By Robert Rapier on Jul 19, 2012 with 5 responses
Midwestern Drought, Ethanol, & Renewable Fuel Standard — R-Squared Energy TV Ep. 26
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Robert,
While it may well be the case that the existing corn mandate will be met, there are strong indications that some plants may not make it through this high price cycle. Existing margins are, according to models, in the red and have been for several months, and there are rumblings of folks struggling to meet just their marginal costs.
We may see round two of the shake out that was led by Vera Sun’s collapse in 2008. Buying a de-bugged plant at 30 cents on the dollar makes some firms way more resilient than those who built when prices were highest and are still hanging in there.
Dave, I agree. Capacity was overbuilt following the original RFS, and RFS2 came to the rescue. I don’t see RFS3 riding to the rescue this time. There is likely to be a shakeout and some of the higher cost producers will be forced out of business.
RR
There is little doubt that the current run-up in corn prices will greatly complicate life for the Ethanolistas since the the affordable food for the world crowd (and that is most of us–properly deputized or not:) will demand adjustments to (further) ease the burden on food v. fuel. Will this enhance the political opening for those who already hold a grudge against biofuel–or at least alcohol fuels? Probably. Is there any risk that ag-state Republicans of the Midwest/South will begin to go wobbly with an onslaught of criticism from the more conservative element of their party? Possibly. Are there similar prospects that Blue-dog Democrats who continue to see the growing heartburn of their constituents about Uncle Sam’s tidal wave of red ink will reconsider their support of some biofuel incentives? Probably. Does this specter of second-thoughts present a scenario where some foundational adjustments will be made to the RFS to reflect a now fully mature biofuel industry that has increasingly brought the world’s largest energy and chemical companies into the production mix (and as some may say, feeding at the trough)? Probably. This session of Congress witnessed the elimination of ethanol tax credits. What will the next Congress introduce into the (r)evolution of the bioenergy industry? Well, I can promise that it will be less than what we really need and much more than what defenders of the status-quo are willing to accept. Nothing new there, eh.
Ben
Kudos on that comment.
What the next congress needs to do is impose a national mandate for CTL/GTL fuel in the national blend.. start at 1%