September 2014 Ethanol Producer Magazine

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Publication: Ethanol Producer Magazine (September 2014 issue)Trim Size: 8.5” (w) x 10.875” (h), Full page with bleed

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4 | Ethanol Producer Magazine | SEPTEMBER 2014

SEPTEMBER 2014 SEPTEMBER 2014 SEPTEMBER 2014 VOLUME 20 ISSUE 9CONTENTS

DEPARTMENTS

6 EDITOR'S NOTE Oh, They’re Good for It

By Tom Bryan

7 AD INDEX

10 THE WAY I SEE IT Getting Back to Basics

By Mike Bryan

11 EVENTS CALENDAR

12 VIEW FROM THE HILLRFA Internship Stokes

Student’s Enthusiasm By Evan Ludowese

14 DRIVEEngage Politicians

Before Midterm Elections By Tom Buis

16 GRASSROOTS VOICE Spirit of Innovation Alive and Well By Brian Jennings

18 EUROPE CALLING Recapping European Policy Decision Making By Robert Vierhout

20 BUSINESS BRIEFS

22 COMMODITIES

24 DISTILLED

54 MARKETPLACE

Ethanol Producer Magazine: (USPS No. 023-974) September 2014, Vol. 20, Issue 9. Ethanol Producer Magazine is published monthly by BBI International. Principal Offi ce: 308 Second Ave. N., Suite 304, Ethanol Producer Magazine is published monthly by BBI International. Principal Offi ce: 308 Second Ave. N., Suite 304, Ethanol Producer MagazineGrand Forks, ND 58203. Periodicals Postage Paid at Grand Forks, North Dakota and additional mailing offi ces. POSTMASTER: Send address changes to Ethanol Producer Magazine/Subscriptions, 308 Sec-ond Ave. N., Suite 304, Grand Forks, North Dakota 58203.

28 SHAREHOLDERS Looking for Liquidity Alternative trading systems provide shareholders an exit strategy

By Holly Jessen

32 LENDINGBanking on Biofuels A core group of lenders has stayed active through the industry’s ups and downs

By Katie Fletcher

38 PROJECTDakota Spirit Rising A corn-ethanol plant now under construction has 150 foreign investors from 10 countries By Susanne Retka Schill

FEATURES

ON THE COVER

PHOTO COURTESY: KARGES-FAULCONBRIDGE INC.

GAYLORD TEXAN RESORT & CONVENTION CENTERGRAPEVINE, TX

SAVE THE DATE!

FEB. 18-20, 2015

20TH ANNIVERSARY


FOR INDUSTRY NEWS: WWW.ETHANOLPRODUCER.COM OR FOLLOW US: TWITTER.COM/ETHANOLMAGAZINE

In June, I moderated a panel on ethanol plant capital planning and shareholder liquidity at the International Fuel Ethanol Workshop & Expo. The speakers explained the actions ethanol plant boards can take to maximize plant value, boost shareholder confi dence and achieve uninterrupted liquidity. Ethanol Producer Magazine Managing Editor Holly Jessen was in the room and listening intently. Her notes became the basis for this month’s page-24 feature, “Looking for Liquidity,” one of three pieces on fi nance in this issue.

Jessen reports that the everyday Americans who own ethanol plant shares have the same hopes as other investors: They put money into a business with an expectation of a return. Regardless of margins, there are always some shareholders who want, or need, to cash out. The ability to grant those exit requests—to pay out when asked—is liquidity. Fortunately, there are companies like FNC AgStock LLC and AgStockTrade.com that make liquidity easier through online listings of ethanol plant shares that are for sale. If you’re on the board of an LLC or any other nonstock-exchange listed ethanol plant, give this story a look.

It’s been a while since we’ve looked at banking. Truth is, there hasn’t been a lot of lending activity in our space since the downturn. Sometimes, however, a nonstory ends up being a good read. That’s the case with our page-32 feature, “Banking on Biofuels,” a long-awaited catch up with the Farm Credit System lenders who helped facilitate our industry’s fi rst build out. EPM Staff Writer Katie Fletcher jumps into the story with a simple question: With ethanol plants experiencing super-strong margins, are lenders lending? The answer is curious (hint: they never really stopped). Lenders are, in fact, engaged with the ethanol industry and actively looking at the capital projects that producers with strong balance sheets are bringing them. However, just because lenders are reengaged with ethanol doesn’t mean they’re willing to fi nance cellulosic projects. “We like to be on the leading edge, but not the bleeding edge,” one banker tells us, underpinning the need to get one big next-gen plant up and running.

The last feature in this month’s lineup is our cover story. It’s an insightful piece accompanied by great photos. EPM Senior Editor Susanne Retka Schill shares the inside story on North Dakota’s 65 MMgy Dakota Spirit AgEnergy LLC project in the town of Spiritwood. The story is interesting for three reasons. First, it’s the only U.S. ethanol plant to be built in nearly seven years. We explain why. Second, it is the fi rst plant in the nation fully integrated with a coal-fi red combined heat and power facility. And third, its construction was fi nanced largely by foreign investors, which is remarkable.

Two big takeaways this month: The U.S. ethanol industry is fi nding ways to get projects done, through both traditional and alternative investment routes. And, because producers are in great fi nancial shape, the lenders who enabled them to break ground seven to 10 years ago are circling back to support the capital expenditures of ethanol’s new era.

EDITOR'S NOTE

Oh, They’re Good for It

Tom BryanPresident & Editor in [email protected]

SEPTEMBER 2014 | Ethanol Producer Magazine | 7

FOR INDUSTRY NEWS: WWW.ETHANOLPRODUCER.COM OR FOLLOW US: TWITTER.COM/ETHANOLMAGAZINE TM

EDITORIALPresident & Editor in Chief

Tom Bryan [email protected] President of Content & Executive Editor

Tim Portz [email protected] Editor

Holly Jessen [email protected] Senior Editior

Susanne Retka Schill [email protected] Editor

Erin Voegele [email protected]

Staff WriterKatie Fletcher [email protected]

Copy EditorJan Tellmann [email protected]

ARTArt Director

Jaci Satterlund [email protected] Designer

Raquel Boushee [email protected]

PUBLISHINGChairman

Mike Bryan [email protected]

Joe Bryan [email protected]

SALES

Vice President of OperationsMatthew Spoor [email protected]

Business Development DirectorHoward Brockhouse [email protected]

Senior Account ManagerChip Shereck [email protected]

Marketing DirectorJohn Nelson [email protected]

Circulation ManagerJessica Beaudry [email protected]

Traffic & Marketing CoordinatorMarla DeFoe [email protected]

Customer Service Please call 1-866-746-8385 or email us at [email protected]. Subscriptions to Ethanol Producer Magazine are free of charge to everyone with the exception of a shipping andhandling charge of $49.95 for anyone outside the United States. To subscribe, visit www.EthanolProducer.com or you can send your mailing address and payment (checks made out to BBI International) to: Ethanol Producer Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-746-5367. Back Issues, Reprints and Permissions Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or [email protected]. Advertising Ethanol Producer Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Ethanol Producer Magazine advertising opportunities, please contact us at 866-746-8385 or [email protected]. Letters to the Editor We welcome letters to the editor. Send to Ethanol Producer Magazine Letters to the Edi-tor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or email to [email protected]. Please include your name, address and phone number. Letters may be edited for clarity and/or space.

COPYRIGHT © 2014 by BBI InternationalPlease recycle this magazine and remove inserts or samples before recycling

VOLUME 20 ISSUE 8

ADVERTISER INDEX

2014 National Advanced Biofuels Conference 15

2015 National Ethanol Conference 5

AgStockTrade.com 20

BetaTec Hop Products 8-9

Buckman 36

Clariant Produkte (Deutschland) GmbH 27

DuPont Industrial Biosciences 48

Fagen Inc. 13

Fluid Quip Process Technologies, LLC 43

Gamajet Cleaning Systems, Inc. 25

Growth Energy 2

ICM, Inc. 11

Lallemand Biofuels & Distilled Spirits 47

Leaf Technologies 17

Nalco, an Ecolab Company 42

POET-DSM Advanced Biofuels 19

Renewable Fuels Association 37

Tower Performance, Inc. 24

Trinity Rail 3

Vogelbusch USA, Inc 21

Wabash Power Equipment 26

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There is a side to ethanol that transcends politics. A side that seldom enters the discussion anymore but was one of the primary cornerstones of ethanol’s development. The real good news story is the economic impact that ethanol production provides to small towns all across the breadbasket of America.

A 50 MMgy ethanol plant will generate in ethanol and DDGS sales alone nearly $200 million per year in revenue. A vast majority of that revenue is spent within a 50-mile radius of the plant. Wages, energy, feedstock, local goods and services, taxes and a host of other services are just the tip of the iceberg when it comes to the local and regional distribution of revenue from an ethanol plant.

I know many will say, we already know that, and I’m sure you do, but I think it’s important that from time to time we remind ourselves that ethanol isn’t just about the renewable fuels service, rail cars, China exports, Brazil imports and food vs. fuel, but it’s also about small towns and farms that dot every country road in America.

A 50 MMgy ethanol plant will consume more than 18 million bushels of corn and often pay a premium over market price up to 5 cents per bushel. That creates an additional $900,000 in farm income. That additional farm income is spent on tractors, combines, trucks, equipment and it’s mostly spent in a relatively small radius of the farm.

Small towns that were limping along trying to keep main-street open have been revitalized. Millions of dollars pumped into the economy not just during the construction phase, but ongoing year after year, decade after decade. When we talk about trickle-down, there probably are few better examples than the money generated from an ethanol plant moving through the community. Ask any mayor of a small town with an ethanol plant and they will vigorously relate the impact the plant has had on the community and the region.

When we talk about ethanol, we should always try to weave into the conversation the economic impact it creates. Of course the technical, political and environmental aspects of the industry will require our attention, but there’s also a good news story that often goes untold. It’s a vitally important part of our story and, frankly, it’s a factor that has probably sustained this industry when Congress may have otherwise been inclined to turn its back on ethanol.

So while I understand that I may be preaching to the choir, I would challenge everyone involved in this industry to take the time to fully understand the rural economic impacts of ethanol. We should all have that information at the ready and to be able to share when the opportunity presents itself. Perhaps it’s time we start getting back to the basics of why we are here in the first place.

That’s the way I see it.

