Refiners move into alternative fuels
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Oil companies shop for discounted ethanol plants forced into bankruptcy by economy, frozen credit, wildly swinging corn prices; of some 200 U.S. plants, about two dozen in bankruptcy
William Kates Associated Press Writer
When Sunoco closed in mid-June on the acquisition of a bankrupt ethanol plant in Fulton, N.Y., for pennies on the dollar, it became just the latest oil refiner to step into the alternative fuels market.
Traditional refiners under pressure to reduce emissions are finding new avenues to meet evolving environmental standards, and finding big bargains along the way.
Sunoco made its initial bid just weeks after Valero Energy Corp., the nation’s largest independent oil refiner, became an ethanol plant owner the same way.
“You are going to see this become a trend ... especially with the government wanting to go green,” said Daniel Flynn, who follows the renewable fuels industry for Chicago-based Alaron Trading. “There are a lot of these ethanol plants hanging by a hair. This could be the perfect time for the big companies to step in.”
In April, San Antonio-based Valero bought seven large ethanol plants in the Midwest from bankrupt VeraSun Energy Corp., the nation’s second-largest producer of ethanol, for $477 million.
Sunoco snapped up the $200 million Northeast Biofuels plant in upstate New York for $8.5 million.
Over the past couple of years, Marathon Oil Corp. has acquired large stakes in ethanol plants in Illinois and Ohio, each with more than a million gallons in annual capacity.
Plant to be refurbished Philadelphia-based Sunoco will spend as much as $20 million to refurbish the plant and get it to its full 100-million-gallon per year production capacity by early next year.
Sunoco blends about 460 million gallons of ethanol with gasoline each year.
The Fulton, N.Y., plant will supply nearly 25 percent of the ethanol Sunoco needs to meet renewable-fuels standards, said spokesman Thomas Golembeski.
The plant is close to Sunoco’s main operations in the Northeast where many of its 4,700 gas stations are concentrated, but the shift in U.S. energy policy was a big motivator.
“We also view this as a first step into an area of possible growth for the company,” said spokesman Thomas Golembeski.
The ethanol industry has been shaken by the financial crisis. Credit has frozen over and producers were wholloped by wild swings in the corn futures market, the feedstock for fuel. Ethanol prices have plunged.
At a June biofuels conference in Colorado, there were workshops for distressed businesses.
Some 200 ethanol plants There are about 200 ethanol plants in the United States, according to the Renewable Fuels Association, a Washington, D.C.-based industry trade group.
Between 170 and 175 of those plants are currently producing about 10.5 billion gallons of ethanol a year, said Matt Hartwig, an RFA spokesman.
About two dozen other plants with an additional combined capacity of 2 billion gallons a year are currently idle, about half of them in bankruptcy, Hartwig said.
That is where big oil refiners, with much bigger revenues, come in.
The entry of traditional oil companies is part of a natural industry evolution, Hartwig said.
“You will continue to see the more familiar, farmer-owned model ... but the industry is big enough, diverse enough for different business models and ownership structures,” Hartwig said. Demand will increase Despite the ethanol industry’s growing problems, demand for the fuel will increase. The U.S. Environmental Protection Agency’s proposed renewable-fuels standards call for a jump in ethanol production from 9 billion gallons last year to 36 billion gallons by 2022.
Much will be corn-based, but some will come from other biofuel sources such as willows or sugar cane.
Rick Kment of DTN in Omaha, Neb., said most oil companies were not interested in building their own ethanol production plants because of the financial risk.
But don’t be surprised if the top U.S. oil companies — Exxon Mobil Corp., Chevron Corp. and ConocoPhillips — don’t make the leap, Kment said.
“For them, a 50 million gallon, or even a 100-million gallon plant would only produce a drop in the bucket of their total needs,” Kment said.
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