and cheaper.

In short, despite the exaggerations, misrepresentations and, in some cases, outright lies, biofuels continue to gain headway in the market. It’s an idea at its golden moment in time and despite drought and floods, there is little anyone can do to stop it.

There are those who would question my optimism, given that we seem to have stalled out a bit given the headwinds we are currently facing. I would say to them, be patient, time is on the side of renewable energy.

10 | Ethanol Producer Magazine | MAY 2013

There have been many times over the past 30 years that I thought this may be it, it’s over for biofuels. Then, through the efforts of those representing us in Washington and in the various states, a few things change and we begin moving forward once again. I am convinced beyond question that we will continue to make headway despite the adversity.

There are times in life when you just know you are on the right side of the issue.

Now is one of those times. I’m not being an optimistic old fool, I’m just going by history.

As it has time and time again, no matter what befalls this industry, somehow, The Beat Goes On! That’s the way I see it.

Author: Mike Bryan Chairman, BBI International mbryan@bbiinternational.com

EVENTS CALENDAR International Fuel Ethanol Workshop & Expo June 10 -13, 2013 America’s Center St. Louis, Missouri

Where Producers Meet Now in its 29th year, the FEW provides the global ethanol industry with cutting-edge content and unparalleled networking opportunities in a dynamic business-to-business environment. The FEW is the largest, longest running ethanol conference in the world—and the only event powered by Ethanol Producer Magazine.

866-746-8385 | www.fuelethanolworkshop.com

National Advanced Biofuels Conference & Expo September 10 -12, 2013 CenturyLink Center Omaha Omaha, Nebraska

Proving Pathways - Building Capacity Produced by BBI International, this national event will feature the world of advanced biofuels and biobased chemicals—technology scale-up, project finance, policy, national markets and more—with a core focus on the industrial, petroleum and agribusiness alliances defining the national advanced biofuels industry.

866-746-8385 | www.advancedbiofuelsconference.com

Algae Biomass Summit September 30 - October 3, 2013 Hilton Orlando Orlando, Florida This dynamic event unites industry professionals from all sectors of the world’s algae utilization industries including, but not limited to, financing, algal ecology, genetic systems, carbon partitioning, engineering and analysis, biofuels, animal feeds, fertilizers, bioplastics, supplements and foods.

866-746-8385 | www.algaebiomasssummit.org

International Biomass Conference & Expo March 24 - 26, 2014 Orlando Convention Center Orlando, Florida

Organized by BBI International and coproduced

by Biomass Magazine, the International Biomass Conference & Expo program will include 30-plus panels and more than 100 speakers, including 90 technical presentations on topics ranging from anaerobic digestion and gasification to pyrolysis and combined heat and power. This dynamic event unites industry professionals from all sectors of the world’s interconnected biomass utilization industries— biobased power, thermal energy, fuels and chemicals.

866-746-8385 | www.biomassconference.com

view from the hill

Scaling the Wall …

Again

By Bob Dinneen

Margaret Thatcher once said, “You may have to fight a battle more than once to win a war.” That

is certainly the case when it comes to the renewable fuel standard (RFS). When the first RFS was passed in 2005 the American Petroleum Institute supported the bill because it provided a pathway to end the use of methyl tert-butyl ether. When the program became such an unmitigated success that Congress expanded the RFS to 36 billion gallons in 2007, the API was vehemently opposed. Now, API is attempting to relitigate the RFS and have it overturned. So we’ll have to fight that battle again to win the war for America’s energy security. Win it we will.

The official beginning of this year's Battle for the RFS occurred last month when the House Energy and Commerce Committee released the first in a series of white papers to investigate various elements of the RFS, the first on the blend wall. The committee asked a series of questions, most of which reflected a bias against the RFS, suggesting the blend wall was indicative of a “problem” with the law that needed to be fixed. But it’s not a problem with the law. It’s the result of oil companies refusing to comply with it!

When Congress passed the 36 billion gallon RFS, it clearly understood that volume of fuel would compel the market to move beyond 10 percent blends. The expectation was that E85 would become a viable competitor of gasoline. Indeed, the auto companies responded to the market signal provided by the RFS by dramatically increasing their production of flexible fuel vehicles. Ethanol companies also responded to the market signal of the RFS, expanding production, investing in new cellulosic technologies and initiating the effort to seek approval for E15.

The only stakeholder to ignore the

12 | Ethanol Producer Magazine | MAY 2013

SOURCE: RFA

market signal of the RFS was the oil industry.

From the beginning, oil companies refused to make the modest infrastructure investments necessary to provide market access for E85 and they have steadfastly opposed every effort to commercialize E15. A recent analysis by the RFA’s Geoff Cooper concluded the cost of RFS compliance for 2013 would amount to just 6 cents per gallon of capital investment to accommodate the additional ethanol needed beyond E10. Oil companies say they’re not to blame, that it’s the gasoline marketers who own the downstream blending facilities where the investments have to be made. While that’s true to some extent, it is also true that they have used every tool available to them, including the terms of franchise agreements, to keep marketers from offering consumers choice at the pump.

Oil companies are now appealing to

Congress to repeal the RFS because the “blend wall,” which they created, supposedly makes it impossible to meet the increasing volume obligations. Phooey. Congress shouldn’t reward their bad behavior and should consider the consequences of changing the rules in the middle of the game.

Businesses rely upon consistent and reliable policy. Investments have been made in response to the RFS. Changing that policy now simply because one stakeholder has ignored the law would chase investors in biofuels away, reversing the progress we have made toward a diverse energy portfolio and leaving America ever more dependent on oil. That’s why we’ll continue the fight, and that’s why we’ll win it again.

Author: Bob Dinneen President and CEO, Renewable Fuels Association 202-289-3835

REVIEWED. APPROVED. UNDUPLICATED.

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DRIVE

Ending the Century of Subsidies

By Tom Buis

As we all know, the ethanol industry recognized it was time to end federal subsidies and collectively asked the federal government to end the subsidies for grain-based, first generation ethanol. The Volumetric Ethanol Excise

Tax Credit was no longer needed. The ethanol industry had matured, it was standing on its own and demand was up. The goal of the leaders in the ethanol industry has always been to increase America’s energy independence with homegrown, renewable fuel.

Ethanol is the lowest-cost, mostcompetitive liquid fuel available in the marketplace today. It is generally understood that when we move towards new energy sources, there often is some level of incentives to help that technology grow and become cost competitive, giving the industry time to mature and compete on its own.

First-generation ethanol has done that. The industry has matured and is operating freely without any federal subsidies.

Yet, 100 years later, Big Oil refuses to give up its excessive tax subsidies.

The petroleum industry continues to enjoy immense tax breaks and subsidies that have been in place for nearly a century.

In fact, one such oil subsidy just reached a milestone of 100 years on the books. This begs the question—why do we still highly subsidize one of the most profitable industries ever, with federal taxpayer dollars? The oil

14 | Ethanol Producer Magazine | MAY 2013

industry is mature, making record profits, and yet continues to gorge at the trough of the public treasury.

While Big Oil has a near stranglehold on the liquid fuels market, ethanol is starting to break through oil's near-monopoly, and in doing so ethanol’s success has threated the bottom line of many oil companies. American consumers see that ethanol revitalizes rural communities and spurs economic growth by creating new jobs that cannot be outsourced throughout America’s heartland. They also enjoy cost savings and a choice at the pump. American consumers are lining up to get more and pay less—with higher blends of ethanol. Not only is it less expensive, it has a higher octane rating and is a betterperforming fuel.

Just the other month, the International Monetary Fund released a study which concluded that, “broad reform of the world’s energy subsidies could lead to long-term economic growth.” The study further noted that, “while aimed at protecting consumers, subsidies aggravate fiscal imbalances, crowd-out priority public spending, and depress private investment, including in the energy sector. … Subsidies also distort resource allocation by encouraging excessive energy consumption, artificially promoting capital-intensive industries, reducing incentives for investment in renewable energy, and accelerating the depletion of natural resources.”

First-generation ethanol has already voluntarily given up its tax incentives, now it is time for Big Oil to do the same.

Time and again, oil companies fight renewable fuels and while they may pay lip service to supporting renewables, they erect every legal, regulatory and public

affairs hurdle to prevent biofuels from succeeding. It’s time they get out of the way of advancements in renewable fuels and also give up the excessive subsidies they enjoy.

Let’s take a look at what Big Oil gets and gives back. They enjoy record subsidies; in fact, the mature oil industry may be the most subsidized in U.S. history. It is truly unfortunate that we continue to transfer hundreds of billions of American dollars overseas to politically hostile and unstable regions, when we should be investing that money right here, at home—developing sustainable and renewable fuel sources for the future.

In return for all the subsidies the taxpayers hand out, we get oil spills, excessive price spikes and record costs each year for gasoline, even as Big Oil touts the so-called domestic energy boom. If we are producing so much at home, why do prices at the pump continue to rise?

The bottom line is that Big Oil continues to take in, while it puts corporate profits ahead of the public’s interest and safety. They are simply complacent in the ongoing activities that are harmful to their own consumers.

They will continue to extract oil from tar sands, regardless of the environmental impact, and if I were a betting man, I would say the BP spill in the gulf, is not the last one we will see from Big Oil. We need to stop the insanity of subsidizing the most profitable companies that pollute our environment and cost us billions. It is time to move forward with renewable fuels, like higher blends of ethanol, such as E15.

Author: Tom Buis CEO, Growth Energy 202-545-4000 tbuis@growthenergy.org

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LACTROL is the proven solution to maximize yields and productivity. It keeps input costs down by helping you squeeze more ethanol out of every kernel of corn. No wonder LACTROL is used in more ethanol plants than any other antimicrobial. ® Prevent, protect, and produce. Take microbial control seriously; make sure your plant knows about LACTROL . Contact your Phibro Ethanol Performance Group Sales Specialist at 800-223-0434.

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GRASSROOTS vOICE

Annual Fly-in Exhausting But Energizing

By Brian Jennings

We recently concluded the American Coalition for Ethanol’s Fifth Annual Biofuels Beltway March Fly-in to Washington, D.C. Over 50 grassroots leaders met with more than 120 congressional offices and top U.S. EPA officials in two days, showing and telling how the renewable fuel standard (RFS) is working and that E15 is a safe and new fuel choice that will save consumers a lot of money.

At the conclusion of every fly-in, I feel exhausted but energized. Exhausted because we wear out a lot of shoe leather doing Capitol Hill visits. Energized because I’m reminded each year that our industry’s most effective asset is our base of grassroots support.

People like Tim Van Der Wal, a banker and board director for Highwater Ethanol LLC, outside Lamberton, Minn., who told legislators he’s a first-hand witness to how ethanol plants create new business and jobs in rural communities and expand the local tax base.

A dairyman named Mark Thomas from Ohio, who farms in addition to milking cows (and has won multiple IHRA Funny Car National Racing Championships on E85), poked holes in the myth some livestock groups are trying to spin about ethanol.

Mark, a board member for the Ohio Corn Growers Association, was able to explain how, thanks to the RFS, there’s actually

16 | Ethanol Producer Magazine | MAY 2013

more corn for all end users and better quality feed for dairymen like him from the distillers grains, as a result.

And Scott McPheeters, a farmer and board member for KAAPA Ethanol LLC, near Minden, Neb., who enlightened legislators on the food and fuel issue, based on his experience raising food-grade corn for Frito Lay Inc. and No. 2 yellow corn for ethanol plants and livestock producers.

ACE organizes a fly-in each year because we recognize that, contrary to popular belief, the facts alone aren’t our best weapons in the fight to advance the priorities of the ethanol industry. At ACE we believe how we deliver the facts is equally important when it comes to protecting the RFS or promoting E15. We believe in humanizing ethanol and have confidence that grassroots advocates can deliver our facts in a more compelling way than traditional means.

Let me give you a larger-than-life example. Remember the “God made a Farmer” Super Bowl ad by Dodge, featuring Paul Harvey’s voice and stirring still photos of farm and ranch life? The ad didn’t tell us farmers and ranchers work hard. It didn’t even come out and say “buy a Dodge pickup.” The ad instead tugged at our heartstrings and it worked.

That’s instructive for us. Facts are on ethanol’s side but facts alone do little to capture the hearts of people we need to reach. People don't care how much we know until they know how much we care.

People like Tim Van Der Wal, Mark Thomas, Scott McPheeters care, and care so much about the future success of ethanol

that they took the time to participate in ACE’s fly-in with several other grassroots leaders.

And despite all the bombast coming from the oil industry’s attack campaigns and lobbyists in Washington, what we took away from our fly-in is that Congress isn’t nearly as enthusiastic about repealing the RFS or stopping E15 as Big Oil would like the public to believe. Congress may not view the RFS as perfect but on balance they recognize it is working. We can’t and shouldn’t let down our guard based on this, but we should know that when real people get in front of Congress and show how much they care about our industry, it makes a positive difference.