Getting Back to BasicsBy Mike Bryan

Author: Mike BryanChairman, BBI International

[email protected]

THE WAY I SEE IT

National Advanced Biofuels Conference & ExpoOctober 13-14, 2014Hyatt MinneapolisMinneapolis, MinnesotaProduced by BBI International, this event will feature the world of advanced biofuels and biobased chemicals—technology scale-up, project finance, policy, national markets and more—with a core focus on the industrial, petroleum and agribusiness alliances defining the national advanced biofuels industry. With a vertically integrated program and audience, this event is tailored for industry professionals engaged in producing, developing and deploying advanced biofuels, biobased platform chemicals, polymers and other renewable molecules that have the potential to meet or exceed the performance of petroleum-derived products.866-746-8385 | www.advancedbiofuelsconference.com

National Ethanol ConferenceFebruary 18-20, 2015Gaylord Texan Resort &Convention CenterGrapevine, TexasThe NEC provides attendees with timely information on critical regulatory, marketing and policy issues facing the ethanol industry. Experts will speak to the current market situation, and address how the industry can continue to grow through innovation, new technologies and feedstocks, and by developing more diverse and global markets.202-289-3835 | www.nationalethanolconference.com

International Biomass Conference & ExpoApril 20-22, 2015Minneapolis Convention Center, Minneapolis, MinnesotaOrganized by BBI International and produced by Biomass Magazine, this event brings current and future producers of bioenergy and biobased products together with waste generators, energy crop growers, municipal leaders, utility executives, technology providers, equipment manufacturers, project developers, investors and policy makers. It’s a true one-stop shop—the world’s premier educational and networking junction for all biomass industries. 866-746-8385 | www.biomassconference.com

International Fuel Ethanol Workshop & ExpoJune 1-4, 2015Minneapolis Convention Center, Minneapolis, MinnesotaThe FEW provides the global ethanol industry with cutting-edge content and unparalleled networking opportunities in a dynamic business-to-business environment. The FEW is the largest, longest running ethanol conference in the world—and the only event powered by Ethanol Producer Magazine.866-746-8385 | www.fuelethanolworkshop.com

EVENTS CALENDAR


After spending a busy summer at the Renewable Fuels Association, Bob Dinneen asked me to share and reflect on my experience in RFA’s St. Louis office. I was very excited when I was given the chance to serve as an intern for RFA. Ethanol isn’t new to me, but spending time at RFA really opened my eyes to all the work that goes on behind the scenes on a daily basis to support such a diverse and dynamic industry. My family operates a farm in southern Minnesota and has been directly involved in the ethanol industry for over 20 years. I have been lucky enough to see firsthand the growth in the ethanol industry and how it has benefited the farmers and the local economy in our area. I spent six years seasonally working for Heartland Corn Products in Winthrop, Minn., doing various jobs. During my time at Heartland I was able to see capacity expansions and adoption of new technology. Heartland started as a 10 MMgy facility in the mid-1990s and now produces more than 100 MMgy.

This summer, I saw a different side of the industry. I assisted RFA’s technical team on a number of projects, including analyzing data that served as the foundation for a report released in July. The report looked at how Big Oil restricts the sale of E85, E15 and other ethanol blends. I was excited to see that study referenced by a senator from my home state, Sen. Amy Klobuchar, as she requested a deeper investigation into the practices of oil companies. Coming from a farm background, I enjoyed analyzing weekly USDA reports for RFA and monitoring the progression of the corn crop this summer. I also helped develop educational materials on ethanol and small engines and worked with the communications staff

on social media strategies. Getting the younger generations involved and educated about the role of renewable fuels is very important to the future success of our industry. I have had so many encounters with people my age who just don’t know what ethanol is or what it does. That’s why the outreach that RFA and others in the industry do through social media is so important.

I also had several opportunities to get out of the office this summer. I attended the International Fuel Ethanol Workshop & Expo in Indianapolis, an RFA board of directors meeting in Washington, D.C., and assisted with the RFA “Free Fuel Happy Hour” ethanol promotions at the Sturgis, South Dakota, motorcycle rally. Meeting general managers and board members from plants around the country at the RFA board meeting was a great experience and reminded me how passionate the people are who work in this industry. Sitting in on the board meeting really put in perspective all of the good that this organization does for its members and the industry as a whole.

I knew at a young age that agriculture was the direction that I wanted to go with my life. Ethanol has helped ensure that I can return to the farm after college and pursue my dream. I have seen firsthand the positive impacts of ethanol on the agriculture industry in my area and the ethanol industry has been a big part of my life growing up. Each and every day of my internship at RFA has been a learning experience and has only motivated me more to continue on the career path that I have chosen to follow.

RFA Internship StokesStudent’s Enthusiasm By Evan Ludowese

Author: Evan LudoweseRenewable Fuels Association’s Summer Intern

Renewable Fuels Association202-289-3835

VIEW FROM THE HILL


In November, all 435 members of Congress and 36 senators are up for re-election. You have undoubtedly seen the ads and received the mailings, postcards and phone calls. As overwhelming and often intrusive as all of these political campaigns can be, they also remind us of what politicians care about most this time of year. You, the voter. This presents us with a unique opportunity to join together to shape candidates’ legislative priorities and build a coalition of ethanol champions in Congress.

As congressional candidates tour their districts asking for your vote, make sure you engage them and ask for their support on the issues you care about. Ask them where they stand on the renewable fuel standard. Ask them how they plan to support homegrown renewable fuels that create jobs, reduce our dangerous dependence on foreign oil and improve our environment. Ask them to advocate for consumer choice and savings at the pump. And, most importantly, let them know that if they will not commit to supporting our industry, you will not support them in their election or re-election efforts.

For lack of a better term, these candidates are “on the ropes,” looking to secure votes and to let their constituents know that they can and will continue to deliver for their home districts. But in order for them to deliver on renewable fuels, you must make your voice heard. Even if you don’t consider yourself to be a particularly “political” person, remember that this fight is personal. Stand up, express your concerns and request support for the policies that impact your job, your livelihood and the economic and energy security of this nation. Your voice, your story and your support can go further than you might imagine. Consider doing the following:

1. Attend a town hall meeting and ask a question.2. Write a letter to the editor of your local newspaper.3. Send an email to a Congressional candidate. 4. Spread the message on social media.5. Make a phone call.6. Set up a meeting and share your concerns in person. 7. Gather your fellow coworkers and colleagues in the ethanol

industry and request a group meeting with all of the candidates from your district to discuss renewable fuels and where they stand on the issue. Make them face multiple voters and go on the record.

8. Host a meet-and-greet or a fundraiser for a candidate who is a steadfast supporter of our industry.

9. Donate to a candidate you know will represent the interests of the renewable fuels industry.

Once you’ve started the discussion, keep it going. Reach out to your friends, family and community. Inspire and empower people to become involved in the fight and make their voices heard as well. Consumers, farmers, plant employees, investors, vendors and community leaders all have great reasons to advocate for the renewable fuels industry.

The importance of grassroots political activities like those listed above are immeasurable. Grassroots involvement takes the power away from Big Oil and their allies and places it in the hands of hardworking Americans who are taking action across the country. Politicians cannot ignore their voting constituents, especially at this critical time of year. The strength of our industry’s voice at the local, state and national levels depends on you and your efforts. We have the numbers on our side, and it’s time to rally the troops.

There’s a lot at stake in this battle, the future of our rural communities, nearly 400,000 American jobs that will never be outsourced, the quality of the air we breathe, the ability to chose at the pump and the energy security and national security of this great nation. We are fortunate to be involved in an industry that’s doing a lot of good for a lot of people. Let’s step up to the plate together, defend what we’ve grown and win this fight.

Author: Tom BuisCEO, Growth Energy

[email protected]

DRIVE

Engage Politicians Before Midterm ElectionsBy Tom Buis


Spirit of InnovationAlive and Well By Brian Jennings

When I fi rst started working for the American Coalition for Ethanol, I put a lot of miles on the fl ex-fuel vehicle (FFV), traveling to speak at ceremonies celebrating the construction and completion of ethanol plants. Remember those days?

Our industry hasn’t dug a lot of dirt or cut many ribbons lately, but ACE-member Quad County Corn Processors is bringing the grand opening ceremony back this month when they unveil a technology innovation to convert corn kernel fi ber into cellulosic biofuel.

Their timing couldn’t be better as the future of the renewable fuel standard (RFS) hangs in the balance and our opponents have jumped on the fact that production cellulosic biofuel is behind schedule. Perhaps no other source of fuel has been so anticipated and under such tremendous scrutiny. Consider that some of the biggest and most profi table companies in the world (including oil companies) have tried to perfect the process of converting cellulose to biofuel. But at the end of the day, it wasn’t an army of scientists employed by an oil company or venture capital tycoon who fi gured out how to commercialize cellulosic ethanol fi rst, it was Quad County’s plant engineer Travis Brotherson and CEO Delayne Johnson. Travis and Delayne are humble and quick to point out theirs is a team effort.

While it may come as a surprise to outsiders, to ACE it makes perfect sense that the 35 employees and 353 farmer shareholders who reside in the Iowa counties of Cherokee, Buena Vista, Ida and Sac will be the fi rst people on the planet to produce two renewable fuels—corn-starch ethanol and cellulosic biofuel—from the same feedstock at the same site. That’s because the sharpest minds of this industry are the innovative men and women at the grassroots, working at and investing in locally owned ethanol plants that make up the majority of the members of ACE.

To help promote the fact Quad County is making cellulosic ethanol technology history, ACE interviewed Travis. (Check out the videos at www.ethanol.org/people/video-gallery)

In one of our videos, you’ll hear Travis say “taking the job as engineer at Quad County Corn Processors was one of the best decisions of my life because it gave my wife and I an opportunity to stay in our homeplace.” Here’s a guy who earned an aerospace degree and probably could have been living in sunny Florida helping NASA build rockets. What Delayne and the Quad County board of directors provided Travis and his wife, Kristi, were jobs in their homeplace and the freedom to innovate, take chances, and in this case, to make cellulosic ethanol history together (Kristi works as the chief fi nancial offi cer of Quad County).

When our opponents try to portray ethanol as something that’ll ruin engines or starve children, our industry frequently responds by dribbling out the latest and greatest data point or statistic. What Travis and Delayne remind us is that ethanol is fi rst and foremost about people, regular people who joined forces to commit their own money and time to rescue their families, neighbors, and communities by building locally owned businesses in their towns. It just so happens that in the case of Quad County, they also happened to crack the code to making cellulosic ethanol a commercial reality before other more well-fi nanced and celebrated entities.

