Signs of an ethanol bust? More like a slightly quieter boom
You can never get enough of a good thing. And for railroads and tank-car builders, ethanol has been a very good thing.
During the past few years, many railroads have posted double-digit increases in ethanol-related traffic and the handful of builders that manufacture tank cars have logged a growing number of orders, helping keep their business afloat while demand dropped for other car types.
U.S. ethanol production capacity is expected to more than double within two years from 6 billion to 12.5 billion gallons. So, the good times will keep rolling for railroads, which transport three-fourths of the nation's ethanol-related traffic, and builders. Or will they?
According to the Oil Price Information Service, ethanol prices recently dropped from $2.30 to $1.50 per gallon — a far cry from last year's prices that at times surpassed $4 per gallon. In addition, prices for ethanol's key raw material, corn, have nearly doubled since January 2006.
Ethanol producers are getting antsy. Last week, VeraSun Energy Corp. decided to suspend construction of a 110-million-gallon-capacity plant in Reynolds, Ind., until there's a "return to more favorable market conditions." The plant, which will be served by CSX Transportation and the Toledo, Peoria & Western Railway, had been scheduled to open in fourth-quarter 2008, but VeraSun Energy might not resume construction until sometime next year.
Time to push the panic button? Not quite. As CNNMoney.com recently put it, the "reports of an ethanol bust might be greatly exaggerated."
The overabundance of ethanol on the market likely will remain in place only for a short time. Gasoline producers will need to blend more ethanol into their fuel the next few years to meet federal requirements.
An energy policy act signed by President Bush earlier this year authorized the U.S. Environmental Protection Agency to establish the nation's first comprehensive Renewable Fuel Standard program, which calls for more dependence on ethanol and biofuels and less reliance on foreign oil. The program requires gasoline producers to blend at least 7.5 billion gallons of renewable fuels into motor vehicle gas by 2012, and refiners, blenders and importers to use a minimum volume of renewable fuels each year between 2007 and 2012.
It shouldn't be too long before the boom gets louder again.
During the past few years, many railroads have posted double-digit increases in ethanol-related traffic and the handful of builders that manufacture tank cars have logged a growing number of orders, helping keep their business afloat while demand dropped for other car types.
U.S. ethanol production capacity is expected to more than double within two years from 6 billion to 12.5 billion gallons. So, the good times will keep rolling for railroads, which transport three-fourths of the nation's ethanol-related traffic, and builders. Or will they?
According to the Oil Price Information Service, ethanol prices recently dropped from $2.30 to $1.50 per gallon — a far cry from last year's prices that at times surpassed $4 per gallon. In addition, prices for ethanol's key raw material, corn, have nearly doubled since January 2006.
Ethanol producers are getting antsy. Last week, VeraSun Energy Corp. decided to suspend construction of a 110-million-gallon-capacity plant in Reynolds, Ind., until there's a "return to more favorable market conditions." The plant, which will be served by CSX Transportation and the Toledo, Peoria & Western Railway, had been scheduled to open in fourth-quarter 2008, but VeraSun Energy might not resume construction until sometime next year.
Time to push the panic button? Not quite. As CNNMoney.com recently put it, the "reports of an ethanol bust might be greatly exaggerated."
The overabundance of ethanol on the market likely will remain in place only for a short time. Gasoline producers will need to blend more ethanol into their fuel the next few years to meet federal requirements.
An energy policy act signed by President Bush earlier this year authorized the U.S. Environmental Protection Agency to establish the nation's first comprehensive Renewable Fuel Standard program, which calls for more dependence on ethanol and biofuels and less reliance on foreign oil. The program requires gasoline producers to blend at least 7.5 billion gallons of renewable fuels into motor vehicle gas by 2012, and refiners, blenders and importers to use a minimum volume of renewable fuels each year between 2007 and 2012.
It shouldn't be too long before the boom gets louder again.
Posted by: 
Jeff Stagl | Date posted: 10/8/2007
