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Abundance of oil and gas: A damper on biofuels?

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The ethanol industry, which got a giant shot in the arm from the government’s Renewable Fuels Standard, mandating that billions of gallons of the fuel (mostly from corn) be blended with gasoline each year, was given a kick in the teeth last year when the EPA proposed a significant reduction in usage.

There’s a classic plaint in an old Albert King blues song, later redone by various rock, country, and pop artists, that goes, “If it wasn’t for bad luck, I wouldn’t have no luck at all.”

That may well be the mantra of the U.S. biofuels industry, which is having something of a run of hard times and bankruptcies, the latest being the announcement last week by KiOR Inc. that its $225 million Columbus, Miss., cellulosic ethanol plant, is shut down while it tries to raise more money. Barring that, officials said, the company could default on its debts and file for bankruptcy, perhaps as soon as April 1.

As of Feb. 28, company officials said, it owed $203.3 million. Mississippi taxpayers loaned the operation $75 million to get started, with $69 million-plus yet to be repaid.

The plant, which produced ethanol from wood/plant wastes, cranked up almost two years ago, but has been beset by operational and financial problems. Production stopped in December, and the company’s end-of-year SEC filing gave no indication of when it might resume operations, or the fate of its 100 employees. The company’s website says the plant has capacity to produce more than 13 million gallons of gasoline, diesel, and fuel oil blend stocks per year.

Even if it starts up again, the SEC filing said, “We have substantial doubts about our ability to continue as a going concern.”

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A week or so later, it was announced that the U.S. Department of Energy had withdrawn $88 million of support for a planned $300 million cellulosic ethanol plant at Fulton, Miss. The facility was being designed to produce 19 million gallons of ethanol per year.

The company says it will appeal the DOE decision, but “cannot make any assurances that the DOE’s decision will be reversed on appeal, or that such appeal will be heard at all.”

After 40 years of U.S. leadership doing nothing toward a national energy policy following the Arab oil embargo and being hostage to OPEC, there is no little irony that when something finally got moving in terms of alternative energy development, the country was — thanks to a flurry of exploration brought on by skyrocketing energy prices — gushing oil and natural gas, from the Gulf of Mexico to North Dakota and all points east and west.

So much so, in fact, that some industry analysts forecast the potential for U.S. energy independence as early as 2015.

The ethanol industry, which got a giant shot in the arm from the government’s Renewable Fuels Standard, mandating that billions of gallons of the fuel (mostly from corn) be blended with gasoline each year, was given a kick in the teeth last year when the EPA proposed a significant reduction in usage.

So, while investors — private and government (taxpayers) — were pouring billions into ethanol/biofuels production and research, Big Oil and Big Gas were full speed ahead drilling and fracking and squeezing shale and tar sands.

And in a country that still is mostly petroleum-dependent, the newfound abundance of oil and gas and the government’s potential reneging on the RFS mandate, may bode hard times for others in the nascent renewable fuels sector.

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