Over 100 biofuel plants across the country are fully idling or cutting production rates as gas prices fall because people are staying at home due to the COVID-19 outbreak and major oil producers feud over output.
As of Tuesday evening, 44 ethanol plants with a collective annual production capacity of 3.63 billion gallons have been fully idled and 62 plants have reduced output rates anywhere from 10-50% by a collective 1.68 billion gallons, according to data from the Renewable Fuels Association. However, 81 plants are running near normal operating rates, the organization said.
RFA President and CEO Geoff Cooper said the organization’s analysis suggests around 5.3 billion gallons of capacity has dropped offline since March 1. Some 13 plants were idled before the 1st due to reasons other than coronavirus, idling roughly 770 million gallons of production. He said when accounting for production that was already offline prior to March, total offline capacity is about 6.08 billion gallons, which amounts to about 36% of the industry’s total production capacity.
“We’ve never seen anything like it in the industry’s history, not even when the bubble burst in 2008-09,” Cooper told Agri-Pulse.
Cooper said the industry has the capacity to produce about 17 billion gallons of ethanol on a yearly basis.
“Today, because of the recent idling, closures, and shutdowns, the industry is operating at an annualized rate below 12 billion gallons,” Cooper noted.
On Tuesday, POET announced it will idle production in Chancellor, S.D., Ashton, Iowa and Coon Rapids, Iowa, and delay the startup of its new plant in Shelbyville, Ind. Some 130 employees will have to be furloughed.
“It’s not just about our employees. It’s about the local restaurants, the daycares, the grocery stores, the hardware stores, you name it,” Doug Berven, POET’s Vice President of Corporate Affairs, told Agri-Pulse.
He said everyone is impacted when some of the largest businesses in these rural communities are hit with devastation like this, through no fault of their own.
University of Illinois Agricultural Economist Scott Irwin said U.S. gasoline use is currently down about 30% and could drop 7.3 billion gallons if people continue driving less.
As of April 7, the national average price for a gallon of gas is $1.91, according to AAA Gas Prices. Some 33 states have averages under $2 per gallon as prices at the pump continue to fall, according to AAA.
Gas demand hasn’t been this low since 1993, according to Energy Information Administration demand data, and AAA expects gas prices to only get cheaper as people continue practicing social distancing.
In a letter to Environmental Protection Agency Administrator Andrew Wheeler, American Coalition for Ethanol CEO Brian Jennings wrote if gasoline demand continues to fall due to COVID-19 restrictions, ethanol use under the RFS could decline between 1 and 2 billion gallons.
He urged EPA to update renewable fuel volume obligations for 2020 in the Renewable Fuel Standard. He said if EPA did not act, it would cost ethanol producers over $2 billion based on the six-month average price, and farmers over $1.35 billion in 2020, according to current pricing information.
Cooper said RFA is aware of 15-20 plants that have stopped buying corn and are likely taking steps to wind down production in the next week or two.
For the 2019/2020 marketing year, Irwin is projecting between 250 million to 300 million bushels of corn for ethanol use could be lost from March to May.
“But you do have to remember, roughly a third of that will come back as feed use someplace because of the lost DDGs,” Irwin told Agri-Pulse. “Those lost DDGs will have to be replaced by some combination of corn and soybean meal feeding.”
Senate Finance Committee Chair Chuck Grassley, R-Iowa, sent a bipartisan letter Tuesday asking Secretary of Agriculture Sonny Perdue to use Commodity Credit Corp. authority to help biofuel producers.
"Nearly half the industry may be offline within weeks, and without swift and decisive action in Washington, many more may soon halt grain purchases or close their doors completely," Growth Energy CEO Emily Skor said, urging USDA to act quickly.
Last week, agricultural groups sent a letter asking USDA to purchase feedstocks from January to March as some ethanol plants have stopped buying corn.
Iowa State University Extension Economist Chad Hart told Agri-Pulse the economic impacts are large for small communities with plants. He said the problem now is that plants can’t continue running because ethanol storage is reaching capacity.
“We’ve basically filled the vast majority of storage capacity we’ve got for ethanol and we’re running out of room and places to put it,” Hart said.
However, Hart did say extensions of unemployment insurance and other provisions in the most recent stimulus package Congress passed should help some plants.
Irwin mentioned another potential bright spot, saying there could be “quite a boom” in gasoline and ethanol consumption when COVID-19 is over because crude oil and gas prices are so low.
“There could be some catch-up in a few months,” Irwin said.
Only two of the 10 biodiesel plants shut down in February 2019 have reopened.
“There’s no doubt that right now, the economic signals being sent are not positive enough to reopen the plants that closed last year, as a result of both the granting of small refinery exemptions and the uncertainty of the tax credit,” National Biodiesel Board Vice President of Federal Affairs Kurt Kovarik noted.
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Kovarik also fears some plants could permanently close or be sold.
American GreenFuels in Connecticut reopened in January and has roughly 50 employees and produces 40 million gallons of biodiesel a year. The other is a World Energy plant in Rome, Ga., that produces 18 million gallons per year.
Many of the other biodiesel companies were planning to reopen this month but the current market situation has caused delays.
Kovarik said plants still in production may not go offline or shutter entirely as in the ethanol industry because diesel demand has not dropped as much as gasoline use.
IHS Markit, a global information provider, is projecting a 20% drop in diesel demand beginning this month and lasting through July.
The price for a gallon of diesel as of March 30 has dropped 49 cents from a year ago, according to EIA data.
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