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Hybrid Vehicles Hybrid Vehicles - Archived Discussions Will ethanol E85 catch on in the US? Will we Live Green and Go Yellow? 
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Is Ethanol Worth the Hype? By Ryan Fuhrmann, CFA June 15, 2006 If you recall the movie Back to the Future, nutty professor Dr. Emmett Brown, a.k.a. "Doc," created a time machine capable of driving back and forth in time. During one of his trips back to the future, Doc invented an automotive fuel source capable of blending and transforming fruits and veggies from a Cuisinart into a petrol equivalent. According to Doc, "The way I see it, if you're gonna build a time machine into a car, why not do it with some style?" He was probably talking more about the DeLorean sports car body, but the Cuisinart was definitely a classy feature. The future for today  Maybe some day there'll be a plethora of time machine companies, all of which will gladly offer shares to investors to allow them to participate in jaw-dropping sales growth while also subsidizing company development costs and years of operating losses. Until that time, we'll have to settle for the developing investment craze of ethanol companies, which are capable of turning crops such as corn into an alternative fuel source -- kinda like that Cuisinart from Back to the Future. The current crazePart of the growing ethanol hype is yesterday's share offering of VeraSun (NYSE: VSE) to the public at $23. VeraSun is the second-largest producer of ethanol in the U.S. The company plans to use the stock proceeds to build more ethanol plants and expand market share. Imagine that. The stock opened at $28 and shot to $30 by the close of the market for a 30% gain on the day. Great Scott! No wonder investors want in on the action. And shares of Archer Daniels Midland (NYSE: ADM) have nearly doubled this year as investors discovered it's the largest producer of ethanol in the United States. Soon-to-be-public companies include Aventis Renewable and Hawkeye Energy. There will be no shortage of ethanol IPOs as long as investors willingly snap up the shares. The issues with ethanolClearly, there are merits to producing ethanol and using it as an alternative to oil-based gasoline. It would most definitely benefit domestic farmers with a huge new market to sell corn into. It would also reduce American dependence on oil from the geopolitically charged Middle East. On the flipside, it's unclear whether ethanol is, or will be, more affordable than gasoline. The issue is further complicated by factors such as subsidies provided to ethanol producers and fluctuating oil prices. If oil were to return to $20 a barrel, for instance, SUVs might even revisit their heyday. There's also a rather critical debate as to whether more energy is actually expended to create ethanol than is spent using it as a fuel source. And what about concerns that ethanol might damage engines and clog up filters? In other words, there are quite a few issues yet to be worked out. Berkshire Hathaway weighs inThere's no better illustration of these issues than a summary of Charlie Munger's and Warren Buffett's thoughts on the subject at the May annual Berkshire Hathaway (NYSE: BRKa) meeting in Omaha, courtesy of fellow Fool Rick Casterline's copious note-taking. Question: What is your opinion on the economics of ethanol as a fuel additive and as a potential investment? Should I be looking at that industry? WB: Charlie and I don't know enough to answer that latter part. We've been approached many times, but we're trying to figure out the economics of an ethanol plant. It will depend on many factors, such as government policy and a lot of other variables we're not good at predicting. It's also a very hot area for investors right now, and our general experience is that we don't participate in things that are hot and easy to raise money for. I have a son who is head of the Ethanol Board in Nebraska. When he starts making more money than me, I'll reconsider. There's no question that usage will grow, but generally speaking, agricultural processing firms have not earned high ROICs. Look at Cargill, ADM. It has not been a great business. Ethanol could prove to be an exception, but I'm not sure how you gain a significant competitive advantage with any particular ethanol plant. CM: My attitude is even more hostile than Warren's. I have just enough knowledge of thermodynamics left in me to suspect that it takes more fossil fuel energy than you can get out of ethanol, and that's a very stupid way to solve an energy problem. [Laughter] The Foolish bottom lineIn summary, there will be a substantial amount of money made and lost by companies and investors alike as they wrangle over ethanol and its market potential. Cynicism aside, ethanol has promise. If the economics become compelling, the industry has the potential to greatly benefit oil-dependent domestic and international economies, as well as the environment. But from an investment perspective, until that promise develops, the Foolish investor would be wise to passively watch this one unfold from the sidelines. |
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Replying to: seniorjose (Jun 15, 2006 3:09 pm) |
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Replying to: splatsterhound (Jun 14, 2006 7:31 pm) Mid-Nebraska, today: Regular unleaded, $2.79 a gallon; E-10, $2.85. Add in the mileage efficiency differences, and I can't see how anyone would fill 'er up with E-10 in this neck of the woods. |
