Saturday, February 7, 2009

Ethanol Producer VeraSun Energy Finds Sucker

There's always a sucker to find to sell a worthless, and less than worthless piece of business property to, and VeraSun Energy Corp. surprisingly has done just that in clueless Valero Energy Corp., which will pay VeraSun Energy $280 million for the privilege of taking fiver VeraSun plants off their hands.

Boy am I glad I don't own shares in Valero Energy, as this will pull them down in a big way, as the hapless ethanol prodcution industry collapses around it. I would have thought VeraSun would have paid that much just to get rid of them.

Now that the company has received and agreed to a deal, per terms of their bankruptcy, tehy now must hold an auction to give other companies a chance to make rival bids. Anyone else dumb enough to do this out there?

If perchance any other qualifying bids are offered, an auction will be held on March 16 to battle over the VeraSun corpse. Bidders have until March 13 to submit qualifying bids.

VeraSun is attempting to sell all 16 of their existing of its ethanol plants.

Along with the acquisition price of $280 million, the deal would be plus value of inventory and certain pre-paid expenses, for production facilities in Aurora, South Dakota; Charles City, Fort Dodge, and Hartley, Iowa; and Welcome, Minnesota; and a site under development in Reynolds, Indiana.

Under terms of their Chapter 11 bankruptcy, the court also gave Verasun permission to sell seven of the eight ethanol plants they acquired from U.S. BioEnergy last year (smart company to get out at the right time), although none of those are included in the Valero energy deal.

VeraSun CEO Don Endres said that taking into consideration the terrible conditions of the ethanol industry and supposedly difficulty in getting credit (who would give it to them in the best of conditions), this seems to be the best avenue to take.

The truth is the ethanol industry is a disaster and shouldn't be part of the alternative fuel scene in any form. VeraSun is the best example of that, as they would be completely destroyed if someone didn't come buy and pick up the shattered pieces.

I don't know what Valero Energy executives are thinking, but this makes no sense. If I was a shareholder I would be screaming bloody murder and lining up lawyers. This is an outrage that will push Valero Energy's value down for years to come. There just isn't any upside for this at all.

VeraSun should have simply been allowed to fold up and fail. But this is being pushed behind the scenes by government officials who know the truth would come out more into the light about the misguided fuel mandate involving ethanol as a biofuel. Opposition is growing as they attempt to salvage one of the more unpopular government hand outs ever.

All the operations and production facilities are being attempted to be sold by VeraSun so they don't make the government fiasco look so bad. I'm really surprised anyone with an ounce of brains would have taken on this huge debt and was willing to throw money down a bottomless rabbit hole.

Managing the sales process and acting as a financial adviser for VeraSun is Rothschild Inc, while advising Valera is Credit Suisse.

Someone is finally doing something right for VeraSun, too bad it wasn't before they entered into the ethanol industry at all, and were decimated and humiliated as they couldn't even make money with a taxpayer subsidized industry. I can see Valero Energy getting into shareholder trouble in the future as the weight of adding this to their bottom line pummels shareholder value in the company.

Friday, February 6, 2009

Ethanol | Worse than Gasoline

... says a study from the University of Minnesota on corn-based ethanol

Ethanol continues to get hammered as another study, this time from the University of Minnesota, says the costs are much higher than originally anticipated, and is higher than gasoline when taking into account all factors.

Health, environmental factors make conventional ethanol costly, but the market for alternative fuels is tanking

As noted in The New York Times yesterday, researchers from the University of Minnesota compared the cost of corn-based ethanol to the cost of gasoline and found that ethanol costs more when environmental and health factors are included.

The process of making ethanol is energy-intensive, and the most expensive ethanol is made with corn in facilities that burn cheap but polluting coal.

According to the study, “Climate change and health costs of air emissions from biofuels and gasoline,” the numbers are grim.