Big Oil is spending millions of dollars to repeal the RFS and stop E15 this year.

Groups like ACE are spending what we have to counteract these attacks and proactively promote our industry. But at ACE, we’re also focused on punching “above our weight” by intelligently using other valuable resources such as our grassroots members. Real people who are authentic, who are part of a classic American success story, a story about hard work, innovation, solving problems and building and growing a better future right here at home.

Thanks to Tim, Mark, Scott, and many others, I’m confident and optimistic about our prospects.

Author: Brian Jennings Executive Vice President American Coalition for Ethanol 605-334-3381 bjennings@ethanol.org

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Setting A New Industry Standard.

Europe Calling

The Battle Continues

By Robert Vierhout

By the time you are reading this column, European decision makers will have already completed six months of chewing on what could be described as the indirect land use change (ILUC) bill.

You might remember that its most astonishing part is the limitation of food/ feed-based biofuels to 5 percent of the original 2020 10 percent target of renewable energy in transport. Food concerns were the main reason for this cap, not ILUC. The gap that would occur needs to be filled by advanced biofuels. Aware of the still small volumes of those available biofuels, volumes are artificially increased through a multiplier.

Both measures are perceived as controversial. Green and social nongovernmental organizations (NGOs) think 5 percent is still 5 percent too much, industry fears that many investments were done in vain, and many EU member states also fear that targets can no longer be achieved partly because the multiplier instrument is seen as ill-defined. The European Parliament is still nine months away from expressing its position but views are pretty much scattered like above.

A majority of member states gave the proposal a frosty welcome. Some countries did not find a single syllable in the proposal they could support. Others found that the proposal was not addressing the ILUC problem at all. The virtual accounting of

18 | Ethanol Producer Magazine | MAY 2013

advanced biofuels puzzled most member states. Only two countries supported the proposal on the 5 percent cap and three states believe that 5 percent is still too much.

Not much basis for achieving quickly a common ground, one could think. Still, first deliberations between the member states already indicate a sort of direction where this may land.

As the capping element is the most controversial, the Irish Council Presidency recently put two options on the table to solve the 5 percent conundrum. One option implied a limit of 5 percent on biodiesel only and the other option a higher cap for all first-generation biofuel without specifying a ceiling (yet).

As many as 11 states favored the latter and five the first one.

This first poll is indicating division within the EU powerhouse but is also the most likely way forward. The only big state that has been very silent in this is Italy, but then again it has other fish to fry first.

For the European Commission, this first poll must be a cold shower. Normally, prior to launching a bill, the Commission takes careful account of the informally expressed views of the member states. But it seems that in this case, the Commission "forgot" to do its homework, most likely speculating that the member states would follow the mood of so-called public opinion, aka NGOs. Member states, however, are faced with the reality of an economic crisis and cannot think of any good reason to kill investments and opportunities for more investments in agriculture.

Maybe the Commission has also given

in too quickly to the food concern. In its first, just published, Renewable Energy Progress Report, we can read that "Commission analysis has found that grain use for bioethanol production ... to have minor (1 to 2 percent) price effect on the global cereals market. It also appears that biofuel demand is more price-sensitive than the food market and so demand declines more in response to rising prices." It merely confirms what the ethanol sector has always said, there are only marginal price effects on food prices.

The report goes on to state that "it is not yet clear if EU biofuels demand contributes any abuse of land use rights." Also, in this respect, facts do not concur with the NGO fiction.

It beggars belief that the Commission did not publish this report prior to its bill.

It would have taken away much of the unnecessary emotion around the EU biofuel policy. The industry now needs to call upon legislators to keep this evidence clearly on board when amending the bill.

The bill is not terribly long but it is complex and politically very sensitive, which could well make this battle between the pros and cons take much more time than expected. If no agreement is reached between the legislators before April 2014, the bill is very much dead in the water. What happens then depends on how the newly elected Parliament and Commission will decide. But until then, the battle continues, hopefully resulting in favorable outcome for the industry. We seem to be going in the right direction even though we are still far away from the finish.

Author: Robert Vierhout Secretary-general, ePURE Vierhout@epure.org

business matters

Don't Share That Yard Track!

By James L. Pray

Does your ethanol plant share an industrial rail yard with another business? Do you move railcars for each other or does your industrial rail yard connect with more than one mainline railroad?

If the answer to any of these questions is â&#x20AC;&#x153;yes,â&#x20AC;? you should be aware that there are a number of risks to consider before combining rail operations. Even seemingly harmless tasks such as sharing a dualpurpose railcar mover or agreeing to push the neighbor's cars onto the neighbor's rail siding when the mainline railroad delivers a car, can turn your ethanol operation into a federally regulated railroad. These federal obligations can include, but are not limited to, federal approval for changes in ownership or changes in track layout, long and expensive environmental impact studies, having to purchase mainline-certified locomotives, and the necessity to hire or train locomotive engineers.

The Surface Transportation Board was created after the Interstate Commerce Commission was abolished by Congress in 1996. Although the STB's role in regulating railroads is much smaller than that of its predecessor, it exercises preemptive jurisdiction over all railroad operations other than safety. Once a track falls under STB jurisdiction, most material changes to the track or even the trackâ&#x20AC;&#x2122;s ownership must be approved by the STB. If ethanol plants are careful, they can easily avoid triggering the limited jurisdiction

20 | Ethanol Producer Magazine | MAY 2013

of the STB, which extends to the mainline and shortline (i.e., common carrier) railroads but not to "construction, acquisition, operation, abandonment, or discontinuance of spur, industrial, team, switching, or side tracks." For most ethanol plants, this is a crucial distinction because this means that their private spur tracks and industrial rail yards are generally not going to be subjected to STB jurisdiction. But what is a "spur, industrial, team, switching, or side track?"

Although the statute does not specifically define these terms, the courts and the STB itself have issued rulings that provide guidance.

First, the STB looks to the actual use of the track, and not its label, to determine what it is. If the track in question is only used as a spur, side or an industrial track then it is more likely that the STB will determine that it has no jurisdiction. As an example of a use for a spur track that would fall under the STB's jurisdiction, let's assume that a given industry track is extended through the rail yard to transport train cars to another mainline. If cars for other shippers traverse that connection, then the track has a mixed use; one of the uses is functionally the same as that of a short line railroad. The STB will likely assert jurisdiction. Other facts that the STB look at include the length of the track involved and how many different shippers share the same exempt industry track. The longer the track and the more shippers who use that industry track, the higher the risk that the STB will assert jurisdiction.

Some tracks can also be regulated by the Federal Railroad Administration,

which only oversees railroad safety. The FRA exercises jurisdiction over any railroad operating on the "general railroad system of transportation," which is defined as "the network of standard gage track over which goods may be transported throughout the nation." The FRA has, as a matter of policy, excluded from its regulations certain categories of rail operations, including railroads whose entire operations are confined to an industrial installation and where the only connection is by a switch for the receipt of shipment.

However, the FRA has taken the position in numerous cases that if one shipper switches a car for a different shipper on a shared industrial track that the shipper is subject to FRA jurisdiction. This can trigger onerous safety requirements, including the inability to use a dual-use railcar mover, having to purchase locomotives certified for mainline use and having to establish worker training, engineer certification, safety inspection programs and policies for the shipper. Avoid FRA jurisdiction by adopting a strong policy that each shipper must move its own cars or that the common carrier must handle the spotting and delivery of cars for shippers who do not have their own railcar mover.

Before you agree to a neighborly request to help out another industry move its cars in or through your yard, be certain that you are not going to trigger federal jurisdiction for both you and your neighbor.

Author: James L. Pray Attorney, BrownWinick Law Firm pray@brownwinick.com 515-242-2404

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business briefs

People, Partnerships & Deals

Gevo Inc. has expanded its executive team, adding Stephen P. Toon as its new executive vice president of operations and process development. In his new role at Gevo, Toon will report to Christopher Ryan, Gevo’s president, chief operating officer and chief technology officer, and have overall responsibility for Gevo’s Luverne, Minn., facility from startup through commercial operation.

Prior to joining Gevo, Toon served as vice president of engineering and operations at OPX Biotechnologies and vice president of manufacturing and engineering at Verenium Corp. He spent 10 years as a senior scientist at Cargill and was previously a scientist and doctoral fellow at the National Renewable Energy Laboratory.

Steve Hartig, vice president of bioenergy with DSM’s Biobased Products and Services unit, has been named general manager of Poet-DSM Advanced Biofuels LLC. In this position, he is responsible for the roll-out and licensing of the joint venture’s integrated technology packages. Hartig will report to the joint venture’s board of directors. He joined DSM’s Engineering Plastics division in 1990 as sales and marketing manager for the U.S. automotive industry. He has since headed several business units within DSM in the fields of coating resins, biomedical materials, and fiber optic coatings.

He moved into the bioenergy field in 2012.

DSM’s Bioenergy Cluster currently has main Hartig is responsible for licensing Poetactivities in Elgin, Ill., DSM Advanced São Paulo, Brazil, and Biofuels LLC’s integrated technology Delft, Netherlands. Anton Robek, president packages. of Bio-based Products and Services at DSM, will take on Hartig’s responsibilities for the bioenergy cluster outside of the Poet-DSM joint venture.

22 | Ethanol Producer Magazine | MAY 2013

LanzaTech has appointed Abdul Rahim Hj Hashim to its board of directors.

Hashim is the current president of the Malaysian Gas Association, former chief executive of Petronas Oil Refinery and a 36-year veteran of the oil and gas industry. His leadership experience in the oil and gas industry is expected to bring value to LanzaTech as it takes its technology further into the fuel production chain.

Rochelle, Ill.-based Illinois River Energy LLC has joined the U.S. Grains Council.

IRE operates a dry mill corn ethanol biorefinery that produces ethanol, distillers dried grains with solubles (DDGS), and industrial corn oil. The plant processes more than 40 million bushels of corn per year, producing 120 MMgy of ethanol and more than 300,000 tons of DDGS.

Breitmeyer (center) was recognized for his service to the USGC. Presenting the award was Don Fast, USGC chairman (left), and Tom Sleight, USGC president and CEO.

Northern Michigan corn grower Ed Breitmeyer has been recognized by the U.S. Grains Council for five years of service to the group, which focuses on expanding export markets for U.S. grains. Breitmeyer was honored at USGC’s 10th International Market Conference and 53rd annual membership meeting in Charleston, S.C., for his five years of service as a council delegate. He is an active member of the USGC’s membership and communications advisory team and serves as chairman of the Michigan Corn Growers Association.

BUSINESS BRIEFS Share your industry briefs To be included in Business

Sponsored by

Fredrikson & Byron PA has announced that shareholder Richard Weiner was named a Fellow of Stanford University Law School’s Transatlantic Technology Law Forum. Weiner Weiner will compare will research and author the best of U.S. and a whitepaper on best European renewable practices for imple- fuels practices. menting a transatlantic renewable energy policy, where he will compare the best of U.S. and European renewable fuel practices. His term runs through 2014.

Weiner is an international biofuels lawyer and is chair of Fredrikson & Bryon’s International Group and chair of the firm’s Biofuels Group.

VG Life Sciences has announced Martin B. Dickman joined its VGEnergy subsidiary as chief science advisor. Dickman will enhance the scientific rigor of the company’s alternative energy core technology platform and expand development of a line of products that enhance the lipid and sugar production in emerging market sectors, such as algal biofuels, and in more mature, larger markets, such as corn and sugarcane. His expertise in comparative plant physiology and plant pathologies will enhance and add a new dimension to the company’s ongoing research. Dickman has served as director of the Institute for Plant Genomics and Biotechnology at Texas A&M University and has served on the editorial boards of several scientific journals.

Archer Daniels Midland Co. has promoted Gary Towne to the newly created role of president of ethanol and risk management in the company’s corn business unit. Towne joined ADM in 1998 and previously served as general manager of global risk and ethanol before being named chairman of the management board of Alfred C. Toepfer International GmbH a grain merchandising company in

Briefs, send information (including photos and logos if available) to: Business Briefs, Ethanol Producer Magazine, 308 Second Ave. N., Suite 304, Grand Forks ND 58203. You may also fax information to 701-7468385, or email it to evoegele@bbiinternational.com. Please include your name and telephone number in all correspondence.

which ADM holds an 80 percent ownership stake. Additional prior positions Towne held with ADM include vice president of corn processing and vice president of ADM Export Co. The Canadian Renewable Fuels Association has announced a new committee and classification of membership to advance next generation biofuels in Canada. The new committee and its members represent leaders in biofuels with their cutting-edge technologies and first-of-kind projects. Inaugural members of the CRFA’s Next Generation Biofuels Committee include Quebec-based Enerkem, Denmark-based Inbicon, and U.S.-based Mascoma.

