September 2014 Ethanol Producer Magazine

INSIDE: PUSH FOR CHANGE IN FUEL TESTING BLENDING SEPTEMBER 2014

New Corn Construction Midwest AgEnergy Forges Unique Plant

Page 38

Plus

Trading Systems Offer Shareholders Benefits, Liquidity

Page 28

Core Lenders Steadfast During Market Twists

Page 32

www.EthanolProducer.com

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CONTENTS SEPTEMBER 2014

VOLUME 20 ISSUE 9

DEPARTMENTS 6

EDITOR'S NOTE

Oh, They’re Good for It

By Tom Bryan

7

AD INDEX

10

THE WAY I SEE IT

Getting Back to Basics

By Mike Bryan

11

EVENTS CALENDAR

12

VIEW FROM THE HILL

14

DRIVE

FEATURES

28 SHAREHOLDERS Looking for Liquidity

Alternative trading systems provide shareholders an exit strategy

By Holly Jessen

RFA Internship Stokes Student’s Enthusiasm

By Evan Ludowese

Engage Politicians Before Midterm Elections

By Tom Buis

16

GRASSROOTS VOICE

18

EUROPE CALLING

20

BUSINESS BRIEFS

22

COMMODITIES

24

DISTILLED

54

MARKETPLACE

Spirit of Innovation Alive and Well

By Brian Jennings

Recapping European Policy Decision Making

By Robert Vierhout

ON THE COVER

32 LENDING

Banking on Biofuels A core group of lenders has stayed active through the industry’s ups and downs

By Katie Fletcher

38 PROJECT

Dakota Spirit Rising

A corn-ethanol plant now under construction has 150 foreign investors from 10 countries

By Susanne Retka Schill

PHOTO COURTESY: KARGES-FAULCONBRIDGE INC. Ethanol Producer Magazine: (USPS No. 023-974) September 2014, Vol. 20, Issue 9. 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 | SEPTEMBER 2014

SAVE THE DATE!

20TH ANNIVERSARY

FEB. 18-20, 2015

GAYLORD TEXAN RESORT & CONVENTION CENTER GRAPEVINE, TX

EDITOR'S NOTE

Oh, They’re Good for It In June, I moderated a panel on ethanol plant capital planning and shareholder liquidity at the International Fuel Ethanol Workshop & Expo. The speakers explained the actions ethanol plant boards can

Tom Bryan

President & Editor in Chief tbryan@bbiinternational.com

take to maximize plant value, boost shareholder confidence and achieve uninterrupted liquidity. Ethanol Producer Magazine Managing Editor Holly Jessen was in the room and listening intently. Her notes became the basis for this month’s page-24 feature, “Looking for Liquidity,” one of three pieces on finance in this issue.

Jessen reports that the everyday Americans who own ethanol plant shares have the same hopes as other investors: They put money into a business with an expectation of a return. Regardless of margins, there are always some shareholders who want, or need, to cash out. The ability to grant those exit requests—to pay out when asked—is liquidity.

Fortunately, there are companies like FNC AgStock LLC and AgStockTrade.com that make liquidity easier through online listings of ethanol plant shares that are for sale. If you’re on the board of an LLC or any other nonstock-exchange listed ethanol plant, give this story a look.

It’s been a while since we’ve looked at banking. Truth is, there hasn’t been a lot of lending activity in our space since the downturn. Sometimes, however, a nonstory ends up being a good read. That’s the case with our page-32 feature, “Banking on Biofuels,” a longawaited catch up with the Farm Credit System lenders who helped facilitate our industry’s first build out. EPM Staff Writer Katie Fletcher jumps into the story with a simple question: With ethanol plants experiencing super-strong margins, are lenders lending?

The answer is curious (hint: they never really stopped). Lenders are, in fact, engaged with the ethanol industry and actively looking at the capital projects that producers with strong balance sheets are bringing them. However, just because lenders are reengaged with ethanol doesn’t mean they’re willing to finance cellulosic projects. “We like to be on the leading edge, but not the bleeding edge,” one banker tells us, underpinning the need to get one big next-gen plant up and running.

The last feature in this month’s lineup is our cover story. It’s an insightful piece accompanied by great photos. EPM Senior Editor Susanne Retka Schill shares the inside story on North Dakota’s 65 MMgy Dakota Spirit AgEnergy LLC project in the town of Spiritwood. The story is interesting for three reasons. First, it’s the only U.S. ethanol plant to be built in nearly seven years. We explain why. Second, it is the first plant in the nation fully integrated with a coal-fired combined heat and power facility. And third, its construction was financed largely by foreign investors, which is remarkable.

Two big takeaways this month: The U.S. ethanol industry is finding ways to get projects done, through both traditional and alternative investment routes. And, because producers are in great financial shape, the lenders who enabled them to break ground seven to 10 years ago are circling back to support the capital expenditures of ethanol’s new era.

FOR INDUSTRY NEWS: WWW.ETHANOLPRODUCER.COM OR FOLLOW US: 6 | Ethanol Producer Magazine | SEPTEMBER 2014

TWITTER.COM/ETHANOLMAGAZINE

VOLUME 20 ISSUE 8

ADVERTISER INDEX

EDITORIAL President & Editor in Chief Tom Bryan tbryan@bbiinternational.com Vice President of Content & Executive Editor Tim Portz tportz@bbiinternational.com

2014 National Advanced Biofuels Conference

Managing Editor Holly Jessen hjessen@bbiinternational.com

5

2015 National Ethanol Conference

20

AgStockTrade.com

Senior Editior Susanne Retka Schill sretkaschill@bbiinternational.com

8-9

BetaTec Hop Products

News Editor Erin Voegele evoegele@bbiinternational.com Staff Writer Katie Fletcher kfletcher@bbiinternational.com Copy Editor Jan Tellmann jtellmann@bbiinternational.com

ART Art Director Jaci Satterlund jsatterlund@bbiinternational.com

Buckman

36

Clariant Produkte (Deutschland) GmbH

27

DuPont Industrial Biosciences

48

Fagen Inc.

13

Fluid Quip Process Technologies, LLC

43

Gamajet Cleaning Systems, Inc.

25 2

Growth Energy

Graphic Designer Raquel Boushee rboushee@bbiinternational.com

15

11

ICM, Inc.

47

PUBLISHING

Lallemand Biofuels & Distilled Spirits

Chairman Mike Bryan mbryan@bbiinternational.com

Leaf Technologies

17

Nalco, an Ecolab Company

42

CEO Joe Bryan jbryan@bbiinternational.com

POET-DSM Advanced Biofuels

SALES

Renewable Fuels Association

Vice President of Operations Matthew Spoor mspoor@bbiinternational.com Business Development Director Howard Brockhouse hbrockhouse@bbiinternational.com Senior Account Manager Chip Shereck cshereck@bbiinternational.com

19

37

Tower Performance, Inc.

24

Trinity Rail

3

Vogelbusch USA, Inc

21

26

Wabash Power Equipment

Marketing Director John Nelson jnelson@bbiinternational.com Circulation Manager Jessica Beaudry jbeaudry@bbiinternational.com Traffic & Marketing Coordinator Marla DeFoe mdefoe@bbiinternational.com

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

COPYRIGHT Š 2014 by BBI International TM

SEPTEMBER 2014 | Ethanol Producer Magazine | 7

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5185 MacArthur Blvd., Suite 300 | Washington, DC 20016-33441 T: 202-777-4827 F: 202-777-4895 | www.betatechopproducts.com

THE WAY I SEE IT

Getting Back to Basics

By Mike Bryan

There is a side to ethanol that transcends politics. A side that seldom enters the discussion anymore

but was one of the primary cornerstones of ethanol’s development. The real good news story is the economic impact that ethanol production provides to small towns all across the breadbasket of America.

A 50 MMgy ethanol plant will generate in ethanol and DDGS sales alone nearly $200 million per year in revenue. A vast majority of that revenue is spent within a 50-mile radius of the plant. Wages, energy, feedstock, local goods and services, taxes and a host of other services are just the tip of the iceberg when it comes to the local and regional distribution of revenue from an ethanol plant.

I know many will say, we already know that, and I’m sure you do, but I think it’s important that from time to time we remind ourselves that ethanol isn’t just about the renewable fuels service, rail cars, China exports, Brazil imports and food vs. fuel, but it’s also about small towns and farms that dot every country road in America.

A 50 MMgy ethanol plant will consume more than 18 million bushels of corn and often pay a premium over market price up to 5 cents per bushel. That creates an additional $900,000 in farm income. That additional farm income is spent on tractors, combines, trucks, equipment and it’s mostly spent in a relatively small radius of the farm.

Small towns that were limping along trying to keep mainstreet open have been revitalized. Millions of dollars pumped into the economy not just during the construction phase, but ongoing year after year, decade after decade. When we talk about trickle-down, there probably are few better examples than the money generated from an ethanol plant moving through the community. Ask any mayor of a small town with an ethanol plant and they will vigorously relate the impact the plant has had on the community and the region.

When we talk about ethanol, we should always try to weave into the conversation the economic impact it creates.

Of course the technical, political and environmental aspects of the industry will require our attention, but there’s also a good news story that often goes untold. It’s a vitally important part of our story and, frankly, it’s a factor that has probably sustained this industry when Congress may have otherwise been inclined to turn its back on ethanol.

So while I understand that I may be preaching to the choir, I would challenge everyone involved in this industry to take the time to fully understand the rural economic impacts of ethanol. We should all have that information at the ready and to be able to share when the opportunity presents itself.

Perhaps it’s time we start getting back to the basics of why we are here in the first place.

That’s the way I see it.

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

10 | Ethanol Producer Magazine | SEPTEMBER 2014

EVENTS CALENDAR National Advanced Biofuels Conference & Expo October 13-14, 2014 Hyatt Minneapolis Minneapolis, Minnesota Produced by BBI International, this 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. With a vertically integrated program and audience, this event is tailored for industry professionals engaged in producing, developing and deploying advanced biofuels, biobased platform chemicals, polymers and other renewable molecules that have the potential to meet or exceed the performance of petroleum-derived products.