“For each billion ethanol-equivalent gallons of fuel produced and combusted in the U.S., the combined climate-change and health costs are $469 million for gasoline, $472–952 million for corn ethanol … but only $123–208 million for cellulosic ethanol [ethanol derived from prairie biomass, corn stalks, switchgrass or other sources],” the study says.

The huge range of cost for corn ethanol is due to the different methods used to produce the fuel. The $952 million number is for ethanol made using coal, a method that’s being used in an increasing number of ethanol facilities.

As Grist noted back in 2006, “More and more ethanol manufacturers are looking to power their plants with cheap coal instead of its cleaner and increasingly expensive competitor, natural gas, thereby potentially limiting ethanol’s environmental benefits.”

The University of Minnesota study includes charts and maps, including one that shows a big, dark red blotch — next to New Mexico — that indicates where corn ethanol is made with coal.

Without those handy state border lines it’s a little hard to tell what’s what in those pictures above. But here’s another map that puts it in better perspective:

The map is a little old; there are now three plants in operation in Texas and seven more planned.

That green dot in New Mexico is the Abengoa Bioenergy plant in Portales. Built in 1985, it was producing 30 million gallons of ethanol before a temporary shutdown in October due to fluctuations in both the grain and oil markets.

Most of the city of Portales gets its power from Xcel Energy, which sells power generated New Mexico and Texas, including two coal fired power plants in West Texas. About half of Xcel’s power — 52 percent — comes from coal; 41 percent comes from natural gas and 7 percent comes from wind and other renewables.

“The coal plants run about 24-7 because its the least expensive and the most efficient,” says Wes Reeves of Xcel.

More than 70 percent of New Mexico’s power is generated at two coal-fired plants near Farmington (pdf). Carbon dioxide emissions from coal make up more than half of the emissions from power plants in New Mexico.

Because producing ethanol is so energy intensive, many ethanol plants don’t buy electricity; they either buy natural gas or they have their own power plants, which burn coal or other fuel, such as cow poop.

When the Abengoa plant is running, it uses the cleaner, but more expensive, natural gas. Abengoa, which is headquartered in Spain, does not have any coal-fired ethanol plants, says Vice President Christopher Stanley.

The Portales ethanol plant had to close temporarily because the high price of grain sorghum and milo — the raw ingredients it uses to make ethanol — is relatively high, while the price of gasoline, which largely determines the price of ethanol, is low.

“It’s all market-driven,” Stanley says. “It’s our intention to resume production as soon as the market improves.”

And the market is not good. As the Times noted earlier this week, the crummy economy and the credit crisis have put a serious dent in the market for alternative energy. Companies that make wind turbines and solar panels have all laid off workers; biomass and geothermal groups have also seen a slowdown. Meanwhile, the falling price of oil has put a kink in alternative fuels’ chain.

One ethanol plant in Hereford, Texas, which broke ground in 2005, planned to use manure from nearby dairy farms rather than natural gas or coal for power. But less than two weeks ago, the company, Hereford Biofuels, filed for bankruptcy and announced it was putting the still-unfinished plant up for sale.

Algae-derived biodiesel is attractive in part because conventional biodiesel is made from soybeans, and like corn-based ethanol, is subject to the “food or fuel” debate. And demand for biodiesel is increasing; in 2007, the New Mexcio Legislature passed the Biodiesel Standards Act, which will require 5 percent biodiesel in state vehicles by 2010 and for all vehicles by 2012. The state is also offering tax credits to facilities that install blending equipment.

The Center of Excellence for Hazardous Materials Management, working in partnership with Los Alamos National Laboratory and New Mexico State University, has developed an algae biodiesel test project near Carlsbad.

“In Carlsbad we’re hoping to take microalgae to market. The project has the potential to make biodiesel that wouldn’t use a field crop but would take advantage of some wide open spaces and brine water,” says Fernando Martinez, director of the Energy Conservation and Management Division of the New Mexico Energy, Minerals and Natural Resources Department.

