"The Green Option"-Part 2
Wednesday, September 13, 2006SUSIE GHARIB: 30 years ago, ethanol was called "gasohol." But today the corn-based fuel is being called the fuel of the future. There are more than 80 ethanol producers in the United States and a growing number of those firms are going public. In part two of our series, "The Green Option", Midwest bureau chief Diane Eastabrook looks at some of the companies hoping to cash in on the ethanol craze.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: In Champaign, Illinois, trucks rumble into this grain elevator and unload 18 million bushels of corn a year. This eastern Illinois elevator is one of 14 the Andersons Agriservices owns. But this Ohio-based company thinks there might be another way to make money here. Andersons might build an ethanol plant next to its grain elevator.
LARRY WOOD, GEN. MGR., THE ANDERSONS AGRISERVICES: We`ve got a good supply of water, natural gas, electricity for probably the most important component is that there is plenty of corn grown in this area of the country.
EASTABROOK: Companies like the Andersons are behind the manic metamorphosis taking place in the ethanol industry. Thanks to a government mandate to increase ethanol use, production of the corn-based fuel is booming. As a result, corporations are replacing farmer-owned cooperatives as the big makers of ethanol. The industry`s big names include Archer Daniels Midland and Cargill. The smaller, but no less aggressive names include the Andersons, Aventine Renewable Energy, Pacific Ethanol, and Verasun. Agricultural leader ADM produces a quarter of the nation`s ethanol. Its seven plants manufacture, distribute and market a billion gallons of ethanol annually. Still, ethanol comprises only about 5 percent of ADM`s business, so the company says there is room for growth.
GREGORY WEBB, VP OF PUBLIC AFFAIRS, ARCHER DANIELS MIDLAND: We have made two recent announcements that will expand our production by 550million gallons by 2008, so we expect to be in that 1.6 to 1.7 billion gallon range by that time period.
EASTABROOK: Aventine Renewable Energy in Pekin, Illinois, went public in July. It is also jockeying for a leading role in the industry. The pure play firm manufactures, distributes and markets ethanol. The company makes 150 million gallons of the fuel a year at two plants. An expansion now underway will boost output an additional 40 percent. Aventine President and CEO Ronald Miller admits his company may never rival ADM as the industry leader, but it could come close.
RONALD MILLER, PRESIDENT & CEO, AVENTINE RENEWABLE ENERGY: We certainly committed ourselves to being the number two player in the industry and growing the scale that we need to grow to be a 10 percent producer, a 20 percent marketer in an ever-growing market.
EASTABROOK: While demand for ethanol is expected to grow, the industry faces uncertainty. Experts say manufacturers must still overcome distribution and infrastructure kinks. Ethanol prices also tend to rise and fall with oil prices, which in turn can impact demand. As a result, the stocks of pure play ethanol companies like Aventine can be more volatile than more diversified companies like ADM. Finally, some industry watchers fear the ethanol industry is growing dangerously fast and could be a bubble waiting to burst.
PHILIP FLYNN, ENERGY ANALYST, ALARON TRADING: You might get into a situation where you are going to have too many players in the business. You`re going to have a washout, like you typically do, and then you`ll come back with a few strong players and that is typically what happens.
EASTABROOK: Flynn says if ethanol does turn out to be an investment bubble, it could take up to a decade for the bubble to burst. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
