History: A turn of events (Part 1)

I'm not sure how I got on the subject, but I was looking through pictures and articles of VeraSun, which at one point, was the largest ethanol producer in the country.

What exactly was VeraSun? VeraSun was, in my opinion, one of the most ambitious ethanol producers out there, in every sense of the word ambitious. VeraSun went on an "acquisition binge" in 2007-2008. They acquired a number of ethanol plants, and then acquired several plants from a smaller company called US BioEnergy when the two companies merged in 2008. Full disclosure, this includes the ethanol plant I currently work at - now owned and operated by Carbon Green BioEnergy, located in Lake Odessa, Michigan. What's neat is that we still have some walkie-talkies with "US BioEnergy" printed on them in the control room. VeraSun began marketing their own E85, marketed as "VE85". VeraSun struck a deal with Kroger, and Kroger began selling "VE85" at many of their fuel outlets. First, Kroger added E85 at 18 of their fuel stations in Texas. Then before we knew it, Kroger had E85 locations in nearly every state it operated in. To my knowledge, all of those locations continue to sell E85 to this day, although it is no longer "VE85". You wouldn't know that if you went to one of their stations to fill up with E85 though. Why is that? Kroger doesn't seem to be in much of a hurry to change over the pump handles and graphics. For instance, the one Kroger location in the entire state of Michigan to sell E85 still has all of the VeraSun pump labeling.

I just drove by the Burton, Michigan location last week, too. It shows what E85 is (or was, at the time: 85% ethanol and 15% gasoline, though this is rarely the actual blend you find nowadays), and directs you to www.VE85.com. Of course, an attempt at going to the site will bring up some sort of a "server not found" result.

Then I look back and I wonder, well how was VeraSun as a company, and why did the producer file for Chapter 11 bankruptcy and subsequently liquidate all of its assets?

Well for starters, it's important to revisit the ethanol news bombshell (at the time) that VeraSun had acquired a number of ethanol plants. As mentioned several times now, this company had finally become the largest ethanol producer in the country in terms of number of gallons produced annually throughout its entire portfolio... and as such had a significant load of debt. But this idea alone can't topple a company. At least, usually not. But the way I see it, it is in a way like getting a super high deductible on your insurance policy for comprehensive or collision. It's great in a short term sense, as you have lower payments (in theory)... but you are screwed if you get into an accident where significant repairs are necessary. VeraSun had in theory acquired more production capacity, and thus a wider, more diverse number of sources of income. The problem is that this left them vulnerable for something to happen - i.e. you get t-boned. Sure, the insurance company pays for it - minus what your responsibility is (the deductible).

2008 was an incredible year for a lot of reasons. This was when I had begun watching oil and gasoline prices, and the economics behind this entirely different - yet imperative - sector of our world's economy. 2008 was a heck of a year for it. This was when we saw oil soar above $100/barrel, and gasoline prices made no hesitation to follow suit. This was the first time when gasoline prices spiked above $4/gallon here in mid-Michigan, and when we saw a skyrocketing demand for Toyota Priuses. Economists who follow the effect of oil and gasoline on our economy learned one important lesson from 2008: $4/gallon is that magical number at which people stop buying fuel. Seriously, it's uncanny; more people will buy gasoline at $3.99/gallon than would at $4.05/gallon. 6 cent/gallon difference.

I digress, as I am beside the main point here. Coinciding fairly well with the rise in oil prices was the rapid rise in diesel prices. Many trucking companies were crimped, forced to lay off employees, or go out of business altogether. It doesn't hit the trucking industry too well when it's nearly impossible to find diesel below $4.80/gallon. So to match these rising prices, the price of corn rises as well. Recall that a bushel is 56 pounds. Corn rose to nearly $8/bushel. Obviously, this would make margins razor thin enough to make any ethanol producer uneasy. But VeraSun took a risky approach. VeraSun bought futures contracts for their corn at around $6.50/bushel. This isn't anything out of the ordinary for any industry - buy contracts now to lock in a lower price, or sell them off if the price rises in order to make a profit. However, the reason this was a bad decision for VeraSun was because the price of corn didn't stay above $6.50/bushel for long.

2008 is a year that will live in infamy to so many millions of people across the globe. It would be easier to list folks and economic sectors/businesses that were not adversely affected in some way, shape, or form. Leading up to the landfall of hurricane Ike in September 2008, oil prices once again skyrocketed. After Hurricane Ike became history, and had scooted off into Canada faster than a car on the interstate, oil prices fell off a cliff. Gasoline prices followed. As did corn prices. Reading this, you might ask, "well wouldn't this help VeraSun's profit margins"? Not really. Again, they locked the price of corn in at around $6.50/bushel. This protected them against further price increases, but since it guaranteed farmers $6.50/bushel for their corn, VeraSun was not able to pay a lower price.

