In another sign of trouble for Nebraska's ethanol industry, Aventine Renewable Energy has announced that it is suspending construction on a project in Aurora that had been expected to produce about
ART HOVEY/Lincoln Journal Star | Posted: Sunday, November 16, 2008 6:00 pm
In another sign of trouble for Nebraska’s ethanol industry, Aventine Renewable Energy has announced that it is suspending construction on a project in Aurora that had been expected to produce about 113 million gallons of grain-based fuel per year by next year.
That follows news of just a few weeks ago that the timetable for completion of Aurora West was being extended.
The massive construction site, on Aurora’s western outskirts and about 70 miles west of Lincoln, had originally been targeted to produce 226 million gallons per year with the addition of a second phase.
Beyond that ambitious scope, the project has important ties to the Aurora Cooperative, one of the largest regional agricultural cooperatives in Nebraska and in the nation.
The co-op has 6,000 farmer-patrons, more than 40 branch locations, and marketed more than 80 million bushels of corn and soybeans last year.
Its management team has already spent $22 million at a site adjacent to the ethanol construction site, much of it on a new elevator and a double-loop rail siding that can accommodate 220 cars at a time.
That positioned the co-op to carry forward with its commitment as the exclusive supplier of corn to Aventine at Aurora and as marketer of distillers grain and other byproducts of ethanol production.
George Hohwieler, president and chief executive officer at the co-op, and Les Nelson, director of investor relations at Aventine’s Pekin, Ill. headquarters, stood ready to deal with a barrage of questions Monday.
Hohwieler was quick to point out that the co-op has no direct ownership interest in the sidetracked project and that its board recently sold its interest in another 50-million-gallon Aventine plant nearby that dates to the mid-1990s.
Furthermore, he said the co-op’s own $22 million project is multi-faceted and that management “won’t miss a beat” in using the new complex to handle export demand and other demand in the corn market.
Farmers finishing up the 2008 harvest “know their grain is being taken care of,” he said, “that we’re proper stewards of their grain. More importantly, they know that they will be paid for their grain and that those payments are secure.”
Nelson said the delay in finishing the Aurora West project is projected at six months, but he also said construction won’t begin again until ethanol economics improve.
“Our main goal here is to preserve cash,” Nelson said. “Given where ethanol economics are today, running out of cash is not something we want to do.”
Besides its 50-million-gallon presence in Nebraska, the publicly traded company also has the capability in place to produce 156 million gallons of ethanol per year in Illinois.
That is a much smaller market share than Archer Daniels Midland or VeraSun, for example, but Aventine is also a major player in marketing ethanol at the wholesale level.
Nelson said the company sold more than 10 percent of all the pre-blended ethanol in the nation last year into the wholesale pipeline.
The rapidly falling price of petroleum in the last several months while a boon to consumers, is a major problem for all ethanol producers, he said. That’s the case even though much of the rapid expansion in total gallons since 2006 comes from the federal government’s renewable fuels mandate.
“Today,” Nelson said, “with ethanol more expensive than gasoline at the wholesale level, we’ve seen some of the discretionary blending go away. And we see people blending more at the mandated levels.”
In the short term, total ethanol production is running ahead of the mandate schedule. However, said Nelson, there is still a significant gap between total plant capacity and the longer-term mandate.
“Why we’re still very positive long term is that there is still a 15-billion gallon mandate out there. But there is not 15 billion gallons of ethanol production in the United States. So eventually the economics have got to get better.”
The Aventine announcement comes on top of earlier stories about struggling plants in Nebraska.
Minnesota-based Advanced BioEnergy, owners of the Fairmont plant, defaulted on a $10 million loan payment and shook up its management structure.
More recently, VeraSun, based at Sioux Falls, South Dakota and the nation’s second largest ethanol producer, filed for bankruptcy reorganization last month.
Hohwieler said Nebraska Gov. Dave Heineman, an enthusiastic ethanol advocate, is “very aware of the situation” confronting the industry.
Sought out later Monday, Heineman acknowledged some short-term financial challenges.
“Long term, I think we will have a strong and vibrant ethanol industry in this state.”
Heineman said the short term could mean up to two years. “Do I like what’s occurring? No. Is it totally unexpected? No. I just think we’re finally beginning to see the national economic slowdown affect Nebraska in a variety of ways,” Heineman said.
A drop in corn prices from the range of $7 a bushel in cash transactions toward $3.50 a bushel has eased ethanol cost pressures somewhat, Nelson said. But corn prices “have not come down in relation to the ethanol price,” he said.
Aventine is continuing with construction of a plant at Mount Vernon, Indiana, although at a slower pace than earlier.
In a Nebraska context, “we’ve got a commitment to that facility based on the investment we’ve made. We’ve got a commitment to Aurora based on the existing plant. And as soon as the economics turn around, we’ll look at cranking up that project.”
Hohwieler said the cooperative still has a cordial working relationship with Aventine.
“We tip our hats to the Aventine group and to not moving forward with construction, if they’re not financially able to do it at this point.”
Construction progress had appeared to be moving along fairly smoothly from a 2006 groundbreaking and a July 2009 production timetable had appeared within reach, Hohwieler said.
Under the terms of an Aurora Co-op-Aventine contract, “if they’re not producing ethanol at a predetermined rate on July 1, 2009, that there would be financial compensation to the Aurora Cooperative for missing that date.”
Hohwieler regards the six-month delay as subject to adjustment. “We don’t know what tomorrow brings, let alone six months or a year from now,” he said. “Less than three years ago, ethanol was one of those darling industries that everybody wanted to get into and invest in. And now the pendulum is turning in the other direction.”
The company now known as Aventine Renewable Energy began as Pekin Energy in the early 1980s. There have been several ownership changes since then.
Public trading of stock began in 2006 at more than $40 a share. As of Monday morning, the trading range was fluctuating between 98 cents and $1.10 a share.
Despite the stock comparison, Nelson said Aventine can weather the current economic climate.
“I would describe our financial condition, probably, as one of the stronger in the ethanol industry.”
Reach Art Hovey at 473-7223 or at ahovey@journalstar.com