Travis and Delayne are the most recent examples of the “power by people” theme ACE is promoting in our new campaign to help the public better appreciate that ethanol shouldn’t just be valued based on the money it saves folks at the pump, but by the human good it delivers as well.

And Quad County isn’t the only ACE member to take innovative steps to bring back the groundbreaking and ribbon cutting ceremonies either. Adkins Energy, Patriot Renewable Fuels, Prairie Horizon Agri-Energy and East Kansas Agri-Energy are all in the process of breaking ground on or building projects to produce biodiesel or renewable diesel at their plants.

As Travis concludes in one of our videos, “the spirit of innovation is alive and well.” I couldn’t say it better myself.

Author: Brian JenningsExecutive Vice President

American Coalition for Ethanol605-334-3381

[email protected]

GRASSROOTS VOICE

After a decade of presence within the industry through Fermentis, Lesaffre is proud to launch Leaf Technologies a business unit dedicated to serve the fuel ethanol and bio based chemicals producers. With Leaf Technologies we are starting a new path in our development with the will to offer our partners more specialized products and

services, to continue innovating in the field of first and second generation ethanol and to exceed the industries expectations. Based on our expertise in genetics, scaling up, fermentation, yeast production and through technical support we will be focused on turning science into industrial reality.

www.leaftechnologies.com

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Recapping European Policy Decision Making By Robert Vierhout

After bringing views from the other side of the pond to readers of Ethanol Producer Magazine since September 2008, it is time for change. This will be my last column, and I’m taking the opportunity to look back but also to look forward.

Seven years ago the European biofuel community was in full swing, lobbying for what would become, in 2009, the first EU legislation to introduce a mandatory target for the use of biofuels. Even though we had seen a reasonable growth in capacity investments and output, European Union decision makers found that Europe should be more ambitious in getting renewables into the transport sector. The 10 percent target was hailed as a great success, but eventually it came with a high price to pay.

It is a tough reality but the EU biofuel sector has underestimated by far the building of an unholy alliance––between green and/or development nongovernmental organizations (NGOs), Big Food and Big Oil––to attack the mandatory target. It is my strong belief that as long as biofuel was a voluntary measure, which it had been since 2003, oil, food and NGOs didn’t really bother. But to make its use mandatory was a bridge too far for them.

From 2009 onward, the industry became gradually aware it was sitting in a roller coaster, a big one like there are so many of in Disney World. From 2003 until 2010 it was all uphill. And then from 2010 onward, we came into a sort of spin. The indirect land use change spin. The biofuel roller coaster has shown us many vicious bends, curves and steep descending tracks, some of which so dangerous that one felt that derailing was imminent.

In my many years of Brussels experience, I haven’t seen many campaigns so mean and vicious as the one against biofuels. The bleakest moments were those when our industry was accused of committing a crime against humanity as if we were war criminals, depriving poor people from their food, as if we were speculating with food commodities, and grabbing away land in Africa, as if we were some sort of neo-colonialists. None of the accusations were never proven but still had effects. An industry once heralded as a great solution to addressing car emissions, reducing fossil fuel use and

providing new opportunities for farmers was decapitated in less than four years, still six years away from the day that the mandate would take effect. This history deserves a closer analysis by an academic scholar to reveal what forces where really in the drivers seat to kill biofuels in Europe.

Still, I feel that we have survived the perfect storm that was orchestrated against us. Unlike the Andrea Gail, a ship lost at sea in 1991, the biofuel industry will not disappear in the waves. The tide is changing to our benefit. It now has become crystal clear that accusations were founded on quicksand.

As for the future, I am convinced that the role of ethanol as a motor fuel in Europe and globally will not diminish. On the contrary, ethanol is now a well-established fuel that has earned its place in the mix. There is an abundance of raw material, a strong technological improvement potential and an objective need to reduce our dependency on ever-more polluting and difficult-to-source fossil fuels.

But, more than in other jurisdictions, perhaps Brazil excluded, Europe needs to introduce fair taxation for its energy products. As long as ethanol stays the most taxed of any fuels and diesel more favorably taxed than gasoline, ethanol’s market share will not increase quickly. The other major challenge in the next five years is to get E10 accepted Europe-wide. Can we build an E10 network that will stretch beyond Finland, France and Germany? Adding major markets like the United Kingdom, Italy, Poland and Spain are essential in turning the big wheel on ethanol consumption in Europe.

Hopefully, the past seven years of columns gave the EPM readership some insight into European biofuel issues. I often wrote about topics not that much different from what was dominating the policy and political biofuel agenda in the United States but always with that particular European flavor on how Europeans make decisions. The latter is often difficult to grasp for the non-European, but as a consolation, I can reveal that many Europeans don’t understand it either.

Still, I hope you have enjoyed reading my comments and views. It has been often fun and, equally often, a challenge, but always a pleasure. What I will probably miss most is no longer having this platform to criticize and nag about the too-numerous antibiofuel forces in Europe.

Author: Robert VierhoutSecretary-general, ePURE

[email protected]

EUROPE CALLING

For years, we’ve been told that cellulosic ethanol is a “fantasy fuel.” And it is.

So we’ve spent a decade planning, researching, and working hard to make that fantasy a reality.

And now it’s going to change the world. For real.

®

Advanced BiofuelsPOET-DSM.COM

I S M A D E H E R E .


Green Plains Inc. has appointed Gene Edwards to its board of directors. Edwards served as executive vice presi-dent and chief de-velopment officer of Valero Energy Corp. until his retirement

in April. He spent 32 years at Valero and was a key driver in the company’s entry into the ethanol business.

The Greenbrier Companies Inc. and Watco Companies LLC have announced a new entity that will create a world-class network of railcar repair shops. The 50/50 joint venture GBW Railcar Services LLC will own and operate Greenbrier’s and Watco’s respective railcar repair, refurbish-ment and maintenance businesses. Green-brier now operates 23 locations and Watco currently operates 15 complementary sites. GBW’s combined network will feature 14 tank car repair shops, 10 of which will be from Watco and four from Greenbrier. All will be certified by the Association of American Railroads as required by federal regulations.

The Biotechnology Industry Orga-nization has elected 19 of its directors to serve on its board executive committee for the 2014-‘15 term, including Jerry Flint, vice, president of biotech affairs and regu-latory at DuPont. Flint will serve as BIO’s food and agriculture section governing board chair. Adam Monroe, president of Novozymes North America, will serve as BIO’s industrial and environmental sec-tion governing board chair. Christopher Standlee, executive president of institu-tional relationships and government affairs at Abengoa Bioenergy, will serve as BIO’s industrial and environmental section gov-erning board vice chair.

The U.S. Patent and Trademark Office has issued Patent No. 8,728,783 to Proterro Inc., protecting its proprietary photobiore-actor. Proterro’s modular photobioreactor is made from off-the-shelf materials and inte-

grates systems for optimizing light, water sup-ply and sugar collection, providing for the cultivation of the company’s patent-protected sugar-producing cyanobacteria and the har-vest of a fermentation-ready sucrose stream. Proterro has also received its first international patent. Mexico Patent No. 310854 mirrors the U.S. patent issued to Proterro that protects Proterro’s sucrose-producing cyanobacteria.

The U.S. Grains Council has added several new ethanol plants as members. Flint Hills Resources Arthur LLC, a sub-sidiary of Koch Industries, recently joined the USGC. The 110 MMgy ethanol plant, located in Arthur, Iowa, began operations in 2008 and was acquired by Flint Hills Resources in 2013. In addition to ethanol, the facility produces an estimated 330,000 metric tons of distillers dried grains with solubles (DDGS) each year. Hastings, Nebraska-based Chief Ethanol Fuels Inc. also joined the USGC. The 70 MMgy ethanol plant began operations in 1984. In addition to ethanol, the facility produces DDGS, wet distillers grains, and corn oil. In addition, Heron Lake BioEnergy LLC has joined the USGC. The 59 MMgy plant located near Heron Lake, Minnesota., produces approximately 160,000 tons of DDGS each year.

BUSINESS BRIEFS People, Partnerships & Deals

Edwards

Flint StandleeMonroe

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Lindsey Blakely has joined the U.S. Grains Council as membership and com-munications coordinator. Blakely will as-sist with the needs, planning and prepa-ration of ongoing and future projects for those departments. Lucas Szabo has also joined the USGC as the new global strat-egies coordinator. He will assist the global strategies and trade policy and biotech-nology departments, organize staff and member travel, prepare arrangements for visiting teams, and facilitate program plan-ning, correspondence, reports, information management and contracting. Szabo previ-ously worked as an export sales specialist for an export firm in Washington, D.C.

Hopewell, Virginia-based Vireol Bio Energy LLC has joined Growth Energy. The 60 MMgy facility is the former home of Osage Bio Energy. Vireol purchased the

facility last year and restarted the plant in May.

U.S. Water Services Inc. has announced a merger with ChemCal Inc. ChemCal is one of the largest independent water treatment and equipment solution providers in the U.S. Established in 1985, the company serves the mid-southern U.S. The merger allows Minne-sota-based U.S. Water to expand its footprint in mid-market industrial water treatment.

Deinove has announced the devel-opment of strains of Deinococcus bacteria with especially high performance cellulo-lytic properties. Deinove’s researchers have built a strain using its metabolic engineer-ing platform capable of hydrolyzing cellu-lose as fast as the reference microorganism, Trichoderma reesei. The engineered Deino-coccus has the ability to hydrolyze crystal-line cellulose (paper) in approximately seven days.

Genera Energy Inc. has hired Lucas Graham as feedstock production and sup-ply manager. He will be responsible for providing agricultural and managerial lead-ership for the company’s feedstock supply, including business strategies to optimize feedstock supply, planning and develop-

ing biomass feed-stock supply proj-ects and programs, and management of feedstock supply execution. Graham’s responsibilities also include develop-ing, implementing, and managing feed-

stock best practices for commercial energy crop and feedstock production, including land acquisition, es-tablishment, management, harvesting, and site storage of biomass feedstocks. Prior to joining Genera, Graham worked as an agronomist and precision agriculture man-ager, and a seed treatment facility manager for Helena Chemical Co.