866-746-8385 | www.advancedbiofuelsconference.com

National Ethanol Conference February 18-20, 2015 Gaylord Texan Resort & Convention Center Grapevine, Texas The NEC provides attendees with timely information on critical regulatory, marketing and policy issues facing the ethanol industry. Experts will speak to the current market situation, and address how the industry can continue to grow through innovation, new technologies and feedstocks, and by developing more diverse and global markets.

202-289-3835 | www.nationalethanolconference.com

International Biomass Conference & Expo April 20-22, 2015 Minneapolis Convention Center, Minneapolis, Minnesota Organized by BBI International and produced by Biomass Magazine, this event brings current and future producers of bioenergy and biobased products together with waste generators, energy crop growers, municipal leaders, utility executives, technology providers, equipment manufacturers, project developers, investors and policy makers. It’s a true one-stop shop—the world’s premier educational and networking junction for all biomass industries.

866-746-8385 | www.biomassconference.com

International Fuel Ethanol Workshop & Expo June 1-4, 2015 Minneapolis Convention Center, Minneapolis, Minnesota 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

VIEW FROM THE HILL

RFA Internship Stokes Student’s Enthusiasm

By Evan Ludowese

After spending a busy summer at the Renewable Fuels Association, Bob Dinneen asked me to share and reflect on my experience in RFA’s St. Louis office. I was

very excited when I was given the chance to serve as an intern for RFA. Ethanol isn’t new to me, but spending time at RFA really opened my eyes to all the work that goes on behind the scenes on a daily basis to support such a diverse and dynamic industry. My family operates a farm in southern Minnesota and has been directly involved in the ethanol industry for over 20 years. I have been lucky enough to see firsthand the growth in the ethanol industry and how it has benefited the farmers and the local economy in our area. I spent six years seasonally working for Heartland Corn Products in Winthrop, Minn., doing various jobs. During my time at Heartland I was able to see capacity expansions and adoption of new technology.

Heartland started as a 10 MMgy facility in the mid-1990s and now produces more than 100 MMgy. This summer, I saw a different side of the industry.

I assisted RFA’s technical team on a number of projects, including analyzing data that served as the foundation for a report released in July. The report looked at how Big Oil restricts the sale of E85, E15 and other ethanol blends. I was excited to see that study referenced by a senator from my home state, Sen. Amy Klobuchar, as she requested a deeper investigation into the practices of oil companies. Coming from a farm background, I enjoyed analyzing weekly USDA reports for RFA and monitoring the progression of the corn crop this summer. I also helped develop educational materials on ethanol and small engines and worked with the communications staff

12 | Ethanol Producer Magazine | SEPTEMBER 2014

on social media strategies. Getting the younger generations involved and educated about the role of renewable fuels is very important to the future success of our industry. I have had so many encounters with people my age who just don’t know what ethanol is or what it does. That’s why the outreach that RFA and others in the industry do through social media is so important.

I also had several opportunities to get out of the office this summer. I attended the International Fuel Ethanol Workshop & Expo in Indianapolis, an RFA board of directors meeting in Washington, D.C., and assisted with the RFA “Free Fuel Happy Hour” ethanol promotions at the Sturgis, South Dakota, motorcycle rally. Meeting general managers and board members from plants around the country at the RFA board meeting was a great experience and reminded me how passionate the people are who work in this industry. Sitting in on the board meeting really put in perspective all of the good that this organization does for its members and the industry as a whole.

I knew at a young age that agriculture was the direction that I wanted to go with my life. Ethanol has helped ensure that I can return to the farm after college and pursue my dream. I have seen firsthand the positive impacts of ethanol on the agriculture industry in my area and the ethanol industry has been a big part of my life growing up. Each and every day of my internship at RFA has been a learning experience and has only motivated me more to continue on the career path that I have chosen to follow.

Author: Evan Ludowese Renewable Fuels Association’s Summer Intern Renewable Fuels Association 202-289-3835

DRIVE

Engage Politicians Before Midterm Elections

By Tom Buis

In November, all 435 members of Congress and 36 senators are up for re-election. You have

undoubtedly seen the ads and received the mailings, postcards and phone calls. As overwhelming and often intrusive as all of these political campaigns can be, they also remind us of what politicians care about most this time of year. You, the voter. This presents us with a unique opportunity to join together to shape candidates’ legislative priorities and build a coalition of ethanol champions in Congress.

As congressional candidates tour their districts asking for your vote, make sure you engage them and ask for their support on the issues you care about. Ask them where they stand on the renewable fuel standard. Ask them how they plan to support homegrown renewable fuels that create jobs, reduce our dangerous dependence on foreign oil and improve our environment. Ask them to advocate for consumer choice and savings at the pump. And, most importantly, let them know that if they will not commit to supporting our industry, you will not support them in their election or re-election efforts.

For lack of a better term, these candidates are “on the ropes,” looking to secure votes and to let their constituents know that they can and will continue to deliver for their home districts. But in order for them to deliver on renewable fuels, you must make your voice heard. Even if you don’t consider yourself to be a particularly “political” person, remember that this fight is personal. Stand up, express your concerns and request support for the policies that impact your job, your livelihood and the economic and energy security of this nation. Your voice, your story and your support can go further than you might imagine. Consider doing the following: 1. Attend a town hall meeting and ask a question.

2. Write a letter to the editor of your local newspaper.

3. Send an email to a Congressional candidate.

4. Spread the message on social media.

5. Make a phone call.

6. Set up a meeting and share your concerns in person.

7. Gather your fellow coworkers and colleagues in the ethanol

14 | Ethanol Producer Magazine | SEPTEMBER 2014

industry and request a group meeting with all of the candidates from your district to discuss renewable fuels and where they stand on the issue. Make them face multiple voters and go on the record.

8. Host a meet-and-greet or a fundraiser for a candidate who is a steadfast supporter of our industry.

9. Donate to a candidate you know will represent the interests of the renewable fuels industry.

Once you’ve started the discussion, keep it going. Reach out to your friends, family and community. Inspire and empower people to become involved in the fight and make their voices heard as well. Consumers, farmers, plant employees, investors, vendors and community leaders all have great reasons to advocate for the renewable fuels industry.

The importance of grassroots political activities like those listed above are immeasurable. Grassroots involvement takes the power away from Big Oil and their allies and places it in the hands of hardworking Americans who are taking action across the country. Politicians cannot ignore their voting constituents, especially at this critical time of year. The strength of our industry’s voice at the local, state and national levels depends on you and your efforts. We have the numbers on our side, and it’s time to rally the troops.

There’s a lot at stake in this battle, the future of our rural communities, nearly 400,000 American jobs that will never be outsourced, the quality of the air we breathe, the ability to chose at the pump and the energy security and national security of this great nation. We are fortunate to be involved in an industry that’s doing a lot of good for a lot of people. Let’s step up to the plate together, defend what we’ve grown and win this fight.

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

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GRASSROOTS VOICE

Spirit of Innovation Alive and Well

By Brian Jennings

When I first started working for the American Coalition for Ethanol, I put a lot of miles on the flex-fuel vehicle (FFV), traveling to speak at ceremonies celebrating the construction and completion of ethanol plants. Remember those days?

Our industry hasn’t dug a lot of dirt or cut many ribbons lately, but ACE-member Quad County Corn Processors is bringing the grand opening ceremony back this month when they unveil a technology innovation to convert corn kernel fiber into cellulosic biofuel.

Their timing couldn’t be better as the future of the renewable fuel standard (RFS) hangs in the balance and our opponents have jumped on the fact that production cellulosic biofuel is behind schedule. Perhaps no other source of fuel has been so anticipated and under such tremendous scrutiny. Consider that some of the biggest and most profitable companies in the world (including oil companies) have tried to perfect the process of converting cellulose to biofuel. But at the end of the day, it wasn’t an army of scientists employed by an oil company or venture capital tycoon who figured out how to commercialize cellulosic ethanol first, it was Quad County’s plant engineer Travis Brotherson and CEO Delayne Johnson. Travis and Delayne are humble and quick to point out theirs is a team effort.

While it may come as a surprise to outsiders, to ACE it makes perfect sense that the 35 employees and 353 farmer shareholders who reside in the Iowa counties of Cherokee, Buena Vista, Ida and Sac will be the first people on the planet to produce two renewable fuels—corn-starch ethanol and cellulosic biofuel—from the same feedstock at the same site. That’s because the sharpest minds of this industry are the innovative men and women at the grassroots, working at and investing in locally owned ethanol plants that make up the majority of the members of ACE. To help promote the fact Quad County is making cellulosic ethanol technology history, ACE interviewed Travis. (Check out the videos at www.ethanol.org/people/video-gallery)

16 | Ethanol Producer Magazine | SEPTEMBER 2014

In one of our videos, you’ll hear Travis say “taking the job as engineer at Quad County Corn Processors was one of the best decisions of my life because it gave my wife and I an opportunity to stay in our homeplace.” Here’s a guy who earned an aerospace degree and probably could have been living in sunny Florida helping NASA build rockets. What Delayne and the Quad County board of directors provided Travis and his wife, Kristi, were jobs in their homeplace and the freedom to innovate, take chances, and in this case, to make cellulosic ethanol history together (Kristi works as the chief financial officer of Quad County).

When our opponents try to portray ethanol as something that’ll ruin engines or starve children, our industry frequently responds by dribbling out the latest and greatest data point or statistic. What Travis and Delayne remind us is that ethanol is first and foremost about people, regular people who joined forces to commit their own money and time to rescue their families, neighbors, and communities by building locally owned businesses in their towns. It just so happens that in the case of Quad County, they also happened to crack the code to making cellulosic ethanol a commercial reality before other more well-financed and celebrated entities.

Travis and Delayne are the most recent examples of the “power by people” theme ACE is promoting in our new campaign to help the public better appreciate that ethanol shouldn’t just be valued based on the money it saves folks at the pump, but by the human good it delivers as well.

And Quad County isn’t the only ACE member to take innovative steps to bring back the groundbreaking and ribbon cutting ceremonies either. Adkins Energy, Patriot Renewable Fuels, Prairie Horizon Agri-Energy and East Kansas Agri-Energy are all in the process of breaking ground on or building projects to produce biodiesel or renewable diesel at their plants.

As Travis concludes in one of our videos, “the spirit of innovation is alive and well.” I couldn’t say it better myself.

