http://www.sltrib.com/home/2859042-155/cheap-oil-makes-it-tough-for
Cheap oil makes it tough for ethanol to pay bills
By Mario Parker Bloomberg News
First Published Aug 20 2015 09:36AM • Last Updated Aug 20 2015 09:36 am
Cheap crude oil may make it hard for ethanol companies to pay their
bills on time.
The lowest oil prices in six years are hitting biofuel producers two
ways: They're making ethanol less attractive as a blend for gasoline,
and emboldening the arguments of petroleum backers who say the U.S. law
mandating consumption of the fuel alternative is obsolete, Standard &
Poor's Ratings Services Inc. said in a report Wednesday.
"The most noteworthy trend in the energy industry during the past year
has been the precipitous decline in commodity prices, and chief among
these has been plummeting oil prices," Michael Ferguson, a credit
analyst at S&P, wrote. "The lower oil prices may present a difficult
rationale for blending ethanol."
Crude oil has fallen 57 percent in the past year to $40.80 a barrel on
the New York Mercantile Exchange, the lowest since March 2009. Gasoline
has plunged 42 percent and ethanol has dropped 31 percent.
Regulatory support has also waned. In May, the Environmental Protection
Agency proposed reducing the amount of ethanol required to be mixed with
gasoline from statutory levels set in 2007, citing changing driving
habits and fuel use since then.
That's not reason enough to abandon the policy, according to Growth
Energy, a Washington-based trade group.
"Cheap gas and cheap oil is never a certainty, and often it is the
exception," Tom Buis, chief executive officer of the lobby, said in an
emailed statement.
The Renewable Fuels Association, also a Washington-based trade group,
said the S&P report "is really out of step with the realities of the
market place today."
Low-priced crude oil lowers gasoline costs and makes ethanol less
attractive for blending beyond government mandates. An additive, ethanol
is used to boost gasoline supply and lower prices.
"Consumers are saying, 'I've already got cheap gas, why do I need this
ethanol?'" Ferguson, the report's author, said in a telephone interview
Wednesday.
Poet in Sioux Falls, S.D., is the largest ethanol producer, followed by
Archer-Daniels-Midland Co. in Chicago; Valero Energy Corp. in San
Antonio; and Green Plains Renewable Energy Inc. in Omaha.
In the United States, ethanol is made mostly from corn. Companies risk
getting pinched between cheap oil, which caps how much they can charge
for ethanol, and corn that's subject to weather-related price spikes,
according to the credit agency.
Ample supply and higher input costs threaten to "pressure" production
margins for the rest of the year, Bloomberg Intelligence analyst Tobias
Nystedt and James Evans said in an Aug. 7 report.
That, combined with cheap oil and policy changes, brews uncertainty,
anathema to credit analysts, S&P said.
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