Adding salt to the wound was the fact that the oil prices took ethanol demand with them. Ethanol demand also fell off a cliff. Even though gasoline prices were far lower than anyone could have imagined they would ever see again, the amount of driving largely fell as well, until we had some signs of economic recovery after the new year in 2009. Not to mention the fact that E85 prices eventually stopped falling - sooner than gasoline prices did. Check out this screenshot of archived prices from the site e85prices.com, around November 2008.

See all the negative spreads? At some stations, gasoline was around $1.50... while E85 was up near $1.90! I would without a doubt continue my commitment to E85, though I would obviously be disappointed. Of course, I am quite an outlier when it comes to that! I have said many a time that I would use E85 even if it was $2/gallon MORE than gasoline.

Now to put the proverbial nail in the coffin on VeraSun, this was the time of the financial collapse. Washington is debating the merits of bailing out the banking system and other sectors of the economy, while debate ensues over whether or not these lenders gave loans that they shouldn't have. As such, the lending portion of the financial sector had nearly come to a screeching halt. No creditor was willing to lend VeraSun money so that they could borrow their way through this crisis. That may have been possible if the financial collapse hadn't happened, or if VeraSun wasn't already in so much debt.

Come October 2008 though, the damage had been done. VeraSun had initially announced filing for Chapter 11 bankruptcy around Halloween of 2008, with the intent to come out of bankruptcy stronger than ever. Unfortunately, this did not happen. Not long after their filing, VeraSun was forced to go through liquidation. All of their assets were wiped out from the company, and VeraSun virtually ceased to exist. Looking back at this admittedly with hindsight bias, had I been doing much the same type of advocacy work then that I continuously embark on today, I don't know how I would have handled it. 2008 was depressing to so many people just because of the events of the final four months, and I can't imagine that ethanol enthusiasts and supporters were any more fortunate. Many ethanol companies survived, not least of which include the Anderson's and Poet, which is now the largest ethanol producer in the country by production capacity.

While some of VeraSun's plants were sold off to other ethanol companies, a handful of them were sold to AgStar Financial, who then dealt with selling these ethanol plants. Most of them went to Valero, who ended up paying about 30 cents on the dollar. Valero is now able to blend their own ethanol into their own gasoline. Valero is now directly responsible for roughly one in 12 gallons of ethanol produced today in the United States.

From a business standpoint, this was an incredibly wise financial decision.

Thankfully, Valero was unable to buy the plant I work in today. A company that was little known at the time, Carbon Green BioEnergy, agreed to purchase the idled Lake Odessa, Michigan plant from AgStar in May 2009. While Carbon Green BioEnergy is not VeraSun, Carbon Green is being aggressive in getting their product out there. Carbon Green BioEnergy has a program called yellow hose, where participating public retail fuel stations are sold low-cost, pre-blended E85 on the condition that they maintain a minimum of $1/gallon price difference between E85 and regular gasoline.

The sales numbers, comparing the numbers before yellow hose began in October 2013 to the numbers following the launch of the program, are like night and day. Some stations have seen sales increases upwards of 400% year-over-year, and the rate of E85 sales continues to go up. Carbon Green management has talked with a number of fuel retailers and franchisees, has begun working with various public (and private) sector agencies across the state of Michigan, and has also embarked on working with the national ethanol firms and automakers. Carbon Green BioEnergy even decided to install a retail fuel pump right at the plant. It is located on the south side of the property, open to the public 24/7, and accepts most major credit cards. We have now seen folks from numerous walks of life and sources of employment fill up at the station. In fact, the sales volume has been so high, that we had to shut down the pump on July 6th because the E85 tank had run empty! The only accessible side of this lone pump is selling upwards of 1,400 gallons daily of E85... and this is not accounting for the E15, E30, and E10 regular sold. The word of mouth is continuing to get out, and we have folks coming from as far away as Lansing to fill up at this station. It is a guaranteed outlet for the company's product, and it is increasing awareness of the ethanol plant. Folks are learning more about E85. Why no other ethanol plant/producer has emulated this idea is beyond me.

So we circle back to the original topic of discussion. Where would we all be today if Valero had bought this idled ethanol plant? Where would we be if VeraSun had not acquired US BioEnergy? What would have happened had VeraSun made different business decisions and had been able to survive the 2008 financial meltdown? Answers to these questions result largely out of speculation... but there's a reason I've always passed my history classes with flying colors. History has always fascinated me personally, and no era is more interesting than World War II to Watergate, or 2007  to present. The way my mind works is that while I don't have all of the answers to these questions, I'm very curious about how a little change in events could completely change where I am personally, or where many others are. If you were completely unaffected by the 2008 financial crisis, please do not hesitate to contact me and tell me your story. Up until I learned more about VeraSun, I thought I was unaffected. In 2008, I was only 15, and was still nearly two years away from even being allowed to begin segment one of driver's ed. I had no need to work, had no car, and both of my parents had (and still have) jobs with an enormous amount of job security. I'm lucky. Not so many people are as fortunate. But up until recently, I thought I had been largely untouched by the financial collapse of 2008. Moral of the story is appreciate what you have, what you have accomplished, and where you are in life. You should never take any of these things for granted, and always appreciate how events of times past have led to the successes and positive moments you have had and continue to have.

