While many ethanol plants have sprouted up on
the plains of the Midwest, energy analysts are torn as to
whether the market has plateaued.
Ernie P. Goss, economics department chair at
Creighton University, Omaha, Neb., said he sees the market for
ethanol-and the related steel products to refine and store the
fuel-growing. "There are a lot of new plants under construction
and we have a Congress and a President who are behind it," he
said. "If anything, we'll get more that way. I can't imagine it
not moving in that direction."
Oil prices have been going up and long-term
projections are for oil prices to remain high, Goss said. "Oil
above $80 a barrel does not bode well for gasoline derived from
And statistics point to more price increases
coming down the pipeline.
Ethanol production capacity stands at 6.09
billion gallons, with 6.43 billion more gallons expected over
the next two years, according to the Renewable Fuels
Association. Because of the growth in domestic ethanol
production capacity, the federal Energy Information
Administration expects that late this year ethanol usage will
surpass the 7.5-billion-gallon-a-year level mandated for
achievement by 2012 by the renewable fuels provisions in the
Energy Policy Act of 2005.
The only drawback is the potential for
ethanol plants to lose money in the current environment, which
includes tentative consumer acceptance, limited product
transportation and an increase in the price of the raw
"There are reports that some investors are
disappointed in what's going on with the profitability of the
plants, but in the long run we're talking about oil prices that
are rising," Goss said. "I have to believe in the short- to
intermediate-term it looks very good."
Six Midwestern states-Illinois, Iowa,
Minnesota, Nebraska, South Dakota and Wisconsin-account for
more than 80 percent of U.S. ethanol production, making it
challenging to distribute the product elsewhere. Corn sold for
$2.10 to $2.20 a bushel a couple of years ago, Goss said, but
is about a dollar higher now, which could spur further research
to develop other raw materials, like switchgrass.
Vincent Pappalardo, managing director of
Dresner Partners Investment Banking, Chicago, believes biofuels
made from used restaurant cooking oil could be an alternative.
"It's an incredible concept," he said. "They can't throw the
grease down the trap anyway, so it can be recycled this way. If
it really does take off, you'll be able to go to McDonald's to
Biofuel from used restaurant oils takes much
less refinement than corn-based ethanol, Pappalardo said. "On
the corn side, a million people are out there chasing projects.
A lot of projects got caught up in the credit crunch, and some
are not funded because they don't make sense economically. The
technology requires more energy than it produces. My concern
based on the research I've read is we can't grow enough corn to
make a dent."
Michael C. Lynch, president of Strategic
Energy & Economic Research Inc., Amherst, Mass., is equally
bearish. "The market is getting close to a peak," he said.
Much of the expansion in ethanol plants was
to replace methyl tertiary butyl ether, which is added to
gasoline in summer in areas of the country with high pollution.
"To increase ethanol demand further, it has to compete with
gasoline," Lynch said. "That's a lot harder."
The 5.4 billion gallons of ethanol consumed
in 2006 represents just 3.8 percent of the 141 billion gallons
of gasoline consumed last year, according to the American
Petroleum Institute, Washington.
"I doubt we'll see enough government
subsidies to make ethanol attractive as a fuel in the long
term," Lynch predicted. "Although gas prices have moderated and
may go up, longer term it will stay low enough that ethanol
will be more expensive than gas."