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

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EUROPE CALLING

Recapping European Policy Decision Making

By Robert Vierhout

After bringing views from the other side of the pond to readers of Ethanol Producer Magazine since September 2008, it is time for change. This

will be my last column, and I’m taking the opportunity to look back but also to look forward.

Seven years ago the European biofuel community was in full swing, lobbying for what would become, in 2009, the first EU legislation to introduce a mandatory target for the use of biofuels. Even though we had seen a reasonable growth in capacity investments and output, European Union decision makers found that Europe should be more ambitious in getting renewables into the transport sector.

The 10 percent target was hailed as a great success, but eventually it came with a high price to pay.

It is a tough reality but the EU biofuel sector has underestimated by far the building of an unholy alliance––between green and/or development nongovernmental organizations (NGOs), Big Food and Big Oil––to attack the mandatory target. It is my strong belief that as long as biofuel was a voluntary measure, which it had been since 2003, oil, food and NGOs didn’t really bother. But to make its use mandatory was a bridge too far for them.

From 2009 onward, the industry became gradually aware it was sitting in a roller coaster, a big one like there are so many of in Disney World. From 2003 until 2010 it was all uphill. And then from 2010 onward, we came into a sort of spin. The indirect land use change spin. The biofuel roller coaster has shown us many vicious bends, curves and steep descending tracks, some of which so dangerous that one felt that derailing was imminent.

In my many years of Brussels experience, I haven’t seen many campaigns so mean and vicious as the one against biofuels. The bleakest moments were those when our industry was accused of committing a crime against humanity as if we were war criminals, depriving poor people from their food, as if we were speculating with food commodities, and grabbing away land in Africa, as if we were some sort of neo-colonialists. None of the accusations were never proven but still had effects. An industry once heralded as a great solution to addressing car emissions, reducing fossil fuel use and

providing new opportunities for farmers was decapitated in less than four years, still six years away from the day that the mandate would take effect. This history deserves a closer analysis by an academic scholar to reveal what forces where really in the drivers seat to kill biofuels in Europe.

Still, I feel that we have survived the perfect storm that was orchestrated against us. Unlike the Andrea Gail, a ship lost at sea in 1991, the biofuel industry will not disappear in the waves. The tide is changing to our benefit. It now has become crystal clear that accusations were founded on quicksand.

As for the future, I am convinced that the role of ethanol as a motor fuel in Europe and globally will not diminish. On the contrary, ethanol is now a well-established fuel that has earned its place in the mix. There is an abundance of raw material, a strong technological improvement potential and an objective need to reduce our dependency on ever-more polluting and difficult-to-source fossil fuels.

But, more than in other jurisdictions, perhaps Brazil excluded, Europe needs to introduce fair taxation for its energy products. As long as ethanol stays the most taxed of any fuels and diesel more favorably taxed than gasoline, ethanol’s market share will not increase quickly. The other major challenge in the next five years is to get E10 accepted Europe-wide. Can we build an E10 network that will stretch beyond Finland, France and Germany? Adding major markets like the United Kingdom, Italy, Poland and Spain are essential in turning the big wheel on ethanol consumption in Europe.

Hopefully, the past seven years of columns gave the EPM readership some insight into European biofuel issues. I often wrote about topics not that much different from what was dominating the policy and political biofuel agenda in the United States but always with that particular European flavor on how Europeans make decisions.

The latter is often difficult to grasp for the non-European, but as a consolation, I can reveal that many Europeans don’t understand it either.

Still, I hope you have enjoyed reading my comments and views.

It has been often fun and, equally often, a challenge, but always a pleasure. What I will probably miss most is no longer having this platform to criticize and nag about the too-numerous antibiofuel forces in Europe.

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

18 | Ethanol Producer Magazine | SEPTEMBER 2014

IS MADE HERE.

For years, we’ve been told that cellulosic ethanol is a “fantasy fuel.” And it is.

And now it’s going to change the world. For real.

So we’ve spent a decade planning, researching, and working hard to make that fantasy a reality. ®

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Advanced Biofuels

BUSINESS BRIEFS Green Plains Inc. has appointed Gene Edwards to its board of directors.

Edwards served as executive vice president and chief development officer of Valero Energy Corp. until his retirement Edwards in April. He spent 32 years at Valero and was a key driver in the company’s entry into the ethanol business.

The Greenbrier Companies Inc. and Watco Companies LLC have announced a new entity that will create a world-class network of railcar repair shops. The 50/50 joint venture GBW Railcar Services LLC will own and operate Greenbrier’s and Watco’s respective railcar repair, refurbishment and maintenance businesses. Greenbrier now operates 23 locations and Watco currently operates 15 complementary sites.

GBW’s combined network will feature 14 tank car repair shops, 10 of which will be from Watco and four from Greenbrier.

All will be certified by the Association of American Railroads as required by federal regulations.

Flint

People, Partnerships & Deals

Monroe

Standlee

The Biotechnology Industry Organization has elected 19 of its directors to serve on its board executive committee for the 2014-‘15 term, including Jerry Flint, vice, president of biotech affairs and regulatory at DuPont. Flint will serve as BIO’s food and agriculture section governing board chair. Adam Monroe, president of Novozymes North America, will serve as BIO’s industrial and environmental section governing board chair. Christopher Standlee, executive president of institutional relationships and government affairs at Abengoa Bioenergy, will serve as BIO’s industrial and environmental section governing board vice chair.

The U.S. Patent and Trademark Office has issued Patent No. 8,728,783 to Proterro Inc., protecting its proprietary photobioreactor. Proterro’s modular photobioreactor is made from off-the-shelf materials and inte-

grates systems for optimizing light, water supply and sugar collection, providing for the cultivation of the company’s patent-protected sugar-producing cyanobacteria and the harvest of a fermentation-ready sucrose stream.

Proterro has also received its first international patent. Mexico Patent No. 310854 mirrors the U.S. patent issued to Proterro that protects Proterro’s sucrose-producing cyanobacteria.

The U.S. Grains Council has added several new ethanol plants as members.

Flint Hills Resources Arthur LLC, a subsidiary of Koch Industries, recently joined the USGC. The 110 MMgy ethanol plant, located in Arthur, Iowa, began operations in 2008 and was acquired by Flint Hills Resources in 2013. In addition to ethanol, the facility produces an estimated 330,000 metric tons of distillers dried grains with solubles (DDGS) each year. Hastings, Nebraska-based Chief Ethanol Fuels Inc. also joined the USGC. The 70 MMgy ethanol plant began operations in 1984. In addition to ethanol, the facility produces DDGS, wet distillers grains, and corn oil.

In addition, Heron Lake BioEnergy LLC has joined the USGC. The 59 MMgy plant located near Heron Lake, Minnesota., produces approximately 160,000 tons of DDGS each year.

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facility last year and restarted the plant in May.

Blakely

Szabo

Lindsey Blakely has joined the U.S. Grains Council as membership and communications coordinator. Blakely will assist with the needs, planning and preparation of ongoing and future projects for those departments. Lucas Szabo has also joined the USGC as the new global strategies coordinator. He will assist the global strategies and trade policy and biotechnology departments, organize staff and member travel, prepare arrangements for visiting teams, and facilitate program planning, correspondence, reports, information management and contracting. Szabo previously worked as an export sales specialist for an export firm in Washington, D.C. Hopewell, Virginia-based Vireol Bio Energy LLC has joined Growth Energy.

The 60 MMgy facility is the former home of Osage Bio Energy. Vireol purchased the

U.S. Water Services Inc. has announced a merger with ChemCal Inc. ChemCal is one of the largest independent water treatment and equipment solution providers in the U.S. Established in 1985, the company serves the mid-southern U.S. The merger allows Minnesota-based U.S. Water to expand its footprint in mid-market industrial water treatment.

Deinove has announced the development of strains of Deinococcus bacteria with especially high performance cellulolytic properties. Deinove’s researchers have built a strain using its metabolic engineering platform capable of hydrolyzing cellulose as fast as the reference microorganism, Trichoderma reesei. The engineered Deinococcus has the ability to hydrolyze crystalline cellulose (paper) in approximately seven days.

Genera Energy Inc. has hired Lucas Graham as feedstock production and supply manager. He will be responsible for providing agricultural and managerial leadership for the company’s feedstock supply, including business strategies to optimize feedstock supply, planning and develop-

ing biomass feedstock supply projects and programs, and management of feedstock supply execution. Graham’s responsibilities also include developing, implementing, and managing feedGraham stock best practices for commercial energy crop and feedstock production, including land acquisition, establishment, management, harvesting, and site storage of biomass feedstocks. Prior to joining Genera, Graham worked as an agronomist and precision agriculture manager, and a seed treatment facility manager for Helena Chemical Co. Invista and LanzaTech have signed a research and development agreement focused on the development of gas-fermentation process technology for the production of industrial chemicals from carbon dioxide and hydrogen gas using proprietary Invista host organisms and metabolic pathways.

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SEPTEMBER 2014 | Ethanol Producer Magazine | 21

COMMODITIES

Prices & Market Analyses

Natural Gas Report

Natural gas prices fall as storage issues resolve July 28â&#x20AC;&#x201D;Following a cold winter and depleted storage inventories, natural gas prices were high in April. Although injections were off to a rocky start early in the summer, both of the key risks for storage recovery appear to be greatly reduced. Year to date, domestic production is up a robust 2.4 billion cubic feet per day or 3.7 percent versus the same period in 2013.

On the power generation demand side of the equation, high prices held demand growth versus 2013 in check from April through June. July and August are the peak demand period of the summer, with the highest risk of hot weather diverting natural gas to power generation and away from storage, but mild tem-

by Ben Straus

peratures for the month and a moderate forecast for the start of August have taken much of the sting out of weather risk.

With these benign fundamentals at play, inventory levels have staged a nice recovery. While the season ending storage inventory is still not likely to reach the lofty levels we have become accustomed to in recent years, with stronger domestic production a slightly lower inventory level appears to be acceptable to the market. Near term New York Mercantile Exchange prices have fallen out of the trading range between $4.85 and $4.25 in response to the positive fundamentals and are currently offered below $4.

