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Valero Gets Corny, Plans to Buy VeraSun's Ethanol Plants

Massive oil refiner Valero Energy has been taking stakes in biofuel startups over the last year, including algae fuel maker Solix Biofuels, and cellulosic ethanol maker ZeaChem. But now the company has a different sort of biofuel assets in mind — not next-gen technology, but the corn ethanol plants of bankrupt ethanol producer VeraSun. VeraSun said late Friday that it is in the process of selling all of its assets to Valero for $280 million.

Why on earth would the oil refiner want the leftovers of a corn ethanol maker that clearly couldn’t make the financials work in this difficult economic climate? VeraSun CEO Don Endres painted a pretty grim picture in Friday’s announcement, saying the decision was based on “current difficult industry conditions and continued constrained credit markets.” Last week the large ethanol producer Archer Daniels Midland said that almost 21 percent of U.S. ethanol production capacity has been shuttered due to weak demand and slim margins.

Well, as the WSJ’s Environmental Capital points out, ethanol mandates, which require oil refiners to blend a percentage of ethanol into gasoline, aren’t going anywhere — and now is the time to scoop up cheap distressed assets. The ethanol markets aren’t expected to get better anytime soon, but it’s not that much of an expense for an oil company’s balance sheet. Like Robert Rapier says in his R-Squared Energy Blog “I don’t expect that this is the last we will see of this.”

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