Corn-Based Ethanol Burns US Investors
Even Bill Gates is feeling pain as prices for the biofuel have fallen 55% in a year.
Ottawa Citizen:
Ethanol, the centrepiece of President George W. Bush’s plan to wean the U.S. from oil, is 2007’s worst energy investment.
The corn-based fuel tumbled 55 per cent from last year’s record of $4.33 U.S. a gallon and drove crop prices to a 10-year high. Production in the U.S. tripled after Morgan Stanley, hedge fund firm D.E. Shaw & Co. and venture capitalist Vinod Khosla helped finance a building boom.
The price of ethanol fell so sharply that it is now 25 per cent cheaper than gasoline. That has created an incentive for refiners to blend in more ethanol, sending up the price by nine cents to $1.95 per gallon in the last week. It hit a low of $1.52 on Sept. 26.
Even worse for investors and the Bush administration, energy experts contend ethanol isn’t reducing oil demand. Scientists at Cornell University say making the fuel uses more energy than it creates, while the National Research Council warns ethanol production threatens scarce water supplies.
As oil hovered near $99 a barrel yesterday, ethanol markets are so depressed that distilleries are shutting from Iowa to Germany. An investor who put $10 million into ethanol on Dec. 31 now has $7.5 million, a loss of 25 per cent. Florida and Georgia have banned sales during the summer, when the fuel may evaporate and create smog.
“I don’t anticipate any sort of immediate rebound,” says Barry Frazier, president of Center Ethanol LLC in suburban St. Louis. “It’s going to take 12 to 24 months before the market is able to absorb the large amount of new capacity.”
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