Corn Report

Corn prices tumble, benefiting end users

by Jason Sagebiel

July 28â&#x20AC;&#x201D;July was not a pretty month for the corn producer but a net long position in late July. This too will not bode well for corn if end users of corn benefited with tumbling prices. Prospects of a bigger yields and, or production grow. yield continue to weigh on prices and the cash markets.

In the July USDA report, old crop corn carryout increased from 1.246 billion bushels, which was somewhat expected. New crop yield was estimated at 165.3 bushels per acre. However, traders have set their sights higher with a lot of talk of a 170-bushel national yield at this.

With the current yield estimate of 165.3 bushels per acre, production would be pegged at 13.860 billion bushels. Ultimately carryout for new crop is projected at 1.801 billion bushels. Any increases in yield increases potential carryout without any demand changes. A 5-bushel yield increase would increase production by 419 million bushels; carryout jumping to 2.220 billion bushels. With the crop production winding down and new demand waning, a scenario like the above will put much more pressure on new crop corn prices. Demand increases will be expected to come from exports if prices move lower.

Another concerning topic is the funds positions. Managed money was running a net short at this time last year. They are still holding onto

22 | Ethanol Producer Magazine | SEPTEMBER 2014

Regional Ethanol Prices ($/gallon) Front Month Futures (AC) $2.1450 Region

Spot

Rack

West Coast

2.280

2.450

Midwest

2.145

2.376

East Coast

2.250

2.409

DDGS Report

SOURCE: DTN

Regional Gasoline Prices ($/gallon)

Chinese rules likely to slow exports by Sean Broderick July 28â&#x20AC;&#x201D;Like last month, China again changed rules regarding to shipments there, without any realistic ways to work within the regulatory framework. It mandates that all shipments must be accompanied by a government stamped document stating the absence of MIR 162 in that lot. At the moment, there are not any government agencies that can officially test for this, so until that happens, it looks as though Chinese exports will be substantially slowed.

This has left traders scrambling to find alternative destinations for the product they have bought, both domestically and abroad.

In a market that was already flush with trucks due to the lack of railcar movement, this has weighed heavily on prices. The market has dropped $50 to $60 per ton in the past month, and is now sub 100 percent the value of local corn. Plants had a pretty

good book of sales through September, but not as much on for the fourth quarter.

Now, with this Chinese situation happening, with the sheer volume of sales left to make, and in a time frame that anticipates a huge corn crop, the market is going to feel additional downward pressure. We have seen reports of the Chinese corn reserves being even larger than originally anticipated, so do not anticipate a quick resolution to their additional regulatory demands. We will need more domestic hog and poultry demand.

Looking ahead, domestic logistics will take main stage. Rail movements will stay congested, and winter is not far away for them. Trucks/truckers will be extremely difficult to find during harvest, and barge freight has had a pretty good preharvest run up.

Front Month Futures Price (RBOB) $2.865 Region

Spot

Rack

West Coast

2.853

2.990

Midwest

2.748

2.945

East Coast

2.705

2.837 SOURCE: DTN

DDGS Prices ($/ton) Location

Sept 2014

Aug 2014

Sept 2013

Minnesota

95

160

225

Chicago

105

185

255

Buffalo, N.Y.

130

180

255

Central Calif.

163

217

287

Central Fla.

140

190

275 SOURCE: CHS Inc.

Corn Futures Prices

(Sept. Futures, $/bushel) Date

High

Low

Close

July 25, 2014

3.63 1/2

3.57

3.63

Jun 25, 2014

4.36 3/4

4.33 3/4

4.35 3/4

July 25, 2013

5.10 3/4

4.92 1/4

4.96 SOURCE: FCStone

Cash Sorghum ($/bushel) Location

Ethanol Report

Ethanol markets stabilize despite corn slide July 28â&#x20AC;&#x201D;Through late summer, the ethanol complex has remained extremely stable, unlike most commodity markets around it. Corn prices through the month of July have fallen 55 cents per bushel due to nearly ideal growing conditions in many areas of the Corn Belt. RBOB gasoline futures posted a 21-cent loss during the month of July, which is creating uncertainty about the market's ability to rebuild stability through the rest of the year. Crude oil futures fell $3.28 per barrel during July.

However, ethanol prices increased 2 cents per gallon in the same period. Trad-

by Rick Kment

ers are anticipating stable production levels and firm demand support for ethanol through the end of the year. This will likely keep the gasoline-to-ethanol market spread at a moderate level, which will help to sustain overall demand. Ethanol futures are currently holding a 72-cent-per-gallon discount to the RBOB gasoline market.

This level is where the industry seems most comfortable and will likely spur discretionary blending where possible over the next couple of months.

July 26, 2013

June 26, 2014

July 25, 2014

Superior, Neb.

5.52

4.17

3.55

Beatrice, Neb.

5.62

4.13

3.28

Sublette, Kan.

5.70

4.20

3.53

Salina, Kan.

5.30

4.43

3.52

Triangle, Texas

5.77

4.31

3.55

Gulf, Texas

5.41

5.31

5.04

SOURCE: Sorghum Synergies

Natural Gas Prices ($/MMBtu) Location

April 30, 2014

July 30, 2014

July 30, 2013

NYMEX

4.82

3.76

3.43

NNG Ventura

4.85

3.78

3.46

CA Citygate

5.05

4.48

3.75

SOURCE: U.S. Energy Services Inc.

U.S. Ethanol Production (1,000 barrels) Per Day

Month

End Stocks

MAY 2014

937

29,039

17,356

APR 2014

928

27,837

17,356

MAY 2013

877

27,197

16,810

SOURCE: U.S. Energy Information Administration

SEPTEMBER 2014 | Ethanol Producer Magazine | 23

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DISTILLED

Ethanol News & Trends

MAKING HISTORY: Quad County Corn Processors celebrates its production of cellulosic ethanol.

PHOTO: RENEWABLE FUELS ASSOCIATION

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Quad County produces cellulosic ethanol Galva, Iowa-based Quad County Corn Processors began producing cellulosic ethanol through its 2 MMgy Adding Cellulosic Ethanol project in July. The technology converts corn kernel fiber into cellulosic fuel.

The cellulosic facility is colocated with Quad Countyâ&#x20AC;&#x2122;s 35 MMgy corn ethanol plant, which began operations in 2000.

A groundbreaking ceremony for the bolton ACE process was held in July 2013.

The technology was developed by Travis Brotherson, a plant engineer at the facility. After several years of development, pilot- and demonstration-scale testing, the ACE technology is now producing on the commercial-scale.

In addition to enabling cellulosic ethanol production, the ACE process also improves the plantâ&#x20AC;&#x2122;s distillers grain coproduct. â&#x20AC;&#x153;As a result of the new process, the DDGs will be much more similar to a corn gluten meal. It will increase the protein content of the livestock feed by about 40 percent, and we also expect to see a boost in corn oil extraction by about 300 percent,â&#x20AC;? said Delayne Johnson, CEO of Quad County Corn Processors.

If deployed at all existing U.S. corn ethanol plants, the technology would be capable of producing 1 billion gallons of cellulosic ethanol without the use of any additional corn, said Johnson.

EPA finalizes RFS pathway, QAP rules The U.S. EPA has published two final rules pertaining to the renewable fuel standard (RFS) program. The first establishes new fuel pathways, while the second finalizes the voluntary quality assurance plan for the RFS. The pathway rule, officially titled â&#x20AC;&#x153;Regulation of Fuels and Fuel Additives: RFS Pathways II, and Technical Amendments to the RFS Standards and E15 Misfueling Mitigation Requirements,â&#x20AC;? includes a provision that specifies corn kernel fiber does qualify as a crop residue. It also qualifies a number of new cellulosic and advanced fuel pathways under the RFS, in-

cluding those for compressed and liquefied natural gas produced from biogas from landfills, municipal waste-water treatment facility digesters, agricultural digesters and separated MSW. It also qualifies electricity used to power electric vehicles produced from the same biogas sources.

The second rulemaking, officially titled â&#x20AC;&#x153;RFS Renewable Identification Number (RIN) Quality Assurance Program,â&#x20AC;? establishes a program that provides an affirmative defense against liability for civil violations under certain conditions for the transfer or use of invalidly generated RINs.

DISTILLED Trends in Gross Economic Output Change in output from 2007-2012 Total Private Sector Total Biosciences Bioscience subsectors Research, testing, and medical labs Drugs and pharmaceuticals Medical devices and equipment Bioscience-related distribution Agricultural feedstock and chemicals

Change in output from 2011-2012

9% 17%

50% 69%

30% 8% 9% 11% 29%

29% 66% 66% 71% 125%

SOURCE: "BATTELLE/BIO STATE BIOSCIENCE JOBS, INVESTMENTS AND INNOVATION 2014”

Bioscience industry creates positive economic impact A report published by the Biotechnology Industry Organization and Battelle indicates the U.S. bioscience industry has demonstrated strong growth in recent years, has navigated the economic recession better than most industries, and is once again growing.

The report addresses five specific subsectors of the bioscience industry, including agricultural feedstock and chemicals, bioscience-related distribution, drugs and pharmaceuticals, medical devices and equipment, and research testing and medical labs.

The report notes that U.S. agricultural feedstock and chemicals companies oper-

ated nearly 1,800 business establishments and supported 76,000 direct jobs in 2012, accounting for approximately 5 percent of bioscience jobs. While the subsector lost jobs for several years during the recession, the 2012 job gain was 2.3 percent.

Gross economic output for the subsector grew by 125 percent from 2001 through 2012, significantly higher than both the 69 percent growth for the total biosciences industry and the 50 percent growth rate for the U.S. private sector as a whole.

Mascoma shifts bioprocessing strategy Mascoma Corp. has refocused its goals on perfecting and deploying its consolidated bioprocessing technology (CBP) to existing and second generation ethanol producers, according to Bill Brady, president and CEO of the company.

Although a recent U.S. Court of Appeals ruling would technically allow the company’s proposed Frontier Renewable Resources LLC project in Kinross, Michigan, to move forward, Brady said that is unlikely.

Almost a year after Valero Corp. backed out the project, Brady confirmed Mascoma isn’t likely to build that facility. The company faced chal-

lenges in the form of current federal policy and the inability to get strategic investors to fully commit. “That was a pretty tall mountain to climb to be honest, to do a greenfield out of the box,” he said.

