Industry Review of Ethanol Fuel Production

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Production of ethanol for fuel use continues to grow at a rapid pace. Production was 2.81 billion gallons in 2003, compared to 2.13 billion gallons in 2002 and 1.40 billion gallons in 1995. Production in 2004 is expected to be about 3.0 billion gallons. Predictions are that production will be at least 5.0 billion gallons by 2012, whether or not Congress passes the renewable fuels bill, which encourages addition of ethanol to gasoline. The main interests of Congress are to reduce oil imports and also to aid the farm economy.

Ethanol Price

The price of ethanol is related to the price of gasoline, as shown in the table at right. Another factor in setting the price for ethanol is the price of corn, the major raw material to make ethanol.

Use of Ethanol

Ethanol is used as an additive in gasoline. A 10% ethanol blend creates a fuel with 3.5% oxygen. The oxygen helps the gasoline combust more completely and more efficiently, reducing the amount of pollution emitted from every vehicle. Much of the growth of sales of ethanol comes from replacing MTBE, which supplies the same benefits mentioned above. However, MTBE pollutes groundwater and has been banned in many states.

Ethanol Tax Incentive

Ethanol marketers state that ethanol is a great deal, price-wise. With tax incentives for ethanol use, adding ethanol can actually cut the costs of fuel. The tax incentive to use ethanol is a reduction in federal excise tax of 5.1¢/gallon of gasoline containing 10% ethanol. The federal tax on gasoline not containing ethanol is 18.1¢/gallon.

Ethanol Producers

There are 86 plants that make ethanol, and 14 new plants are under construction. The production capacity of the 86 operating plants is 3.66 billion gallons per year and the new plants will have a capacity of 490 million gallons per year. All but four of operating plants use corn to make ethanol by fermentation. The other four use milo or barley.

Byproducts of ethanol production are carbon dioxide and distillers dried grains, which is sold for animal feed. Yield of ethanol is 2.6 gallons per bushel of corn.

Supply of Corn

There are signs of tightening supply of corn to make ethanol. There are four main uses for corn, all of them competing for available corn supply. These main uses, in order of size, are animal feed (59% of usage), exports (17%), refined corn, such as sweeteners (11%), ethanol (10%), and all others (4%). Total U.S. corn production has remained steady at about 10 billion bushels annually. Corn used in ethanol production was one billion bushels in 2003. That is likely to increase to over 2 billion bushels in the future, or 20% of U.S. corn production.

As a result of the multiple types of demand for corn, the price of corn has shot upward. In June 2003, it was $2.10 per bushel, in January 2004, it was $2.50 per bushel, and in April 2004, it was $3.30 per bushel.

Research is being done to find biomass sources other than corn, to make ethanol. However, most of this work is still in the experimental stage.

Industrial Information Resources tracks all construction activity in building new ethanol plants. In addition, up-to-date information is maintained on lists of ethanol operating plants and management personnel at these plants.