It’s a marriage that could lead to the largest ethanol plant in the Southeast.
On May 1, Jackson-based Ergon Ethanol Inc. and St. Louis, Mo.-headquartered Bunge North America unveiled a grandiose joint venture to capitalize on the nation’s burgeoning alternative-fuel market. The energy company and leading agribusiness firm are teaming up to build a state-of-the-art facility that will provide a key link between Bunge’s grain-handling facilities in Mississippi and Louisiana and Ergon’s petroleum refining assets.
The ethanol plant, proposed to be built at the Vicksburg port, will produce an annual capacity of 60 million gallons. The proposed facility will also generate corn-based co-products to “…bring new feed ingredient opportunities for our poultry customers,” said Tim Gallagher, senior vice president of Bunge North America.
Mississippi agriculture commissioner Lester Spell called the announcement “welcome news for everybody.”
“It’s a wonderful joint effort,” he said. “We’re excited about this and feel it could lead to real potential for agricultural growth for Mississippi as a larger grain supplier.”
Sumesh Arora, director of the Strategic Biomass Initiative for the Mississippi Technology Alliance, said the proposed plant “would certainly be a good fit for the state for many reasons.”
Ethanol is an alcohol primarily made from corn and used as an additive blended with gasoline to reduce emissions and increase octane levels. (Brazil, the world’s largest ethanol producer, makes it from sugar cane.) Since the federal government banned the use of the additive MTBE two years ago to make fuel burn cleaner, ethanol’s use has been on the rise.
Of the three primary alternative fuels, ethanol holds the most potential, followed by coal-to-gas and synfuel. Paul Ho, director for global project finance at Credit Suisse First Boston, which is pioneering ethanol financings on Wall Street, cautioned that “ethanol puts investors at the mercy of not one but two commodity cycles: agriculture and oil.”
“And they’re not usually in sync,” he told Fortune magazine. “Sometimes they’re completely out of sync, as in 1996, when gas prices were low and corn was high. But now there’s a bumper crop of corn, in spite of the drought in parts of the Midwest, and because of genetically modified seed and better fertilization and irrigation practices. U.S. farmers now produce 31% per acre more than 10 years ago, and 75% more than 75 years ago. What’s more, corn gets a multi-billion-dollar-a-year federal subsidy, and the politics to keep that in place are very powerful.”
The nation’s ethanol capacity is growing by 20% to 25% or more annually, having doubled in the last four years. Capacity is now four billion gallons per year, with another one billion under construction. However, total capacity is relatively small compared to the gasoline market, which is 150 billion gallons per year, even though ethanol plants are less expensive to build than oil refineries. According to the U.S. Energy Information Administration, ethanol production is at its highest-ever level, producing more than 300,000 barrels daily in February, and representing a 14,000-barrel per day increase over January.
Despite the optimistic numbers, ethanol demand remains a question mark because states have different mandates. For example, Minnesota mandates E85 fuel, which is 85% ethanol and 15% gasoline. Most Sunbelt states require none.
Automobiles built in the last decade can run on anything up to E10, or 10% ethanol, with no modification. Most SUVs and trucks can burn E85. The Mississippi plant would produce E100 ethanol (straight alcohol).
Last year, President George W. Bush reiterated his support of ethanol as “another promising source of energy.” On April 26, Bush called for a rollback of $2 billion in government assistance and tax breaks for oil companies over the next decade for items such as research and development for deep-water drilling. The current energy bill mandates production of 7.5 billion gallons annually by 2012, but if there’s a voluntary move to ethanol, business could expand much quicker.
According to a three-year-old study initiated by the Mississippi Alterative Energy Enterprise, ethanol production in the South has been limited to only two facilities: A.E. Staley’s 60-million-gallon-per-year plant in Loudon, Tenn., and U.S. Liquids’ four-million-gallon-per-year plant in Bartow, Fla. Of the five potential ethanol production sites in Mississippi selected for economic and financial feasibility studies, the proposed sites with river ports were considered “especially well suited” from an infrastructure perspective to both receive feedstocks and ship ethanol.
“In general, Mississippi should proceed with caution relative to the development of an ethanol industry,” the report summarized. “This conclusion is based on the current need for more corn storage capacity, the persistent deficit in corn supplies, the lack of regional demand for ethanol and the way that the producer payment legislation is structured.”
Spell responded with a letter pointing out that “the Mississippi Delta corn production in 2001 increased by 43% over 2000. This single year’s increase of 14 million bushels statewide would more than supply the requirements for a 30-million-gallon per year ethanol plant.”
In 2003, state lawmakers passed legislation authorizing cash payments (20¢ per gallon) to ethanol producers, only if Mississippi corn is used. Whether Mississippi farmers could produce enough corn to fully subsidize production is debatable. Producing the renewable, clean-burning fuel at the proposed Mississippi plant would require at least 21 million bushels of corn annually. Currently, Mississippi farmers produce about 50 million bushels of corn per year, but use roughly 130 million bushels for livestock feed.
“In early 1996, there was virtually zero corn surplus in the U.S. and our farmers realized they could plant corn earlier than farmers in Iowa and Nebraska, and could harvest and market it sooner,” said Spell. “Because we had more than 600,000 acres of corn in 1996, it was very profitable for our farmers. As we see increased demand for corn, our agricultural community will adapt to meet those demands.”
Having an ethanol plant in Mississippi “would tend to raise the price of corn,” pointed out Arora. Cornstalks normally left to rot in the field would allow “our farmers to get more value for their corn.”
Neither Ergon nor Bunge has said how much the project would cost, exactly where it would be located, or how many jobs would be created.
Contact MBJ contributing writer Lynne W. Jeter at Lynne.Jeter@gmail.com.
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