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Will Ethanol plants continue to make money if costs go up? The Blade, Toledo, Ohio - May 22, 2006 The country's fascination with ways to curb oil imports has ethanol-producing plants springing up throughout the country. The corn-fed refineries making fuel for cars and pickup trucks are expected to be quite profitable this year and next, but after that, they may not be money machines, experts said. Some plants bring in a 30 percent return on investment, and others are in the lower double digits, experts said. But some have much more modest profits. The ventures can be risky. With hefty investments of $80 million for a 50 million-gallon-a-year plant to $140 million for twice that size, recouping investment takes more than a couple of years. Success depends on location, corn prices, ethanol prices, fuel prices, and other factors, they say. Jeff Ehlert, president of Great Lakes Ethanol LLC, which is building a 50 million-gallon plant near Blissfield, Mich., said his plant's profit projections are rising now as higher gasoline prices prompt demand for more ethanol and gasoline suppliers use ethanol to replace a harmful fuel additive called MTBE. But Mr. Ehlert fears that profits will "be bouncing all around" over the long term. "It should be real good for the next few years, but after that we don't think it will be as good," he said. Thomas Byrne, head of Byrne & Co. Ltd., of Preston, Minn., which has helped develop more than 30 ethanol plants, said "the thing to remember is it's a commodity-based industry. Sometimes it's going to be good, sometimes it will be bad." Of nearly 100 plants operating in the United States, most were built to turn profits when the price of ethanol delivered to a terminal market, such as Chicago, hits $1.30 to $1.35 a gallon, Mr. Byrne said. A year ago, ethanol terminal prices were down to a $1 to a $1.20 a gallon, and some plants lost money, he said. But with ethanol prices at the terminal hovering between $2.70 and $2.90, some plants now are swimming in profits. And Mr. Byrne said he's bullish on ethanol and bets that prices will never go down to $1.20 again. "The plants right now are very profitable if managed right and in the right location," he said. Mr. Byrne said those high profits are based on plentiful low-priced corn, which has been the case the last several years. But the price of corn has been working its way up. And natural gas, an ethanol plant's second-largest expense, also is getting more expensive. Over the long term, those two factors could cut profitability, he said. Feed corn is a critical fuel source, so a plant typically can have an annual purchase expense of $70 million or more. If a corn shortage sends prices up quickly and ethanol prices drop, perhaps because of lower gasoline prices, what looked to be a sure profit can drop, Mr. Byrne said. "The problem is, your bottom line can change by $100 million pretty quickly either way, and that's pretty significant." But for now, profits are high. "If you have a 50 million-gallon plant and ethanol hits $2.30, you've made $50 million. Your returns now are very, very good," Mr. Byrne said. A typical 50 million-gallon plant stands to make additional millions. Distillers' dried grain - the byproduct from distilling the starch from corn during the ethanol process - can fetch $12 million to $13 million. Cattle farmers buy the product. Carbon dioxide, another byproduct, is worth about $2 million to bottlers and dry-ice makers, Mr. Byrne said. A plant's payroll and maintenance total less than $2 million annually. Alex Samardzich, chief executive of Ace Ethanol LLC, which runs a 40 million-gallon plant at Stanley, Wis., said local agricultural issues greatly affect a plant's profits. "Sometimes there's too much corn, sometimes not enough. What you'll find is with profitability, it ranges across the board," he said. |
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Replying to: fireball1 (Jun 15, 2006 3:38 pm) I filled up today here in Cedar Rapids, Iowa at $2.69 a gallon for E10 89 Octane. 87 octane gasoline was $2.79. Just think of it as kicking the oil cartel dictators in the rump! Drivers don't neeed to be "won over." |
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Replying to: seniorjose (Jun 15, 2006 3:09 pm) I really was not preaching to you, it was to the church of Zero Emissions. Coal is not horrible compared to years back. To some it is bad news. To anyone that thinks a car should be PZEV or banned it is a disaster to use coal for anything other than a Christmas stocking. You probably don't care if they use bunker oil to fire the furnaces of the ethanol stills. I would be surprised if this does not put all the out of business bootleggers back to work. |
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Replying to: fireball1 (Jun 15, 2006 3:33 pm) Clean coal technology has been around since the 1960s -- if you build the scrubbers in like almost all regulations state. I watched the local (New Jersey) Owens Corning plant shift from no scrubbers in 1964. From being a terrible "smokestack" industry, it was turned into a very good neighbor with no particles in the air. the difference is dramatic and since it is an old technolgy by now, it can work. The coal smokestacks that belch like the steel plants of turn-of-the-century Pittsburg steel mills is long gone into history. |
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Replying to: fireball1 (Jun 15, 2006 3:38 pm) There is a lot of opinion and passion in this thread..that is good. I guess as long as we move from foreign oil dependence and being held over the barrel by oil companies that is good. I hope we put out many alternative fuels and break the cycle. Competition, in general, is great for the consumer.