But is algae biodiesel economically viable? Last year, Doug Lynn, the center’s executive director, said he was cautiously optimistic that biodiesel could be produced from algae for $80 per barrel. That’s a lot better than last year’s $150 per barrel prices for oil, but not compared to the $40 we’re paying right now.

In the aftermath of yet another study critical of corn-based ethanol, ethanol backers are expressing frustration with what they consider faulty research.

Dr. Martha Schlicher is the former head of the National Corn to Ethanol Research Center and now vice president of Illinois River Energy. She says the recent University of Minnesota study, like others in the past, fails to recognize dramatic technology improvements occurring in corn ethanol production.

“Science grows and develops and gets perfected with time,” Schlicher says. “We have a willingness to accept that in the medical field—I think brain surgery and heart surgery have probably improved dramatically. Antibiotics have improved dramatically.”

In the Minnesota study, for example, Sclicher says researchers failed to mention that natural gas and electricity could eventually be eliminated from the ethanol production process, which would greatly alter its emission profile.

While negative to corn ethanol, the Minnesota study was very positive to cellulosic ethanol. However, Schlicher thinks it “over-promises” on the potential of cellulosics.

“If we think for a minute that cellulosic-based ethanol, or an advanced biofuel, is going to be perfect when it gets to market, we’ve got another think coming,” Schlicher says, “and then we’re right back to the same old starting point and we’ll never have an alternative to gasoline.”

Schlicher says cellulosic ethanol is an important part of our renewable future. But while it is being developed, she says America should optimize the base of production that it has today in corn ethanol.

Even with these continuous misguided and dishonest calls for ethanol as a biofuel, and even looking to the more expensive cellulosic ethanol as a future alternative to corn-based ethanol, it looks like its backers are looking at it as a form of environmental religion, as they continue to ignore the disaster that ethanol in whatever form it takes is.

Thursday, February 5, 2009

Ethonal: Ethanol Terrible Investment

Remember just a couple years ago when everyone was asking if ethanol was a risky investment? Well, we've got that answer in spades, as company after company falters and most companies with their primary focus on ethanol teetering on the brink of bankruptcy or already in it.

Even giant Archer Daniels Midland got clobbered with huge losses, even though they performed well in other areas to enjoy one of the few profitable quarters among that sector. That was in spite of their investment in ethanol and the ethanol industry, not because of it.

Anyone who has invested in ethanol stock is sorry they did it, along with ethanol companies created to benefit off the back of taxpayers funding. The flex fuel is a disaster, and whether someone worships at the altar of renewable fuels or not, they have to admit the future is not only grim, but impossible to successfully navigate if ethanol - whether it's corn based or cellulosic - is the source looked for in the renewable fuels sector.

Not only is ethanol have huge inputs that affect the environment, but as an alternative fuel is a disaster, with a number of studies showing it's going to cost far more per gallon than gasoline, than originally expected.

There really is no market for ethanol, and as far as small engine power equipment goes, it continues to damage them, even though those trying to force the ethanol industry on the rest of us aren't willing to admit it, even though manufacturers and small engine repair shops continue to say they're filled with snowmobiles, generators, chainsaws, and other small engine equipment using ethanol as part of their fuel.

When you also consider the mulit-millions used to build ethanol plants and artificially create ethanol producers, you see that taxpayer money could have been used for something much better than this misguided fiasco.

Add the current economic problems to the mix and it's even a great disaster. Ethanol plant construction is largely on hold; you can't send it through pipelines to get it cheaply to where it is needed; and in the name of the dubious idea of generating jobs build upon an illusion is worse than not doing it in the first place.

Producing ethanol as far as all costs concerned was vastly underrated, and the effect of using so much acreage to grow corn on the artificial prices that couldn't hold up, caused food prices to surge and riots around the world as people struggled to survive because of corn being used to feed the environmental nuts dream of nirvana rather than people.

