Slow recovery for ethanol industry

The biofuel industry is under pressure as fewer people commute to work and more electric vehicles are introduced to the market.  | File photo

COVID-19 has had a profound impact on the ethanol sector and the grains that provide the feedstock for the industry.

The United States supplies slightly more than half of the world’s ethanol.

The U.S. Department of Energy is forecasting that the country will produce 13.8 billion gallons of the fuel in 2020, down from 15.8 billion gallons a year ago.

“That’s a pretty significant loss,” said Chris Bliley, senior vice-president of regulatory affairs with Growth Energy, a group that represents U.S. ethanol producers.

It translates into a 600 million bushel reduction in the amount of U.S. corn used for ethanol production, which has negative price ramifications for corn and other grains.

Weekly ethanol demand in the U.S. was cut in half during the height of the COVID lockdown as many people across the country either lost their jobs or started working from home and stopped driving their cars.

By late November demand had rebounded significantly as people went back to work and started to travel again, but it was still about 12 percent below year-ago levels.

Bliley remains bullish about the future of the biofuel with news of a COVID vaccine on the horizon and E15 blends becoming more commonplace across the country.

Thirty states have approved E15, which is a fuel blend that includes 15 percent ethanol and 85 percent gasoline.

He noted that E15 is the most immediate solution to reducing greenhouse gas emissions. There are also 20 million flex fuel vehicles in the U.S. that can use E85 fuel, said Bliley.

Stephen Nicholson, senior grains and oilseeds researcher at RaboResearch, does not share that optimistic outlook for the biofuel.

“Ethanol was in a challenging environment even before COVID came along,” he said.

Every year, there are more fuel efficient and electric cars on the roads resulting in less gasoline consumption and therefore less ethanol blending.

General Motors recently announced it is on a path to an all-electric future, committing to introduce 30 new electric vehicles by 2025.

Nicholson said COVID is just another blow to an industry that has already received its share of body punches.

He estimated that one-third of the U.S. workforce no longer commutes to work.

“You have that much consumption off the roads,” he said.

Travel may rebound in a post-COVID environment but it is unlikely that commuting will return to normal because companies have realized that having their employees work from home saves on costs and time.

“That’s going to be challenging on ethanol going forward,” said Nicholson.

The biodiesel sector has been more COVID-resilient because a lot of that fuel is consumed by truck fleets and industrial equipment, the movement of which has been largely unaffected by the pandemic.

“That’s sort of the bright spot,” he said.

Nicholson said the pre-COVID outlook for the biodiesel sector was already rosier than ethanol largely due to California’s Low Carbon Fuel Standard.

Chris Vervaet, executive director of the Canadian Oilseed Processors Association, said that standard has led to an explosion in biodiesel and renewable diesel consumption south of the border.

“What we see happening in the U.S. is quite remarkable and I like to characterize it as a biofuel renaissance,” he said.

“Biofuels are being blended into diesel at remarkable volumes.”

Biodiesel and renewable diesel consumption in the U.S. has more than doubled over the last decade and that is just the beginning.

Renewable diesel production is expected to triple or even quadruple over the next three to four years as companies scramble to meet the California demand.

There is no approved pathway for canola to be used as a renewable diesel feedstock in the U.S. but the canola sector is lobbying the U.S. government to address that issue.

Vervaet is hopeful Canada will experience its own biofuel renaissance with the introduction of the federal Clean Fuel Standard in 2022.

“We really do see potential in the Clean Fuel Standard to replicate what we see unfolding in the United States,” he said.

Renewable diesel and biodiesel consumption could reach three million litres per year by 2030 under the CFS.

That would require an additional 1.5 million tonnes of canola oil annually.

“We’re talking about at least the need for two to three new (crush) plants to meet that demand,” said Vervaet.

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