The industry says the closing of a plant in Weyburn, Sask., is a sign that all is not well in the biofuel sector
A Saskatchewan ethanol plant has shut down because of low fuel prices, high feedstock costs and the loss of government incentives.
NorAmera BioEnergy Corp. stopped producing ethanol at its Weyburn plant in May after nine years in business.
Chief executive officer Brad Hill said the freefall in crude oil prices to less than $60 per barrel from more than $100 per barrel a year ago has decimated ethanol prices.
“It has created a big trough in the revenue stream,” he said.
The plant has been forced to lay off 20 of its 27 employees.
The facility can produce 25 million litres of ethanol a year, making it the fourth largest plant in the province.
It bought 60,000 tonnes of feed quality grain a year from local producers, most of it wheat.
The facility was originally a privately held firm until Weyburn Inland Terminal bought it in 2008. Parrish & Heimbecker in turn bought the grain company last year.
Hill said NorAmera managed to keep operating through difficult times in 2010, 2011 and 2012 when feedstock costs were sky high and local production was curtailed by flooding.
However, plummeting ethanol prices and the loss of provincial and federal government tax credits proved too difficult to overcome. The future of the plant is up in the air.
“There is lots of evaluation going on now,” said Hill.
Brad Wildeman, president of the 15 million litre Pound-Maker ethanol plant in Lanigan, Sask., said everybody is feeling the pinch.
“These lower oil prices and consequently lower gasoline prices puts pressures on the margins, that’s for sure,” he said.
Saskatchewan used to offer blenders a 15 cents per litre tax credit, but it kept declining until it was eliminated altogether in the April 1, 2015, budget.
The federal government offered another 10 cents per litre incentive, but that program has also been phased out for most ethanol producers.
Wildeman said fuel blenders in the province had been blending ethanol at a rate of 9.5 percent, which is above the provincial mandate of 7.5 percent. However, without the government incentives, they have reduced their blending activity back to the mandated level.
Oil companies have to blend a certain amount of ethanol in their fuel every year, but they don’t have to divide their purchases up by month, which means they can put pressure on ethanol manufacturers by delaying their buying.
Wildeman said Esso, Federated Co-operative and Suncor Energy account for 85 percent of the province’s retail gasoline trade, so there are essentially three buyers of ethanol and five producers of the product.
There is also stiff competition from cheap U.S. corn ethanol.
Finding new markets for the fuel when the big three are not buying is difficult. There are export markets, but the logistics of shipping ethanol to Vancouver are not feasible for smaller producers.
Most manufacturers have two weeks of storage capacity, so it quickly becomes a problem if product isn’t moving.
Wildeman believes there could be further problems for the handful of other plants operating on the Prairies.