Valero Now in the Ethanol Business
In an update to Big Oil Buys Big Ethanol, it is official:
Valero Energy, the country’s largest independent refiner, said on Wednesday that it would buy seven ethanol plants from VeraSun Energy for $477 million, giving the biofuel industry a lift at a time when it is suffering from excess production capacity and falling gasoline consumption.
VeraSun, the nation’s second-largest ethanol producer after Archer Daniels Midland, filed for Chapter 11 bankruptcy protection last fall. Valero’s purchase signals important new support for a flagging industry from an unexpected quarter. In recent years, refiners have opposed Congressional mandates for refineries to blend increasing amounts of ethanol in gasoline, arguing that it made neither economic nor environmental sense.
So, for the price of $477 million, which would be less than 5 days of profit for someone like ExxonMobil, you can be the 2nd largest ethanol producer in the country. Even for Valero, $477 million is a piece of cake. Like I say, people who think the ethanol industry is a threat to the oil industry don’t understand the difference in scale between the two. If ethanol starts to look like a good business model, the oil industry will buy up the assets without breaking a sweat. The first salvo has been fired.