The company is now focused on its CBP technology and other opportunities. In June 2013, Lallemand Biofuels & Distilled Spirits and Mascoma introduced TransFerm Yield-plus.

Since then, the product has been used to produce more than 2 billion gallons of ethanol and that 20 percent of the corn-ethanol industry is using it. A similar product is in the works to serve the Brazil’s market.

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26 | Ethanol Producer Magazine | SEPTEMBER 2014

ETHANOL OPTIMIZED: Freightliner Custom Chassis provided a prototype MT45 Class 5 step-van for use in testing the new Cummins E85 optimized Ethos 2.8L engine.

PHOTO: CUMMINS INC.

Cummins announces E85-optimized engine Cummins Inc. has announced the development of an E85 optimized engine and powertrain that reduces greenhouse gas emissions (GHG) by as much as 50 to 80 percent when compared with a baseline gasoline-powered, medium-duty truck.

More than 1,000 miles and 1,500 hours have been accumulated on the Cummins Ethos 2.8L engine over the past 2.5 years, demonstrating the technology is capable of far exceeding the 50 percent CO2 emissions reductions outlined in the project's goals. A final on-road validation

testing phase was underway in California this summer.

The Cummins Ethos 2.8L is designed specifically to use E85. To take full advantage of the favorable combustion attributes and potential of E85, the engine operates at diesel-like cylinder pressures and incorporates advanced spark-ignition technology. It delivers the power (up to 250 horsepower) and peak torque (up to 450 lb-ft) of gasoline and diesel engines nearly twice its 2.8-liter displacement.

Supreme Court rules on EPA Tailoring Rule In June, the U.S. Supreme Court issued its decision on the U.S. EPA’s Tailoring Rule. While the court invalidated a portion of the rule, it essentially held up EPA’s ability to regulate greenhouse gas (GHG) emissions for certain facilities, specifically those required to obtain a Prevention of Significant Deterioration permit due to the emission of other regulated pollutants. The court’s ruling, however, did nothing to address uncertainty regarding the EPA’s treatment of biogenic emissions.

As it stands now, the EPA will regulate GHG emissions from facilities that

are required to obtain PSD permits for any other regulated pollutant. As such, it is possible that biomass power plants, ethanol plants, advanced biofuel plants, and others in the bioenergy sector will be subject to EPA’s GHG regulations, assuming they are already required to obtain a PSD permit. How biogenic emissions generated at these facilities will be treated under the regulations is currently unclear, and won’t be until the EPA completes its framework for biogenic carbon emissions.

DISTILLED

April 2009: Calif. ARB vote adopts LCFS Dec. 2009: Growth Energy, RFA file a complaint in Federal District Court December 2011: Federal District Court rules the LCFS is unconstitutional Sept. 2013: U.S. Circuit Court of Appeals overturns the lower court’s decision March 2014: RFA, Growth Energy petition the Supreme Court for review April 2014: 21 states ask the Supreme Court to review the LCFS

Cellulosic ethanol from agricultural residues THINK AHEAD, THINK SUNLIQUID®

June 2014: The Supreme Court declines RFS review

9% 17%

50% 69%

30% 8% 9% 11% 29%

29% 66% 66% 71% 125%

Supreme Court declines review of California’s LCFS In late June, the U.S. Supreme Court declined to take up a challenge to the Ninth U.S. Circuit Court of Appeal’s September 2013 ruling on California’s Low Carbon Fuel Standard.

That ruling found that the LCFS program is constitutional, overturning a prior ruling that it violates interstate commerce laws. A legal battle over the program has been ongoing for several years.

The Renewable Fuels Association and Growth Energy were among the groups that petitioned the Supreme Court to review the lower court’s decision. In a joint statement, the two trade associations expressed disappointment in the decision and stressed they will continue efforts to ensure all consumers have access to low-priced, U.S.-made biofuels.

CE&P announces tax credit California Ethanol & Power LLC landed a tax credit from the California Competes Tax Credit Committee worth $3.1 million through 2018, if the company successfully meets the milestones in the contract. The company is developing a $530 million project that will produce 66 MMgy of ethanol from sugarcane and sweet sorghum, 50 MW of electricity, and 930 million cubic feet of pipeline quality biogas.

“Everything is in place,” said David Rubenstein, CEO of CE&P. “We’re ready to go, except for the final financing.”

Permits are in place for the project, which received final county approval last fall. Uni-systems do Brasil Ltd. is the lead engineering and procurement contractor and is expected to help with financing. Offtake agreements are in place with Shell Energy North America for the ethanol, power and biogas.

Highly efficient sunliquid is an economic and sustainable process to generate biobased products from lignocellulosic biomass. It opens up new feedstocks not only for fuel, but also for sustainable chemistry from untapped resources – like cellulosic ethanol from agricultural residues.

WWW.CLARIANT.COM WWW.SUNLIQUID.COM

SEPTEMBER 2014 | Ethanol Producer Magazine | 27

SHAREHOLDERS

28 | Ethanol Producer Magazine | SEPTEMBER 2014

SHAREHOLDERS

Looking For

Liquidity

Alternative trading systems provide shareholders with an exit strategy and protect ethanol production companies from insider trading, among other benefits.

By Holly Jessen

In good or bad times, there’s always a certain number of shareholders looking for liquidity. Whether it’s due to a

death, divorce or some other need for cash, FNC AgStock LLC or AgStockTrade.com help ethanol plant shareholders by listing all stocks available for sale from participating nonstock-exchange listed or limited liability company (LLC) ethanol plants.

Positive ethanol plant margins in recent months have pushed the price of ethanol plant shares up to levels not seen in years. In the second quarter this year, some prices have doubled from what was seen in the first quarter, says Jayson Menke, president and CEO of FNC Ag Stock. One example is Cardinal Ethanol LLC, one of 15 FNC-listed ethanol plants. In mid-July, the ethanol plant had two shares available at a price of $13,000 each, and the most recent sale of Cardinal Ethanol shares was for $12,500 per share. That’s about double what the plant’s shares were going for in January, at $5,780 to $6,200 per unit. “There has been increased sale activity,” Menke says, “but, in general,

SEPTEMBER 2014 | Ethanol Producer Magazine | 29

SHAREHOLDERS

‘There has been

‘I think sometimes we

increased sale activity,

fall into the mentality of,

but, in general for the 16

well, nobody wants to buy

companies that we work

units. Well, have we really

with, we’re not seeing as

asked or made known

many sellers for all

that there might be shares

companies.’

Jayson Menke for the 16 companies that we work with, we’re not seeing as many sellers for all companies.”

Glacial Lakes Corn Processors, a company listed with Ag Stock Trade, had 15,000 shares sell for $1.51 per share on July 15, according to data posted at AgStockTrade.com. (The variation in share price is due to differences in pricing structure at different ethanol plants.) The plant’s shares hit a high point on July 11, when 40,000 shares were available for sale at $1.79 per unit. The prices have made sellers happier, says Greg Wilson, president and CEO of Glacial Lakes, especially considering that shares were available for sale at 60 cents per share in the beginning of the year. The last time shares for the South Dakota-based ethanol producer were over $1 per share was January 2008. In comparison, in 2006, shares ranged from a high of $6.10 to a low of $3.73.

“Our market is fairly stable, as far as buyers and sellers,” Wilson says. “Sometimes it’s a buyer’s market, and sometimes it’s a seller’s market. But the transac-

available for sale?’

Donna Funk tion numbers fluctuate about 20 percent in a good or bad year.”

Wilson recalls attending meetings back in 2000, when developers were asking community members to become shareholders. The scenario played out with someone at the front of the room asking people to put up money in exchange for dividends paid to shareholders. “There’s always a guy at the back of the room and he raises his hand and he says, ‘You know, this sounds like a good idea, I’m all in support of it but what’s my exit strategy?’”

Wilson says. “’I’m 60 years old, what I am going to do when I want to get out?’” The reality is, in most cases, emphasis was put on bringing shareholders in without any plan for liquidity for members. And, until enough members make that need known, that probably won’t change, as the focus is on managing the plant, not managing the members, he said.

Wilson and Menke both say there is opportunity for additional ethanol production facilities to sign up for their

30 | Ethanol Producer Magazine | SEPTEMBER 2014

services. According to Wilson, all LLC ethanol plants should be offering members liquidity, which is required by the U.S. Internal Revenue Service. “Every one of them that isn’t on my trading system ought to be.”

Working with what the IRS terms a qualified matching service (QMS) has advantages.

One big one is that ethanol producers can trade up to 10 percent of outstanding units in a taxable year without tax implications, Menke says. Without using a QMS, doing it internally, the limit is 2 percent. “Within the IRS rules, it allows these companies the greatest amount of liquidity and it allows the companies to have transactions at arm’s length,” Menke says, adding that it protects companies from crossing a threshold and becoming publically traded entities and also from insider trading.

Shareholder Value

The topic of alternative trading systems came up at the International Fuel Ethanol Workshop & Expo held in early

June. Speakers addressed the topic of how companies can increase shareholder confidence by increasing plant value as well as providing liquidity opportunities. James Eiler of Eiler Capital Advisors LLC said he has talked to ethanol plant boards about providing minority shareholders opportunities for limited reduction on a periodic basis. He suggests boards allocate a certain amount of money to repurchase minority shareholder’s shares at a certain percentage of book value, possibly 75 percent, on a quarterly basis. If requests to sell exceed the funds set aside for this, the company could conduct a lottery for that buyback, he said during his presentation. “It creates a win-win,” he said, adding that minority shareholders are able to get cash while the remaining unit holders have accretive value, with the buyback set at below market value. However, it’s important that companies protect themselves by getting a third-party fairness opinion at least annually and consulting its tax advisor.

SHAREHOLDERS

‘If you are not working toward a plan for success, you are almost certainly planning for failure.’

Scott Dermott Although it can be complicated, if it is done correctly, implementing a company buyback program can result in tax advantages for an LLC by reducing taxable income, said Donna Funk of Kennedy and Coe LLC. On the other hand, because the purchases are made after taxes, it can be a cash drain on a company. “Which is why you would want to set parameters around how much you would want to do each quarter or on an annual basis,” she said.

