Ethanol Production Declines For First Time In 16 Years

U.S. ethanol production is headed for the first decline in sixteen years, jeopardizing the nation’s drive to boost alternative fuels, as higher costs and lower demand close plants. Shrinking distilling margins have resulted in a fourteen percent drop in output this year to 825,000 barrels a day, or 12.6 billion gallons annually, Energy Department data show, six hundred million gallons short of the amount refiners are mandated to use under a 2007 law that calls for escalating consumption of the biofuel. That would be the first yearly decrease since 1996.

As many as ten companies, from Valero Energy Corp. (VLO) to Biofuel Energy Corp. (BIOF), have closed distilleries after the worst drought since the 1950s sent the price of corn to a record just as gasoline demand slumped. President Barack Obama’s administration had until November 13 to decide whether to agree to calls from a bipartisan group of lawmakers for the suspension of the law, which was the centerpiece of George W. Bush’s plan to wean the U.S. off oil. Ethanol accounts for about nine percent of total gasoline consumption, according to the Energy Department.

More than a dozen producers, including Brookings, SD-based VeraSun Energy Corp., once the largest American distiller, filed for bankruptcy protection over an 18-month period starting in October 2008.

The 2007 law enacted under President Bush, known as the Renewable Fuels Standard, or RFS, requires refiners to mix 13.2 billion gallons of biofuels, such as ethanol, with gasoline in 2012 and fifteen billion by 2015, a 67 percent increase from the 2008 target.

In its latest Short-Term Energy Outlook yesterday, the Energy Department estimated that ethanol production will fall to 13 billion gallons next year, 5.6 percent below the 13.8 billion consumption target. The 2012 corn harvest in the U.S., the largest grower and exporter, will total 10.706 billion bushels, the lowest in six years, the Agriculture Department said October 11, of which 42 percent will go toward ethanol. Last year farmers grew 12.358 billion bushels and 40 percent was used to make the biofuel.

Lawmakers, including the governors of Arkansas, North Carolina, Maryland, Delaware, and Georgia, and a bipartisan group of legislators in both chambers of Congress asked the Environmental Protection Agency, which governs the program, to suspend the mandate because of the potential impact on food prices with a smaller corn crop.

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