So now most ethanol companies are a disaster; ethanol stocks have plummeted; ethanol as an investment is ridiculous; and it damages small engines and even some cars using e85 in their vehicles. And we're obsessed with ethenol why? Because people are trying to get the public eye off the billions of barrels of oil on American land and off its coastlines. They're pretending we've entered into a crisis period when in fact billions of barrels of oil are available for consumption.

No matter how the ethanol marketing campaign is arranged, you can't hide the horrid idea it has become, nor the huge, negative impact its having all around. Many original ethanol proponents have change their minds about its viability as a biofuel because of its challenges that aren't able to be solved.

Every aspect of it has failed, and yet because of the powerful farm lobby, which has nothing to do with small farmers but rather billion dollar companies getting tax breaks to pursue the stupid idea, we continue to waste huge amounts of money and time for something doomed to fail.

The ethanol industry is dead on arrival. Let's just admit it, start to open up our land and coastlines to the hundreds of billion of barrels of oil available, and then slowly look for real, viable alternatives.

The fear generated from marketing ethanol that we are somehow some type of dire need to find alternative fuels is an outright lie. The results of the debacle show that fear-induced initiatives never work, as it isn't thought through, but enacted for political expediency.

Ethanol is a poor and misguided investment of time and money. We need to move on, knowing we aren't in a hurry, and there's plenty of oil for decades to come we can access and produce instead of investing in the losing ethanol industry.

Wednesday, February 4, 2009

Ethanol: Archer Daniels Midland Company

Even though Archer Danels Midland Company (ADM) reported extraordinary profits for the economic climate they're operating in, those very profits caused consternation among many industry watchers, and even resulted in JP Morgan downgrading them from their suspicions.

Ethanol has been a huge downward pull on the company, as low gas prices and demand make it a disastrous sector to be operating in; and there's no quick way to get out of it. That's what happens when huge companies like Archer Daniels Midland Company suck from the government teat and then get sour milk. This is going to be the story of ethanol and companies trying to exploit taxpayer financed loopholes that give them tax credits that prop up and create an otherwise non-existent market.

Clueless Archer Daniels Midland Co CEO Patricia Woertz said during a conference call that the company didn't foresee "the depth of this current economic crisis or the decline in gasoline demand.” Strange, even a general bystander saw that the economic pressure would cause consumers to stop driving and traveling as much. That comment doesn't make much sense.

As far as the drag that ethanol had on Archer Daniel Midland Company profits, losses from ethanol, and to a smaller degree from other bioproducts came to a huge $111 million just for the three months ending in December.

Also during the call, the third-largest U.S. ethanol producer, Archer Daniels Midland Co., siad that the ethanol business is "challenging." Duh! Ethanol isn't just challenging, it's ignorant and needs to be dropped as a taxpayer subsidized socialist project it is.

What this shows is that any something happens in the economy to slow it down, ethanol will hit companies hard, along with its workers and investors, and cause everyone pain. All that because the government has blocked oil companies from drilling the hundreds of billions of barrels of proven oil reserves under U.S. land or coastlines.

We need to forget the misguided and criminal renewable fuels standard and forget this waste of time and billions of dollars on pursuing a pipe dream just so the government and its sycophants can say they're doing something about the alleged energy crisis that only exists because of government regulations creating it.

So far ethanol production capacity has plunged by 21 percent, that much being shut down in the U.S. as the numbers don't make sense. Ethanol capacity has fallen from 12.9 billion to 10.2 billion.

The response of Archer Daniels Midland Company to the disaster? They're going to make more ethanol facilities, as they're close to finishing two more ethanol plants in Cedar Rapids, Iowa and Columbus, Nebraska. What a waste of investors' money.

According to Archer Daniels Midland Company Chief Executive Patricia Woertz, profits for the company came for the most part from their agricultural services division, surging by $143 million for the quarter.