Funk also mentioned employee stock ownership programs, or ESOPs. Although it’s not commonly utilized in the ethanol industry, there are companies getting to the point of age, liquidity and other factors that could make it an option to consider. It can be very expensive to implement but some of the advantages include using pre-tax dollars for the program as well as a way to offer employees ownership in the plant to create a family type atmosphere as well as an effective incentive for best performance.

While it’s worth considering, it’s not an option that will work for all companies. “That’s one of those that can be very complicated and would be something that you would want to look at in a lot more detail before saying we’re just going to do this, because it doesn’t fit for every situation,” she said. “But it is certainly something that can be utilized as a liquidity option for some of your investors and it can benefit your employees and also can be a retirement plan vehicle or tool.”

Funk also talked about an often overlooked method of selling shares, which is simply asking. “I think sometimes we fall into the mentality of, well, nobody wants to buy units.

Well, have we really asked or made known that there might be shares available for sale?” she said. “Ask around, be more proactive.” In cases where someone has a block of shares larger than others want to buy it could be split with no impact on the overall value. Or, people with smaller numbers of shares

can combine to create a larger block for someone interested in buying more shares.

Scott McDermott of Ascendant Partners Inc. talked about liquidity in the context of positioning the company for the best future possible with strategic and capital planning.

With healthy margins, ethanol producers need to think about preparing for future downturns.

He also talked about making sure the company has a vision or a story to tell its investor base. “All of these things help give shareholders confidence to stick with you in good times and bad,” he said, adding that if the industry falls on hard times, lenders may or may not provide funds to keep the plant afloat.

“Then we’ve got to go to shareholders,” he said.

There are many different strategies for success, McDermott said, adding that hope is not a strategy. “If you are not working toward a plan for success, you are almost certainly planning for failure,” he said.

One tool ethanol plants can use as a performance metric is valuation. When he brings up assessing the value of the business some board members assume that means he’s talking about selling it. But valuation is really just a method of keeping score. “The best disciplined businesses out there use valuation to think about the return they are giving shareholders, and almost as a measuring stick on how they are doing as a business,” he said.

Some plants sell for four to six times company earnings

before interest, taxes, depreciation and amortization (EBITDA) multiples. That means that if a 55 Mmgy facility with an average EBITDA of 15 cents can improve that number by 5 cents, the plant’s valuation increases 33 percent or $11 to $17 million. “Not only is the plant more valuable, but it is much better positioned to endure the inevitable market downturn,” he said.

Essentially, a company is falling behind if it isn’t moving down the cost curve or up the EBITDA curve. That drives higher earnings, which translates to higher dividends and better stock value. McDermott has found it interesting to watch the ethanol industry evolving in this area. Boards used to think in terms of the annual budget cycle. Now, however, with nearly a decade or more of experience and with most debt paid off, a different way of thinking about the budget cycle is being utilized. “We now begin to think about the capital cycle, the budget cycle, as a more strategic way of how to align the capital of the business to support some combination of my growth objectives or my positioning in the industry but also to give a return back to shareholders in dividends,” he said.

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

SEPTEMBER 2014 | Ethanol Producer Magazine | 31

LENDING

32 | Ethanol Producer Magazine | SEPTEMBER 2014

LENDING

Banking on

Biofuels

The industry’s principal lenders helped give rise to today’s fleet of ethanol plants. Will they help producers with the next stage?

By Katie Fletcher

The ethanol industry has known both sunny and rainy days. Leery of that volatility, many lenders have

tended to dip their toes in the water when the skies were clear— like during the ethanol plant construction heyday of 2004-’06— only to get out when dark clouds emerged. As much as the boom years fueled, and were fueled by, lending exuberance, the 2008-’09 downturn caused, and was caused by, an exodus of debt financing amid the financial crisis and resultant recession.

Now, however, with the recession over and ethanol plants making money, when will the lending institutions that bankrolled ethanol’s first major build-out return to finance its second? The answer, surprisingly, is that some big lenders never really left. “This is what we do,” says Tom Houser, vice president and lead relationship manager in agribusiness banking with CoBank. “We are not just looking to get in and get out in the industry that is in the ups or the downs. We are committed to this in the long term as a bank and a system. We are very much a relationship lender, not a transactional lender.”

SEPTEMBER 2014 | Ethanol Producer Magazine | 33

LENDING

'We are very much interested in establishing new relationships with companies, in particular refinancing plants that have been up and running.'

Tom Houser

Jeff Kistner CoBank is considered one of four primary lenders in the traditional corn ethanol space.

The others are AgStar Financial Services, AgCountry Farm Credit Services and Farm Credit Services of America. Jeff Kistner, president of Flag Leaf Financial Management Inc. and a former CoBank employee, says during 2005 and 2006 when the exuberance of the industry was peaking, many other financial institutions wanted to lend, and some ultimately did. “The core group of lenders stepped to the sideline because of the exuberance,” he says.

The core lenders in the Farm Credit System avidly

watched the industry from the sidelines, however, and because many took conservative approaches with their portfolios, they are still here today. Most of the others left. “Many of the lenders that put their toe in the water have exited the industry,” says Randy Aberle, senior vice president of agribusiness for AgCountry Farm Credit Services.

There’s a good chance that today’s strong ethanol plant margins could revive lender interest in the space once again, however. Since fourth quarter 2013, the industry has been experiencing favorable weather, literally and figuratively. There has been with a strong export demand and positive plant margins due to record corn crops plus a decrease from the 2012 drought-induced record high corn price of $8 to around $4 at the end of July. “What producers and lenders need to be doing right now is using the record margins to amortize their debt, and the one key success factor for all the major producers through the cycle—a decade of ethanol—is really having significant amounts of liquidity to

34 | Ethanol Producer Magazine | SEPTEMBER 2014

weather the storm,” says Chris Wu, partner at Carl Marks Advisory Group LLC. “It’s inevitable that margins will contract and those who have the stronger balance sheets survive.”

Lenders agree that maintaining a strong balance sheet is important. Currently, advisors and lenders in the space say profits are giving some producers more options than they’ve had in a long time. “They’ve been able to pay down debt and avoid any imminent restructuring that was forced from certain lenders when margins weren’t such a great time for these guys,” says Scott Chabina, director with Carl Marks Advisory Group. “Now they’re looking at some capital projects they’ve had on their shelves for anywhere between 18 to 24 months—looking at getting their own house in shape.”

Profit Purchases

Many producers are, as Chabina says, optimizing operations and eyeing new technologies at their current facilities as no new corn ethanol plants are being built with the exception of Dakota Spirt AgEnergy Biorefinery near Spiritwood, North Dakota. Coproducts and new technologies are what profits are funding. “You see ethanol producers getting pretty creative, and in a commodity business they have to be really, because it’s a pennies game,” Chabina says. “As long as they can extract every bit of value out of the corn kernel they are going to do so.”

New coproducts are coming, but corn oil, DDGS and

Randy Aberle

'We like to be on the leading edge, but not the bleeding edge.'

CO2 remain the big three revenue sidestreams. Corn oil is now produced at 80 to 90 percent of corn ethanol plants, and those that aren’t extracting it have mostly ruled it out to maintain a niche distillers grains customer base. “Corn oil projects have shown a pretty good return on investment and have been pretty widely accepted with most of the plants we’ve been working with,” says Jason Johnson, vice president and agribusiness team leader with AgStar. “New technology is contributing to plant efficiency, and when there is economic payback we are financing that.”

Even smaller improvements to increase plant efficiency are having an impact. “One of the interesting things is there has been production creep, about 1 to 2 percent with existing plants, just based off of the efficiencies they’ve been able to obtain, without seeing major ex-

LENDING

'New technology is contributing to plant efficiency, and when there is economic payback we are financing that.'

Jason Johnson

Scott Chabina pansion or a new plant coming online,” Johnson says.

Lender Activity

Before considering financing, lenders are looking at credit profiles. “What we look at is if the existing ethanol plant has had a history of steady production, does it have an industry average yield—gallon per bushel—and does its debt profile follow the underwriting criteria as far as having additional capacity, mainly if it has an acceptable debt load,” Houser says. “Borrowers have to have the profile so they can show the collateral

value and the repayment capacity the lenders are comfortable with.”

Lenders, who after the downturn added new agribusiness customers to their portfolios sparingly, have opened their doors more widely in the past 24 months. “We are very much interested in establishing new relationships with companies, in particular refinancing plants that have been up and running,” Houser says.

The key word, though, is running. Cellulosic ethanol plants and other advanced biorefineries are an area the core lenders are not participating in yet. “Lenders loan to existing ethanol plants, known technology, known market channels, known collateral value, but nothing at present on a standalone basis relative to cellulosic,” Houser says.

Aberle agrees. As a lender in the senior debt position, AgCountry usually waits for technology to be fully established and replicated multiple times before financing. “We like to be

on the leading edge, but not the bleeding edge,” he says.

Getting these projects up and running has not been easy.

“The reason cellulosic and advanced biofuels are having a hard time getting going is, when you look at ethanol price to the margins, right now, the best value on a future cash flow basis is in that 90 cents to $1.20 range and it takes $2 [per gallon] to build,” Kistner says. “You’ll never get that return on investment back.”

Lending Risks

Although they’re not currently financing debt on advanced biofuels projects, many lenders are watching and waiting for the technology to develop. Uncertainty about the federal government’s position on biofuels is, in no small part, contributing to lender hesitation in the space. “Advanced biofuels are a very tricky industry, not only technologically, but also because the higher theme for them is, if you do have a cut to the RFS on conventional ethanol and the advanced side, the fuels that we are supposed to be building towards, it’s difficult for people wanting to invest in a space where they may cut the demand, the future market,” Chabina says.

Larry Johnson, industry veteran and ethanol consultant, echoes Chabina’s concern. By waiting to announce the renewable fuel standard’s (RFS) 2014 renewable volume obligation (RVO) numbers, he says, the EPA is creating the opposite

Christopher Wu effect from its ostensible end goal. “They said they would like to see more cellulose and advanced biofuels, and everyone agrees with that, except who is going to put money into a still relatively unproven area of cellulosic ethanol when the EPA might cut back on the amount?”

