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A workman welds pipes in the boiler room of an ethanol plant under construction in Mead, Nebraska, in this Jan. 18 photo.
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Eager to build a plant that would turn corn into 108 million gallons of ethanol a year, Chet Perry got all of his ducks in a row.
His ITEC Refining and Marketing Co. got a site near Princeton in north-central Illinois labeled an enterprise zone to accommodate his plant. After months of waiting, it finally snagged the crucial state air quality permit in July.
Like many other would-be ethanol plants in the Corn Belt, Perry’s venture is stalled at least for now, thanks to soaring construction costs compounded by high corn prices that have swelled operational expenses. The sliding price of ethanol sure hasn’t helped, AP reported.
When it comes to moving dirt for new ethanol sites, “almost everyone is on hold,“ Perry said, still hoping to break ground early next year. “We definitely are going ahead with the project. It’s a matter of timing.“
Similar stories are playing out elsewhere.
In Iowa, the nation’s top corn producer, there have been only two new plant construction starts this year--the lowest number at this time of year since at least 1999, said Monte Shaw of the Iowa Renewable Fuels Association.
In Illinois, the state environmental department has doled out 38 construction permits on 53 applications it received since the beginning of last year, the agency’s Richard Breckenridge said. But just five of the plants are under construction, the Renewable Fuels Association trade group says.
On Oct. 1, VeraSun Energy Corp.--one of the nation’s largest ethanol producers--said it would halt construction of a 110-million-gallon-per-year biorefinery in Indiana.
The price of ethanol has slid by 30 percent in recent months and now stands at about $1.60 on the Chicago Board of Trade. At the same time, the price of corn--ethanol’s chief ingredient--remains high, squeezing margins.
And prospects of a glut loom: US ethanol demand now is less than 7 billion gallons, though the nation’s ethanol capacity by next year could reach 12.4 billion gallons, according to Eitan Bernstein, an energy analyst at Virginia-based Friedman, Billings, Ramsey and Co. That imbalance will hold down prices possibly through 2008, he said.
The slowdown isn’t likely to affect build-outs already under way and those with financing in place. But it raises questions of whether the fuel additive touted by President Bush and lawmakers as way to cut the nation’s dependence on foreign oil has been overhyped.
Across the country, the number of ethanol plants has ballooned to 129 today, up nearly 50 from 2005, the Renewable Fuels Association says.
US ethanol production has swelled 15 new refineries came online last year and, combined with other expansions, added more than a billion gallons of production capacity. More than 6 billion gallons of additional capacity could come online by 2009.
But Perry, whose company has had its hands in ethanol since the 1980s, said the climate for building new plants began souring last fall, when sometimes breathless attention to what many considered ethanol’s booming renaissance sent the price of corn spiking. Early this week, ethanol plants were paying about $3.30 per bushel of corn, down from last year’s even loftier levels.
Construction costs got “out of whack“ starting in the summer of last year, with plants that could be erected for $1.36 to $1.41 per gallon of ethanol lately costing $2.10 per production gallon, Perry said.
Combine that with the sliding price of ethanol, and any possible cash flow vaporizes, he said.
Initially put at $136 million last summer, the price tag of Perry’s project swelled to nearly $200 million until it recently began to drop.
Partly to blame was the cost of nickel and steel--key ingredients in stainless steel, a component needed for ethanol production. They shot up because of demand from China, inflating Perry’s budget for the product by $39 million. And the cost of dryers used to rip moisture from distiller grains--a byproduct of making ethanol, used to feed livestock--has doubled from the $1 million to $1.2 million the equipment was fetching last year.
Construction of at least nine ethanol plants in Nebraska will continue and by the end of next year should double the state’s capacity to about 2.25 billion gallons, said Todd Sneller of the Nebraska Ethanol Board.
But citing “uncertainty of the ethanol marketplace,“ Sneller said that moving the 45 other Nebraska ethanol projects beyond the blueprint stage will be achieved by those companies with experience in a “very cyclical“ industry.
Because of federal mandates requiring the use of ethanol--and prospects that Congress might significantly boost those demands--“it’s not the end of ethanol,“ said Bernstein, the energy analyst.
But “I think it’s the beginning of rationalization.