Here’s another reason Obama should keep the corn ethanol industry at arm’s length — close to three quarters of U.S. ethanol plants, or 123 of America’s 160 operating ethanol plants, are at risk of being shuttered in the coming months, according to Citigroup analyst David Driscoll. (hat tip MarketWatch). Small and mid-sized ethanol plants are in trouble due to a record-setting spike in corn prices, bumped up by the Midwest floods and increasing demand. This news comes after Citigroup downgraded all the major publicly traded ethanol players including Archer Daniels Midland, BioFuel Energy and VeraSun Energy.
Plans for new ethanol plants are being put on hold or canceled, too. Since May we’ve counted 11 planned plants suspended (check our map, embedded above). The credit crunch is making it increasingly difficult for proposed plants to get financed. Heartland Ethanol announced last week that it has pulled the plug on seven planned ethanol plants. Walker R. Filbert, the president of developer Heartland Ethanol told the News-Gazette that the company was unable to get bank loans to finance the plants. Filbert said: “We’ve been digging out from [the credit crunch] for 10 months for all businesses, let alone ethanol plants.”
Citigroup also cites the political backlash and the recent entry of the Grocery Manufacturers Association into the anti-ethanol debate as more factors working against ethanol investments. Many politicians, including presidential candidate John McCain, have called for a reexamination of the biofuels mandate, which would require 36 billion gallons of biofuels annually by 2022, 15 billion gallons of which is to come from corn. Venture capitalist Vinod Khosla recently sounded off in the Wall Street Journal saying a reduction in the mandate “could be disastrous for energy security and the environment.”
All of this adds up to a huge blow to an industry that had grown explosively. The Renewable Fuels Association estimates that domestic ethanol production has quadrupled to 9.2 billion gallons a year since 2000. But as much as 5 billion gallons of that capacity could go offline in a matter of months, Driscoll warned. As former CEO of biodiesel producer Imperium Renewables Martin Tobias writes on his blog: “US ethanol producers are screwed. I expect oil companies to make offers to buy Verasun or Aventine before the end of the year.”