Low-level ethanol blends: Where do I come in?

Ever since the Renewable Fuel Standard came under fire last year largely due to an "issue" known as the blend wall (I'll explain this near the end of this post), we've had heated debate about the use of ethanol, where we feel it has a place in our society (some believe it doesn't have a place at all), and the importance of lower-level blends such as the common E10 and relatively new blend E15.

Years ago, it became publicly known that Methyl Tertiary Butyl Ether (MTBE) was causing severe cases of polluting groundwater. There are even accusations that refiners such as BP and ExxonMobil knew about the environmental consequences of widespread MTBE use decades before. Now I will admit that it was good timing on part of the ethanol industry and representatives to suggest ethanol as an additive to replace MTBE. What many don't know is that the 87 octane we see at the pump is the final product. This is with the 10% ethanol content added. Refiners commonly blend in 84 sub-octane gasoline, and mix it with the 10% ethanol amount to bring the octane up to 87. The same is true with other blends like midgrade and premium (just with higher starting octane levels). For that reason, if you ever hear the oil folks claim that the Renewable Fuel Standard is costing them money and causing refineries to shutter, please don't take them seriously. With the constant global conflict and unrest, it's apparent that we have to have an oxygenate. 84 octane gasoline can not legally or safely be used in any motor vehicle (unless outfitted for it, which most aren't), and so we need a cheap additive to bring the octane up to 87. Yes, 85 octane is legally sold in some states with higher elevations in the rockies and the foothills in southwest South Dakota. I will admit that I don't see how this is legal or safe, as the level of engine knock would be significantly higher - but also that I don't know enough about it. Any rate, if we just used pure gasoline without an additive/oxygenate, you can bet that gasoline prices would never again dip below $4/gallon in most regions of the country.

For the reasons I stated in the first paragraph, I absolutely view ethanol as an additive as imperative to keep the cost of transportation down. Ethanol used as an additive is typically sold at rack (wholesale) price, and is as such more profitable for the ethanol industry than higher level blends like E50 or E85. I agree with E15 and willingly throw my support behind it, because it is for sure one heck of a start in transitioning our economy off of so much dependence on petroleum. I mean come on, petroleum is in EVERYTHING! Does it have to be in our cars too? I digress. I view E15 as a bridge, of sorts. E15 is starting to spread like wildfire in Iowa and Minnesota, states that are known for their high levels of friendliness and openness to ethanol as a whole. E15 is now sold at 4 stations in my home turf of Michigan, and is gradually coming to other states such as Ohio and Kansas. I believe that E15 is a great way to get folks who are on the fence or slightly against ethanol on board in using ethanol. Many folks are using E15 in Minnesota and Iowa, and finding that there is absolutely no damage to their engines or issues with compatibility, and they find that other factors such as driveability or performance don't even change a lick. Folks in flex fuel vehicles might try this, find that it doesn't harm their vehicle as they're told it would, and then try higher level blends like E30, E50, or E85.

However, with all that being said, I've made it abundantly clear that I advocate for ethanol as an alternative fuel, NOT an additive. Ethanol is definitely important as an additive, and it is clear that this is where much of the profitability is for ethanol industry nowadays. I'm concerned that if more ethanol is used for E10 and E15, we'll have less for high blends. My concern is that this would increase the prices of higher level blends, and make these blends less attractive to consumers. Remember that our current ethanol capacity is below 15 billion gallons/year. Assuming that every one of the 16.3 million flex fuel vehicles (FFVs) in the United States would use about 2,000 gallons a year, that's about 32.6 billion gallons a year of E"85". Now assume that E85 is actually E78 as a year-round average (adjusting for seasonal and regional differences in actual ethanol content). We multiply the 32.6 billion number previously mentioned by 0.78, and we get just over 25 billion gallons per year of ethanol consumed, just for E85. This is the reasoning for my lack of understanding on why we are having this ethanol "blend wall" debate, but this is a different story for a later time. This 25 billion number is about 10 billion gallons/year above the current ethanol production capacity as a whole. This would completely negate the need for blending ethanol into gasoline to satisfy the Renewable Fuel Standard. Now I understand this isn't possible, but the point is that we do not have enough ethanol capacity to go around - and it is imperative that we add more. DuPont, Poet-DSM, and Abengoa are examples of companies that are doing just that. We all owe them a very big thank you for the level of investment they've put into ethanol production. Between the three plants they're building (one for each), this will add approximately 75 million gallons per year of ethanol capacity to the market.