Invista and LanzaTech have signed a research and development agreement fo-cused on the development of gas-fermen-tation process technology for the produc-tion of industrial chemicals from carbon dioxide and hydrogen gas using propri-etary Invista host organisms and metabolic pathways.

Blakely GrahamSzabo


July 28—Following a cold winter and depleted storage inventories, natural gas prices were high in April. Although injections were off to a rocky start early in the summer, both of the key risks for storage recovery appear to be greatly reduced. Year to date, domestic produc-tion is up a robust 2.4 billion cubic feet per day or 3.7 percent versus the same period in 2013.

On the power generation demand side of the equation, high prices held de-mand growth versus 2013 in check from April through June. July and August are the peak demand period of the summer, with the highest risk of hot weather di-verting natural gas to power generation and away from storage, but mild tem-

peratures for the month and a moderate forecast for the start of August have tak-en much of the sting out of weather risk.

With these benign fundamentals at play, inventory levels have staged a nice recovery. While the season ending stor-age inventory is still not likely to reach the lofty levels we have become accus-tomed to in recent years, with stronger domestic production a slightly lower in-ventory level appears to be acceptable to the market. Near term New York Mer-cantile Exchange prices have fallen out of the trading range between $4.85 and $4.25 in response to the positive funda-mentals and are currently offered below $4.

Natural Gas Report

Corn Report

July 28—July was not a pretty month for the corn producer but end users of corn benefited with tumbling prices. Prospects of a bigger yield continue to weigh on prices and the cash markets.

In the July USDA report, old crop corn carryout increased from 1.246 billion bushels, which was somewhat expected. New crop yield was estimated at 165.3 bushels per acre. However, traders have set their sights higher with a lot of talk of a 170-bushel national yield at this. With the current yield estimate of 165.3 bushels per acre, production would be pegged at 13.860 billion bushels. Ultimately carryout for new crop is projected at 1.801 billion bushels. Any increases in yield increases potential carryout without any demand changes. A 5-bushel yield in-crease would increase production by 419 million bushels; carryout jump-ing to 2.220 billion bushels. With the crop production winding down and new demand waning, a scenario like the above will put much more pressure on new crop corn prices. Demand increases will be expected to come from exports if prices move lower.

Another concerning topic is the funds positions. Managed money was running a net short at this time last year. They are still holding onto

a net long position in late July. This too will not bode well for corn if yields and, or production grow.

Natural gas prices fall as storage issues resolve by Ben Straus

Corn prices tumble, benefiting end users by Jason Sagebiel

COMMODITIES Prices & Market Analyses


DDGS Report

Ethanol Report

July 28—Through late summer, the ethanol complex has remained extremely stable, unlike most commodity markets around it. Corn prices through the month of July have fallen 55 cents per bushel due to nearly ideal growing conditions in many areas of the Corn Belt. RBOB gasoline futures posted a 21-cent loss during the month of July, which is creating uncer-tainty about the market's ability to rebuild stability through the rest of the year. Crude oil futures fell $3.28 per barrel during July.

However, ethanol prices increased 2 cents per gallon in the same period. Trad-

ers are anticipating stable production lev-els and firm demand support for ethanol through the end of the year. This will likely keep the gasoline-to-ethanol market spread at a moderate level, which will help to sustain overall demand. Ethanol futures are currently holding a 72-cent-per-gallon discount to the RBOB gasoline market. This level is where the industry seems most comfortable and will likely spur discretion-ary blending where possible over the next couple of months.

July 28—Like last month, China again changed rules regarding to shipments there, without any realistic ways to work within the regulatory framework. It mandates that all shipments must be accompanied by a government stamped document stating the absence of MIR 162 in that lot. At the mo-ment, there are not any government agen-cies that can officially test for this, so until that happens, it looks as though Chinese exports will be substantially slowed.

This has left traders scrambling to find alternative destinations for the product they have bought, both domestically and abroad. In a market that was already flush with trucks due to the lack of railcar movement, this has weighed heavily on prices. The market has dropped $50 to $60 per ton in the past month, and is now sub 100 percent the value of local corn. Plants had a pretty

good book of sales through September, but not as much on for the fourth quarter. Now, with this Chinese situation happening, with the sheer volume of sales left to make, and in a time frame that anticipates a huge corn crop, the market is going to feel addi-tional downward pressure. We have seen reports of the Chinese corn reserves being even larger than originally anticipated, so do not anticipate a quick resolution to their ad-ditional regulatory demands. We will need more domestic hog and poultry demand.

Looking ahead, domestic logistics will take main stage. Rail movements will stay congested, and winter is not far away for them. Trucks/truckers will be extremely difficult to find during harvest, and barge freight has had a pretty good preharvest run up.

Regional Ethanol Prices ($/gallon)Front Month Futures (AC) $2.1450Region Spot RackWest Coast 2.280 2.450Midwest 2.145 2.376East Coast 2.250 2.409

SOURCE: DTN

Regional Gasoline Prices ($/gallon)Front Month Futures Price (RBOB) $2.865Region Spot RackWest Coast 2.853 2.990Midwest 2.748 2.945East Coast 2.705 2.837

SOURCE: DTN

DDGS Prices ($/ton)Location Sept 2014 Aug 2014 Sept 2013Minnesota 95 160 225Chicago 105 185 255Buffalo, N.Y. 130 180 255Central Calif. 163 217 287Central Fla. 140 190 275

SOURCE: CHS Inc.

Corn Futures Prices (Sept. Futures, $/bushel)Date High Low CloseJuly 25, 2014 3.63 1/2 3.57 3.63Jun 25, 2014 4.36 3/4 4.33 3/4 4.35 3/4July 25, 2013 5.10 3/4 4.92 1/4 4.96

SOURCE: FCStone

Cash Sorghum ($/bushel)Location July 26,

2013June 26,

2014July 25,

2014Superior, Neb. 5.52 4.17 3.55Beatrice, Neb. 5.62 4.13 3.28Sublette, Kan. 5.70 4.20 3.53Salina, Kan. 5.30 4.43 3.52Triangle, Texas 5.77 4.31 3.55Gulf, Texas 5.41 5.31 5.04

SOURCE: Sorghum Synergies

Natural Gas Prices ($/MMBtu)Location April 30,

2014July 30,

2014July 30,

2013NYMEX 4.82 3.76 3.43NNG Ventura 4.85 3.78 3.46CA Citygate 5.05 4.48 3.75

SOURCE: U.S. Energy Services Inc.

U.S. Ethanol Production (1,000 barrels)Per Day Month End Stocks

MAY 2014 937 29,039 17,356APR 2014 928 27,837 17,356MAY 2013 877 27,197 16,810

SOURCE: U.S. Energy Information Administration

Chinese rules likely to slow exports by Sean Broderick

Ethanol markets stabilize despite corn slide

by Rick Kment

DISTILLED Ethanol News & Trends

Galva, Iowa-based Quad County Corn Processors began producing cel-lulosic ethanol through its 2 MMgy Add-ing Cellulosic Ethanol project in July. The technology converts corn kernel fiber into cellulosic fuel.

The cellulosic facility is colocated with Quad County’s 35 MMgy corn etha-nol plant, which began operations in 2000. A groundbreaking ceremony for the bolt-on ACE process was held in July 2013.

The technology was developed by Travis Brotherson, a plant engineer at the facility. After several years of development, pilot- and demonstration-scale testing, the ACE technology is now producing on the commercial-scale.

In addition to enabling cellulosic ethanol production, the ACE process also improves the plant’s distillers grain co-product. “As a result of the new process, the DDGs will be much more similar to a corn gluten meal. It will increase the pro-tein content of the livestock feed by about 40 percent, and we also expect to see a boost in corn oil extraction by about 300 percent,” said Delayne Johnson, CEO of Quad County Corn Processors.

If deployed at all existing U.S. corn ethanol plants, the technology would be capable of producing 1 billion gallons of cellulosic ethanol without the use of any additional corn, said Johnson.

Quad County produces cellulosic ethanol

The U.S. EPA has published two final rules pertaining to the renewable fuel stan-dard (RFS) program. The first establishes new fuel pathways, while the second final-izes the voluntary quality assurance plan for the RFS.

The pathway rule, officially titled “Regulation of Fuels and Fuel Additives: RFS Pathways II, and Technical Amend-ments to the RFS Standards and E15 Mis-fueling Mitigation Requirements,” includes a provision that specifies corn kernel fi-ber does qualify as a crop residue. It also qualifies a number of new cellulosic and advanced fuel pathways under the RFS, in-

cluding those for compressed and liquefied natural gas produced from biogas from landfills, municipal waste-water treatment facility digesters, agricultural digesters and separated MSW. It also qualifies electricity used to power electric vehicles produced from the same biogas sources.

The second rulemaking, officially ti-tled “RFS Renewable Identification Num-ber (RIN) Quality Assurance Program,” establishes a program that provides an af-firmative defense against liability for civil violations under certain conditions for the transfer or use of invalidly generated RINs.

EPA finalizes RFS pathway, QAP rules

MAKING HISTORY: Quad County Corn Processors celebrates its production of cellulosic ethanol. PHOTO: RENEWABLE FUELS ASSOCIATION

Ethanol News & Trends

Quad County produces cellulosic ethanol

Bioscience industry creates positive economic impact

A report published by the Biotech-nology Industry Organization and Bat-telle indicates the U.S. bioscience industry has demonstrated strong growth in recent years, has navigated the economic reces-sion better than most industries, and is once again growing.

The report addresses five specific subsectors of the bioscience industry, in-cluding agricultural feedstock and chemi-cals, bioscience-related distribution, drugs and pharmaceuticals, medical devices and equipment, and research testing and medi-cal labs.

The report notes that U.S. agricultural feedstock and chemicals companies oper-

ated nearly 1,800 business establishments and supported 76,000 direct jobs in 2012, accounting for approximately 5 percent of bioscience jobs. While the subsector lost jobs for several years during the recession, the 2012 job gain was 2.3 percent.

Gross economic output for the sub-sector grew by 125 percent from 2001 through 2012, significantly higher than both the 69 percent growth for the total biosciences industry and the 50 percent growth rate for the U.S. private sector as a whole.

DISTILLED

Mascoma Corp. has refocused its goals on perfecting and deploying its consolidated bioprocessing technol-ogy (CBP) to existing and second gen-eration ethanol producers, according to Bill Brady, president and CEO of the company.