Air Liquide Industrial U.S. LP has announced a new carbon dioxide liquefaction plant in the California Central Valley. The new 450-ton facility will capture carbon dioxide gases from the Calgren Renewable Fuels LLC ethanol plant. The carbon dioxide will be recovered, purified, and liquified by Air Liquide to meet beverage-grade specifications for the food, beverage and manufacturing industries in the region. The facility will serve Air Liquide customers in the Central Valley and Los Angeles Basin, and is slated to be operational by the end of the year.

The Iowa Renewable Fuels Association has announced two additional stations that began selling E15 Iowa in mid-March.

The IRFA announced the Fast Stop in Cresco, Iowa, and Kountry Korner in Baxter, Iowa, are both supplying the fuel to 2001 and newer vehicles. The two stations joined Linn Co-op Oil in Marion and Fredericksburg Co-op in Fredericksburg in supplying the fuel blend.

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MAY 2013 | Ethanol Producer Magazine | 23

commodities Natural Gas Report

Natural gas demand shows flattening forward curve April 1— Throughout much of the nation, winter has lingered much longer than normal and, from my perspective, much longer than it should! Since natural gas demand is highly correlated with winter heating degree days, it should come as no surprise that the U.S. has experienced robust demand through the first quarter and into the second quarter of the year. Natural gas prices have responded. The current NYMEX price (March 29) for the May natural gas contract is $4.025 per MMBtu, which is 100 percent higher than the contract low price set last April ($1.97 per MMBtu) for last May's contract.

Natural prices moved up throughout the summer and into the fall.

The October NYMEX settlement price was $3.02 per MMBtu, 50 percent higher than last April's prices but 25 percent below current prices. In spite of dramatic increases in prompt prices over the past year, deferred prices have remained relatively steady.

The accompanying chart shows the January 2016 NYMEX natural gas contract price from late 2011 until the present. Last April the January 2016 contract price was $4.30 per MMBtu. By October, the January 2016 contract price increased by 12 percent to $4.80 per MMBtu. Interestingly, the January 2016 contract price has actu-

By Casey Whelan

Natural gas prices

March 29 $4.80/MMBtu $4.60/MMBtu $4.30/MMBtu

Dec.

‘12

Mar

Apr

Jun

Aug

Sep

Nov

’13

Mar

Weekly

ally dropped since October by 4 percent from $4.80 per MMBtu to $4.60 per MMBtu. The January 2016 contract price from last April to March 29, only increased by 7 percent even though the prompt price increased by over 100 percent. The forward curve has certainly flattened.

Corn Report

Market factors continue to push, pull in corn market April 1—Values imploded at February month-end as corn stocks were much greater than expected. New crop corn acres were in line with what the trading community anticipated, however, values collapsed on the devaluation of old crop acres. The USDA placed corn March 1 stocks at 5.40 billion bushels, 380 million bushels above expectations. This suggests that December corn stocks were skewed as the new crop corn last year was harvested earlier and, possibly, demand may not be as high as anticipated. That very well could be as distillers grains continues to remain at historically high prices relative to corn, and other feedstuffs continue to trade at higher-than-normal values. So the high price of corn has been able to price itself out of the feed market and the world market. Theoretically, one could assume carry-out would increase by about 300 million bushels but the USDA may not make it that simple. Nonetheless, this could assume a 900-plus million bushel carryout if no increases are made in ethanol or the export demand.

New crop corn acres were estimated at 97.282 million acres, up 127 million acres from a year ago. Acreage in Iowa was estimated to be unchanged from last year while Illinois is expected to reduce corn

24 | Ethanol Producer Magazine | MAY 2013

BY JASON SAGEBIEL

plantings by 600,000 acres and Minnesota and North Dakota increase acreage by 250,000 and 500,000 respectively. The Delta states and Texas are expected to plant about 1 million more acres than a year ago at the expense of cotton, although this could alter slightly.

report

Regional Ethanol Prices Front Month Futures (AC) $2.451

($/gallon)

REGION

SPOT

RACK

West Coast

2.800

2.850

Midwest

2.605

2.650

East Coast

2.705

2.841 SOURCE: DTN

Regional Gasoline Prices

DDGS Report

DDGS prices drop following crop report

BY SEAN BRODERICK

April 1â&#x20AC;&#x201D;After the flurry of DDGS trading done at the end of February, March slowed down quite a bit. The available margins that caused all that trading went away pretty quickly, and with it, the DDGS that was being traded ahead.

There are more windows of opportunities still showing up in the October forward time slots, but those have been pretty brief.

Prices were steady for most of the month and dropped in late March with the crop report, which dropped the corn down the limit. Percentages of corn values were dropping into the low 90s before the report, after hovering around 100 for the latter half of February and the first half of March. Demand for containers remained strong in the Chicago market

but barge bids fell. Rising river levels have enabled normal barge movements to resume, which is a relief. But moving bulk DDGS to places like Asia is just not as competitive as moving it in containers. Domestically, demand has been pretty steady as well but feeding margins have been dissipating for the past couple months. In the southeastern and southwestern U.S., feed wheat is a lot cheaper and is eating into ration space.

Today the volatility that we expect for the summer began with the crop report, which showed corn stocks to be more than the market expected. Events like this will continue to provide those windows of opportunity to sell DDGS and create margins for plants. It will pay to be nimble.

($/gallon) Front Month Futures Price (RBOB) $3.1054

REGION

SPOT

RACK

West Coast

3.119

3.216

Midwest

3.119

3.229

East Coast

2.854

3.217 SOURCE: DTN

DDGS Prices ($/ton) MAY 2013

APR 2013

Minnesota

location

235

260

MAY 2012 203

Chicago

270

288

222

Buffalo, N.Y.

258

267

225

Central Calif.

305

315

258

Central Fla.

292

309

232 SOURCE: CHS Inc.

Corn Futures Prices Date

(May Futures, $/bushel)

High

Low

Close

APR 3, 2013

6.47

6.35 3/4

6.41 1/2

MAR 4, 2013

7.12 3/4

6.95 1/4

7.03 1/4

MAR 3, 2012

6.65 3/4

6.52

6.58 1/4 SOURCE: FCStone

Cash Sorghum Prices ($/bushel) LOCATION

Ethanol Report

Ethanol prices on a volatile pattern

BY RICK KMENT

April 1â&#x20AC;&#x201D;Sharp losses and gains have developed through the ethanol complex over the past couple of weeks. What started out as renewed support from falling ethanol inventory levels and expected strength in gasoline and ethanol demand through the summer quickly took a major hit at the end of March.

Through the first half of March, aggressive buyer support started to develop in the ethanol market. This surrounded the movement higher in gasoline price levels as expectations of strong spring and summer driving demand seemed to indicate renewed interest in all segments of the energy complex. Traders quickly jumped on the upward moving market, pushing ethanol prices 20 cents higher despite strong corn price levels. The strength in the ethanol market was also fueled by

falling ethanol stocks as the higher cost of production has limited production levels.

Stocks have moved back to levels not seen since December 2011.

But the latter half of March has been marred by uncertainty of gasoline demand as concerns of economic stability in Europe took over the headlines. The USDA quarterly stocks report was also released on the last trading day of March, indicating increased stock levels and quickly pushed corn futures down its daily limit. Ethanol futures quickly reverted from following the gasoline market, back to the normal coat tail relationship with corn. This shift accounted for a one-day, 13-cent-per-gallon loss in ethanol prices.

Following a month of instability, the ethanol market remains extremely unstable.

MAR 28, 2013

FEB 22, 2013

MAR 23, 2012

Superior, Neb.

6.71

6.68

6.14

Beatrice, Neb.

6.65

6.58

6.09

Sublette, Kan.

6.76

6.72

6.22

Salina, Kan.

6.75

6.65

5.91

Triangle, Texas

6.77

6.63

6.47

Gulf, Texas

7.30

7.13

6.84

SOURCE: Sorghum Synergies

Natural Gas Prices LOCATION

($/MMBtu)

MAR 29, 2013

MAR 1, 2013

MAR 1, 2012

NYMEX

4.02

3.43

2.45

NNG Ventura

4.10

3.59

2.39

CA Citygate

4.17

3.43

2.55

SOURCE: U.S. Energy Services Inc.

U.S. Ethanol Production

(1,000 barrels)

Per day

Month

End stocks

JAN 2012

804

24,935

20,558

DEC 2012

838

25,971

20,677

JAN 2011

804

28,467

20,826

SOURCE: U.S. Energy Information Administration

MAY 2013 | Ethanol Producer Magazine | 25

distilled Yield improvements 2008 Yield per dry ton of corn stover

58%

of maximum

2012 66 %

of maximum

2016

(projected)

2025

Maximum theoretical

96%

113 gallons

(projected, assuming same rate of growth)

75%

of maximum

of maximum

Survey: Cellulosic ethanol cost-competitive by 2016 Bloomberg New Energy Finance recently released results of an industry survey, finding that cellulosic ethanol is on course to be cost competitive with corn ethanol by 2016. The survey collected data and production costs from 11 leading companies in the cellulosic space.

The survey data demonstrates that the cost to produce cellulosic ethanol in 2012 was approximately 40 percent higher than the cost to produce corn ethanol.

Those responding to the survey, however, said they expect the price of cellu-

losic ethanol to match that of corn-based ethanol by 2016.

“The cellulosic ethanol industry has something of a history of overpromising cost reductions and underdelivering,” said Harry Boyle, lead biofuel analyst for BNEF. “However, it may be dangerous to assume that it will not become competitive this decade. If our survey proves accurate, cellulosic ethanol will make meaningful inroads into the vehicle fuel market during the last years of this decade.”

Ethanol News & Trends

ZeaChem produces commercial-grade cellulosic fuel ZeaChem Inc. has reached a new milestone in the process to commercialize its integrated biorefinery technology for the production of biofuels and biobased chemicals. The company’s Boardman, Ore.-based 250,000 gallon-per-year demonstration facility has officially produced commercialgrade cellulosic ethanol and chemicals.

“The start of cellulosic production is a significant milestone for ZeaChem as we demonstrate our highly efficient biorefining technology, develop the first commercial biorefinery project, and expand global development opportunities,” said Jim Imbler, president and chief executive officer of ZeaChem.

The plant employs a two-carbon atom technology platform for the production of cellulosic ethanol and biobased intermediate chemicals, such as acetic acid and ethyl acetate.

With process adjustments, the technology can also produce three-carbon atom products, such as propylene. The demonstration facility is proving the process for commercialscale production. ZeaChem is planning to build a 25 MMgy facility adjacent to the demonstration-scale plant.

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EU enacts tariff on US ethanol

Major European port handles less ethanol

The European Union is subjecting U.S. ethanol to an $83.03-per-metric-ton duty for the next five years. The tariff applies to U.S. ethanol only.

Imports from other countries are not subject to the tariff. The duty became effective Feb. 23, following publication in the Official Journal of the European Union.

The action began in October 2011 when the European Commission initiated anti-dumping and anti-subsidy investigations. While the anti-subsidy investigation concluded in December without the imposition of a tariff, the anti-dumping investigation has resulted in a different outcome.

The investigation determined that U.S. ethanol imports increased from 1.9 percent to 15.7 percent of the European market share during the period studied, and that that price of U.S. ethanol undercut EU-produced ethanol by an average of 5.6 percent.

Growth Energy and the Renewable Fuels Association have pledged to challenge the tariff.

The Port of Rotterdam in the Netherlands is Europe’s main port for the handling, storage and production of biofuels.

This spring the port reported that while the overall volume of biofuels it handled in 2012 increased substantially, that increase is attributed to biodiesel. The throughput of ethanol actually dropped when compared to 2011 statistics.

The portal’s throughput of all biofuels increased to 24 percent in 2012, reaching 5.9 million metric tons. The throughput of ethanol, however, decreased by 17 percent.

According to data released by the Port of Rotterdam, ethanol throughput peaked in 2008, but dropped to 1.4 million tons in 2012. The decrease was primarily attributed to the change in amount of ethanol discharged from the U.S., which dropped by more than one-third. Although imports from the U.S. were reduced, imports from France

increased by 100,000 metric tons. The U.K. was the primary destination for ethanol exported from France.