Even so, most of those profits came from successful hedging that locked in crop prices, giving them a big edge over their competitors who didn't fare nearly as well. The problem of course is there was some luck involved with those successful commodity futures hedges, and it isn't something that is reproducible going forward.

One successful element that can be reproduced for the ethanol company is the huge fee increases it charged for shipping grains overseas. That is the only bright spot for the immediate future that gives credence to the otherwise dubious profit gains of 24 percent, which was very suspect considering the rest of Archer Daniels Midland Company competitors did so poorly.

Analysts were not so kind with Archer Daniels Midland Company Chief Executive Patricia Woertz when she refused to identify where the profits specifically came from, with some even saying investors should be wary when they aren't allowed to look under the hood to see what makes it work.

That's another way of saying that there was a lot of luck involved, as when asked a number of times, Woertz refused to let it be known what made the company so profitable in such terrible conditions.

Again, if it was something reproducible, it would have been quickly identified by Woertz, as it would have been a competitive advantage which would have caused Archer Daniels Midland Company stock to surge ahead of its competitors.

So while ethanol pulled down ADM stocks, what evidently looks like a lucky timing of some hedging gave the company some good numbers. That unrepeatable situation has the ADM Corporation looking good, even though ADM stock quotes are not looking as good as you would expect in these circumstances.

ADM will probably be under more pressure from the tremendous numbers just because they revealed an unusual circumstance that obviously wasn't related to operational skill and productivity. That means that the guidance given that profits will be under pressure going foward for Archer Daniels Midland will be accurate, and the downward pressure of embracing the failing ethanol industry, as well as fairly long term economic slowdown will start to affect the grain company like any other.

This profit performance was an anamoly, and Archer Daniels Midland Company and Patricia Woertz know it. This is why any ADM news going forward won't be in line with what just happened with the company. It makes you think it would have been better to have underperformed so the obvious anamoly wouldn't have been so obvious and glaring.

Now the ADM stock will be under further pressure, assuming they won't be able to repeat the lucky hedging, or increase shipping fees at the rate they have been. Put that together with ethanol pummeling the company profits, and there isn't really any good news for ADM in the near or mid future.

Monday, February 2, 2009

Ethanol: How to Make Ethanol

While ethanol is a disaster, it's interesting to see the many people that look at it as a viable alternative energy and fuel, and search into how they can make ethanol on their own.

Regular ethanol has been extremely destructive to numerous small engine power equipment, and during the winter time we notice many of the snowmobiles, chainsaws and generators at the small engine repair shops as the alleged biofuel continues to destroy the parts and engines of the products, even though some proponents continue to pretend it's completely safe to use, while the equipment of ethanol users is destroyed, and in some cases becomes dangerous to use because of the potential consequences of getting stranded; as in the case of snowmobiles or motor boats.

Some even continue to claim the very expensive fuel and poor mileage (as far as it relates to vehicles) is inexpensive. But some studies have shown the price of gasoline would have to reach about $2.33 a gallon to be the equivalent of the high cost of ethanol.

So it can be understood why people that like to experiment and try things out would want to make their own ethanol for the purpose of accomplishing the task, it's hard to know why other than that someone would want to put it in any type of equipment they use.

Making ethanol is of course nothing new, as people have known how to make ethanol for a long time, using fermentation and the distillation of sugar and starch crops. Some of the obvious crops still used today to make ethanol are corn, cornstalks and sugar cane (in Brazil). Other crops used are potatoes, wheat and peelings from fruit and vegetables. Grass and wood chips or sawdust can be used as well, among many others.

It takes a lot of this stuff to even make one gallon of ethanol, as it takes about 10gallons of crops or other material to make a gallon of the fuel additive. So picture wanting about 10 gallons of the stuff. You'd have to have access to about 100 gallons of raw materials in order to make that much. It would take a ton of work just to gather that much together, even if someone was willing to give it to you to work with.

So what's the process on How to Make Ethanol?

