Ethanol update, 2019: Here’s a snapshot of an industry that’s proving vital to rural America
GRAND FORKS, N.D. – The remarkable thing about the ethanol industry is not how big it is today. It’s how fast it has grown.
Think 500 percent increase since 2003, and you’ll get the idea.
In Prairie Business’ circulation area, that growth has been somewhat overshadowed by the dramatic growth in Bakken oil, another energy sector. And that’s too bad, because the ethanol industry’s expansion merits attention as major rural development news.
- In North Dakota alone, the state’s five ethanol plants – all of them built since 2005 – produce more than 520 million gallons of ethanol a year. That’s more than five times the production of 10 years ago.
- “Each North Dakota ethanol plant is located in a community of less than 2,500,” the North Dakota Ethanol Council reports.
Each plant also “contributes an average of 46 jobs and an average annual payroll of $3.3 million to the community.”
- Furthermore, the plants buy most of their corn from North Dakota farmers, to that extent that “40 to 60 percent of North Dakota’s total corn production annually is purchased by North Dakota ethanol plants,” according to the council.
- And in Minnesota and South Dakota, the same holds true – except more so, as those states top North Dakota in ethanol production.
According to the Minnesota Department of Agriculture, for example, “Minnesota is home to 19 ethanol plants and one biobutanol plant,” which “have a combined production capacity of more than 1 billion gallons.”
Here’s another way the ethanol industry is affecting rural America: it’s boosting rail traffic. Those black tanker cars that upper Midwesterners so often see rolling along on area tracks? Chances are, those cars hold ethanol, which is much more likely than crude oil these days to be shipped by rail.
Unlike crude oil, ethanol can’t easily be shipped in pipelines because it picks up water and other impurities. So, while 21 million barrels of ethanol were shipped by rail in September, only about 8.4 million barrels of crude oil moved by rail during that time, the U.S. Energy Information Administration reports.
One result is that “ethanol is the highest-volume chemical carried by U.S. railroads,” according to the Association of American Railroads.
The net result of all of the above is the following: “More than 98 percent of U.S. gasoline contains ethanol, typically E10 (10 percent ethanol, 90 percent gasoline), to oxygenate the fuel and reduce air pollution,” the U.S. Department of Energy reports.
Not bad, considering that 20 years ago, only about a fifth to a quarter of the U.S. gasoline supply would have contained ethanol.
So, what accounts for the industry’s rapid growth, and what challenges to ethanol remain?
Like booster rockets, three events helped launch the ethanol industry and propel it onto its current trajectory, said Jeff Zueger, chairman of the North Dakota Ethanol Council and CEO of Midwest AgEnergy Group, which runs ethanol plants at Spiritwood and Underwood in North Dakota.
The first event was the energy crisis of the 1970s, when gas prices jumped and Americans started thinking about reducing their dependence on foreign fuels.
The second was the phaseout of two highly polluting fuel additives – lead, and the chemical MBTE – as octane sources, which boosted demand for ethanol as a substitute.
Third and most important, the Energy Security Act of 2005 and the Energy Independence and Security Act of 2007 required gasoline sold in the United States to contain a minimum volume of renewable fuels.
“That’s when we really took off,” Zueger said.
“Around 2005 to 2007, our industry saw a rapid, exponential expansion in response to the renewable fuels standards.”
As for the ethanol industry’s challenges, they, too – like the Renewable Fuel Standard – are mostly at the federal level, Zueger said.
For one thing, “we’re in a shrinking market,” as fuel efficiencies and changing driving habits lead to less reliance on liquid fuels. The industry’s responding in several ways – among them, lobbying to modify the Renewable Fuel Standard to allow E15 sales year-round.
Currently, as USA Today reported in October, “E15 is banned during the summer months, based on concerns it contributes to smog, a claim ethanol advocates say is unfounded.” But with President Trump’s support, the ban could be lifted as early as this summer.
Trade is another concern, Zueger said – “and not only for ethanol, but also for our feed products,” which are a byproduct of the processing of corn into ethanol.
About one out of every 11 gallons of U.S. ethanol gets exported. “We have exported ethanol into 40 different countries from the U.S.,” Zueger said, “and I would say 20 of those countries now have trade restrictions or trade barriers against us.”
But when the Renewable Fuels Association surveyed the landscape for its 2018 report, the association concluded as follows: “While the industry has been challenged by stubbornly high stocks, protectionist trade barriers and policy uncertainty, the long-term market fundamentals remain solidly bullish, and producers are facing the new year with confidence. …
“Ethanol stands as a pillar of strength, providing a value-added market that continues to rejuvenate rural communities.”
Editor, Prairie Business