Despite other energy successes, North Dakota ethanol struggles | TSLN.com

Despite other energy successes, North Dakota ethanol struggles

Todd Neeley, DTN Staff Reporter

DTN file photoBiofuels projects in North Dakota are largely on hold because corn prices above $7 a bushel are making it difficult for current ethanol producers to profit and nearly impossible for lending institutions to justify funding new projects.

GRAND FORKS, ND (DTN) – North Dakota has drawn national attention for a rush by oil companies to drill in the western part of the state in places they wouldn’t have explored before oil prices spiked to more than $100 a barrel.

That move to pull oil from the state’s shale has resulted in landowners becoming wealthy overnight.

When it comes to ethanol production, however, the nation’s eighth biggest oil-producing state is experiencing the same problems seen throughout the Corn Belt. That is, corn prices above $7 a bushel in many instances are making it difficult for current ethanol producers to profit and nearly impossible for lending institutions to justify funding new projects.

Bob Humann, senior vice president of lending services at the Bank of North Dakota based in Bismarck, said during the Energy and Environmental Research Center (EERC) conference in Grand Forks, ND, Tuesday, that interest has waned in building corn-based ethanol plants.

“We’re seeing biofuels projects planned going on hold,” he said. “They’re waiting for the markets to change.”

Humann works with the state of North Dakota in implementing the Biofuels Partnership in Assisting Community Expansion, or PACE, program, which includes a $5-million-per-year fund that can be accessed by companies building ethanol plants to receive up to $500,000 from the state to go toward interest on ethanol projects.

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Last year, he said, his office fielded calls on a daily basis from ethanol companies looking for financing. “In 2008 we’ve seen no projects on ethanol plants in the state,” Humann said. “The calls have stopped. There hasn’t been a lot of interest in it. And there are a lot of companies delaying projects.”

He said he believes there still is money available from the investment community. However, investors have lost interest in spending money on building more corn-based ethanol plants.

“The key is that some investors want to see uniqueness in projects,” Humann said. “I don’t see the average ethanol plant happening right now.”

According to DTN’s ethanol plant list, there are three ethanol plants producing in North Dakota, two under construction and another five plants in the planning stages.

In a sign of continued concern about ethanol economics and available water supply, the Fargo Forum News Tuesday reported that Cargill put on hold the planned construction of a 100-million-gallon ethanol plant in Spiritwood, ND. Earlier this year Alchem Ltd. LLLP, a 10-million-gallon plant in Grafton, ND, shut down production.

North Dakota Gov. John Hoeven said Tuesday that government leaders should continue to support the development of ethanol and other alternatives to fossil fuel, despite calls from Texas Gov. Rick Perry and a group of Republican senators who asked the U.S. Environmental Protection Agency to waive or cut in half the Renewable Fuel Standard (RFS) of nine billion gallons by 2008.

“It is short-sighted to reduce the RFS,” Hoeven said. “We need to achieve those goals. Energy demand will continue to grow and grow significantly. We need to press forward at the state and federal levels.”

As a result of pressure from the food industry and other groups that have blamed ethanol demand for higher food prices, support for corn-based ethanol has waned in Washington. Federal lawmakers capped total U.S. corn-based ethanol production at 15 billion gallons in the new RFS, which also includes a requirement to produce 21 billion gallons of cellulosic ethanol and other alternatives to corn-based ethanol. In addition, lawmakers have created more incentives for developing cellulosic ethanol and other alternative fuels.

John Herrick, senior counsel for Brownstein, Hyatt, Farber and Schreck, based in Denver, said those companies that plan to produce ethanol and other fuels using biomass soon will have the option of applying for loan guarantees from the U.S. Department of Energy as a result of the 2008 Farm Bill.

The farm bill created a loan-guarantee program with a $10 billion budget, to help reduce the financial risk for companies that are developing new and unproven technologies.

The federal government originally created a similar program in 2005. However, Herrick said “the program was a failure” since not a single loan was issued. That’s because the program didn’t provide potential investors with a “reasonable guarantee for payback” on loans.

That was one of the main reasons why Ottawa, Canada-based Iogen Corp. decided to build its first commercial wheat straw-to-ethanol plant in British Columbia instead of a proposed site in Shelly, ID.

Gerald Groenewold, director of the EERC, said that while researchers are finding promise in developing fossil-fuel alternatives using biomass feedstocks such as algae, fossil fuels are going to be around for sometime to come.

“I’m frustrated by a world that doesn’t see the big picture,” he said.

Groenewold said it is a “myth” that the world is running out of petroleum. “There is a shortage in the rate of flow,” he said. “There is a lot of oil out there. If the price is high, it is an incentive to go after (fuels made with) biomass and petroleum. Anyone who thinks fossil energy is going away is sadly mistaken.”

Todd Neeley can be reached at todd.neeley@dtn.com