November 13, 2006
Ethanol Prices Fall As Glut Expected

Large profit margins are driving a fast build-up of ethanol production capability and prices are falling.

Ethanol prices have already fallen by half since peaking at $4.23 a gallon on the Chicago spot market in June. And for Mid-Missouri, which sells its ethanol on mostly long-term contracts, the price has fallen to $1.60 a gallon, from a peak of $2.68, while corn has recently surged to more than $3 a bushel.

Outside investors are pestering farmers to sell out now so they can take part in the ethanol boom with existing plants — before the ethanol market might turn sour. With dozens of new plants coming online next year, the wait to start construction of a new one is three years, said Ron Fagen, chief executive of Fagen Inc., the country’s biggest builder of ethanol plants.

Production costs are still above current prices. Even if the price of oil continues to drop ethanol has a floor on its demand due to its use as an oxygenator fuel additive to decrease car emissions.

Ethanol plant construction and operation costs will fall as newer cheaper methods of converting biomass to ethanol get developed. So I expect a continued increase in the demand for ethanol.

I continue to think that environmentalists who are excited about ethanol haven't thought it all the way through. India has about ten times the population density of the United States. Imagine India industrializing and going to biomass as a major energy form. The people have already cut far more into the ecosystem just to farm for food and build housing and roads. Industrialization will allow them to grow more per acre. But with such a huge population to get a large amount of energy per person from biomass would require wiping out all natural areas and replacing them with farms.

Rand Corporation analysts say biomass might well supply 25% of conventional energy in the United States by 2025.

WASHINGTON -- A new Rand Corp. study showing the falling costs of ethanol, wind power and other forms of renewable energy predicts such sources could furnish as much as 25% of the U.S.'s conventional energy by 2025 at little or no additional expense.

A second renewable-energy report soon to be released by the National Academy of Sciences suggests wood chips may become a plentiful source of ethanol and electricity for industrial nations because their forested areas are expanding, led by the U.S. and China.

Yes, biomass energy is cheap and going to get cheaper. That's why its production is going to soar.

The Rand analysts think biomass energy is cheaper than regulatory approaches for the reduction of carbon dioxide (CO2) emissions.

Rand researchers modeled more than 1,500 economic scenarios and found that in most cases, increasing the use of renewable fuels -- which don't enlarge the atmosphere's carbon-dioxide buildup -- would be cheaper than federal regulations forcing the reduction of carbon-dioxide emissions, about a third of which come from vehicles.

My environmentalist argument for accelerated research into photovoltaics, batteries, and nuclear power is that we need them in order to prevent most of the planet from getting converted into massive biomass energy farms.

Share |      Randall Parker, 2006 November 13 11:15 PM  Energy Biomass


Comments
Steel Turman said at November 14, 2006 3:57 PM:

OT.

Why hasn't a photovoltaic paint been developed?

Seems like a no brainer to me.

If all new construction included photovoltaic roofing and paint, we could be energy independent in 20 years.

Julie said at November 18, 2006 11:08 AM:

I continue to have an argument with my stepson (a biologist) who fears nuclear energy & promotes biomass. Tis simply this: unless replacement biomass grows at the same rate as it is consumed (or faster) for energy, there will continue to be a CO2 buildup. Are you willing to bet on such a replacement growth rate? If not, then we should be backing off from biomass (except as a stopgap measure to stop subsidizing mad Middle Eastern emirs & sheikhs.) BTW, what about introducing "albedo laws"? (i.e., white roofs and parking lot surfaces mandated...)

Randall Parker said at November 18, 2006 12:28 PM:

Steel Turman,

Photovoltaic paint hasn't been developed for the same reason a cure for aging hasn't been developed: It is a hard problem.

Julie,

If the replacement biomass is grown as crops then it'll get replaced every time a new crop is grown. What goes up into the atmosphere will get pulled back out again when the new crop is grown.

Nuclear energy could also solve the CO2 emissions problem. I prefer it to biomass because biomass crops will use up land area now dedicated to wildlife.

Vijay Kumar said at May 6, 2008 6:01 AM:

But, i am not agree this statements. according to me prices will increase in Future.

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