Ethanol throughput Year

Volume (in metric tons)

2002

200,000

2005

1.1 million

2006

1.1 million

2007

1.6 million

2008

2.4 million

2009

2.2 million

2010

2 million

2011

1.7 million

2012

1.4 million

Source: Port of Rotterdam Authority

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distilled

DDGS markets strong in Philippines, Korea Calif. energy beet project wins grant Data released by the U.S. Grains Council came from the U.S. â&#x20AC;&#x153;Even as global competi-

shows imports of U.S. distillers grains to the tion increases, U.S. DDGS exports to Korea Philippines grew nearly 13 percent from 2011 continue to remain strong, now at a 93 percent to 2012, and there is still potential for growth. market share,â&#x20AC;? according to Bong Ryol Min, On March 21, Adel Yusupov, USGC regional the USGC director in Korea, adding that the director for Southeast Asia reported that 2012 country has remained a loyal customer despite imports to the Philippines reached 164,526 higher-than-normal DDGS prices. metric tons, a 12.75 percent inDDGS Price Table: March 22, 2013 (USD per metric ton) crease when compared to 2011.

Most poultry layer farms April May June already using distillers grains in Delivery point (quality minumum 35% protein-fat combined) the Philippines are located in the 40-ft. containers to South Korea 384 381 381 South Luzon region, where some farm operations already have a 15 40-ft. containers to Taiwan 380 378 378 percent inclusion rate. The North 40-ft. containers to Philippines 398 396 396 Luzon region, however, remains a 40-ft. containers to Indonesia 395 394 394 relatively underdeveloped market.

A USGC consultant recently trav40-ft. containers to Malaysia 397 396 396 eled to the region to promote the 40-ft. containers to Vietnam 401 400 399 use of distillers grains and corn 40-ft. containers to Japan 397 395 394 gluten meal.

40-ft. containers to Thailand 396 395 395 Korea imported more than 505,000 metric tons of distill40-ft. containers to China 384 381 381 ers grains in 2012 on a customs Source: U.S. Grains Council cleared basis, 469,000 of which

The California Energy Commission has awarded $5 million to Mendota Bioenergy LLC to support an energy beet-to-ethanol project. The company intends to build a demonstration plant in the Mendota area of Fresno County.

The project will use advanced enzyme and microbial techniques to convert 10,000 tons of sugar beets into 285,000 gallons of advanced ethanol. The facility is designed to help prove the technology and test agronomic enhancements and plans for year-round harvest. If the demonstration proves successful, Mendota Bioenergy plans to develop a 40 MMgy full-scale plant. Approximately 15 percent of the facilityâ&#x20AC;&#x2122;s output would be cellulosic ethanol. â&#x20AC;&#x153;This is the first energy beet project to advance to the pilot and demonstration phase in the United States,â&#x20AC;? said Jim Tischer, project manager at Mendota Bioenergy. With a year-round harvest schedule, the beet crop delivers ethanol yields that are greater per acre and have a lower carbon index than Brazilian sugar cane or North American corn.

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distilled

Rebound expected for Brazilian sugarcane

Davy Process Management, SEKAB form partnership

NetherlandsPreliminary supply/demand based Rabobank has balance for ethanol in Brazil, 2013-'14 published an analySouth-central cane production 580 million metric tons sis predicting sugarcane production in South-central ethanol production 25.3 billion liters Brazil’s south center North-northeast cane production 60 million metric tons region will rebound North-northeast ethanol production 1.9 billion liters strongly during the 2013-’14 harvest Ethanol exports 3.5 billion liters leading to increases Ethanol imports 700 million liters in both sugar and Source: Rabobank estimates, 2013 ethanol production.

The south-cenOverall, the analysis predicts a ter region of Brazil total of 27.2 billion liters (7.19 bilis responsible for approximately 90 lion gallons) will be produced in the percent of Brazil’s total cane producsouth-center and north-northeast retion. Brazil, as a whole, accounts for gions of Brazil this year. In its report, nearly 45 percent of global sugar exRabobank said that it expects Brazil ports. For this reason, Rabobank said to export approximately 3.5 billion the decision made by Brazilian mills liters of ethanol in 2013-’14. to produce ethanol instead of sugar has a significant impact on world sugar prices.

Davy Process Technology Ltd., a Johnson Matthey company, and SEKAB have announced a collaboration to develop and market CelluTech, SEKAB’s lignocellulosic-based biorefinery technology.

The technology platform consists of several steps, including thermochemical pretreatment and enzymatic hydrolysis to initially produce sugars that are then fermented into ethanol and other products. The platform is flexible and can be adapted to a variety of raw materials, including wood, straw, corn residues and bagasse.

The technologies that make up the CelluTech process were developed by SEKAB E-Technology in collaboration with Swedish universities. SEKAB and Davy will combine their expertise to drive the technology forward to meet the growing demand for advanced biorefining technologies to produce lignocellulosic sugars, ethanol and biobased chemicals.

“SEKAB is pleased to have the opportunity to collaborate with an industry leader such as Davy, an organization with great expertise in the field in developing and commercializing technology,” said Thore Lindgren, executive vice president of SEKAB E-Technology. “We are convinced that the partnership will bring forward process technologies that will deliver premium products for the biofuels and chemical industries.”

MAY 2013 | Ethanol Producer Magazine | 29

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Q&A

A Man of Science Wears Many Hats Eric Sumner’s lifelong fascination with science spans from his youth to the cutting edge of ethanol plant bacterial control and the growing importance of coproducts for long-term industry viability.

Interview by Tim Portz

Helping ethanol producers control bacteria without the use of antibiotics is the daily goal of Eric Sumner, global market development manager at DuPont Industrial Biosciences. Sumner also serves as president of the Distillers Grains Technology Council, a voice for the continued advocacy and market development efforts for this vital feed coproduct.

How long have you had an interest in science?

I trace my interest in science back to growing up as a kid in rural Chatham, Pa. I practically lived outdoors and when I was unlucky enough to be closed up in the house I would crack open the set of World Book encyclopedias we had on the shelf. Over the years as a boy I read through every one of those, from A to Z. The knowledge I gained from those volumes taught me there was a much bigger world out there beyond our small town. Science and engineering were just one aspect of a world that was out there to be discovered.

How much time do the lab managers and plant operators you work with spend keeping bacterial outbreaks at bay?

Our customers devote a lot of time and effort toward getting the most out of their plants. Today’s ethanol producer faces many challenges in trying to maintain profitability. Controlling bacteria and their potential negative effects are just one aspect

32 | Ethanol Producer Magazine | MAY 2013

of that overall goal. Fortunately, due to our innovative chlorine dioxide-based technology, our customers don’t need to spend much time on controlling bacteria, freeing them up to address other needs they may have in their operation.

If one common-sized fermentation vessel becomes stuck because of bacterial outbreak, what is the lost revenue potential?

Individual, severe batch infections can be a real problem. If they are bad enough they can cost upwards of $50,000 or more in losses. In addition to lost ethanol production, other serious effects of an acute upset result in continued high bacteria levels, high lactic and acetic acid in backset, high sugars and related problems in downstream operations, as well as a huge distraction away from other plant improvement efforts. Ongoing variation in performance is a much bigger problem and one of its root causes is ongoing bacteria presence in feedstock or the plant itself. It’s not uncommon for a typically sized plant, with fermentors sized around 800,000 gallons to produce about 13.7 percent ethanol on average from a batch fermentation. That’s by weight. But if they are able to eliminate variation in performance caused by chronic background contamination, they could produce 13.9 percent or more on average per batch. For a typical 100 million gallon per year plant this equates to over 1.5 million gallons per year in additional production. That’s almost $4 million per year.

Can you walk me through the process of how considering a certain chemical approach to solving a problem goes from a concept to commercial deployment?

DuPont is a science company. We work collaboratively to find sustainable, innovative, market-driven solutions to solve some of the world’s biggest challenges, making lives better, safer, and healthier for people everywhere. We employ Six Sigma methodology to help us identify and develop solutions that will help the biofuels industry to be as productive as possible. DuPont FermaSure XL is a perfect example of this. We start with the customer.

Voice of the customer, or VOC as we call it, helps us understand our customer’s needs.

From there we bring our resources to bear on the challenges the industry faces. We have resources based at regional technology centers around the world who work to develop solutions to these challenges. Once we have a concept, we work with customers to test and fine-tune the offering until it meets their needs. Then it’s a matter of launching the product commercially in a way that makes the most sense. We have many such projects under way today and one soon to be launched.

What is driving the push for antibiotic-free solutions to bacterial outbreaks?

In my opinion, it is driven by an effort to minimize antibiotic use. We all recognize that antibiotic resistant bacterial strains are a

Q&A

threat to our health. Resistance is also a concern in ethanol production. We have numerous strains of antibioticresistant bacteria we have isolated in our laboratory. Most of these were brought to our attention by prospective customers who were not able to control them within their facility using virginiamycin or other antibiotics.

The industry’s history is likely the best predictor of our future. So with that in mind, I would suggest we still should have significant opportunities ahead of us to extract additional value from the feedstocks currently in use.

Where do you think the industry will continue to find revenue opportunities on the coproduct side of their business?

Can you talk about the role that the Distillers Grains Technology Council plays within the industry?

The contribution made to an ethanol plant’s bottom line by coproducts continues to grow.

Is the industry maximizing the full potential of the feedstock it receives?

PHOTO: BRIAN HALL, ONSITE PHOTOGRAPHY

Our mission at the DGTC is to support the distilling industry in the area of DGS (distillers grains with soluables). This is focused in three main areas. The DGTC works to serve the industry by providing educational and technical support to member producers and downstream users of DGS. We also work to advocate the use of DGS. We do that by being the principle voice on nutrition, safety and regulatory issues affecting DGS usage. Finally, the DGTC works to add value by encouraging, supporting research and promoting new and existing markets for distiller grains.

Certainly opportunities for value extraction will continue to be identified and integrated into today’s business model. A perfect example of this is today’s movement toward corn oil extraction—it’s becoming the norm versus the exception. This is just one example of how producers have developed more value from the basic feedstock. Before corn oil, DGS were an early value-added product for producers. In Brazil, we see producers separating yeast as a coproduct.

Such opportunities will continue to be identified and leveraged until we approach maximum value extraction.

What is the most exciting thing happening in the biofuels space right now, from a scientific perspective?

To me, the single most exciting development is the commercialization of cellulosic ethanol. In 2014 and 2015, we will see the first two to three commercial cellulosic ethanol facilities begin production. These plants represent the culmination of decades of work by scientists and engineers. It is a very exciting time for our industry.

MAY 2013 | Ethanol Producer Magazine | 33

COPRODUCTS

Shades of Success A sample of corn oil, left, is lined up with Renewable Energy Group Inc. biodiesel produced from corn oil. Variations in color are a result of different technologies.

34 | Ethanol Producer Magazine | MAY 2013

COPRODUCTS

Corn Oil Makes the Grade Revenue from corn oil has become an important part of the bottom line at the majority of U.S. ethanol plants.

By Holly Jessen

During the past two years, the U.S. ethanol industry has widely implemented corn oil extraction technology. At this point,

producers who haven’t installed the technology are in the minority.

Corn oil revenue has been key in times of tough margins and, in some cases, has meant the difference between continuing operations versus idling the plant. A March 11 report from the U.S. Energy Information Administration noted that although production costs are slightly higher for facilities with corn oil extraction, the extra revenue more than makes up for it. “Over the past few years, margins at plants with corn oil recovery have been 15 to 20 cents per gallon higher than at plants without it, meaning their margins have remained positive, while margins at plants without corn oil recovery were negative,” the report said. In addition, several of the plants that don’t produce corn oil, which the EIA referred to as less sophisticated or simple ethanol plants, have idled.

Data from the Christianson and Associates PLLP benchmarking program, which provides detailed statistics

PHOTO: BOB MODERSOHN

MAY 2013 | Ethanol Producer Magazine | 35

COPRODUCTS

Downward Trend As more ethanol producers install corn oil extraction technology, the average oil content in Nutriquestâ&#x20AC;&#x2122;s database of distillers grains samples has steadily decreased.

10% 2011

9%

8%

April 2012

March

SOURCE: ILLUMINATE

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COPRODUCTS

on around 60 participating ethanol plants, illustrates the increasing importance of coproduct revenue to ethanol plants. The company’s third annual benchmarking report, which was released September 2012, showed that while coproduct revenue had remained relatively constant at an average of 15 to 16 percent of total revenue since 2008, that number has risen in the past few years thanks at least in part to the increasing contribution of corn oil. In 2011, coproducts contributed an average of 18 percent of total revenue and by the end of the first half of 2012, the most recent numbers available, it had gone up to 23 percent.

ity multifeedstock capable, is expected to be completed by mid-2013. REG sees value in corn oil and anticipates it will remain a competitively priced feedstock into the future. “Our market is going to continue to grow,” he says. “The demand from the biodiesel industry is going to continue to send economic signals to the market for ethanol producers to have separation technology at all the plants and maximize the percent yield that they can pull out of the syrup.”

