Oil Companies Acquire More Ethanol Plants
FULTON, N.Y. — When Sunoco closed this week on the acquisition of a bankrupt ethanol plant for pennies on the dollar, it became just the latest oil refiner to step into the alternative fuels market.
Traditional refiners under pressure to reduce emissions are finding new avenues to meet evolving environmental standards, and finding big bargains along the way.
However, I think the article largely misses the point of why these transactions are taking place:
The plant is close to Sunoco’s main operations in the Northeast where many of its 4,700 gas stations are concentrated, but the shift in U.S. energy policy was a big motivator.
The entry of traditional oil companies is part of a natural industry evolution, [Matt] Hartwig [of the Renewable Fuels Association] said.
I don’t think these transactions are taking place because oil companies want to go green, or because they see this as a fantastic growth opportunity. They are doing this merely because they have been required to put ethanol in their gasoline. To meet their commitments, they can either purchase ethanol from the ethanol producers, or they can buy their own ethanol plants. If you can acquire ethanol plants for pennies on the dollar, it is cheaper for them to go that route. If, on the other hand they thought the mandates were going away, I don’t think they would be jumping in.
But don’t be surprised if the top U.S. oil companies — Exxon Mobil Corp., Chevron Corp. and ConocoPhillips — don’t make the leap, Kment said.
“For them, a 50 million gallon, or even a 100-million gallon plant would only produce a drop in the bucket of their total needs,” Kment said.
But again, it isn’t about their total needs. It is about meeting the ethanol mandate, which they can do by producing “a drop in the bucket of their total needs.” This isn’t about oil companies trying to become ethanol companies. The scale of ethanol is far too small for that. Even if the oil companies bought up all of the ethanol capacity in the country, it would still be only a drop in the bucket. But it would enable to them to fulfill the government mandate.