Although a recent U.S. Court of Appeals ruling would technically al-low the company’s proposed Frontier Renewable Resources LLC project in Kinross, Michigan, to move forward, Brady said that is unlikely.

Almost a year after Valero Corp. backed out the project, Brady con-firmed Mascoma isn’t likely to build that facility. The company faced chal-

lenges in the form of current federal policy and the inability to get strategic investors to fully commit. “That was a pretty tall mountain to climb to be hon-est, to do a greenfield out of the box,” he said.

The company is now focused on its CBP technology and other oppor-tunities. In June 2013, Lallemand Bio-fuels & Distilled Spirits and Mascoma introduced TransFerm Yield-plus. Since then, the product has been used to produce more than 2 billion gallons of ethanol and that 20 percent of the corn-ethanol industry is using it. A sim-ilar product is in the works to serve the Brazil’s market.

Mascoma shifts bioprocessing strategy

Trends in Gross Economic Output

Total Private SectorTotal BiosciencesBioscience subsectors Research, testing, and medical labs Drugs and pharmaceuticals Medical devices and equipment Bioscience-related distribution Agricultural feedstock and chemicals

9%17%

30%8%9%

11%29%

Change in output from 2007-2012

Change in output from 2011-2012

50%69%

29%66%66%71%

125%SOURCE: "BATTELLE/BIO STATE BIOSCIENCE JOBS, INVESTMENTS AND INNOVATION 2014”


DISTILLED

In June, the U.S. Supreme Court is-sued its decision on the U.S. EPA’s Tai-loring Rule. While the court invalidated a portion of the rule, it essentially held up EPA’s ability to regulate greenhouse gas (GHG) emissions for certain facili-ties, specifically those required to obtain a Prevention of Significant Deteriora-tion permit due to the emission of other regulated pollutants. The court’s ruling, however, did nothing to address uncer-tainty regarding the EPA’s treatment of biogenic emissions.

As it stands now, the EPA will regu-late GHG emissions from facilities that

are required to obtain PSD permits for any other regulated pollutant. As such, it is possible that biomass power plants, ethanol plants, advanced biofuel plants, and others in the bioenergy sector will be subject to EPA’s GHG regulations, as-suming they are already required to obtain a PSD permit. How biogenic emissions generated at these facilities will be treated under the regulations is currently unclear, and won’t be until the EPA completes its framework for biogenic carbon emis-sions.

Supreme Court rules on EPA Tailoring Rule

ETHANOL OPTIMIZED: Freightliner Custom Chassis provided a prototype MT45 Class 5 step-van for use in testing the new Cummins E85 optimized Ethos 2.8L engine. PHOTO: CUMMINS INC.

Cummins Inc. has announced the development of an E85 optimized en-gine and powertrain that reduces green-house gas emissions (GHG) by as much as 50 to 80 percent when compared with a baseline gasoline-powered, medium-duty truck.

More than 1,000 miles and 1,500 hours have been accumulated on the Cummins Ethos 2.8L engine over the past 2.5 years, demonstrating the technology is capable of far exceeding the 50 percent CO2 emissions reductions outlined in the project's goals. A final on-road validation

testing phase was underway in California this summer.

The Cummins Ethos 2.8L is de-signed specifically to use E85. To take full advantage of the favorable combustion attributes and potential of E85, the engine operates at diesel-like cylinder pressures and incorporates advanced spark-ignition technology. It delivers the power (up to 250 horsepower) and peak torque (up to 450 lb-ft) of gasoline and diesel engines nearly twice its 2.8-liter displacement.

Cummins announces E85-optimized engine

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California Ethanol & Power LLC landed a tax credit from the California Competes Tax Credit Committee worth $3.1 million through 2018, if the company successfully meets the milestones in the contract. The company is developing a $530 million project that will produce 66 MMgy of ethanol from sugarcane and sweet sorghum, 50 MW of electricity, and 930 million cubic feet of pipeline quality biogas.

“Everything is in place,” said David Rubenstein, CEO of CE&P. “We’re ready to go, except for the final financing.”

Permits are in place for the project, which received fi-nal county approval last fall. Uni-systems do Brasil Ltd. is the lead engineering and procurement contractor and is expected to help with financing. Offtake agreements are in place with Shell Energy North America for the ethanol, power and bio-gas.

CE&P announces tax credit

DISTILLED

In late June, the U.S. Supreme Court declined to take up a challenge to the Ninth U.S. Circuit Court of Appeal’s Sep-tember 2013 ruling on California’s Low Carbon Fuel Standard. That ruling found that the LCFS program is constitutional, overturning a prior ruling that it violates interstate commerce laws. A legal battle over the program has been ongoing for several years.

The Renewable Fuels Association and Growth Energy were among the groups that petitioned the Supreme Court to review the lower court’s decision. In a joint statement, the two trade associations expressed disappointment in the decision and stressed they will continue efforts to ensure all consumers have access to low-priced, U.S.-made biofuels.

Supreme Court declines review of California’s LCFS

Highly efficient sunliquid is an economic and sustainable process to generate biobased products from lignocellulosic biomass. It opens up new feedstocks not only for fuel, but also for sustainable chemistry from untapped resources – like cellulosic ethanol from agricultural residues.

Cellulosic ethanol from agricultural residuesTHINK AHEAD, THINK SUNLIQUID®

WWW.CLARIANT.COM

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April 2009: Calif. ARB vote adopts LCFS

Dec. 2009: Growth Energy, RFA file a complaint in Federal District Court

December 2011: Federal District Court rules the LCFS is unconstitutional

Sept. 2013: U.S. Circuit Court of Appeals overturns the lower court’s decision

March 2014: RFA, Growth Energy petition the Supreme Court for review

April 2014: 21 states ask the Supreme Court to review the LCFS

June 2014: The Supreme Court declines RFS review

9%17%

30%8%9%

11%29%

50%69%

29%66%66%71%

125%


SHAREHOLDERS


Alternative trading systems provide shareholders with an exit strategy and protect ethanol production companies from insider trading, among other benefits.By Holly Jessen

SHAREHOLDERS

In good or bad times, there’s always a certain num-ber of shareholders looking for liquidity. Whether it’s due to a death, divorce or some other need for cash, FNC AgStock LLC or AgStock-Trade.com help ethanol plant shareholders by listing all stocks available for sale from participating nonstock-exchange listed or limited liability company (LLC) ethanol plants.

Positive ethanol plant margins in recent months have pushed the price of ethanol plant shares up to levels not seen in years. In the second quarter this year, some prices have doubled from what was seen in the first quarter, says Jayson Menke, president and CEO of FNC Ag Stock. One example is Cardinal Ethanol LLC, one of 15 FNC-listed ethanol plants. In mid-July, the ethanol plant had two shares available at a price of $13,000 each, and the most recent sale of Cardinal Ethanol shares was for $12,500 per share. That’s about double what the plant’s shares were going for in January, at $5,780 to $6,200 per unit. “There has been increased sale activity,” Menke says, “but, in general,

LiquidityLooking For


for the 16 companies that we work with, we’re not seeing as many sellers for all companies.”

Glacial Lakes Corn Proces-sors, a company listed with Ag Stock Trade, had 15,000 shares sell for $1.51 per share on July 15, according to data posted at AgStockTrade.com. (The varia-tion in share price is due to dif-ferences in pricing structure at different ethanol plants.) The plant’s shares hit a high point on July 11, when 40,000 shares were available for sale at $1.79 per unit. The prices have made sellers happier, says Greg Wil-son, president and CEO of Glacial Lakes, especially consid-ering that shares were available for sale at 60 cents per share in the beginning of the year. The last time shares for the South Dakota-based ethanol produc-er were over $1 per share was January 2008. In comparison, in 2006, shares ranged from a high of $6.10 to a low of $3.73. “Our market is fairly stable, as far as buyers and sellers,” Wil-son says. “Sometimes it’s a buy-er’s market, and sometimes it’s a seller’s market. But the transac-

tion numbers fluctuate about 20 percent in a good or bad year.”

Wilson recalls attending meetings back in 2000, when developers were asking com-munity members to become shareholders. The scenario played out with someone at the front of the room asking people to put up money in ex-change for dividends paid to shareholders. “There’s always a guy at the back of the room and he raises his hand and he says, ‘You know, this sounds like a good idea, I’m all in support of it but what’s my exit strategy?’” Wilson says. “’I’m 60 years old, what I am going to do when I want to get out?’” The reality is, in most cases, emphasis was put on bringing shareholders in without any plan for liquid-ity for members. And, until enough members make that need known, that probably won’t change, as the focus is on managing the plant, not manag-ing the members, he said.

Wilson and Menke both say there is opportunity for additional ethanol production facilities to sign up for their

services. According to Wilson, all LLC ethanol plants should be offering members liquidity, which is required by the U.S. In-ternal Revenue Service. “Every one of them that isn’t on my trading system ought to be.”

Working with what the IRS terms a qualified matching service (QMS) has advantages. One big one is that ethanol producers can trade up to 10 percent of outstanding units in a taxable year without tax im-plications, Menke says. Without using a QMS, doing it internally, the limit is 2 percent. “Within the IRS rules, it allows these companies the greatest amount of liquidity and it allows the companies to have transactions at arm’s length,” Menke says, adding that it protects compa-nies from crossing a threshold and becoming publically traded entities and also from insider trading.

Shareholder Value

The topic of alternative trading systems came up at the International Fuel Ethanol Workshop & Expo held in early

June. Speakers addressed the topic of how companies can increase shareholder confidence by increasing plant value as well as providing liquidity opportu-nities. James Eiler of Eiler Cap-ital Advisors LLC said he has talked to ethanol plant boards about providing minority share-holders opportunities for lim-ited reduction on a periodic ba-sis. He suggests boards allocate a certain amount of money to repurchase minority sharehold-er’s shares at a certain percent-age of book value, possibly 75 percent, on a quarterly basis. If requests to sell exceed the funds set aside for this, the company could conduct a lottery for that buyback, he said during his presentation. “It creates a win-win,” he said, adding that minority shareholders are able to get cash while the remain-ing unit holders have accretive value, with the buyback set at below market value. However, it’s important that companies protect themselves by getting a third-party fairness opinion at least annually and consulting its tax advisor.

‘There has been

increased sale activity,

but, in general for the 16

companies that we work

with, we’re not seeing as

many sellers for all

companies.’