Drilling Down to the Details

Increasing amounts of corn oil are being used as a biodiesel feedstock, according to EIA numbers. In 2012, corn oil passed up tallow to become the No. 3 most common biodiesel feedstock, at a total of 571 million pounds of corn oil. Notably, beginning in August and continuing through the end of the year, the monthly totals for corn oil rose above the monthly totals for canola oil, the No. 2 feedstock.

Renewable Energy Group Inc., which operates seven U.S. biodiesel plants, has been using corn oil as a biodiesel feedstock since 2007. The company tracks the number of ethanol plants extracting inedible corn oil and estimates about 70 percent have now installed the technology, says Dave Elsenbast, vice president of supply chain for REG. As biodiesel production has grown, so has demand for all of the commonly available feedstocks, including corn oil. “[The biodiesel industry has] produced roughly a billion gallons in 2012 and we have the [required volume obligation] of 1.28 billion for 2013,” he says.

REG’s consumption of corn oil is up, Elsenbast says. The company is using a lot of corn oil at its 60 MMgy biodiesel plant in Seneca, Ill., a multifeedstock- capable facility with the capability to process high and low free fatty acid feedstocks. That includes corn oil, animal fats, waste restaurant grease and used cooking oil. A $20 million upgrade in progress at its 30 MMgy Albert Lea, Minn., plant, making the facil-

Nutriquest has seen a fourfold increase in distillers grains with 9 percent or less oil content in the last two years, says Rob Musser, director of technical sales and marketing. The Mason City, Iowa-based company tracks corn oil levels through Illuminate, a database of distillers grains nutrient loading, marketed to the poultry, swine and dairy industries. Based on numbers from their database, since 2011, the ethanol industry has extracted an estimated 873 million pounds

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of corn oil. Assuming a value of $900 a ton, that adds up to $392 million in revenue from corn oil—a significant number.

The company doesn’t specifically track how many ethanol plants extract corn oil but builds its estimates based on the corn oil content of the samples in its database.

Distillers grains with corn oil content of less than 10 percent are considered to be from a plant with corn oil extraction technology.

It’s important to keep in mind that corn oil content can vary, however, depending on weather conditions and region, Musser clarifies. An ethanol plant that doesn’t extract corn oil could produce distillers grains containing 9.8 or 9.7 percent corn oil.

With that cutoff point in mind, currently only 16 percent of the more than 130 ethanol plants tracked produced distillers grains containing more than 10 percent corn

oil, and therefore aren’t extracting corn oil.

That’s a big change from 2011, when 59 percent of the plants surveyed weren’t extracting any corn oil. The number of plants that extract the most corn oil has changed dramatically from 2011, when only 2 percent of ethanol plants produced distillers grains containing less than 7 percent corn oil, to today, with 28 percent of plants producing distillers grains containing less than 7 percent corn oil. Still, not all ethanol plants are going for maximum separation levels. “We still have a lot of plants that still have pretty high oil level even though they are extracting oil,” he says.

Ethanol Producers

Green Plains Renewable Energy Inc. has corn oil extraction installed at all nine of its ethanol plants, with the total capacity to produce 145 million pounds of inedible corn oil annually. Although corn oil currently brings in about the same price in the animal feed additive and biodiesel markets, Green Plains is selling the majority of its corn oil to the biodiesel industry, says Todd Becker, president and CEO. Other possible markets for inedible corn oil listed in Green Plains documents filed with the U.S. Securities and Exchange Commission include rubber substitute, rust preventative, inks, textiles, soaps and insecticides.

Unlike the average ethanol production company, Green Plains has diversified revenue streams beyond its ethanol business, which includes ethanol and distillers grains production, Becker says. Corn oil, just one of several sources of the company’s nonethanol operating income, is separated out into its own business segment. The company considers corn oil an important business but just one of the many factors that helps get the company through times of depressed margins. Over a 20-year period, corn oil’s impact on the bottom line will fluctuate depending on the overall price structure of the agricultural markets. Corn oil, which generally trades at a percentage of the price of soybean oil, generates more revenue for ethanol producers right now,

38 | Ethanol Producer Magazine | MAY 2013

COPRODUCTS

with soybean oil at multidecade highs. “You want to have it,” he says. “It absolutely adds a nice incremental income.”

Green Plains doesn’t aggressively go for maximum corn oil yield. The company carefully calculates how much corn oil to extract, depending on what markets its distillers grains are going into from the various plants. “We make sure that we don’t get any of our customers disappointed in the quality of our product,” he says. “We are very, very careful, where other companies will just extract all they can.”

Still, with process improvements, the company has improved its corn oil yield numbers. On average, Green Plains yielded 0.61 pounds of corn oil per bushel of corn in the fourth quarter of 2012. That’s up from 0.5 pounds per bushel in the same time period of 2011 and 0.4 pounds per bushel when the company first began extracting corn oil. Some individual Green Plains plants have higher corn oil yield depending on technology, region and distillers grains markets served, Becker says, adding that the highest yield is 0.9 pounds per bushel.

Like Green Plains, Illinois River Energy LLC in Rochelle, Ill., doesn’t go all out on corn oil extraction, a technology it has had online since Dec. 1. The company’s corn oil yield is about 0.48 pounds of oil per bushel of ground corn. Neal Jakel, general manager of IRE, said the company exports the majority of its distillers grains to the international market via containers and some of its key customers require a minimum of 8 percent fat content. “We are shooting to hit a residual oil target in our DDGS versus maximizing our net oil recovery,” he says, adding that plants that sell their distillers grains into local dairy or beef markets wouldn’t have the same need to produce a higher-oil distillers grains product. “The tradeoff for us is not worth it given the end markets we sell our DDGS into,” he adds.

Author: Holly Jessen Managing Editor, Ethanol Producer Magazine 701-738-4946 hjessen@bbiinternational.com

Source: ICM

MAY 2013 | Ethanol Producer Magazine | 39

EVENT

40 | Ethanol Producer Magazine | MAY 2013

EVENT

FEW: 'Where Producers Meet' More than 2,000 people will gather in St. Louis for the 29th Annual International Fuel Ethanol Workshop & Expo.

By Chris Hanson

St. Louis introduced the world to the first cast-iron dome, the first skyscraper and launched the historic Lewis and Clark expedition. With a rich history of innovation and discovery, it is little wonder that the 29th Annual International Fuel Ethanol Workshop & Expo will make its home in St. Louis.

More than 2,000 industry professionals are expected to attend the FEW, which will be headquartered at the America’s Center in downtown St. Louis June 10-13. Nearly one-fourth of the attendees will be ethanol producers, who, last year, represented 87 percent of U.S. production capacity. All seven Canadian provinces were represented along with 41 U.S. states and 33 countries.

“As the international ethanol industry’s leading production-oriented

event, the FEW truly lives up to its mantra, ‘Where Producers Meet,’” says Tom Bryan, president of BBI International and editor-in-chief of Ethanol Producer Magazine. “Plant employees, managers and board members attend the FEW because it’s built around their needs. The agenda is rich with content aimed at helping them run their facilities more efficiently and more profitably, and the expo is full of industry service providers and equipment manufacturers eager to talk to plant personnel about new technology and solutions.”

Learning Opportunities

During the general session, attendees will hear from pioneers in cellulosic ethanol development, learning whether this is the year that commercial-scale production finally arrives. Producers will catch up on

SOURCE: St. Louis Convention & Visitors Commission

MAY 2013 | Ethanol Producer Magazine | 41

EVENT

River Terminal State-of-the-art Bunge-SCF Grain Elevator on the Mississippi River in Fairmont City, Ill., will host a tour for FEW participants.

progress in construction and commissioning from cellulosic industry leaders in the U.S. and beyond.

After the general session, attendees

can fan out to the expo floor where exhibitors from across the industry represent every facet of ethanol production and services, including equipment manufacturers,

suppliers and technology service providers, and economic development; finance and lending professionals. Breakout panels will feature four tracks: production; leadership and financial management; coproducts, and cellulosic and advanced ethanol.

The most popular track in recent years, the cellulosic and advanced ethanol panel sessions, will include more project updates from the industryâ&#x20AC;&#x2122;s first commercial-scale facilities, as well as those looking at ways to scale up cellulosic output at existing starchbased facilities. Steve Rust, vice president of sales and marketing for California-based Edeniq Inc., says attendees will learn how current ethanol plants can migrate to second-generation technologies and provide cellulosic gallons in existing facilities to meet the renewable fuels standard. Others speaking on the â&#x20AC;&#x153;Parallel Productionâ&#x20AC;? panel will give updates on the approaches being developed by ICM Inc., Katzen International Inc. and the National Corn-to-

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EVENT

Ethanol Research Center. Other topics in the track include cost-effective saccharification pathways, leveraging new products and process pathways and algae integration.

Tailored to industry professionals focused on production efficiency and process optimization, the production and operations track attracts a full house each year at the FEW. In one of six panel presentations in that track, Robert Wilson, ICM Inc. product manager, will describe new software from ICM to replace paper records with a comprehensive database with the goal of improving plant performance. â&#x20AC;&#x153;We are in the information age, but getting that information into a format to make it useful has been a challenge,â&#x20AC;? he says. Others on the panel on capturing and utilizing realtime data will present the work being done

by Ashland Water Technologies, Rockwell Automation Inc. and Carbo Analytics LLC. Other topics within the production and operations track include fermentation optimization techniques, managing bacterial contamination, water-use strategies, yeast population efficiency and environmental and regulatory compliance.

Addressing leadership and financial management, Mark Warren, a partner from Colorado-based Ascendant Partners Inc. will participate in the panel titled â&#x20AC;&#x153;Plant Valuation in an Era of Tight Margins and Industry Consolidation.â&#x20AC;? Given the tight margin environment and all the activity taking place in terms of consolidation and policy, he says, â&#x20AC;&#x153;itâ&#x20AC;&#x2122;s paramount to understand what that means to the outlook of your business, specifically the financial implications. My session will be valuable because I will speak of ways to be more proactive in a challenging market environment so that your company is best prepared for longterm success, whether that means continuing to operate or defining an exit strategy.â&#x20AC;?

Other panels in the track will cover facility profitability, reducing risk, understanding available corn inventories, assessing plant performance, and workforce stability.

The fourth track is customized for attendees responsible for producing and marketing distillers grains as well as plant ex-

Industry Awards

Each year, BBI International and Ethanol Producer Magazine recognize two individuals for their contributions to the ethanol industry. This year's honorees will be announced in the general session at FEW. The Award of Excellence recognizes an individual who has made significant contributions to the fuel ethanol industry through research, technical advisory or development activities. Gerald Shurson, a distillers dried grains researcher from the University of Minnesota, was last yearâ&#x20AC;&#x2122;s recipient. The FEW High Octane award acknowledges outstanding efforts to both promote and advance the ethanol industry over the years. The 2012 winner was Larry Johnson, owner of Minnesota-based LLJ Consulting and Business Development. Nominations are being accepted through May 6.

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EVENT

ecutives exploring product diversification strategies such as fractionation and corn oil extraction. Rachel Overheul, engineering manager from Kansas-based WB Services LLC and a new speaker at the FEW, will be speaking on the “Revenue Remix” panel discussing how to make coproducts more valuable to ethanol producers. She will showcase a plant that uses corn oil to produce drop-in biodiesel with a process similar to a crude oil refinery. Other subjects in the track include methods to increase corn oil yield, diversification’s effect on financial viability, the potential for lowering a facility’s carbon score, how to enhance distillers grains, and new milling strategies.

Wilson, Warren and Rust, all past attendees of the FEW, say the event is a great opportunity for ethanol producers. “The FEW is the main event for the ethanol industry, as it showcases new ideas and products to keep plant users abreast of new developments to improve their business performance,” Wilson says. If a speaker has

a concept that addresses a need, the attendee and speaker can begin to work together on solutions, he adds. According to Rust, the event provides the chance for producers to see the innovative contributions that are making plants more cost-effective.

Tour Highlights

The FEW goes beyond the expo and workshops to include networking opportunities during golfing and a newly-expanded-to-two-day offering of industry tours.

The golf outing at the Gateway National Golf Links requires preregistration. On the first day of the conference attendees will have the chance to see the state-of-the-art Bunge-SCF Grain Elevator on the Mississippi River in Fairmont City, Ill. The terminal can handle approximately 300 truck deliveries per day and boasts 1 million bushels of grain storage capacity. That afternoon, the tour buses will cross the river to Monsanto’s campus at Chesterfield, Mo., where participants will learn about the breadth of

the company’s work from seed genetics to the entomology of a corn field.

Tour participants on the final day of the FEW will be joining in a celebration of 10 years of research at the National Cornto-Ethanol Research Center on the Southern Illinois University campus in Edwardsville, Ill. Over its decade in existence, nearly 50 different technologies now found in the ethanol industry have passed through the facility. NCERC is lining up a special program with speakers from the National Corn Growers Association, the American Coalition for Ethanol, Renewable Fuels Association and others. Additionally, the tour will feature the center’s analytical and fermentation labs, the pilot-scale ethanol plant on site and will include a look at two feedstock programs and a mini-exposition showcasing the latest equipment in corn production.