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American Coalition for Ethanol Releases Results of Fuel Economy Study Sioux Falls, SD (August 24, 2005) – The American Coalition for Ethanol (ACE) today released the results of its recent Fuel Economy Study, a pilot study that researched the fuel economy, cost per mile, and driveability of various blends of fuel, including unleaded gasoline, E10, E20, and E30. “As ethanol production and use continues to expand from coast to coast, increased public discussion and media attention have often turned to a debate over ethanol's fuel efficiency,” said Ron Lamberty, ACE Vice President / Market Development. “Because there was very little scientific information out there, ACE commissioned a pilot study to determine whether there are variances in gas mileage between ethanol blends and gasoline.” The research tested unleaded gasoline, a 10% ethanol blend (E10), a 20% ethanol blend (E20), and a 30% ethanol blend (E30) in three late-model vehicles. The Chevrolet Impala, Ford Taurus, and Toyota Camry were not flexible fuel vehicles, and no modifications were made to them for this research. Care was taken to eliminate any human inputs that might render the tests unscientific, including the use of a computerized data logger and strict controls on the vehicles, fuel, and terrain. The test was conducted by Allen Kasperson, a Fuel Research Specialist and instructor with more than 30 years of experience training automobile and truck technicians at Lake Area Vocational Technical Institute in Watertown, South Dakota. The study also examined an E10 blend that had been denatured with iso-pentane and soy biodiesel, a denaturant combination that Kasperson had studied and found to have lowered the fuel's reid vapor pressure (RVP). While the RVP tests in this study were inconclusive, the blend did perform better than unleaded in most tests. Read full results of the study Miles per gallon The three vehicles averaged only 1.5% lower mileage with E10, 2.2% lower mileage with E20, 5.1% lower mileage with E30, and increased mileage of 1.7% when using the specially denatured E10 blend. Cost per mile Although the MPG of ethanol blends was slightly lower than the unleaded, the cost per mile of operation was generally lower. Also, the higher the concentrations of ethanol, the lower the cost per mile. Using the study's average MPG, E10 is less expensive per mile than unleaded until ethanol's cost is nearly 30 cents above unleaded. On a $20 bill, drivers can travel up to 15 miles farther on ethanol-blended fuel than on straight unleaded. Driveability Contrary to statements commonly made by vehicle manufacturers and technicians, no warning lights were displayed at any time while operating on any of the fuel blends. The data logger used for the research monitored all systems and detected no malfunction indicator lights (MIL), diagnostic trouble code lights (DTC), or emissions DTCs. Also, it has been assumed that in older model vehicles the oxygen sensor could not recognize fuel with ethanol content higher than 10% and therefore caused a malfunction indicator light to be displayed. In all vehicles used, the car's computer seemed to have the ability to adjust the air/fuel ratio normally with ethanol blends even beyond the standard 10%. The study cautioned that motorists should not use fuel with concentrations of ethanol higher than those recommended by the vehicles' manufacturers, but called for more research to determine if those fuels should be approved for use in standard, non flexible fuel vehicles. “If drivers want to save money at the pump as gas prices reach new record highs, this pilot study confirms that ethanol is the fuel of choice,” said Brian Jennings, ACE Executive Vice President. “Using ethanol is like money in your pocket, and you feel good about filling up on this homegrown fuel because it comes from America's farm fields, not the oil fields of the Middle East.” “The bottom line is that, in addition to offering higher performance and lower emissions, ethanol-blended fuel is easier on the pocketbooks of American motorists,” Lamberty said. |
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This is the link from seniorjose's post. http://www.ethanol.org/ Why did they do E10-E30 in non FFV vehicles and not compare costs per mile of E85 in FFV's? I'm always wary of information provided by "unbiased" sources on a lobbing website.
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