Blog Post

Corn Ethanol Boom Fading, But Get Ready For Round Two

Wow, the bloom sure has started to come off the corn-based ethanol rose. We’ve been detailing the backlash against biofuels recently, and over the past few days, prominent articles in the mainstream media – The Wall Street Journal, The New York Times, and The Economist – have all declared the corn-based ethanol boom to be sputtering, in part because a surplus has pushed the average national ethanol price down 30 percent since May.

The WSJ says the price drop, combined with the rising cost of corn, is pushing some ethanol plants to the brink of bankruptcy. Meanwhile, financing for new ethanol plants is drying up and plans to build new plants are being shelved. Some ethanol companies are “under deathwatch,” the WSJ quotes Chris Groobey, partner with a law firm that has worked with lenders and private-equity funds involved with ethanol, as saying. Part of the price fall comes from the fact that oil companies aren’t blending it with gasoline as quickly as the fuel is being produced.

The ethanol industry is also facing a glut, because while the government has supported production, there’s been a lack of transportation infrastructure and flex fuel vehicles. Since standard ethanol is corrosive, it can’t be shipped in the traditional fuel network, and vehicles need to be altered to use the biofuel as well.

The NYT’s quotes an economics professor from Iowa State University:

“This is a dangerous time for people who are making investments” – Neil E. Harl, economics professor, Iowa State University, via NYT.

Not fully articulated in the NYT or the WSJ articles is the fact that most investors see corn-based ethanol as a stepping stone for the next phase of cellulosic non-food crop-based biofuel, which startups are struggling to bring to market. The government, venture capitalists, and universities (as well as Wired, as per its cover story last week) are all betting that cellulosic ethanol will be the key to ethanol and biofuels infiltrating U.S. transportation in a fundamental way.

The Economist, on the other hand, does a good job of outlining four firms that are working on some next-gen biofuel technology whose properties are similar to those of standard gasoline. Codexis, from Redwood City, Calif., is developing “biopetrol” made through a process they call “molecular evolution,” where numerous enzymes are developed and selected in a process not unlike natural selection. Amyris Biotechnology, of Emeryville, Calif., is turning to synthetic biology to use living organisms to make a gas substitute. We’ve covered the Khosla-backed LS9, and Synthetic Genomics, the Rockville, Md.-based startup led by Craig Venter, is probably the most high-profile startup to come out of this area.

While all these doomsday predictions in the media are of little comfort to investors in corn-based ethanol, we still have some faith. New technology being developed in the labs of startups promises to offer efficient, market-supported, non-corn based alternatives. If that can happen in a relatively short time frame (the next few years), we may very well have another ethanol boom on our hands.

7 Responses to “Corn Ethanol Boom Fading, But Get Ready For Round Two”

  1. Kendall Linzee

    I had a car that ran on 100% ethanol 22 years ago.
    $370 is all it takes to convert the average four cylinder engine. Higher compression ratio engines are better candidates. Autos made from the middle 1980’s on have fuel system components that will not be harmed by running Ethanol. It’s my understanding that field corn requires a lot less than other food crops. Newer tech autos are a great opportunity for car companies to keep you coming back to them and not more the more affordable independent auto repair shop. Ethanol works in Brazil because the wealthiest people own the sugar cane. If scientists would visit the work place, and workers would share a concern for making bio-fuel work. Then we can stop bandying about misinformation and hold Government responsible. If you can afford the new plug-in that isn’t presently mass produced and like it that’s great. I can’t help thinking that our throw away economy will just continue. People will keep their plug-in or new “high-tech future machine” for fives years then just buy a new one. Natural resources can’t keep up with our obsession with “new”. My twenty year old Saab runs great on ethanol. Must be all that Socialist steel.

  2. dan ritter

    with the price of oil climbing and ethenol prices droping the time is ripe for home heating to be converted to ethenol heat. i ran my furnace on 80 % ethenol last year and saved a ton of cash and a ton of polutents i won’t breathe in. Maybe there should be new markets opend in home heating with etheonl, that would keep the processors busy and the prices down in home heating.
    thanks dan ritter
    Shelton, Ct.