Author: Chris Hanson Staff Writer, BBI International chanson@bbiinternational.com 701-738-4970

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REGULATION

46 | Ethanol Producer Magazine | MAY 2013

REGULATION

Lack of transparency makes market analysis difficult.

By Susanne Retka Schill

The sleepy world of ethanol renewable identification numbers (RINs) was turned on its head this spring. Prices that had been 2 or 3

cents per RIN rocketed to more than $1 for a few days in March before it slowly settled into the 60-to-70-cent range as the month progressed. Between Jan. 2 and March 22, the average daily price for D6 RINs was 37 cents, according to Informa Economics Inc. Ethanol opponents ran with the story of high RIN prices to create yet another argument in a campaign to kill the renewable fuels standard (RFS). The ethanol industry rallied to defend the RFS and the RINs compliance system.

As the discussion picks up steam, Ethanol Producer Magazine is stepping back to take a look at how RINs work and examine some of the many questions raised in the controversy over the dramatic price increase.

RINs Primer

The system is built upon U.S. EPA regulations to administer the RFS. There are four main players who all register with the EPA: the ethanol producer, the blender, the broker and the obligated party. Speculators may also register to trade in RINs. The EPA provides an online reporting program––the Moderated Transaction System (EMTS)––that generates and tracks RINs as the transac-

PHOTO: GREEN PLAINS RENEWABLE ENERGY INC.

MAY 2013 | Ethanol Producer Magazine | 47

REGULATION

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tions occur. But beyond the EMTS, a system has evolved in the five years since the Energy Independence and Security Act was passed in 2007 and EPA published its rules in 2010.

The ethanol producer's role in RIN generation is basic: produce the physical gallons and fill in the required information to generate the RINs in the automated EMTS system. That information becomes part of the shipping documentation as the product moves into the marketplace.

In practice, many ethanol producers don’t actually handle RINs at all, but hand off the task to their ethanol marketers and the independent firms providing RINs tracking services.

RINs follow the physical gallons through the distribution system until the ethanol is blended into gasoline, at which point the RINs are separated and used by the blender, if it is an obligated party, to meet its renewable volume obligation (RVO). If that blender has excess RINs, they can be banked and, up to 20 percent carried into the next year. Or, excess RINs can be sold. Blenders are not necessarily obligated parties, however, and many separate RINs and offer to sell them privately or in one of the trading platforms offered by brokerage firms.

Obligated parties in this system are domestic refiners, importers and downstream parties who make finished gasoline or blendstocks. Still proposed as of late March, the EPA’s 2013 RVO for D6 RINs for conventional renewable fuels was 9.63 percent of the gasoline handled by obligated parties. Corn ethanol makes up the vast majority of this classification. Other fuels can generate D6 RINs, but are generally used to meet the mandates for renewable diesel or advanced biofuels.

Obligated parties that need to demonstrate compliance with their RVO can buy and blend physical gallons of ethanol or buy separated RINs. The RINs market is unregulated and private, although all parties involved in buying and transferring RINs are registered with the EPA. A number of brokers provide trading services and their associated market-analysis services report bids and offers on a daily basis.

Underlying the basic description, though, is a trading system lacking the transparency and rules that are in place for other commodities. In corn trading, for example, the Chicago Board of Trade handles the corn futures trading that is the benchmark for cash bids posted by thousands of corn buyers on boards and websites on a daily basis. There are CBOT limits to daily price moves and the volume traded each day is reported as are the ongoing and closing prices. Commercial traders using the market for hedging and speculators providing needed liquidity all have rules to follow. A large number of analysts follow trends in the volumes of data that is publicly available and the active participation, or lack of, from commercial and noncommercial traders is the fodder of daily market reports. The RINs market has mimiced that structure, but without many of the rules and little transparency.

That will soon change, however, as the CME Group announced in early April that it will offer three RINs contracts on the NYMEX starting in late May.

Market Dynamics

Blue Ocean Brokerage LLC is one of many offering RINs trading services, built upon its platform of physical ethanol and swaps trading services. “What’s been cre-

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Gasoline Consumption

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REGULATION

ated is a marketplace, a fragmented market,â&#x20AC;? says David Steiner, senior broker and analyst. â&#x20AC;&#x153;Our role is price discovery.â&#x20AC;?

When asked how many brokers operate in the space, he explains it is hard to tell. â&#x20AC;&#x153;There are a decent amount of brokers out there, but the ones doing a fair amount of business are just a handful, but it is hard to gauge.â&#x20AC;? In addition, information on the number of obligated parties is available through the EMTS, but is difficult to sort out.

On the market analysis side, Brian Milne is editor and manager of a team of specialists producing oil market news and analysis for Schneider Electric, owner of the DTN line of services. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s not like trades on an exchange where you can look at the end of the day and see the volume,â&#x20AC;? he says. â&#x20AC;&#x153;We do know there is volume. We see a million RINs on offer. Whether thatâ&#x20AC;&#x2122;s being bought, we canâ&#x20AC;&#x2122;t tell.â&#x20AC;? An expected shortage of RINs is driving the market, he explains. â&#x20AC;&#x153;We understand that a lot of obligated parties have already carried over 20 percent of their RINs from last year to help meet this yearâ&#x20AC;&#x2122;s obligations, but the renewable fuels obligation goes up again next year,â&#x20AC;? Milne says. â&#x20AC;&#x153;And weâ&#x20AC;&#x2122;re not expecting to see a ramp up in gasoline demand. The concern is not only about meeting this yearâ&#x20AC;&#x2122;s obligation, but 2014.â&#x20AC;?

Valero Energy Corp.â&#x20AC;&#x2122;s position in the system as both an ethanol producer and an obligated party as a refiner provides another example of the systemâ&#x20AC;&#x2122;s complexity.

In the world of ethanol, Valeroâ&#x20AC;&#x2122;s total eth-

anol capacity of 1.2 MMgy puts it in third place among U.S. ethanol producers. But Bill Day, executive director of media relations, points out its ethanol production is a fraction of the volume handled in its refineries. The total ethanol capacity matches just one medium-size refinery, and the company has 16 refineries, making it the largest independent refiner. â&#x20AC;&#x153;The ethanol Valero makes in its plants doesnâ&#x20AC;&#x2122;t necessarily get blended into the gasoline Valero makes at its refineries,â&#x20AC;? he explains. Like other ethanol producers, the RINs generated in Valero plants accompany the shipments into the market. Valero does little actual blending and thus buys the needed RINs to meets its RVO on refinery production of gasoline.

When asked whether many RINs were trading at these high prices, Day replies, â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s not a terribly tiny volume of trade, because we buy a lot of RINs.â&#x20AC;? While Day declined to comment on the numbers, an investor presentation on Valeroâ&#x20AC;&#x2122;s website shows a throughput capacity of 3 million barrels per day at its 16 refineries. With an RVO of 9.63 percent, that would require several hundred thousand RINs daily.

It is difficult to analyze the RINs market, Day concurs. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s hard to tell because the RINs market is so opaque, thereâ&#x20AC;&#x2122;s no transparency to it. Itâ&#x20AC;&#x2122;s not a regulated market like gasoline or crude oil or other commodities that trade on the New York exchange or CBOT. Itâ&#x20AC;&#x2122;s mostly private transactions.â&#x20AC;? While itâ&#x20AC;&#x2122;s difficult to know the volumes of trade, he adds, â&#x20AC;&#x153;It seems

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REGULATION

!4 9/52 3%26)#% Quality assurance for RINs

Ă&#x2013;~Ă&#x152;Ă&#x160;Ă? Â&#x2013;lĂ&#x192;Â&#x20AC;lÂ&#x203A;YĂĄĂ?/lĂ&#x2020;ÂŽÂ&#x;Â&#x203A;Ă&#x2020;l

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Amidst the controversy over RINs prices, ethanol producers are also contemplating proposed rules from the U.S. EPA to create a voluntary quality assurance program (QAP). Created as a response to RINs fraud in biodiesel, the new system would provide options to reduce the liability for obligated parties who are ultimately held responsible for demonstrating compliance with valid RINs, and replacing any RINs found to be invalid. In the biodiesel case, the U.S. EPA estimated three companies generated over 140 million biomass-based diesel RINs that did not represent qualifying biofuel.

The ethanol industry could rightly argue that this shouldnâ&#x20AC;&#x2122;t apply to it since there have been no fraud allegations, says Shashi Menon, managing partner in Iowa-based EcoEngineers, a RINs management service. â&#x20AC;&#x153;Also, ethanol plants are bigger and much more sophisticated.â&#x20AC;? But the run-up in RINs prices increases the risk for the obligated parties, he adds. â&#x20AC;&#x153;Maybe there wonâ&#x20AC;&#x2122;t be a demand for QAP for ethanolâ&#x20AC;&#x201D;unless your buyer tells you that you need it.â&#x20AC;?

The proposed voluntary QAP system has two tracks. Option A is more stringent, but relieves the obligated buyers of liability to replace invalid RINs. Menon describes the QAP system his company provides to several biodiesel producers and a few ethanol clients. â&#x20AC;&#x153;We take production data each night, in an automatic data dump. We generate the RINs for themâ&#x20AC;&#x201D;it automatically interacts with the EMTS.â&#x20AC;? The system includes ongoing monitoring of plant production data to verify the physical gallons produced match the RINs generated. While it may seem like overkill, he admits, the EPAâ&#x20AC;&#x2122;s proposed rules for QAP would require this sort of ongoing monitoring for Option A. Option B is less stringent and requires four site audits, explains Menon. â&#x20AC;&#x153;It requires a professional engineer to sign off on the mass balances for the quarter.â&#x20AC;? This would be in addition to the annual attestations now required where a certified public accountant audits a plantâ&#x20AC;&#x2122;s records to confirm product transfer documents and RINs generation are properly done.

Menon often hears from ethanol producers that their RINs are handled by their marketers, but he cautions that it is the producer who is held liable by the EPA. â&#x20AC;&#x153;Iâ&#x20AC;&#x2122;ve talked to many ethanol plants that donâ&#x20AC;&#x2122;t have a staff person assigned to do any interface with the EPA because their marketer does it all for them.â&#x20AC;? They are vulnerable, he suggests, because should their marketing arrangements change, they may not have ready access to their RIN accounts and risk falling into noncompliance. â&#x20AC;&#x153;Theyâ&#x20AC;&#x2122;re still 100 percent responsible,â&#x20AC;? he cautions.

Looking ahead, Menon expects that as corn ethanol producers begin to add cellulosic or advanced biofuel capabilities, RINs verification will become necessary. He also expects that California officials will soon follow EPA in asking for audits for the California low carbon fuel standard. â&#x20AC;&#x153;For those who say, â&#x20AC;&#x2DC;We donâ&#x20AC;&#x2122;t touch a RIN, we just give it away,â&#x20AC;&#x2122; that may be true for a while for many,â&#x20AC;? Menon says. â&#x20AC;&#x153;But if you want to be competitive in the marketplace, you have to understand RINs and you have to be able to take care of them.â&#x20AC;?

obvious that some are banking RINs because of the idea that the country is getting close to or at the blend wall.â&#x20AC;?

Ethanol Response

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As RINs prices rose rapidly, the American Petroleum Institute, the American Fuel & Petrochemical Manufacturers association and individual oil industry executives warned that gasoline prices would need to rise to cover the increased cost of RINS. Estimates of 10 cents per gallon were reported in the media, indicating some expected the entire cost to be passed through to the consumer. RINs became one more part of their argument to modify or end the RFS. The ethanol industry organizations, the Renewable Fuels Association, Growth Energy, the American Coalition for Etha-

nol and the recently formed coalition, Fuels America, as well as individual producers, kicked into high gear to explain the complex issues and provide documentation to support the ethanol industryâ&#x20AC;&#x2122;s point of view. In multiple news conferences, statements, blogs and reports, the industry laid out its basic position: â&#x20AC;˘ The oil industry, in dragging its feet on implementing higher blends such as E15 or E85, has brought the blend wall situation on itself. â&#x20AC;˘ It is entirely possible to blend more ethanol. There is no shortage of ethanol nor of ethanol capacity to produce more ethanol, and thus, more RINs. And, with ethanol trading 50 to 60 cents per gallon less than gasoline, more should be blended to save consumers money. â&#x20AC;˘ There are 2.5 billion unassigned

REGULATION

Independent Analyses

In late March, two separate analyses came out that conclude increases in RINs prices are having little impact on gas prices. University of Illinois economists Scott Irwin and Darrel Good conclude the impact on RINs on gasoline prices was but a few cents in the first quarter. “RINs prices started moving higher in January and peaked near 90 cents in early March and then declined modestly,” they write in a FarmDocDaily analysis. “The timing of the increase in CBOB (conventional blendstock for oxygenate blending) gasoline prices predates the increase in RINs prices by several weeks, which casts doubt on RINs prices as a significant driver of gasoline blendstock prices. In addition, CBOB prices were lower in late March than in October, further suggesting that factors other than RINs prices dominated CBOB prices.”