Kistner agrees that policy uncertainty, and the commodity risk it poses, is deterring lenders from engaging in biofuels today.

The bogy, he says, is whether ethanol producers will continue to make financial decisions that yield the sort of liquidity that can supersede the hurdle of government uncertainty, which is out of everyone’s hands.

Ultimately lenders outside of the Farm Credit Service system are staying away, and those in the system are not lending to advanced biofuels yet. “Some of them have been attracted to the industry’s currently positive margins, but for many there are still some pretty negative connotations associated with the industry,” says Jason Johnson. “They have just decided to stay away from it from a policy

SEPTEMBER 2014 | Ethanol Producer Magazine | 35

LENDING

Umbrellas at Hand

Larry Johnson standpoint at their banks, it is just not an area they are going to return to.”

Although the downturn that spurred those negative connotations was half a decade ago, the loss is still fresh in everyone’s memory. The ethanol industry is no longer in its infancy, and its maturation challenge will be creating and maintaining value over time, says Kistner.

The domestic ethanol market now is near or at a saturation point that could be temporary or long term, depending on the federal government’s commitment to the RFS. The industry is producing close to the rate necessary to satisfy the renew-

able fuel volume of corn ethanol, which is 14.4 billion gallons this year. “This is a record rate, next year the RFS caps out at 15 billion gallons from corn,” Larry Johnson says.

Although there is still uncertainty surrounding the RFS, in a commodity business uncertainty is certain. The core lenders, CoBank, AgStar, AgCountry and Farm Credit Services of America, understand this and have learned how to get comfortable lending to the industry.

Plant margins are strong, lenders are engaged, and producers are investing in new

Some chemical companies focus on this

technologies. The outlook is bright, but umbrellas are being kept at hand. “It’s just important to remember that in the sunny days that producers are enjoying now, you actually need to put the money away for a rainy day,” Wu says.

Author: Katie Fletcher Staff Writer, Ethanol Producer Magazine kfletcher@bbiinternational.com 701-738-4920

or that

Buckman takes a wider view.

Some chemical companies focus only on process.

Some focus solely on water treatment. Buckman takes a comprehensive approach and looks at the bigger picture — return on investment and environment.

We look at every aspect of your plant’s operation,

© 2014 Buckman Laboratories International, Inc. All rights reserved.

36 | Ethanol Producer Magazine | SEPTEMBER 2014

tailoring chemistries to boost production and increase profitability — from evaporator efficiency to corn oil recovery to water treatment issues. To find out more or to schedule a system audit, contact your Buckman representative or email ethanol@buckman.com.

.

For information on RFA membership: info@ethanolrfa.org | 202.289.3835

PROJECT

ENERGY CAMPUS: Great River Energy's Spiritwood Station coal-fired CHP plant, just out of view at bottom left, will provide steam for the ethanol plant under construction. The second steam partner is Cargill Malt, located next to the power plant.

PHOTO COURTESY: KARGES-FAULCONBRIDGE INC.

38 | Ethanol Producer Magazine | SEPTEMBER 2014

PROJECT

DAKOTA

SPIRIT RISING The first corn ethanol plant to be built in more than five years is taking shape in North Dakota.

By Susanne Retka Schill

Many eyes are focused on the ethanol plant rising from the prairie at Spiritwood, North Dakota. Highway drivers keep

watch on progress on the plant just north of Interstate 94, and on the other side of the world, investors in China can watch as well on the live webcam streaming coverage of the work in progress on the website of Dakota Spirit AgEnergy LLC. Dakota Spirit is unique in many ways. It is the first corn ethanol plant to be built since the Energy Independence and Security Act of 2007 required new corn-based plants to meet a 20 percent greenhouse gas (GHG) reduction requirementâ&#x20AC;&#x201D;a process that took 19 months to get approved through the U.S. EPA. The 65 MMgy Dakota Spirit also is the first U.S. plant fully integrated with a coal-fired combined heat and power (CHP) plant. And, equally unique is its financingâ&#x20AC;&#x201D;about half came through a little-known immigration program that gives permanent green card status to foreigners making hefty investments in U.S. industries creating new jobs. Dakota Spirit has 150 foreign investors from 10 countries.

SEPTEMBER 2014 | Ethanol Producer Magazine | 39

BUILDING ON SUCCESS: Greg Ridderbusch, left, began working on the proposed ethanol project for Great River Energy in 2006 and is now president of Midwest AgEnergy. Jeff Zueger, chief operating officer, will manage Dakota Spirit AgEnergy when construction is complete, as well as its successful sister plant, Blue Flint Ethanol.

PHOTO: SUSANNE RETKA SCHILL, BBI INTERNATIONAL

Dakota Spirit AgEnergy is owned by Midwest AgEnergy Group, which also owns the 65 MMgy Blue Flint Ethanol LLC plant at Underwood, North Dakota. Great River Energy, a wholesale electric cooperative serving 28 Minnesota and Wisconsin distribution cooperatives, is the majority owner of the group. In addition to Great River’s equity investment, there is a number of corporate and local farmer

investors as well, explains Greg Ridderbusch, president of Midwest AgEnergy.

Project development for the ethanol plant at Spiritwood followed a long, winding road.

In 2006, the North Dakota governor’s office announced plans for a $350 million Spiritwood Industrial Park that would include a 100 MMgy corn ethanol plant to be built by the Newman Group, along with an expansion of the Cargill

40 | Ethanol Producer Magazine | SEPTEMBER 2014

Malt plant and a coal-fired CHP plant to be built by Great River Energy to power the campus.

A little over a year later, in November 2007, the governor presided at the groundbreaking ceremony for Great River’s 99 MW CHP plant. About the same time, Cargill Malt began its expansion. The recession, however, torpedoed the Newman Group’s plans.

But with a newly built CHP plant sitting idle due to the recession and the need for a second steam partner, Great River continued exploring the ethanol option. “We seriously looked at cellulosic for a while,” Ridderbusch recalls.

But with the technology still developmental, and a feedstock study suggesting the proposed 20 MMgy plant would need to draw cellulosic feedstocks from as far as 100 miles, the planning returned to a cornbased facility. “By that point, Blue Flint Ethanol had been successful,” he continues. “We said, we might bolt on cellulosic later, but we let’s build Blue Flint No. 2.” Early in 2011, Great River made the decision to move forward with Dakota Spirit AgEnergy.

GHG Performance

The first hurdle was to demonstrate Dakota Spirit would meet the renewable fuels standard (RFS) requirement for any new ethanol plants to reduce GHG emissions by at least 20 percent compared to the baseline. The feedstock

portion of the Dakota Spirit life-cycle analysis was based on the existing corn ethanol pathway determined by EPA, but the CHP contribution to GHG reduction was unique.

Co-location with a power plant providing steam to the ethanol plant is not unheard of, though not common. Iowa and South Dakota have one ethanol plant each co-located with a power plant. And, Dakota Spirit’s sister plant, Blue Flint, is co-located with Great River’s Coal Creek Station located along the Missouri River near Underwood. That power plant is a conventional 1,100 MW coal-fired plant sending steam to its neighbor the ethanol plant.

Dakota Spirit will be using steam from Great River Energy’s 99 MW CHP Spiritwood Station. What is unique about Dakota Spirit, explains Jeff Zueger, chief operating officer, is the full integration—Dakota Spirit doesn’t have a boiler.

“We are taking their steam directly in our columns and our exchangers and sending the condensate back,” he explains.

“It has inherent risk, but it is a more direct relationship. And, they’re relying on us, using that condensate directly in the boiler.” The power plant, he adds, does have backup natural gas boilers. The facilities are integrated in other ways, as well, such as the ethanol process water coming through the power plant, eliminating the need for water treatment at the ethanol plant. While Great River

PROJECT

is generating power next door, the ethanol plant is connected to the grid, assuring electrical service during maintenance or outages.

The CHP integration was critical for meeting the 20 percent GHG reduction requirement, although the benefits had to be clearly demonstrated. “It took a team effort,” Zueger says. “It took us working with the engineering firm (Karges-Faulconbridge Inc.) and the expertise within Great River Energy figuring out how to run the turbine in optimal mode.” Besides optimizing the process steam systems, the ethanol side needed additional levels of thermal efficiency to meet the GHG reduction goal. The letter from EPA approving the pathway came through in February 2013.

Green Card Financing

The final piece of the puzzle, not surprisingly, was financing. It was a very challenging time for project finance during the recession, Ridderbusch explains. “But when we looked at international funds, this was a viable project— we were able to demonstrate the economics. And, there is a different motivator for EB-5 investors.”

Midwest AgEnergy worked with the CMB Export LLC Regional Center, Rock Island, Illinois, to utilize a program created by Congress to encourage job-creating foreign investment in communities

EPC TEAM: Two St. Paul, Minnesota-based companies are the design/build team on the project, Karges-Faulconbridge Inc. and McGough Construction Co. Inc. The team built a 50 MMgy plant for Heartland Corn Products that doubled the company's production capacity. Karges-Faulconbridge is a process engineering consultant, helping ethanol producers improve efficiency. McGough has worked on other projects for Great River Energy, including its LEED rated headquarters in Minnesota.

PHOTO COURTESY: KARGES-FAULCONBRIDGE INC.

affected by military base closures, which was later expanded to qualify other communities.

The EB-5 program requires an immigrant investor to make an at-risk investment of $1 million, or $500,000 in some cases, that creates no fewer than 10 American jobs, thus the name Employment Based 5th Preference Visa (EB-5).

The CMB Center did an economic study of the Midwest AgEnergy project to confirm about 80 direct jobs would be created at the power plant and ethanol plant, plus another 70 indirect jobs. “We have, for this project, 150 foreign investors, from over 10 countries, most significantly China,” Ridderbusch says. “Each of them put $500,000 in—not directly to our project, but into a pooled investment fund

LAST OF THE FIRST: EPM's archive indicates the last first-generation plants broke ground in 2008, including Bionol Clearfield LLC (now Pennsylvania Grain Processing LLC) in Clearfield, Pennsylvania, Abengoa plants in Mt. Vernon, Indiana, and Madison, Illinois, and Appomattox Bio Energy (now Vireol BioEnergy) in Hopewell, Virginia.

