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Ethanol is a partial solution to the nation's petroleum addiction

Recent deals indicate that the ethanol industry is here to stay as investors pour money into production.

Neal St. Anthony, Star Tribune

August 7, 2006

 

The ethanol boom continues.

Last week, U.S. BioEnergy Corp., partly owned by the big farm cooperative CHS Inc., revealed that it plans to float a $300 million stock offering to help finance construction of new plants to produce 1 billion gallons of corn-based ethanol by 2009.

 

That amount of ethanol would supplant about 25 million barrels of oil annually, a good thing.

Still, there are limits to how much corn-based ethanol we can burn, those flag-waving, feel-good ads from General Motors aside. For one thing, most states don't have many stations yet that can pump "E85" ethanol fuel, a mix of 85 percent ethanol and 15 percent unleaded gasoline. Minnesota alone has about 250 of the nation's 700 or so E85-equipped stations.

 

Moreover, as Cargill CEO Warren Staley has pointed out, there's just not enough corn grown in America to satisfy anything approaching our gasoline appetite -- much less our taste for corn at the dinner table. It will be a stretch to supplant 10 percent of America's gasoline consumption with ethanol.

Still, it's high time to cut our daily consumption of about 20 million barrels of oil and other petroleum products. The oil addiction is bad for business. And national security.

 

The U.S. imports about two-thirds of its oil. That also fuels our mounting trade deficit and compromises our future and security in many ways, according to organizations such as www.setamericafree.org -- a collection of liberal and conservative statesmen, former military leaders and others wary of our oil habit.

 

To be sure, the ethanol boom is fueled partly by tax subsidies and the corporate-farmer corn lobby. That said, why should Exxon Mobil shareholders and Saudi oil princes have all the fun?

 

The ethanol industry also is driving innovation and energy independence at the margin. For example, Minnesota-based Great River Energy is a partner in a 50 million-gallon ethanol plant being built in North Dakota that will be powered by waste heat from Great River's adjacent Coal Creek power plant.

Critics have charged that the ethanol industry uses more energy than it creates through the refining process. It also takes a lot of energy to refine a gallon of gasoline from oil. But the ethanol industry is getting more efficient with each plant built and the Coal Creek project is another example.

 

Meanwhile, entrepreneurs are producing diesel fuel from soybeans and waste oil -- and experimenting with producing ethanol from stuff that takes little-to-no energy to grow: switchgrass, rapeseed, waste wood and garbage.

 

In Minnesota, unleaded gasoline already contains 10 percent ethanol, which also pollutes less.

 

Ethanol is good business for producers. As the nation's biggest producer of corn-based ethanol, Illinois-based Archer Daniels Midland Co. (ADM) is the corporate proxy for the ethanol industry. Its stock price has more than doubled in the past two years.

 

ADM's chief executive said recently that total U.S. ethanol production will triple from 5 billion gallons to 15 billion gallons annually within a few years. That's roughly 10 percent of the motor fuel the U.S. consumes in a year.

 

The 100-plant ethanol industry also is creating jobs. And the number of plants should double over the next several years as investors rush to what has become a very profitable industry.

 

In June alone, two ethanol producers went public -- VeraSun of Brookings, S.D., raised $419.8 million in its initial public offering, and Aventine Renewable Energy Holdings Inc., based in Pekin, Ill., raised $389.5 million. Another producer, Hawkeye Holdings Inc., based in Iowa Falls, Iowa, has an IPO pending.

 

But there are limits.

 

Cargill's Staley, speaking in May to business journalists in Minneapolis, said Cargill is investing more than $1 billion annually in ethanol and soy-diesel production.

 

But he also noted that Cargill's first commitment is to producing food and feed from corn. That perspective is important, he said, when you consider that even if all the U.S. corn crop were used to produce ethanol, it would replace only about 20 percent of motor fuel.

 

Ethanol has become part of our national energy strategy. But it is only a part of the solution.

Increasing the efficiency of the U.S. car fleet, frozen at about 25 miles per gallon since 1981, will be another very important part. And consumers already are demanding that, as General Motors and Ford are finding out. Sales of SUVs are down. Toyota, the leading producer of hybrids, has already passed Ford as the No. 2 seller of cars in the United States.

 

More hybrid engines, plug-in electric cars and other innovations also will keep our economy from being drained by our unhealthy oil dependence.

 

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com

 

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