Expanding ethanol production adds
$18 billion to United States gross domestic product
by Brian R. Hook
Ethanol production is expanding
by record amounts across the country thanks to the construction
of new plants and the addition of new capacity at existing plants.
There are currently 97 ethanol
plants across the country. The plants have a production capacity
of 4.5 billion gallons a year, according to the Renewable Fuels
Association (RFA) in Washington D.C. The RFA reports that there
are 33 plants and 9 expansions underway with a combined annual
capacity of more than 2 billion gallons.
Matt Hartwig, RFA communications
director, said this new capacity would go a long way to meeting
current demand for ethanol. He said more plants are needed.
State of the Union Address and his call to break America’s
addiction to oil has heightened awareness,” Hartwig said.
“Americans are realizing the dangers of our heavy reliance
on oil, particularly foreign sources of oil.”
The ethanol industry created
more than 153,000 new jobs in 2005. The industry added nearly
$18 billion to the gross domestic product of the United States.
It also increased the country’s household income by more
than $40 billion, according to the RFA. “Ethanol is a tremendous
economic engine for America,” Hartwig said.
Spending for annual operations
and capital spending will add nearly $46 billion to the country’s
gross domestic product by 2015, according to a study for the RFA
by John Urbanchuck, director of LECG LLC, a consulting firm in
Ethanol production may surpass
the federal targets implemented by the Renewable Fuels Standards,
said Rick Tolman, chief executive officer of the National Corn
Growers Association in Chesterfield, Missouri, a suburb of St.
Louis. The standards are part of the Energy Policy Act of 2005
that provide incentives for renewable fuels. It requires a minimum
of 7.5 billion gallons of renewable fuels to be used by 2012.
“We will probably pass
the 2012 target by the end of 2007,” Tolman said. “There
is so much new capacity coming online for ethanol, there is concern
that in 2008 and 2009 that we may have a surplus.” He said
that would cause the ethanol price to drop.
Tolman said ethanol is economically
competitive when oil is over $40 a barrel. He said the ethanol
industry was caught off guard in the 1980s when oil prices dropped.
Tolman said that he thinks this time will be different and the
industry will make a long-term commitment. “I think this
time, in addition to the cost differential, there is a lot of
concern driving it on climate change issues and also national
security,” he said.
said many of the plants were originally built around areas with
surplus corn. Ethanol was then shipped throughout the country.
“Now we’re seeing a trend where some plants are being
built along transportation routes,” he said. “It’s
kind of a new wave. There are plants being built in New York,
Texas, Washington, Oregon and Arizona.”
Despite all the expansion currently
underway across the country, Tolman said there is a need for more
ethanol plants. He said that ethanol is currently in short supply.
“We’re only supplying about four percent of our transportation
fuel right now.”
While large agricultural processors
like Decatur, Illinois-based Archer Daniels Midland, Co. are constructing
many of ethanol plants, Tolman said about half the plants are
owned by farmers who have gotten together to raise the money to
construct the plants.
“It allows them to be more
than just price takers in a commodity market,” he said.
“Now as an owner, they also have the opportunity to make
money on the other end as an equity investor.” He said it
also helps farmers to move up the value chain.
Vern Pierce, associate professor
in the department of Agriculture Economics at the University of
Missouri-Columbia recently conducted a study to look at the impact
of the current projected expansion plans for the Missouri ethanol
There are currently three plants
in Missouri in operation with one currently under construction.
Their capacity is 115 gallons per year presently with an estimated
capacity of 156 million gallons of ethanol production with the
completion of the fourth plant. These plants use about 55 million
bushels of corn from Missouri. It accounts for about 15 percent
of the Missouri corn production.
Pierce said the current annual
economic impact on the state is $373 million. There are expansion
plans at the current four plants, plus plans for additional two
plants. He said when those plants are fully operational, the state
will have about 350 million gallon per year production capacity.
The annual economic impact will jump to $726 million.
The Energy Information Administration,
the statistical agency for the U.S. Department of Energy reported
that ethanol industry set a new monthly production record of 288,000
barrels per day in January. The production represents an 8,000
barrel-per-day increase over December 2005 and a 47,000 barrel-per-day
increase from the same month last year. For all of 2005, the EIA
reports that the ethanol industry set annual records, producing
just under 4 billion gallons and averaging nearly 255,000 barrels
Fred Mayes, chief of the renewable
information team at the EIA, said the main reason for the increases
in ethanol is that the gasoline industry continues to phase out
methyl tertiary butyl ether or MTBE as an additive from the nation’s
Mayes said he does not expect
ethanol to become a big part of the transportation fuel. The EIA
reports that ethanol accounted for .32 quadrillion British thermal
units in 2005. The EIA expects ethanol to nearly triple to .92
Btu’s by 2030. “That sounds like a lot. That’s
a growth rate of 4.6 percent a year,” Mayes said. “But
on the other hand if you look at total transportation consumption
by comparison, it really isn’t very much.”
EIA is projecting the consumption
of petroleum products in 2030 of 53 quadrillion Btu’s, meaning
less than two percent of the total usage going into ethanol.