PHOTO COURTESY: KARGES-FAULCONBRIDGE INC.

SEPTEMBER 2014 | Ethanol Producer Magazine | 41

STEAM PARTNERS: Great River Energy's Spiritwood Station, left, will provide steam for the Cargill Malt plant, right, as well as the ethanol plant, now under construction behind the power station. The photo was taken in August 2013, at the ethanol plant groundbreaking ceremony.

PHOTO COURTESY: SUSANNE RETKA SCHILL, BBI INTERNATIONAL

A Strong Partnership For over 15 years, Nalco has used an approach that includes mechanical, operational and chemical expertise combined with innovative technology to help ethanol producers find solutions to water and process challenges. When Nalco joined the RFA in 2005, the industry was just beginning to understand its potential. Today, we’re proud to be part of an industry that produced over 14 billion gallons of ethanol in 2013.

Going forward, we’re committed to partnering with producers to strengthen the business by driving operational efficiencies and sustainability. . . whether it’s conserving more than a billion gallons of water each year, finding new ways to increase corn oil recovery, or introducing better feed and control technology for final ethanol corrosion inhibitor treatment.

Together, we’re fueling a very bright future.

Reinventing the Way Water is Managed ©2014 Ecolab USA Inc. Ecolab, Nalco and the logo are trademarks of Ecolab USA Inc.

42 | Ethanol Producer Magazine | SEPTEMBER 2014

managed by the CMB Center. The CMB Center is the lender into our project.”

In December, Midwest AgEnergy announced the $155 million financial package was completed and construction would now begin. They were pretty confident a few months earlier, however, as the official groundbreaking ceremonies had already been held in August.

McGough Construction began work in earnest in January. The dead of winter in North Dakota may not seem to be an ideal time to begin construction, but for pile-driving it was. Even though subzero temperatures made it challenging to keep the pile driver firing, Zueger says, the frozen ground was easier to work on than if work had started in what turned out to be a very wet spring. “Because of the soil conditions, piles had to be driven to support load bearing structures like the fermentation and grain tanks,” Zueger explains. “We have 18 miles of 9.5-inch, 90-foot long piles.” Project planners also demonstrated foresight in preparing roadbeds with subgrade development including geomats and substantial amounts of gravel to be able to handle the loaded trucks, in spite of wet conditions.

“We are on the pathway to have the facility starting up by later winter and into production by the second quarter of next year,” Ridderbusch says. At peak, there will be 20 contractors working on all the projects underway around the 40-acre

ALL WEATHER PROGRESS: Sunny days were rare in the unusually wet spring as construction began in earnest. Extensive subgrade road preparation meant loaded trucks could continue to deliver their loads and construction could proceed in spite of wet conditions. The power station can be seen through the building under construction in July.

PHOTO: LYNDON ANDERSON, GREAT RIVER ENERGY

ethanol plant site. Stutsman County is upgrading road access to the Spiritwood Energy Park and the local rural and city water systems are supplying water. Great River and the Jamestown Stutsman Development Corp. each invested land as the base for a rail loop capable of loading and unloading unit trains simultaneously.

The hope is to attract other industries to the 500-acre energy park that will use the common track. The final leg in the multiple community partnerships was contributed by the state with a statelevel loan guarantee. â&#x20AC;&#x153;The community has been such a great partner with us,â&#x20AC;?

Ridderbusch says.

Zueger is optimistic about the timing for Dakota Spirit, in spite of the talk of the blend wall and the ethanol industry being very close to the 15 billion gallon maximum for corn ethanol under the RFS. â&#x20AC;&#x153;If you look through 2015, there are strong margin opportunities for ethanol,â&#x20AC;? he says. â&#x20AC;&#x153;We havenâ&#x20AC;&#x2122;t seen that the entire history of operation at Blue Flint. We think weâ&#x20AC;&#x2122;re coming on at a good time. We think markets will find opportunities for all the ethanol that is produced because it is so competitively priced as an energy source globally.â&#x20AC;?

Author: Susanne Retka Schill Senior Editor, Ethanol Producer Magazine 701-738-4922 sretkaschill@bbiinternational.com

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SEPTEMBER 2014 | Ethanol Producer Magazine | 43

TALKING POINT

Needed: New Strategy for Clean, High-Octane Ethanol

By Dave Vander Griend

There is more corn being produced in the United States today than at any other time in history. Indeed, while this should be good news for the fuel

ethanol industry, we haven’t been able to benefit to the fullest extent possible. That’s because our government has blocked the growth of the ethanol industry, while giving the “keys to the kingdom” to the petroleum industry.

As we know, the petroleum industry produces poor quality fuels and then blames the higher toxic emissions on ethanol. A lesser known fact is that the U.S. EPA also makes ethanol look bad by controlling what fuels are tested and how they are blended. It’s a brilliant move by both groups, but one we as an industry have to stand up against.

We must push for change when it comes to the way fuels are blended and tested. Right now, certification fuel as defined by the EPA has half of the fine particulate toxic emissions compared to

Blender Wizardry Targets Ethanol

the fuel we buy at the local convenience store. The EPA contracted with the Coordinating Research Council and a Chevron fuel blending engineer to make a lower quality fuel for the blending of higher levels for ethanol in certain tests. This was done so the outcome would demonstrate higher emissions with higher ethanol blends.

However, we know that by simply adding ethanol to gasoline, toxic emissions are reduced. This is a big deal because toxic emissions from gasoline are a growing health concern, especially for those living in urban areas. Low income families and children are often the most exposed to high traffic areas, just because of where they live. The primary cause of the toxic emissions is high-boiling aromatics, which are all some type of benzene unnecessarily added to gasoline. These aromatics produce literally hundreds of billions of invisible fine particulates that come out of your tailpipe for every mile driven. The particulates are so small that, when breathed into the lungs, they go directly into your bloodstream.

Ethanol can be used to replace a large percentage of aromatics, providing a cleaner-burning fuel and increased octane. This is an area where we as an industry need to put our focus. Cleaning up the way gasoline is blended by using more ethanol will open up the marketplace while benefiting our air quality and our health.

It’s one more pathway to consider, given the constant hurdles the EPA continues to put in front of our industry. Between ignoring the ethanol and auto industry’s recommendations for Tier 3, the proposed reduction in flex-fuel vehicle credits and the proposed cut to the 2014 renewable volume obligations for the renewable fuel standard, it is obvious the EPA is not interested in ethanol.

It’s a pattern we as an industry need to change; otherwise our business will plateau in the United States. Our opponents have laid their groundwork and are executing their strategy. We need to start executing ours and promote a clean high-octane strategy for today and the future.

Author: Dave Vander Griend

CEO, ICM Inc. DaveV@icminc.com 316-796-0900

Whoever controls the test blend, controls the test outcome.

44 | Ethanol Producer Magazine | SEPTEMBER 2014

BUSINESS MATTERS

Building or Buying a Biofuel Plant? Think PSM

By Charles B. Palmer

A company that is constructing a new ethanol or other biofuel facility, or that is acquiring an existing facility, must identify compliance with the Process Safety Management standard as a primary aspect of its due diligence. Failure to require this documentation as part of

the purchase of an existing facility, or as part of the contract to build or add on to a biofuel facility, could be a very costly oversight. Rebuilding a PSM program in a biofuel facility that is already operational is a daunting and expensive task.

The PSM standard is by far the most frequently cited standard in the industry code, *NAICS 325193 (Ethyl Alcohol Manufacturing).

It is also the most complicated Occupational Safety and Health Administration standard that exists.

What does the PSM standard require?

Process Safety Information The PSM program must include comprehensive documentation concerning the chemicals, technology and equipment used during the process. This documentation should include a block flow diagram or a process flow diagram, maximum inventory levels for chemicals used in the process, the system limits, including possible results if those limits are exceeded, and piping and instrument diagrams. Each of those documents just listed, require significant time and expense to prepare at the design stage. The preparation becomes much more costly for plants that have been operating without a compliant PSM program.

Process Hazard Analysis This is described in 29 **CFR 1910.119, Appendix C as “one of the most important elements of the process safety management program.

PHA is an organized and systematic effort to identify and analyze the significance of potential hazards associated with the processing or handling of highly hazardous chemicals.”

Operating procedures and practices This section of the PSM should accurately reflect the process’s standard operating procedures, work flow, required documentation, operating conditions, sampling requirements and health and safety requirements to be followed by the employees.

Employee training A clearly defined training program must be established. Employees must be able to demonstrate their knowledge to an acceptable level.

This should be documented through written and practical testing or some other mechanism.

Contractors A screening process must be established to ensure that any contractors hired by the employer are qualified to perform their jobs under PSM. Contractors should be advised of the PSM plan and prohibited from making changes to the physical plant without verifying that such changes are consistent with the plan and then incorporated into the plan. (See Managing Change below.)

Mechanical integrity Routine review of the facility’s maintenance programs and schedules should be conducted to ensure the reliability of the equipment used in the process. The equipment to be monitored should include not only those directly in the process, but also those that are considered a primary or secondary line of defense (venting, scrubbers, alarms, sprinklers, overflow, etc.).

Managing change The PSM standard defines change to include any modification in equipment, procedure, materials, or conditions, unless it’s a “replacement in kind.” A change management team should study, document and approve all changes.

Emergency preparedness and investigation of incidents Procedures must be established to inform employees of their responsibilities in the event of release of highly hazardous chemicals.

Local emergency response agencies should be advised of hazards associated with the process and included in emergency planning.

Employers must also develop a procedure to investigate any incident that occurs at their facility.

The PSM standard applies to most biofuel facilities. Compliance with the standard will take time, expertise and resources. Contracts for construction of facilities should include a warranty that the plant and documents will be compliant with OSHA regulations including PSM. For those acquiring an existing facility, compliance with the above elements should impact the purchase price or be a condition of closing.

Therefore, someone with PSM expertise should be included in the due diligence team. * North American Industry Classification System ** Code of Federal Regulations Author: Charles B. Palmer Michael Best & Friedrich LLP 262-956-6518 cbpalmer@michaelbest.com.

SEPTEMBER 2014 | Ethanol Producer Magazine | 45

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