SHAREHOLDERS

Jayson Menke Donna Funk

‘I think sometimes we

fall into the mentality of,

well, nobody wants to buy

units. Well, have we really

asked or made known

that there might be shares

available for sale?’


Although it can be com-plicated, if it is done correctly, implementing a company buy-back program can result in tax advantages for an LLC by reducing taxable income, said Donna Funk of Kennedy and Coe LLC. On the other hand, because the purchases are made after taxes, it can be a cash drain on a company. “Which is why you would want to set param-eters around how much you would want to do each quarter or on an annual basis,” she said.

Funk also mentioned em-ployee stock ownership pro-grams, or ESOPs. Although it’s not commonly utilized in the ethanol industry, there are companies getting to the point of age, liquidity and other fac-tors that could make it an op-tion to consider. It can be very expensive to implement but some of the advantages include using pre-tax dollars for the program as well as a way to of-fer employees ownership in the plant to create a family type at-mosphere as well as an effective incentive for best performance.

While it’s worth considering, it’s not an option that will work for all companies. “That’s one of those that can be very compli-cated and would be something that you would want to look at in a lot more detail before say-ing we’re just going to do this, because it doesn’t fit for every situation,” she said. “But it is certainly something that can be utilized as a liquidity option for some of your investors and it can benefit your employees and also can be a retirement plan ve-hicle or tool.”

Funk also talked about an often overlooked method of selling shares, which is simply asking. “I think sometimes we fall into the mentality of, well, nobody wants to buy units. Well, have we really asked or made known that there might be shares available for sale?” she said. “Ask around, be more proactive.” In cases where someone has a block of shares larger than others want to buy it could be split with no impact on the overall value. Or, people with smaller numbers of shares

can combine to create a larger block for someone interested in buying more shares.

Scott McDermott of As-cendant Partners Inc. talked about liquidity in the context of positioning the company for the best future possible with strategic and capital planning. With healthy margins, ethanol producers need to think about preparing for future downturns. He also talked about making sure the company has a vision or a story to tell its investor base. “All of these things help give shareholders confidence to stick with you in good times and bad,” he said, adding that if the industry falls on hard times, lenders may or may not provide funds to keep the plant afloat. “Then we’ve got to go to share-holders,” he said.

There are many different strategies for success, McDer-mott said, adding that hope is not a strategy. “If you are not working toward a plan for suc-cess, you are almost certainly planning for failure,” he said. One tool ethanol plants can use as a performance metric is valuation. When he brings up assessing the value of the busi-ness some board members as-sume that means he’s talking about selling it. But valuation is really just a method of keep-ing score. “The best disciplined businesses out there use valua-tion to think about the return they are giving shareholders, and almost as a measuring stick on how they are doing as a busi-ness,” he said.

Some plants sell for four to six times company earnings

before interest, taxes, deprecia-tion and amortization (EBIT-DA) multiples. That means that if a 55 Mmgy facility with an average EBITDA of 15 cents can improve that number by 5 cents, the plant’s valuation in-creases 33 percent or $11 to $17 million. “Not only is the plant more valuable, but it is much better positioned to endure the inevitable market downturn,” he said.

Essentially, a company is falling behind if it isn’t mov-ing down the cost curve or up the EBITDA curve. That drives higher earnings, which translates to higher dividends and better stock value. McDer-mott has found it interesting to watch the ethanol industry evolving in this area. Boards used to think in terms of the annual budget cycle. Now, how-ever, with nearly a decade or more of experience and with most debt paid off, a different way of thinking about the bud-get cycle is being utilized. “We now begin to think about the capital cycle, the budget cycle, as a more strategic way of how to align the capital of the busi-ness to support some combina-tion of my growth objectives or my positioning in the industry but also to give a return back to shareholders in dividends,” he said.

Author: Holly JessenManaging Editor,

Ethanol Producer Magazine701-738-4946

[email protected]

SHAREHOLDERS

Scott Dermott

‘If you are not working toward a plan for success, you are almost certainly planning for failure.’


LENDING


The ethanol industry has known both sunny and rainy days. Leery of that volatility, many lenders have tended to dip their toes in the water when the skies were clear—like during the ethanol plant construction heyday of 2004-’06—only to get out when dark clouds emerged. As much as the boom years fueled, and were fueled by, lending exuberance, the 2008-’09 downturn caused, and was caused by, an exodus of debt financing amid the financial crisis and resultant recession.

Now, however, with the recession over and ethanol plants making money, when will the lending institutions that bankrolled ethanol’s first major build-out return to finance its second? The answer, surprisingly, is that some big lenders never really left. “This is what we do,” says Tom Houser, vice president and lead relation-ship manager in agribusiness banking with CoBank. “We are not just looking to get in and get out in the industry that is in the ups or the downs. We are committed to this in the long term as a bank and a system. We are very much a relationship lender, not a trans-actional lender.”

LENDING

BiofuelsBanking on

The industry’s principal lenders helped give rise to today’s fleet of ethanol plants. Will they help producers with the next stage? By Katie Fletcher


CoBank is considered one of four primary lenders in the traditional corn ethanol space. The others are AgStar Finan-cial Services, AgCountry Farm Credit Services and Farm Credit Services of America. Jeff Kist-ner, president of Flag Leaf Fi-nancial Management Inc. and a former CoBank employee, says during 2005 and 2006 when the exuberance of the industry was peaking, many other fi nancial institutions wanted to lend, and some ultimately did. “The core group of lenders stepped to the sideline because of the exuber-ance,” he says.

The core lenders in the Farm Credit System avidly

watched the industry from the sidelines, however, and because many took conservative ap-proaches with their portfolios, they are still here today. Most of the others left. “Many of the lenders that put their toe in the water have exited the industry,” says Randy Aberle, senior vice president of agribusiness for AgCountry Farm Credit Ser-vices.

There’s a good chance that today’s strong ethanol plant margins could revive lender in-terest in the space once again, however. Since fourth quarter 2013, the industry has been ex-periencing favorable weather, literally and fi guratively. There has been with a strong export demand and positive plant mar-gins due to record corn crops plus a decrease from the 2012 drought-induced record high corn price of $8 to around $4 at the end of July. “What pro-ducers and lenders need to be doing right now is using the re-cord margins to amortize their debt, and the one key success factor for all the major produc-ers through the cycle—a decade of ethanol—is really having sig-nifi cant amounts of liquidity to

weather the storm,” says Chris Wu, partner at Carl Marks Ad-visory Group LLC. “It’s inevi-table that margins will contract and those who have the stron-ger balance sheets survive.”

Lenders agree that main-taining a strong balance sheet is important. Currently, advi-sors and lenders in the space say profi ts are giving some produc-ers more options than they’ve had in a long time. “They’ve been able to pay down debt and avoid any imminent restruc-turing that was forced from certain lenders when margins weren’t such a great time for these guys,” says Scott Cha-bina, director with Carl Marks Advisory Group. “Now they’re looking at some capital projects they’ve had on their shelves for anywhere between 18 to 24 months—looking at getting their own house in shape.”

Profi t PurchasesMany producers are, as

Chabina says, optimizing opera-tions and eyeing new technolo-gies at their current facilities as no new corn ethanol plants are being built with the excep-tion of Dakota Spirt AgEnergy Biorefi nery near Spiritwood, North Dakota. Coproducts and new technologies are what profi ts are funding. “You see ethanol producers getting pret-ty creative, and in a commodity business they have to be really, because it’s a pennies game,” Chabina says. “As long as they can extract every bit of value out of the corn kernel they are going to do so.”

New coproducts are com-ing, but corn oil, DDGS and

CO2 remain the big three reve-nue sidestreams. Corn oil is now produced at 80 to 90 percent of corn ethanol plants, and those that aren’t extracting it have mostly ruled it out to maintain a niche distillers grains customer base. “Corn oil projects have shown a pretty good return on investment and have been pret-ty widely accepted with most of the plants we’ve been work-ing with,” says Jason Johnson, vice president and agribusiness team leader with AgStar. “New technology is contributing to plant effi ciency, and when there is economic payback we are fi -nancing that.”

Even smaller improve-ments to increase plant effi cien-cy are having an impact. “One of the interesting things is there has been production creep, about 1 to 2 percent with exist-ing plants, just based off of the effi ciencies they’ve been able to obtain, without seeing major ex-

LENDING

Tom Houser

'We are very much interested in establishing new relationships with companies, in particular refinancing plants that have been up and running.'

Jeff Kistner

Randy Aberle

'We like to be on the leading edge, but not the bleeding edge.'


LENDING

pansion or a new plant coming online,” Johnson says.

Lender ActivityBefore considering financ-

ing, lenders are looking at credit profiles. “What we look at is if the existing ethanol plant has had a history of steady produc-tion, does it have an industry average yield—gallon per bush-el—and does its debt profile fol-low the underwriting criteria as far as having additional capacity, mainly if it has an acceptable debt load,” Houser says. “Bor-rowers have to have the profile so they can show the collateral

value and the repayment capac-ity the lenders are comfortable with.”

Lenders, who after the downturn added new agribusi-ness customers to their portfo-lios sparingly, have opened their doors more widely in the past 24 months. “We are very much interested in establishing new relationships with companies, in particular refinancing plants that have been up and running,” Houser says.

The key word, though, is running. Cellulosic ethanol plants and other advanced bio-refineries are an area the core lenders are not participating in yet. “Lenders loan to existing ethanol plants, known technol-ogy, known market channels, known collateral value, but nothing at present on a stand-alone basis relative to cellulos-ic,” Houser says.

Aberle agrees. As a lender in the senior debt position, Ag-Country usually waits for tech-nology to be fully established and replicated multiple times before financing. “We like to be

on the leading edge, but not the bleeding edge,” he says.

Getting these projects up and running has not been easy. “The reason cellulosic and ad-vanced biofuels are having a hard time getting going is, when you look at ethanol price to the margins, right now, the best value on a future cash flow ba-sis is in that 90 cents to $1.20 range and it takes $2 [per gallon] to build,” Kistner says. “You’ll never get that return on invest-ment back.”

Lending RisksAlthough they’re not cur-

rently financing debt on ad-vanced biofuels projects, many lenders are watching and wait-ing for the technology to de-velop. Uncertainty about the federal government’s position on biofuels is, in no small part, contributing to lender hesita-tion in the space. “Advanced biofuels are a very tricky indus-try, not only technologically, but also because the higher theme for them is, if you do have a cut to the RFS on conventional ethanol and the advanced side, the fuels that we are supposed to be building towards, it’s diffi-cult for people wanting to invest in a space where they may cut the demand, the future market,” Chabina says.