Moral of the story, I most definitely throw my support behind E10 and E15, and by no means have any desire to attack them. However, I think we need to focus more efforts on making high level blends economical for all parties involved - the ethanol producers, the fueling stations, and the consumers that these blends are marketed to. It is vital that the ethanol industries and lobbies shift more of their focus to these high level blends. I will admit that I don't agree with the ethanol industry and representatives on everything... but I've said that one of my largest goals in life is to personally see ethanol succeed. I have no intentions of falling short. Attacking low-level blends is not the answer.

Now as promised, I will briefly discuss the "blend wall" for those readers who are less versed on this subject. As a disclaimer, I will always refer to the "blend wall" in quotation marks, because I do not recognize any validity with this argument. I personally view it as an excuse to resist change. The ethanol "blend wall", by definition, is the amount of ethanol that the market can absorb into E10 Regular Gasoline, before higher blends like E15 and E85 become imperative to be sold. This is, in my view, the main reason we've seen the RFS come under fire lately, and why we went nearly a decade without loud criticism about "engine damage" and "low mileage" to the extent we often hear it now. I would like to make it crystal clear that the Renewable Fuel Standard does not specify where exactly the ethanol must go, but simply requires certain amounts of ethanol (called Renewable Volume Obligations, or RVOs) to be used in our transportation fuel supply. This is why I bring up the issue of capacity. The more E85 and E15 we sell, the less we have to worry about ethanol going into boating engines or lawn equipment. So let's focus more on higher level blends!

The Black Nozzle Pledge

Last year, we actually grew corn here in Lansing. It was only two maize plants, but we still don't know how they got there. We do some gardening, but we haven't grown corn in years. I managed to squeeze 8 ears of corn from the two plants - which sprouted in August! One grew to be 6 feet tall; the other, only 3 feet. 

Back in November last year, I was driving these 8 ears over to the Carbon Green BioEnergy ethanol plant in Lake Odessa. Halfway there, I ran out of fuel in the "E85 dead zone" know as Portland, Michigan. 20 miles from E85 in Lansing, and 20 miles from the public ethanol pump at the plant in Lake Odessa. I was furious. Unable to get E85, I was forced to break down and buy an overpriced fuel container at the Speedway there, and fill it with tar sands, er uh, gasoline.  Due to my clumsiness, only about 1.1 gallons of the original 2.3 made it into my car's tank. A state trooper gave me a ride to my car (I should have taken notes - the Charger he gave me a ride in would end up being the type of car I'd get the next summer!). I had barely enough fuel to get to Carbon Green BioEnergy, and put in the absolute minimum to get there. With gasoline all over my hands, I finally made it. 

That day, I began beating myself up over how irresponsible I felt. I knew the fuel tank was low, but decided to chance it so that I could fill up at the plant in Lake Odessa. This could have been avoided. It took a while to get over it - even though it was only two gallons of gasoline, compared to the millions sold every day in the United States. I then made a pledge. Thanks to a battery-powered lawn mower, and a battery-powered weedwacker, I had no need to ever touch a black nozzle for any reason. To this day, 238 days later to be exact, this remains the case. I have not purchased an ethanol blend lower than E50 since. 

While in Florida for the 2014 National Ethanol Conference, I ran out of fuel again. This time on the side of Florida 408 on the east side of metro Orlando. While waiting for a triple A dispatched driver to come, I had a Florida Highway maintenance vehicle stop by. He verified that I had run out of fuel, and offered to give me the gallon of gas he had in the back. I wanted nothing to do with gasoline, so I just said I'd wait for the driver to come. Three hours and one infuriated, irritable dad later, I finally got to fill the Sebring with E85 at a Shell station on Florida's Turnpike. 19.1 gallons into a 16.9 gallon tank.

I hope that battery technology improves for lawn equipment, and I hope that I can get as many people as possible to take the same pledge I have. It's not rocket science finding E85. We have the E85 station locator app from e85prices.com, we have the "Flex Fuel Locator" and "FlexFinder" apps. One of my personal favorites is "Alternative Fuels" by William Moffitt (iPhone/iPad only: https://itunes.apple.com/us/app/alternative-fuels/id655668911?mt=8). 

www.e85prices.com is an awesome site to find E85. What even more awesome is that this site tracks ethanol-free (E0) prices and stations, E10, E15, E20, E25, E30, E40, and E50 too. It has an interactive map to show where stations are, and as mentioned, you can see user-submitted prices! All it takes on my end is knowing when the fuel tank is low, and filling up ASAP. I should never again go into an "E85 dead zone" with a low amount of fuel.