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Fool's Gold

Rural communities across the country, including some in Oklahoma, have tried to open an ethanol plant of their own and while several went on-line last year, a similar number have halted construction. While the short-term ethanol bubble may have burst, long-term opportunities still exist.
Fool's Gold

Oil refinery

Show Dates

Show 0912: Fool's Gold

Air date: March 22, 2009

 

Transcript

Rob:  In the rush to take advantage of the federal government’s push to produce more ethanol, rural communities across the country, including some here in Oklahoma, have worked diligently to open a plant of their own.  And while several of these plants did go online last year, a similar number have halted construction.  Yet as Russ Jowell reports, while the short-term ethanol bubble may have burst, long-term opportunities still exist.

Russ:  It was the promise of a new beginning, the dawning of a new age in American energy, ethanol, that miraculous hydrocarbon that answered the prayers of environmentalists far and wide and made the dream of an eco-friendly auto fuel a reality.  Yet plants sit idle, rail cars unfilled, and the dream of an ethanol boon in Oklahoma remains just that.

Gary Bledsoe:  There have been three or four attempts, to build a plant in the state of Oklahoma.

Russ:  While there are plenty of reasons as to why this boon turned into a bust, the biggest reason lies, just outside, your front door.

Bledsoe:  The worldwide credit crisis, the recession, and declining oil and gas prices have made it extremely difficult to obtain the necessary capital to move the industry forward.

Russ:  Gary Bledsoe is a consultant to the agriculture industry, and says that capital intensive projects, such as ethanol refineries, have trouble getting started in a time when that very capital is harder and harder to come by.

Bledsoe:  Typically, in most cases, trying to obtain that kind of capital in the state of Oklahoma has been very difficult.  And in fact, often times a project of that magnitude requires that any industry go out of state to find a lead bank.

Russ:  A typical ethanol plant requires about two dollars and twenty five cents of startup capital per each gallon of ethanol it hopes to produce each year.  For one such facility proposed in the town of Blackwell, this translated into a roughly hundred-million-dollar investment for a 44 million gallon facility.  And in a time when banks are clamping down on home mortgages worth less than one percent of that amount, securing the necessary capital became an unobtainable goal.

Bledsoe:  When our industry was trying to flourish, so to speak, a year or so ago, the difficulties that we were encountering going out of state trying to find financing was that this banking industry was already in a downturn.  Okay?  Another problem was that most of those banks already felt like they had a solid portfolio of ethanol production, they really didn’t want anymore.

Russ:  As if securing financing for these projects wasn’t problem enough, Oklahoma’s ethanol industry faced another formidable foe in its quest for growth, media pressure from competing energy sources.

Martha Schlicter:  The people who don’t want the change, who don’t want renewable fuels, are certainly working their hardest to cast doubts on the part of the consumer.

Russ:  Martha Schlicter is a vice president with Illinois based GTL Resources, and believes that Oklahoma’s seedling ethanol industry was smothered by an overdose of public criticism.

Schlicter:  Biofuels, of course, are having an impact on oil fuels, on oil, because they take away from the need for gasoline.  That has created a reduction in the price of gasoline.  But we didn’t hear about that.  We instead heard about the increases in food price, and they were attributed to corn price.

Russ:  A phenomena that also raised objections with Oklahoma’s largest agricultural sector.

Bledsoe:  The livestock industry is a large consumer, obviously, of feed, or grains.  They like a lower or cheaper grain price.  And so from their standpoint, they would like to see less ethanol production.

Russ:  But in spite of strong media opinions, most experts, including Schlicter, agree that the ultimate decision about ethanol use should be made not by the companies, but by the consumers.

Schlicter:  Let the consumer have ethanol at the pump.  Let them have E85 at the pump.  Let them see that it can be provided to them at a discount to gasoline, and let them make the choice of what they want.

Russ:  And putting the fate of the biofuel industry back in the hands of those whom it serves.

Rob:  Now some are taking advantage of this downturn.  Venezuela’s Valero Energy Corporation has spent over two hundred and eighty million dollars to buy five bankrupt ethanol plants in the Midwest, at a cost industry insiders estimate is just about one-fourth of what they’re really worth.