To turn raw materials into ethanol, it requires five steps:


Whatever material you decide to use, it has to be converted by the sugars being broken down in the process. That's either done manually or by adding an enzyme.

In the fermentation part of the process, you're at the creation of alcohol stage, and so add yeast in a similar way you would if you were making wine.

The next stage in How to Make Ethanol is to use a still for the purpose of separation of the alcohol from the rest of the liquid. This is called Distillation.

For the next two steps you filtrate the liquid in order to remove the impurities in the liquid as well as the excess water remaining.

Materials needed to make ethanol:

A lidded plastic bucket or barrel

Because the liquid will start to ferment once the fruit or raw material is broken down, you should only fill it to about one-third full, or you'll end up with a messy overflow of the ethanol.

When using yeast, don't think in terms of the type you'd use for making bread. Rather, to make ethanol, us the type you would acquire from a store with supplies to make wine. That type of yeast is tolerant to ethanol.

Once you add the yeast to the mixture, use the hydrometer to measure the sugar content. Once you have that figure, cover up the barrel.

Simply let it sit for several days while checking the sugar content once a day. What you're looking for is the sugar content in the mixture to gradually decrease until there's zero sugar left in the ethanol. That will usually take about 10 days.

When that part of the process is completed, the mixture should be immediately distilled, or you risk damaging whatever equipment you might put the fuel into.

This could be an enjoyable experiment to have fun with, but doing this allows you to see the number of things involved with making ethanol, the high amount of inputs, and how a lot can go wrong with it while it's being made, which could damage your equipment.

In the end, it can be fun learning how to make ethanol, but I sure wouldn't really want to use it other than in something old to learn the damage it can cause.

Sunday, February 1, 2009

Ethanol | Greater Ohio Ethanol

Greater Ohio Ethanol - Another Reason to Abandon the Ethanol Debacle

The failure of the ethanol initiative is again unveiled as the Greater Ohio Ethanol company can't find a buyer that could justify the price and debt the company is attempting to command and owes.

Costs for the ethanol plant were an astronomical $150 million, without anything but a pathetic government mandate to force ethanol as a biofuel on the public. Even with taxpayer subsidies the biofuel can't even come close to producing a profit.

Unless Greater Ohio Ethanol is basically given away, it's not even worth the trouble. Even then it's doubtful it would be worth the headache of an inevitable shutdown. If someone takes this responsibility on, they deserve what they get, as it's been a losing proposition from the beginning.

While the ethanol plants' creditors are obviously trying to patch up as much damage to their investment as they can, they have absolutely no foundation to stand on, the reason deal after deal has been turned down.

So far two companies have made bids for Greater Ohio Ethanol, but they've both been rejected. Both companies have stakes in Greater Ohio Ethanol, as Paladin Capital Group of Washington, D.C. provided the equity to build the Lima plant, and NextGen Ethanol owns two of the ethanol plants currently operating.

Bills continue to mount in spite of the failed bids, and it'll keep getting worse the longer the bankruptcy proceedings last, as they're costly as well. There are still operational costs at the ethanol plant, along with construction bills that have yet to be paid. What a mess the misguided ethanol industry has become, and Greater Ohio Ethanol is a cover story to emphasize the debacle.

With creditors anxiously looking on, they've filed a motion to convert the Chapter 11 bankruptcy to a Chapter 7, as those unsecured debtors are in a secondary position, and probably will receive nothing under the Chapter 11. At this time a sale of the company would only benefit the senior, secured lenders. Of course the unsecured debtors knew this when they signed on, so it's nothing but their own fault for taking the risk.

Lima, Ohio is finding out the hard way, along with much of the midwest, that ethanol as a business is basically fools gold, and it's going to remain that way. The Greater Ohio Ethanol company, along with the numerous other ethanol companies, is a narrative showing ethanol as a biofuel needs to be abandoned as a viable alternative. The numbers just don't add up, and it's a waste of billions in taxpayer dollars.