Larry Johnson, industry veteran and ethanol consultant, echoes Chabina’s concern. By waiting to announce the renew-able fuel standard’s (RFS) 2014 renewable volume obligation (RVO) numbers, he says, the EPA is creating the opposite

effect from its ostensible end goal. “They said they would like to see more cellulose and ad-vanced biofuels, and everyone agrees with that, except who is going to put money into a still relatively unproven area of cel-lulosic ethanol when the EPA might cut back on the amount?”

Kistner agrees that policy uncertainty, and the commodity risk it poses, is deterring lenders from engaging in biofuels today. The bogy, he says, is whether ethanol producers will continue to make financial decisions that yield the sort of liquidity that can supersede the hurdle of government uncertainty, which is out of everyone’s hands.

Ultimately lenders outside of the Farm Credit Service sys-tem are staying away, and those in the system are not lending to advanced biofuels yet. “Some of them have been attracted to the industry’s currently positive margins, but for many there are still some pretty negative connotations associated with the industry,” says Jason John-son. “They have just decided to stay away from it from a policy

Scott Chabina

Jason Johnson

'New technology is contributing to plant efficiency, and when there is economic payback we are financing that.'

Christopher Wu


standpoint at their banks, it is just not an area they are going to return to.”

Umbrellas at HandAlthough the downturn

that spurred those negative con-notations was half a decade ago, the loss is still fresh in every-one’s memory. The ethanol in-dustry is no longer in its infancy, and its maturation challenge will be creating and maintaining val-ue over time, says Kistner.

The domestic ethanol mar-ket now is near or at a saturation point that could be temporary or long term, depending on the federal government’s commit-ment to the RFS. The industry is producing close to the rate necessary to satisfy the renew-

able fuel volume of corn etha-nol, which is 14.4 billion gallons this year. “This is a record rate, next year the RFS caps out at 15 billion gallons from corn,” Larry Johnson says.

Although there is still un-certainty surrounding the RFS, in a commodity business uncer-tainty is certain. The core lend-ers, CoBank, AgStar, AgCoun-try and Farm Credit Services of America, understand this and have learned how to get com-fortable lending to the industry.

Plant margins are strong, lenders are engaged, and pro-ducers are investing in new

technologies. The outlook is bright, but umbrellas are being kept at hand. “It’s just impor-tant to remember that in the sunny days that producers are enjoying now, you actually need to put the money away for a rainy day,” Wu says.

Author: Katie Fletcher Staff Writer, Ethanol Producer Magazine

[email protected] 701-738-4920

Larry Johnson

LENDING

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ENERGY CAMPUS: Great River Energy's Spiritwood Station coal-fired CHP plant, just out of view at bottom left, will provide steam for the ethanol plant under construction. The second steam partner is Cargill Malt, located next to the power plant. PHOTO COURTESY: KARGES-FAULCONBRIDGE INC.

PROJECT


The first corn ethanol plant to be built in more than five years is taking shape in North Dakota. By Susanne Retka Schill

PROJECT

Many eyes are focused on the ethanol plant rising from the prairie at Spiritwood, North Dakota. Highway drivers keep watch on progress on the plant just north of Interstate 94, and on the other side of the world, investors in China can watch as well on the live webcam streaming coverage of the work in progress on the website of Dakota Spirit AgEnergy LLC.

Dakota Spirit is unique in many ways. It is the first corn ethanol plant to be built since the Energy Independence and Security Act of 2007 required new corn-based plants to meet a 20 percent greenhouse gas (GHG) reduction requirement—a process that took 19 months to get approved through the U.S. EPA.

The 65 MMgy Dakota Spirit also is the first U.S. plant fully integrated with a coal-fired combined heat and power (CHP) plant. And, equally unique is its financing—about half came through a little-known immigration program that gives permanent green card status to foreigners making hefty investments in U.S. industries creating new jobs. Dakota Spirit has 150 foreign investors from 10 countries.

SPIRIT RISINGDAKOTA


BUILDING ON SUCCESS: Greg Ridderbusch, left, began working on the proposed ethanol project for Great River Energy in 2006 and is now president of Midwest AgEnergy. Jeff Zueger, chief operating offi cer, will manage Dakota Spirit AgEnergy when construction is complete, as well as its successful sister plant, Blue Flint Ethanol.

PHOTO: SUSANNE RETKA SCHILL, BBI INTERNATIONAL

Dakota Spirit AgEnergy is owned by Midwest AgEnergy Group, which also owns the 65 MMgy Blue Flint Ethanol LLC plant at Underwood, North Dakota. Great River Energy, a wholesale electric cooperative serving 28 Minnesota and Wisconsin distribution cooperatives, is the majority owner of the group. In addition to Great River’s equity investment, there is a number of corporate and local farmer

investors as well, explains Greg Ridderbusch, president of Midwest AgEnergy.

Project development for the ethanol plant at Spiritwood followed a long, winding road. In 2006, the North Dakota governor’s offi ce announced plans for a $350 million Spiritwood Industrial Park that would include a 100 MMgy corn ethanol plant to be built by the Newman Group, along with an expansion of the Cargill

Malt plant and a coal-fi red CHP plant to be built by Great River Energy to power the campus. A little over a year later, in November 2007, the governor presided at the groundbreaking ceremony for Great River’s 99 MW CHP plant. About the same time, Cargill Malt began its expansion. The recession, however, torpedoed the Newman Group’s plans. But with a newly built CHP plant sitting idle due to the recession and the need for a second steam partner, Great River continued exploring the ethanol option. “We seriously looked at cellulosic for a while,” Ridderbusch recalls. But with the technology still developmental, and a feedstock study suggesting the proposed 20 MMgy plant would need to draw cellulosic feedstocks from as far as 100 miles, the planning returned to a corn-based facility. “By that point, Blue Flint Ethanol had been successful,” he continues. “We said, we might bolt on cellulosic later, but we let’s build Blue Flint No. 2.” Early in 2011, Great River made the decision to move forward with Dakota Spirit AgEnergy.

GHG PerformanceThe fi rst hurdle was to

demonstrate Dakota Spirit would meet the renewable fuels standard (RFS) requirement for any new ethanol plants to reduce GHG emissions by at least 20 percent compared to the baseline. The feedstock

portion of the Dakota Spirit life-cycle analysis was based on the existing corn ethanol pathway determined by EPA, but the CHP contribution to GHG reduction was unique.

Co-location with a power plant providing steam to the ethanol plant is not unheard of, though not common. Iowa and South Dakota have one ethanol plant each co-located with a power plant. And, Dakota Spirit’s sister plant, Blue Flint, is co-located with Great River’s Coal Creek Station located along the Missouri River near Underwood. That power plant is a conventional 1,100 MW coal-fi red plant sending steam to its neighbor the ethanol plant.

Dakota Spirit will be using steam from Great River Energy’s 99 MW CHP Spiritwood Station. What is unique about Dakota Spirit, explains Jeff Zueger, chief operating offi cer, is the full integration—Dakota Spirit doesn’t have a boiler. “We are taking their steam directly in our columns and our exchangers and sending the condensate back,” he explains. “It has inherent risk, but it is a more direct relationship. And, they’re relying on us, using that condensate directly in the boiler.” The power plant, he adds, does have backup natural gas boilers. The facilities are integrated in other ways, as well, such as the ethanol process water coming through the power plant, eliminating the need for water treatment at the ethanol plant. While Great River


EPC TEAM: Two St. Paul, Minnesota-based companies are the design/build team on the project, Karges-Faulconbridge Inc. and McGough Construction Co. Inc. The team built a 50 MMgy plant for Heartland Corn Products that doubled the company's production capacity. Karges-Faulconbridge is a process engineering consultant, helping ethanol producers improve effi ciency. McGough has worked on other projects for Great River Energy, including its LEED rated headquarters in Minnesota.


PROJECT

is generating power next door, the ethanol plant is connected to the grid, assuring electrical service during maintenance or outages.

The CHP integration was critical for meeting the 20 percent GHG reduction requirement, although the benefi ts had to be clearly demonstrated. “It took a team effort,” Zueger says. “It took us working with the engineering fi rm (Karges-Faulconbridge Inc.) and the expertise within Great River Energy fi guring out how to run the turbine in optimal mode.” Besides optimizing the process steam systems, the ethanol side needed additional levels of thermal effi ciency to meet the GHG reduction goal. The letter from EPA approving the pathway came through in February 2013.

Green Card Financing

The fi nal piece of the puzzle, not surprisingly, was fi nancing. It was a very challenging time for project fi nance during the recession, Ridderbusch explains. “But when we looked at international funds, this was a viable project—we were able to demonstrate the economics. And, there is a different motivator for EB-5 investors.”

Midwest AgEnergy worked with the CMB Export LLC Regional Center, Rock Island, Illinois, to utilize a program created by Congress to encourage job-creating foreign investment in communities

affected by military base closures, which was later expanded to qualify other communities. The EB-5 program requires an immigrant investor to make an at-risk investment of $1 million, or $500,000 in some cases, that creates no fewer than 10 American jobs, thus the name Employment Based 5th Preference Visa (EB-5).

The CMB Center did an economic study of the Midwest AgEnergy project to confi rm about 80 direct jobs would be created at the power plant and ethanol plant, plus another 70 indirect jobs. “We have, for this project, 150 foreign investors, from over 10 countries, most signifi cantly China,” Ridderbusch says. “Each of them put $500,000 in—not directly to our project, but into a pooled investment fund

LAST OF THE FIRST: EPM's archive indicates the last fi rst-generation plants broke ground in 2008, including Bionol Clearfi eld LLC (now Pennsylvania Grain Processing LLC) in Clearfi eld, Pennsylvania, Abengoa plants in Mt. Vernon, Indiana, and Madison, Illinois, and Appomattox Bio Energy (now Vireol Bio-Energy) in Hopewell, Virginia.



managed by the CMB Center. The CMB Center is the lender into our project.”

In December, Midwest AgEnergy announced the $155 million financial package was completed and construction would now begin. They were pretty confident a few months earlier, however, as the official groundbreaking ceremonies had already been held in August.

