Forbes thinks the Midwest Should Use Its Own Ethanol
(A blog posted by Forbes writer ROBERT RAPIER)

In February 2008 Magellan Midstream Partners, L.P. and Buckeye Partners, L.P. began a joint feasibility assessment of a dedicated ethanol pipeline to transport ethanol from the Midwest to distribution terminals in the northeastern United States. Buckeye Partners eventually dropped out of the project, but leading ethanol producer POET signed on to the project in 2009.

The proposed pipeline would span 1,700 miles and have an ethanol capacity of 3.5 billion gallons per year. The preliminary cost estimate was $3.5 billion, and would require several years to complete. The project developers needed federal loan guarantees to make the project viable, so the Department of Energy conducted a feasibility study. The results of the DOE study were recently released. The full study can be accessed here, but the key finding was that the expected ethanol volume would not be sufficient to warrant the expense of the pipeline.

POET put a positive spin on the story, and said that if only the EPA would hurry up and approve E15 for widespread use, the project would be more attractive.

The EPA continues to study a proposal to approve E15 for the fuel supply, but I would submit that there is a better path forward. I don’t believe the ethanol industry requires E15, nor do they require a taxpayer-backed ethanol pipeline in order to grow their market. The biggest opportunity resides in the Midwest, where the ethanol is produced.

Midwestern Ethanol Exports and Oil Imports

The United States is divided into five Petroleum Administration for Defense Districts (PADDs). These districts were created during World War II, and the Energy Information Administration (EIA) currently collects and reports statistics for the different PADDs. The Midwestern states are contained within PADD 2. The states in PADD 2 are Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, and Wisconsin. (See this PADD map for a full breakdown of all five districts).

PADD 2 is responsible for approximately 95% of all ethanol production in the United States (although some PADD 2 states produce little or no ethanol). Ethanol production in PADD 2 has grown from 1.6 billion gallons in 2000 to 3.9 billion gallons in 2005 to almost 12.5 billion gallons in 2010. The region has clearly been successful in rapidly boosting ethanol production.

However, the region has been less successful at consuming the ethanol they produce. The latest version of the EIA’s Petroleum Supply Monthly shows that year-to-date, PADD 2 has produced 781,000 barrels of ethanol per day. Of that, 546,000 barrels, or 70%, was shipped out of the Midwest. At the same time, 1.3 million barrels per day of petroleum products was imported from other countries into the Midwest. Most of the oil came from Canada, but crude oil from areas like the Middle East and Venezuela also makes its way into Midwestern gasoline.

According to the EIA report, year-to-date demand for gasoline in the Midwest was 2.2 million barrels per day (Table 12; Finished Motor Gasoline minus Fuel Ethanol inputs to refineries). Thus, at the same time PADD 2 shipped out 70% of their fuel ethanol — fuel ethanol that could have been used to displace gasoline — they imported oil to meet their gasoline demand. These numbers imply that instead of looking at E15 mandates and ethanol pipelines, the ethanol industry would be better served to capture the E85 market in their own backyard.

With a present conventional gasoline demand of 2.2 million barrels per day against ethanol production of less than 0.8 million barrels per day, it is puzzling that an ethanol pipeline is being proposed as a means for growing the ethanol market. If gasoline demand in the Midwest was converted to demand for E85, every drop of ethanol produced in the Midwest could be consumed in the Midwest. Instead, energy is consumed to transport it across the country. (Some may argue that ethanol may still be needed outside of the Midwest as an oxygenate, but air quality standards can be met without the use of an oxygenate — hence California’s previous long-running battle for an exemption from the oxygenate requirement).

Consider the following thought experiment. Suppose that the demand for 2.2 million barrels per day of gasoline could be converted to E85 demand. Given a fuel efficiency penalty of roughly 25%, it would require 2.2/0.75 = 2.9 million barrels per day of E85 to replace conventional gasoline in the Midwest. That breaks down to 2.5 million bpd of ethanol blended with 0.4 million bpd of gasoline (which would be an 82% reduction in gasoline consumption). To put that into perspective, 2.5 million bpd of ethanol would be an annual demand of 38 billion gallons of ethanol versus the current 12.5 billion gallons produced in the Midwest. Or, if E85 could only capture a third of the market in the Midwest, all ethanol produced in the Midwest could be used locally in the Midwest and oil imports could be backed out of the region.

Our Take:
We count on Forbes for a more different read of the big economic picture than is offered in this column. Three and a half billion gallons a year shipped to the east coast every year for a one-time expense of $3.5 billion dollars would be more than off-set by the benefit to gasoline consumers alone, not to mention the increased profitability to everyone along the ethanol supply chain.

PADD-1, the East Coast, consumes 3.35 million barrels per day--that's 140.84 million gallons of gasoline every day. Say the increased economic efficiency and the assurance to the energy market that a pipeline would offer--say that more easily delivered ethanol buys down the cost of gasoline by a dime a gallon. That's $14.8 million dollars a day in savings--that would pay for the pipeline project in 8 months.