“It is difficult to make a precise estimate of the impact of high RINs prices on gasoline prices, in large part because of the diversity of obligated parties within the motor fuel supply chain,” they continue.

“Some of the obligated parties are fully integrated through the motor fuel supply chain (refining/blending/retailing). At the other extreme, some obligated parties participate only at one end of the supply chain. These would include firms who only import or refine and those who only blend.”

The two economists conclude the current controversy reveals a major weakness in the system. “Importantly, the E10 blend wall and current high prices of D6 RINs may be revealing a significant flaw in the way EPA designates obligated parties for

Weekly wholesale price of CBOB gasoline, ethanol and D6 RINs at Chicago Oct. 4, 2012, to March 21, 2013

0.90

3.00 2.80

0.80

0.70

Gasoline (left-scale)

0.60

2.60

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1.00

0.30

Ethanol (left-scale)

RINs Price ($/gal.)

3.20

Gasoline or Ethanol Price ($/gal.)

RINs going into 2013, more than enough to cover any deficits for the compliance reports due in February 2014.

• The oil industry originally helped design and openly supported the open market RINs mechanism for the flexibility that RINs credits would provide in showing compliance.

• High gasoline prices are being driven by the record profits of the oil companies, with profits of more than $1 per gallon.

0.20

RINs (right-scale)

0.10 0.00

Parallel Movement The weekly price chart from October through March shows that ethanol prices (with RINS attached) and RINs prices moved in a concurrent manner, say University of Illinois economists Scott Irwin and Darrel Good in their analysis. The beginning of the upward move in ethanol prices right after the first of the year parallels the start of the rise in RINs prices. The two series continued to move roughly in tandem during February and March, although the RINs price rise clearly accelerated relative to ethanol in the second half of February.

Source: Chart supplied by University of Illinois economist Scott Irwin, used with permission.

MAY 2013 | Ethanol Producer Magazine | 51

REGULATION

RFS2. In 2010, EPA considered, but rejected, the alternative of moving all RVOs downstream of refineries and importers to those who supply finished gasoline at the retail level. This change would have resulted in a more homogeneous group of obligated parties and better aligned an obligated party's RVO with access to RINs. Such a realignment may have precluded some of the current diverse impacts of high RINs

prices on obligated parties and minimized the cost of RFS2 compliance.â&#x20AC;?

Informa Economics was commissioned by the RFA to do a third-party assessment of the impact of RINs prices on gasoline prices, which it concludes was 2 cents at most and more likely a fraction of a cent. Gas prices went up following distinct seasonal patterns, not RINs prices. â&#x20AC;&#x153;The increase in gasoline prices and crack spreads

during the first quarter of 2013 has been generally consistent with increases experienced in 2011 and 2012, despite the fact that conventional ethanol RIN prices averaged 3 cents during the first quarter of 2011 and 2 cents during the first quarter of 2012,â&#x20AC;? the report says. Another factor is that in the first quarter of 2013, ethanol prices averaged 44 cents per gallon below wholesale gasoline, which translated into a net benefit to consumers of 2 to 4 cents, considering both the ethanol price advantage and the direct cost of RINs prices.

Informa Economics also took a look

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at factors affecting ethanol prices. As the weekly average price of D6 RINs in late March increased by 76 cents from the first of the year, the Chicago spot price of ethanol increased by a comparatively modest 19 cents per gallon. Corn prices, on the other hand, increased by 30 cents per bushel. Thus, the report says, â&#x20AC;&#x153;11 cents per gallon of the ethanol price move can be â&#x20AC;&#x2DC;explainedâ&#x20AC;&#x2122; by the increase in production costs.â&#x20AC;?

More analyses will no doubt be coming in the weeks and months ahead as the industry works to fully understand the complex RINs trading system and shed light on its opaque workings. More seriously, the RINs controversy is becoming one more test of the nation's commitment to renewable fuels. Ethanol industry veterans have described the current challenges to the RFS as the toughest yet.

There is no doubt that the ethanol industry is rising to meet the challenge.

52 | Ethanol Producer Magazine | MAY 2013

Author: Susanne Retka Schill Senior Editor, BBI International publications 701-738-4922 sretkaschill@bbiinternational.com

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ECONOMICS

PHOTO: BOB MODERSOHN

CONTRIBUTION

Corn Oil Adds Significant Profitability to Ethanol Average yields increase 50 percent, netbacks top $700 per ton.

By Paula Emberland

Tight margins for ethanol pro- for generating coproduct revenue ducers throughout last year led to supplement income derived most in the industry to carefully strictly from ethanol sales. Specifically, examine all possible opportunities decisions surrounding the extraction of corn oil The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Ethanol Producer Magazine or its advertisers.

All questions pertaining to this article should be directed to the author(s).

54 | Ethanol Producer Magazine | MAY 2013

have been high on everyoneâ&#x20AC;&#x2122;s agenda this year, according to analysts with the Biofuels Benchmarking Program at Minnesota accounting and consulting firm Christianson & Associates PLLP.

ECONOMICS

this category averaged nearly $800 per ton for the most recent calendar quarter.

Corn Oil Yield (pounds / bushel)

0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00

Regional Differences

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 Average

Leaders

Laggards

SOURCE: Christianson & Assoc.

More than 60 ethanol plants in the United States and Canada participated in the benchmarking program last year, and among these plants, more than 23 percent of total revenues are derived from coproducts like distillers grains and corn oil. Over half of the participating plants include corn oil extraction as an important component of their coproduct revenue stream.

Innovations in extraction technology have led to large increases in average corn oil yield over the past year. Corn oil yields have risen steadily as plants improve their technologies and processes

INT

UC ROD

ING

for extraction. Average yields have increased more than 50 percent since the beginning of 2011 and now average well over half a pound per bushel. The leading top 25 percent of plants can expect even higher yields, averaging upwards of 0.8 pounds per bushel in the most recent quarter for which data is available, Q4 of 2012.

Netback on corn oil has fluctuated, rising early in 2011, then falling slightly for several quarters before stabilizing. The most recent calendar year has seen corn oil netback averages remaining in the range of $700 to $750 per ton. Leaders in

The profitability of corn oil extraction does appear to be tied to the unique economic environment in which each plant exists. For instance, plants with a robust market for livestock feed may find it most profitable to focus on producing feed with the specific oil content most desirable (and therefore most highly compensated) in their particular market. Other plants may have strong relationships with biodiesel producers or other markets for their corn oil, and in these cases, obviously, plant management teams will want to focus their efforts on maximizing corn oil production.

How, then, does any individual plant decide how much to focus on corn oil production, given these differences in marketability? In addition to performing economic analysis using information specific to each plantâ&#x20AC;&#x2122;s own market, some general observations may be made by looking at coproduct profitability data from several different angles.

One of the most common ways to do this is by grouping plants into geographic regions (east of the Mississippi River for the Eastern region, west of Highway 83 from North Dakota to Texas for the Western region, and the Central region repre-

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ECONOMICS

Percentage of Coproduct Sales From Corn Oil 14% 12% 10% 8% 6% 4% 2% 0%

2011

2012

West

Central

East

SOURCE: Christianson & Assoc.

sented by everything in between).

Looking at coproduct revenue contributions with an eye to a plant’s geographic region shows a difference, on average, to the significance of corn oil, and this difference has remained present over time, including the most recent calendar year. Last year, corn oil sales net dollars averaged nearly twice as high in the East (per gallon of ethanol sold) as they did in the West. Western-region plants’ corn oil net sales dollars averaged just over

4 cents per gallon of ethanol sold, while Eastern plants averaged over 8 cents. When reviewing the relative contribution of corn oil to profitability, as a percentage of all coproduct sales, the difference by region remains pronounced, with the Eastern region averaging over 12 percent of coproduct sales from corn oil alone versus Western plants averaging just over 6 percent.

The cause of this disparity obviously varies from plant to plant, but in general, many plants

in the Western region are located closer to markets for their livestock feed coproducts, whereas Eastern plants may have closer relationships to biodiesel refiners or other purchasers for their corn oil.

Although a regional gap remains, it is closing with Western plants gaining traction in the corn oil market. Thus, assuming that the most profitable plants in all regions are looking to diversify their coproduct revenue streams as much as possible and maximize the value of both distillers grains and corn oil, the question arises: will a plant generate more total revenue by extracting corn oil? Or will the value of livestock feed go down too far to make corn oil extraction worthwhile? The latter question arises frequently and benchmarking data indicates the answer is no.

To explore this concern, it is useful to examine total coproduct sales in two groups: plants that produce corn oil and plants that do not. We see from this comparison that plants that produce and sell corn oil historically earn more from coproduct sales than those that do not, although the additional revenue has flattened slightly over the past several quarters. The average difference in coproduct revenue over the past four quarters, between plants that produce corn oil versus plants that do not, is about 3 cents per gallon of ethanol sold. For a plant producing 60 MMgy, this translates to about $1.8 million in additional

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ECONOMICS

revenue—a significant amount given today’s extremely tight margins.

Additional Coproduct Revenue

Cost vs Return

How about overall profitability? Increased corn oil yields (and hence higher profits from this source) do correlate to slightly increased costs, but the data indicates that the financial benefits of the higher yields outweigh the slight cost differences.

In order to examine this assertion more closely, the benchmarking analytical team reviewed data only from corn oil-producing plants, and then split those plants into several groups based on their corn oil yields each quarter. The intended purpose of such a grouping was to see whether the additional costs necessary to optimize corn oil yield were worthwhile investments.

In other words, if a plant can expect corn oil extraction to generate 3 or 4 cents of additional revenue for every gallon of ethanol sold, do their production costs increase so much as to wash away the profit in this revenue?

As mentioned, the top 25 percent of corn oil producers by yield average more than 0.8 pounds of corn oil extracted per bushel of feedstock ground. By contrast, laggards, the bottom 25 percent, in corn oil yield produce an average of only about 0.3 pounds per bushel. For such a large difference of more than half a pound of

(for corn oil-producing plants over noncorn oil producers) $0.08 $0.06 $0.04 $0.02 $0.00 -$0.02 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 2009 2010 2011 2012 SOURCE: Christianson & Assoc.

corn oil extracted per bushel, it’s reasonable to assume there may be a correlated increase in certain expenses, notably chemical and ingredient costs to effectively break down the corn components and extract the oil. Thus, when we review the data in this manner, it’s not surprising to see that, indeed, corn oil-yield leaders pay more on average for chemicals and ingredients.

The difference between leader averages and laggard averages in chemical and ingredient cost, however, is well under a penny per ethanol pro-

duction gallon—a difference that is more than made up for by that large increase in corn oil yield. Breaking down the data even further, a look at the cost category that specifically contains corn oil additive shows that even in this tiny cost category, the difference between a typical leader in corn oil yield and a laggard is negligible. The average plant spends about 0.75 cent per production gallon in this “other chemical” category, which includes only highly specialized-use chemicals like corn oil additive. By contrast, a corn oil yield

MAY 2013 | Ethanol Producer Magazine | 57

ECONOMICS

Chemical and Ingredient Cost (dollars per undenatured production gallon) $0.09 $0.08 $0.07 $0.06 $0.05 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2013 ALL U.S. AVERAGE (corn oil producers only) CORN OIL YIELD LEADERS ( top 25%; corn oil producers only) CORN OIL YIELD LAGGARDS (bottom 25%; corn oil producers only) SOURCE: Christianson & Assoc.

leader spends just a few tenths of a cent more.

As the field of ethanol production keeps pace with the ever-changing marketplace, considerations such as finding the appropriate coproduct mix to optimize and diversify revenue for each plant will become increasingly important.

Each plant obviously has its own unique considerations, but with several years of industry data available for analysis at this point, it seems clear that corn oil-extraction technologies have earned a closer look for any producer.

Author: Paula Emberland Benchmarking Business Analyst Christianson & Associates PLLP pemberland@christiansoncpa.com 320-441-5544

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*Hayes, Dermot J., Du, Xiaodong (May 2012) The Impact of Ethanol Production on U.S. and Regional Gasoline Markets: An Update to 2012. Center for Agricultural and Rural Development (CARD).

Talking point

CONTRIBUTION

PHOTO: FEC Solutions

Corn Oil Industry Needs to Evolve Ethanol producers need to improve the quality, rate of extraction.