McGough Construction began work in earnest in January. The dead of winter in North Dakota may not seem to be an ideal time to begin construction, but for pile-driving it was. Even though subzero temperatures made it challenging to keep the pile driver firing, Zueger says, the frozen ground was easier to work on than if work had started in what turned out to be a very wet spring. “Because of the soil conditions, piles had to be driven to support load bearing structures like the fermentation and grain tanks,” Zueger explains. “We have 18 miles of 9.5-inch, 90-foot long piles.” Project planners also demonstrated foresight in preparing roadbeds with subgrade development including geomats and substantial amounts of gravel to be able to handle the loaded trucks, in spite of wet conditions.

“We are on the pathway to have the facility starting up by later winter and into production by the second quarter of next year,” Ridderbusch says. At peak, there will be 20 contractors working on all the projects underway around the 40-acre

STEAM PARTNERS: Great River Energy's Spiritwood Station, left, will provide steam for the Cargill Malt plant, right, as well as the ethanol plant, now under construction behind the power station. The photo was taken in August 2013, at the ethanol plant groundbreaking ceremony. PHOTO COURTESY: SUSANNE RETKA SCHILL, BBI INTERNATIONAL

©2014 Ecolab USA Inc.Ecolab, Nalco and the logo are trademarks of Ecolab USA Inc.

A Strong PartnershipFor over 15 years, Nalco has used an approach that includes mechanical,

operational and chemical expertise combined with innovative technology to

help ethanol producers find solutions to water and process challenges. When

Nalco joined the RFA in 2005, the industry was just beginning to understand its

potential. Today, we’re proud to be part of an industry that produced over

14 billion gallons of ethanol in 2013.

Going forward, we’re committed to partnering with producers to strengthen

the business by driving operational efficiencies and sustainability. . . whether

it’s conserving more than a billion gallons of water each year, finding new

ways to increase corn oil recovery, or introducing better feed and control

technology for final ethanol corrosion inhibitor treatment.

Together, we’re fueling a very bright future.

Reinventing the Way Water is Managed


ALL WEATHER PROGRESS: Sunny days were rare in the unusually wet spring as construction began in earnest. Extensive subgrade road preparation meant loaded trucks could continue to deliver their loads and construction could proceed in spite of wet conditions. The power station can be seen through the building under construction in July.

PHOTO: LYNDON ANDERSON, GREAT RIVER ENERGY

ethanol plant site. Stutsman County is upgrading road access to the Spiritwood Energy Park and the local rural and city water systems are supplying water. Great River and the Jamestown Stutsman Development Corp. each invested land as the base for a rail loop capable of loading and unloading unit trains simultaneously. The hope is to attract other industries to the 500-acre energy park that will use the common track. The final leg in the multiple community partnerships was contributed by the state with a state-level loan guarantee. “The community has been such a great partner with us,” Ridderbusch says.

Zueger is optimistic about the timing for Dakota Spirit, in spite of the talk of the blend wall and the ethanol industry being very close to the 15 billion gallon maximum for corn ethanol under the RFS. “If you look through 2015, there are strong margin opportunities for ethanol,” he says. “We haven’t seen that the entire history of operation at Blue Flint. We think we’re coming on at a good time. We think markets will find opportunities for all the ethanol that is produced because it is so competitively priced as an energy source globally.”

Author: Susanne Retka SchillSenior Editor, Ethanol Producer Magazine

[email protected]


There is more corn being produced in the United States today than at any other time in history. Indeed, while this should be good news for the fuel ethanol industry, we haven’t been able to benefit to the fullest extent possible. That’s because our government has blocked the growth of the ethanol industry, while giving the “keys to the kingdom” to the petroleum industry.

As we know, the petroleum industry produces poor quality fuels and then blames the higher toxic emissions on ethanol. A lesser known fact is that the U.S. EPA also makes ethanol look bad by controlling what fuels are tested and how they are blended. It’s a brilliant move by both groups, but one we as an industry have to stand up against.

We must push for change when it comes to the way fuels are blended and tested. Right now, certification fuel as defined by the EPA has half of the fine particulate toxic emissions compared to

the fuel we buy at the local convenience store. The EPA contracted with the Coordinating Research Council and a Chevron fuel blending engineer to make a lower quality fuel for the blending of higher levels for ethanol in certain tests. This was done so the outcome would demonstrate higher emissions with higher ethanol blends.

However, we know that by simply adding ethanol to gasoline, toxic emissions are reduced. This is a big deal because toxic emissions from gasoline are a growing health concern, especially for those living in urban areas. Low income families and children are often the most exposed to high traffic areas, just because of where they live. The primary cause of the toxic emissions is high-boiling aromatics, which are all some type of benzene unnecessarily added to gasoline. These aromatics produce literally hundreds of billions of invisible fine particulates that come out of your tailpipe for every mile driven. The particulates are so small that, when breathed into the lungs, they go directly into your bloodstream.

Ethanol can be used to replace a large percentage of aromatics, providing a cleaner-burning fuel and increased octane. This is an area where we as an industry need to put our focus. Cleaning up the way gasoline is blended by using more ethanol will open up the marketplace while benefiting our air quality and our health.

It’s one more pathway to consider, given the constant hurdles the EPA continues to put in front of our industry. Between ignoring the ethanol and auto industry’s recommendations for Tier 3, the proposed reduction in flex-fuel vehicle credits and the proposed cut to the 2014 renewable volume obligations for the renewable fuel standard, it is obvious the EPA is not interested in ethanol.

It’s a pattern we as an industry need to change; otherwise our business will plateau in the United States. Our opponents have laid their groundwork and are executing their strategy. We need to start executing ours and promote a clean high-octane strategy for today and the future.

Author: Dave Vander GriendCEO, ICM Inc.

[email protected]

Needed: New Strategy forClean, High-Octane Ethanol

TALKING POINT

By Dave Vander Griend

Blender Wizardry Targets Ethanol

Whoever controls the test blend, controls the test outcome.


A company that is constructing a new ethanol or other biofuel facility, or that is acquiring an existing facility, must identify compliance with the Process Safety Management standard as a primary aspect of its due diligence. Failure to require this documentation as part of the purchase of an existing facility, or as part of the contract to build or add on to a biofuel facility, could be a very costly oversight. Rebuilding a PSM program in a biofuel facility that is already operational is a daunting and expensive task.

The PSM standard is by far the most frequently cited standard in the industry code, *NAICS 325193 (Ethyl Alcohol Manufacturing). It is also the most complicated Occupational Safety and Health Administration standard that exists.

What does the PSM standard require?Process Safety InformationThe PSM program must include comprehensive documentation

concerning the chemicals, technology and equipment used during the process. This documentation should include a block flow diagram or a process flow diagram, maximum inventory levels for chemicals used in the process, the system limits, including possible results if those limits are exceeded, and piping and instrument diagrams. Each of those documents just listed, require significant time and expense to prepare at the design stage. The preparation becomes much more costly for plants that have been operating without a compliant PSM program.

Process Hazard AnalysisThis is described in 29 **CFR 1910.119, Appendix C as “one of the

most important elements of the process safety management program. PHA is an organized and systematic effort to identify and analyze the significance of potential hazards associated with the processing or handling of highly hazardous chemicals.”

Operating procedures and practicesThis section of the PSM should accurately reflect the process’s

standard operating procedures, work flow, required documentation, operating conditions, sampling requirements and health and safety requirements to be followed by the employees.

Employee trainingA clearly defined training program must be established. Employees

must be able to demonstrate their knowledge to an acceptable level. This should be documented through written and practical testing or some other mechanism.

ContractorsA screening process must be established to ensure that any

contractors hired by the employer are qualified to perform their jobs under PSM. Contractors should be advised of the PSM plan and prohibited from making changes to the physical plant without verifying that such changes are consistent with the plan and then incorporated into the plan. (See Managing Change below.)

Mechanical integrityRoutine review of the facility’s maintenance programs and

schedules should be conducted to ensure the reliability of the equipment used in the process. The equipment to be monitored should include not only those directly in the process, but also those that are considered a primary or secondary line of defense (venting, scrubbers, alarms, sprinklers, overflow, etc.).

Managing changeThe PSM standard defines change to include any modification in

equipment, procedure, materials, or conditions, unless it’s a “replacement in kind.” A change management team should study, document and approve all changes.

Emergency preparedness and investigation of incidentsProcedures must be established to inform employees of their

responsibilities in the event of release of highly hazardous chemicals. Local emergency response agencies should be advised of hazards associated with the process and included in emergency planning. Employers must also develop a procedure to investigate any incident that occurs at their facility.

The PSM standard applies to most biofuel facilities. Compliance with the standard will take time, expertise and resources. Contracts for construction of facilities should include a warranty that the plant and documents will be compliant with OSHA regulations including PSM.

For those acquiring an existing facility, compliance with the above elements should impact the purchase price or be a condition of closing. Therefore, someone with PSM expertise should be included in the due diligence team.

* North American Industry Classification System ** Code of Federal Regulations

Author: Charles B. PalmerMichael Best & Friedrich LLP

262-956-6518 [email protected].

Building or Buying a Biofuel Plant? Think PSM

BUSINESS MATTERS

By Charles B. Palmer


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A Tradition of Industry Education

For 33 years, The Alcohol School has been educatingfuel ethanol and distilled beverage producers in thescience of alcohol production. The weeklong program is designed for lab, plant, and managementpersonnel and is organized around lectures, laboratory demonstrations, seminars, and plant visits.

The program will cover the process of ethanol andbeverage alcohol production from milling and mashpreparation through fermentation and distillation.Enzyme usage, yeast biology, bacterial contamina-tion and control will also be discussed, along withother issues currently affecting both industries.

Registration is open to fuel ethanol, distilled beverage, and allied industries. Now is a good time to invest in education.

Registration materials and additional informationare available online at www.lallemandbds.com

6120 W Douglas Ave | Milwaukee WI 53218 USA+1 414 393-0410 | Fax +1 414 358-8012

For More Information

MontréalInterContinental Montréal

September 14–19, 2014

EPM Ad Montreal AS14_Alcohol School Ad 6/6/14 1:44 PM Page 1

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TOTAL PERFORMANCE SYSTEM

Your plant is unique, your enzyme solution should be also. Find out how you can maximize the performance of your plant with the Total Performance System by contacting your DuPont representative or calling 1-800-847-5311.

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TPS

September 2014 Ethanol Producer Magazine

Documents

Transcript of September 2014 Ethanol Producer Magazine