Mr. Rapier's proposition that the Midwest should use all its own ethanol begs some larger economic questions. Should we require California to use all of its own strawberries and cheese?

Should we require Alaska to use all of its own oil--it takes lots of petroleum to get Alaska petroleum to the various markets of the lower 48--but no one argues Alaska should use all its own oil. No one misses the oil used to get their oil to market.

Anyone who thinks these products are not subsidized to some level needs to do a little more investigating. We don't hear about the cost of oil infrastructure because the oil industry subsidies are more or less permanent and are never debated.

We agree with the writer that making PADD-2 an all-E85 zone is a very attractive proposition. Local consumption of energy would ultimately improve our balance of trade, and keep more dollars and jobs local. But timing is everything. And we need a way to get from here to there. For a PADD-2 E85 zone, we'll need far more aggressive goals than the Big Three Automakers reaching a volume of 50 percent flexible fuel vehicles coming off their assembly lines (For which we applaud them making this significant start). To ramp up to the consumption Rapier suggests, we need to require that every vehicle, both foreign and domestic, sold in the Midwest be E85-capable.

Then let's look at what the Coasts need in order to achieve energy independence.

They need for the Midwest to lead the way in biomass-to-ethanol technology. And in order to do that, we need the federal government to not pull the rug out from under us--keep the blenders credits and tariff at current levels and increase the accepted gasoline blend to E15.

Let's set aside all the pipe dreams out there and recognize that the most feasible advanced biofuel is farm-based biomass ethanol. If we can do it with corn cobs and wheat straw here, companies in the East and the West will be able to do it with wood chips, yard waste and municipal waste there.

We know the U.S. Department of Energy is enamored of "drop-in" fuels--a process that promises to take biomass and make it chemically identical to gasoline or diesel. Who is going to get that done? The oil companies are the only ones well enough capitalized to create that technology, and what incentive do they have while it costs them $15 to produce a barrel of oil they can turn around and sell for $75. Even if they, by some miracle of completely uncharacteristic desire to help society, go ahead and fast track development of green gasoline, we're in the same mess as we have been since the '70s--buying energy from highly centralized sources who have every incentive to keep the supply limited and the price sky-high.

To see the full blog from Forbes, go to:

http://blogs.forbes.com/energysource/2010/08/11/the-midwest-should-use-its-own-ethanol/

(Ohio) State Representative Jim Zehringer (Dist. 77) talked about a state issue for farmers while educating Darke County residents about farming practices during the farm tour on Tuesday.
The Humane Society of the United States (HSUS) calls itself the nation’s largest and most effective animal protective organization. “Celebrating Animals, Confronting Cruelty” is their motto.
Zehringer explained many people in favor of HSUS are vegans and would like to see the country go to a vegan society.
“If anybody wants to be that way (vegan), great, more power to you,” said Zehringer, “but to force your ideas on the farmers of the state of Ohio—the number one industry in the state of Ohio—isn’t right.”
HSUS gains support by showing emotionally-charged videos of animals being abused or neglected. People who want animals to be treated well willingly give financially.
What HSUS fails to mention is that less than two percent of their budget goes to saving animals, according to Zehringer.
“The other money goes to promoting their agenda, and their agenda is not saving animals,” said Zehringer. He is a farmer in Mercer County and member of the agriculture and natural resources committee at the state house.
Governor Strickland signed the agreement with HSUS on June 30. This agreement states farmers will no longer use gestation crates after 2025. This agreement also says that no new poultry barns that utilize cages may be built starting this year.

http://dailyadvocate.com/main.asp?SectionID=108&SubSectionID=388&ArticleID=136108

Our Take:
Rationally, a person might think that the Humane Society of the United States campaign has nothing to do with farm-based energy, but unfortunately, that is a narrow, unrealistic reading of the situation.

A key component of the profitability of the ethanol industry is the sale of co-products such as distillers grains, which feed animals. An attack on animal agriculture is an attack on farm-based energy.

Rep. Zehringer is quite right to point out that HSUS is fundamentally anti-democratic, and anti-constitutional—they would do away with the equal protection that allows a person to choose freely what he consumes, and instead dictate that animal proteins should be eliminated from the human diet.

This doesn’t just go against our basic freedoms, it appears to gainsay our understanding of human biology, that we are by nature omnivores.

If HSUS wants to make reasoned arguments that fairly admit their emotional commitment to a change in the way humans relate to animals, we say more power to them. Winning people over to your way of thinking is the American way. But coming to agreements with government officials, out of the spotlight and under the radar—agreements that severely limit, or end whole facets of animal agriculture—that is dictatorial, and should have no part in how America or any state in the U.S. is governed.

We suggest taking a moment to communicate with Ohio Gov. Ted Strictland about the agreement he signed with HSUS—that such agreements are a violation of the rights of farmers and consumers alike, and that such agreements unfairly limit commerce and trade in a manner that is unconstitutional.

Gov. Strictland can be contacted at:
http://www.governor.ohio.gov/Contact.aspx