Ethanol plants taking big hits

Ethanol plants based on food crops are taking a serious hit because of the price hike for grains and the flooding in the Midwest that has wiped out a significant number of crops.

Recently, Heartland Ethanol tossed plans to build seven corn ethanol plants in Illinois, and even worse, it's dissolving the company -- all due to feedstock prices. VeraSun Energy is delaying construction at two of its plants because of the flooding.

With corn passing $8 a bushel and a 10% drop in production over the last year, it seems that corn ethanol is finally reaching the end of its popularity (of what little it had left), and corn ethanol plants are either already in or nearing the red without the prospect of getting funding thanks to the credit crunch.

Corn ethanol is likely just the first of many crop-based ethanols to take an immediate dive, despite the best efforts of biofuel companies. Ethanol stocks are getting downgraded since Citigroup analysts are predicting more large-scale shutdowns as small and midsize producers will be forced to close due to the price issues, representing a loss of between 2-5 billion gallons of ethanol per year.

Citigroup analyst David Driscoll is predicting that about 76% of ethanol plants are at risk of shutting down in the next few months. Earth2Tech has counted 11 plants whose operations have been suspended just since May (see the above map). Looks a little bit like a rapid downward spiral, doesn't it?

What does this mean for the future of biofuel? Well, most likely it means more research will go towards cellulosic ethanol and creating fuel from municipal waste, and companies already working on that technology will get a little more wiggle room from competitors for awhile. Figuring out how to turn trash into fuel is a whole lot more logical than turning crops to fuel anyway.

And I suspect fuel from algae will gain in popularity pretty quickly, making coal plants happy since it’s an opportunity for them to “green up” their image among the general population. I highly doubt the shutdowns will do much to change grain prices in the short term.

However, it’s tough to mentally dig ourselves out of yet another boom-to-bust industry in our already flailing economy, especially one that once held so much hope for those that wanted to "go yellow." We’ll just have to watch, wait, and hope that necessity is indeed the mother of invention and some awesome new cellulosic ethanol technology will bust wide open.

Via Earth2Tech, Platts, BiofuelsDigest