By Joe Riley

As I sit here in a hotel room, I am reminded of a recent story about the evolution of the bedbug.

Disconcerting, right? Bedbugs apparently have evolved to include a thicker, waxlike exoskeleton that repels pesticides, a faster metabolism that creates more of their natural chemical defenses, and a dominant mutation to block pyrethroids.

I’m not entirely sure what a pyrethroid is, but I wish the little buggers couldn’t block them.

Throughout our lifetimes things evolve. The relationship I have with my wife has evolved after several years of marriage. My children, thank goodness, have evolved in their knowledge. And more relevant to you at this moment, the ethanol industry has evolved. Now, it is no secret that markets mature, but evolution requires adaptation to the environment.

The environment of ethanol production margins today mandates increased revenue from coproducts in order to stay afloat. Without dried distillers grains and corn oil extraction, most ethanol plants would be at the bottom of the lake

after this year. But a one-time change, such as the installation of a centrifuge, doesn’t constitute evolution. To truly evolve, one must adapt to the environment and produce something of value to current conditions.

Today, more than 300 MMgy of distillers corn oil is being extracted, but unfortunately, it is only adding value at around 38 cents per pound, well below where it could be with a bit of evolution. Demanding more than 50 cents per pound for corn oil is not that farfetched, and I predict we will see it, not only in our lifetime, but in our immediate future. Now that the value to ethanol plants of extracting corn oil from dried distillers grains has been thoroughly confirmed, it is time to turn our attention to increasing the value of this oil and removing barriers that hold down its price. What is holding us back from seeing those values are the constituents we have become accustomed to––the waxes, color, odor and the consistency of the oil.

FFAs, Waxes, Yield

Today only two major markets exist for dis-

The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Ethanol Producer Magazine or its advertisers.

All questions pertaining to this article should be directed to the author(s).

60 | Ethanol Producer Magazine | MAY 2013

tillers corn oil—feed and fuel production. Feed markets are always going to demand the lowestcost feed formulations. That inherently puts corn oil into a battle against other fat sources that today have a more stable market. And while biodiesel production is a good outlet for corn oil today, the current free fatty acid (FFA) levels limit further expansion into the biodiesel industry.

I envision a day in the near future where corn oil will evolve into markets such as oleo chemical, export and even food. If you think I am crazy, just think back to the evolution of the bedbug. Things evolve to stay alive, and today’s ethanol industry demands to place its coproducts into the most valuable markets.

So how do I propose we get corn oil into those opportunities? We need to fundamentally change to increase corn oil value. We need to dramatically lower free fatty acids from today’s standard of more than 15 percent to less than 1 percent. We need to lessen or remove the wax from corn oil. And, we need to produce significantly greater volumes.

First, the FFA and wax issue: We know that

TALKING POINT

FFAs are a limiting factor to biodiesel producers’ usage of corn oil, oftentimes limiting the total production capacity of a plant. A lower-FFA corn oil would increase demand for biodiesel.

Adding Value But even beyond fuel, Joe Riley, general a lower-FFA material manager at FEC with a profile more like Solutions, makes a that of edible corn oil case for improving extraction rates, would open the doors to free fatty acid and oleo chemical and even, wax profiles to open potentially, food-grade market opportunities opportunities.

These for the ethanol industry’s corn oil. markets could push distillers corn oil prices well above 50 cents per pound, returning significantly higher profits for ethanol producers. With this type of value created, increasing demand will push the need for increased distillers corn oil production.

Grown on one-third less water and producing an equal amount of ethanol per bushel as comparable feed grains, sorghum is paving the way to a brighter, more sustainable future.

Even in today’s environment, there is a strong need to increase the volume of corn oil.

The U.S. EPA projects 680 million gallons of corn oil will be needed to meet biodiesel volumes for the renewable fuels standard. It is estimated that 300 MMgy of distillers corn oil will be extracted from ethanol facilities this year, well below the demand for corn oil for biodiesel production.

The biodiesel industry shouldn’t need to look towards alternative fats and oils to fill the gap.

With close to 80 percent of ethanol plants now using some form of corn oil extraction, the need now turns toward extracting even more oil through mechanical, physical or chemical means.

Surfactants are already a popular choice.

The chemical, biological and mechanical technologies for additional extraction of corn oil have become very easy to monetize. But some of the best ways to increase corn oil volume in a plant is to focus on the plant operators. Just increasing operator training or additional automation can ensure consistent corn oil extraction and increase overall volumes being generated,

even doubling them. If an ethanol plant had just two additional days of corn oil production per quarter at 38 cents per pound, the plant would net about $100,000 more revenue annually. These numbers also illustrate how extremely important it is to keep extraction equipment in good working condition. How many days of downtime did you have last year?

It is in these areas—removal of FFAs, removal of wax and increased volumes—that I predict ethanol producers will find their evolution. As general manager of FEC Solutions, I am excited to be bringing a technology called Corn Oil ONE into the marketplace that can achieve these objectives. I am excited about the future of coproducts value from ethanol production, and I hope you share in that excitement. More importantly, I am excited to hit my bed tonight in my hotel room. But first, I am going to check the mattress for bedbugs.

Author: Joe Riley General Manager, FEC Solutions 515-868-0030 jpriley@fecsolutions.com

FUELING THE

FUTURE sorghumcheckoff.com

BYPRODUCTS

CONTRIBUTION

Tap, Enhance, Process Stream to Create Value-added Products Stillage, CO2 become valuable inputs in synergistic design

By Dil Vashi

Many ethanol producers look ture CO2. Opportunities exist to expand that for additional revenue streams be- even further, integrating available synergies from yond the core ethanol and distillers the underutilized carbon dioxide resource as well grains to extract corn oil and cap- as other waste streams.

The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Ethanol Producer Magazine or its advertisers.

All questions pertaining to this article should be directed to the author(s).

62 | Ethanol Producer Magazine | MAY 2013

The potential for CO2 to serve as an additional revenue stream is well-known. Unlike CO2 from coal-fired power plants, carbon dioxide produced in the ethanol process is regarded as pure,

BYPRODUCTS

with a CO2 concentration of up to 99 percent. After some minor processing to remove the small amounts of impurities, the pure CO2 stream can be sold to the merchant markets for use in beverage production and certain medical uses, as well as dry ice. Ethanol-based CO2 now makes up nearly one-third of the North American supply of CO2.

A typical ethanol plant producing 50 MMgy will also produce roughly 150,000 metric tons of CO2 per year. As large as this number is, the price of raw gas sold does not add enough revenue to offset the losses ethanol plants are suffering in todayâ&#x20AC;&#x2122;s tight margin environment. Ethanol producers typically sell the raw CO2 to refining companies that then sell the refined CO2 to the merchant markets. In addition to the beverage, medical and dry ice markets, CO2 is also used in heavy industrial processes such as enhanced oil recovery and fracturing, which are both techniques for the recovery of oil from older oil wells.

The value of the refined CO2 from the merchant and industrial markets does not accrue to the ethanol producer but, rather, to the refined CO2 supplier. Ethanol producers cannot justify the large capital expense required to refine and market the refined CO2, and are thus not deriving the full value of their production.

Colocated Algae An integrated biorefinery would use CO2 from an ethanol plant to produce high-value algae coproducts.

SOURCE: Solutions4 CO2 Inc.

â&#x20AC;&#x2DC;The model of integrating various technologies that have a common denominator, such as CO2, can transform struggling industries into sustainable industries by looking at the total product of a process and utilizing each product for its most value-added use.â&#x20AC;&#x2122;

â&#x20AC;&#x201D;Dil Vashi

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Tapping Process Streams

The CO2, as well as the stillage, can also be utilized in the production of high-value coproducts for needed revenue generation. Stillage has little economic value and is thus recycled to the maximum extent possible or simply disposed of.

An entirely new use for such process streams can deliver returns to producers and, we would argue,

is required to offset losses in todayâ&#x20AC;&#x2122;s tight margin environment for ethanol producers. Our company, Solutions4CO2 Inc., is proposing a solution to utilize both stillage and undervalued CO2 in its trademarked Integrated Biogas Refinery to produce new coproducts, algae biomass and oil, for sale in high-value nutraceutical and pharmaceutical markets.

Partner with the leaders in corn oil extraction. . ,,# *$#,.#,!")%( ,*%.'-.(+&*,$%,.&-*+.-(). (,)# . )) (+ -+,.)( "(#.+"'*(,+'.%-)" -+%.'-.*,#"&,.& ,!(&$) $+#)(+ .$+#.(+ ,+'-* . --' *(+' . -$!.&-+'*-). *-#"&'%.'-.(+&*,$%,. ,*!,+'$ -+.&$ $&(' . (%") ',%. -*.%&*" ,*%.'-.&-+'*-). %

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The IBR takes organic waste such as stillage and produces biogas through anaerobic digestion (AD). North America, with about 200 installed AD facilities, lags behinds Europe where 8,000 AD units have been installed over the past 10 years. With tough regulations regarding waste-handling stimulating AD development and long-term subsidized power purchase agreements incenting renewable power, that number is expected to grow to more than 25,000 by 2020. Lacking those incentives, the North American utilization of AD requires improving the payback periods and addressing air and water permitting issues. Meeting tight air quality regulations surrounding hydrogen sulfide (H2S) emissions is a particular challenge.

The presence of corrosive H2S in the AD biogas also adds to the maintenance cost of the gensets used to process the biogas stream into power.

Solutions4CO2 has developed a trademarked Biogas Purifier and Infusion System to address those issues. AD biogas, containing roughly 60 percent methane, 39 percent CO2 and small amounts of hydrogen sulfide (H2S), is processed in the BPIS using a patented microporous, hollow-fiber technology to separate the CO2 and H2S and infuse them into water.

The BPIS removes more than 85 percent of the CO2 and 95 percent of H2S from the biogas stream and delivers a 90 percent purified methane stream to a genset for more efficient power production. The BPIS can also capture and in-

â&#x20AC;&#x2DC;An entirely new use for the CO2 can deliver returns to producers and, we would argue, is required to offset losses in todayâ&#x20AC;&#x2122;s tight margin environment for ethanol producers.â&#x20AC;&#x2122;

â&#x20AC;&#x201D;Dil Vashi

64 | Ethanol Producer Magazine | MAY 2013

BYPRODUCTS

fuse the CO2 directly from the ethanol process stream if an AD is not desired.

The CO2/H2S, or CO2-only infused water is then used to cultivate microalgae in an algae cultivation system—the source of extractable high-value oils containing nutraceutical and pharmaceutical coproducts such as omega-3 and astaxanthin.

The IBR is a closed loop system that utilizes all of the outputs of the AD system as inputs to the coproduct platform. Power, CO2, H2S, clean methane, water and digestate from the AD are utilized as inputs to the coproduct platform.

the total product of a process and utilizing each product for its most value-added use. The key is enabling the producers of these byproducts to earn their full value instead of simply selling them as commodities.

In addition to the ethanol industry, a number of other sectors are suited to IBR deployment utilizing AD biogas from dairy waste or commer-

cial/municipal organic waste. Solutions4CO2 currently has its commercial demonstration facility in New Brunswick, Canada, which is producing microalgae using infused CO2 from AD biogas on a dairy farm.

Author: Dil Vashi Manager, Corporate Development, S4CO2 416-859-0909 dil.vashi@s4co2.com

Accruing Additional Value

Ethanol plants require large capital outlays up to $200 million for 100 MMgy of capacity.

The current losses can be more than offset with a relatively low, additional capital outlay for an IBR. For a marginal investment, the ethanol plant can install the IBR and process the stillage and CO2 byproducts on site and earn the value added from the utilization of the waste streams in the production of high value added coproducts. Instead of merely selling the CO2 to the markets described above, the utilization of the waste streams on-site and ownership of the IBR allows the plant to accrue the value creation and strengthen its overall financial profile.

The operation has now been transformed from an ethanol plant producing ethanol with a CO2 byproduct to an Integrated Biogas Refinery producing high-value algae-based products utilizing CO2 and power from the stillage from corn, with the ethanol being the byproduct.

This Integrated Biogas Refinery model allows for ethanol production to continue sustainably and profitably, while also reducing CO2 emissions and making valuable use of all the products in the value chain including the production of high-value nutraceutical and pharmaceutical coproducts. The low capital and operating expenditure of the IBR and high-margin value of the coproducts results in payback periods under three years.

Solutions such as the IBR are an example of how the model of integrating various technologies that have a common denominator, such as CO2, can transform struggling industries into sustainable industries by looking at

FRACTIONATION

•

EXTRACTION

•

OIL PROCESSING

•

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CROWN IRON WORKS COMPANY Call 1.651.639.8900 or visit www.crowniron.com MAY 2013 | Ethanol Producer Magazine | 65

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