I've been thinking on and off about the events that have transpired in recent years with energy. As I may have mentioned, my interest in ethanol simply began because I wanted an alternative to gasoline, and electric cars were well out of my budget.
2008 and 2012, years that I actually look back on fondly for other reasons, were actually horrible to the ethanol industry. In both years, we saw corn prices skyrocket. That's horrible for ethanol plant margins, and then to add salt to the wound, demand for ethanol starts to decline as high-level blends like E85 are priced too high. In 2008, we saw astronomically high oil prices, and middle eastern tension really began to force us to look at how we are getting our energy. The immediate solution for many people was to get a hybrid vehicle. Only a bit more expensive, but cheaper than buying a flat out electric car, and not enough people were aware of ethanol. As such, anyone who wanted a Toyota Prius had be wait-listed. Dealers couldn't keep them on their lots. In 2008, even that recently, ethanol had made very little progress thus far. We only had 3 stations in the Lansing metro carrying E85 (now we've tripled that), and we only had a handful of stations statewide. According to a graph put together by e85prices.com member James48843, there were only 1,890 E85 retailers nationwide. Now, we've nearly doubled this at 3,355 stations as of this morning.
However, I haven't even mentioned the elephant in the room when it comes to how 2008 impacted the ethanol industry. As I mentioned in my last post, while oil prices had skyrocketed during the summer of 2008, likely helping to increase E85 sales, oil prices (and subsequently gasoline prices) then took a trip down to the basement beginning in September of 2008. With gasoline down near $1.50 in many areas, demand for ethanol had plummeted. Then of course, there was VeraSun. Having bought corn futures contracts at an excessively high price only to see corn prices also plummet, VeraSun eventually was forced to go bankrupt. This nearly crippled the ethanol industry. I'm sure some stations yanked their E85 as a result of the widespread financial difficulty in the fall and winter of 2008.
Lo and behold however, the ethanol industry recovered - and rather nicely, I might add.
2009 through 2011 hold some contention over other political issues - i.e. the Affordable Care Act, troops being pulled out of Iraq nearly altogether, but little contention in the energy sector. That is, at least to the extent we saw in 2008. According to the same graph I alluded to above, the United States went from 1,890 E85 retailers to begin the year in 2008 to 2.904 retailers to start the year in 2012.
But then, here comes 2012. 2012 was a very interesting year on many fronts, not least of which was in meteorology. Here in Michigan, the 2012 warm season started with a bang. All of a sudden, we go from talk of "when will our first 70 degree day be?" in early March to day after day of record warmth that following week. Every day for nearly 10 days saw highs above 70 degrees, with several high temperatures above 80 degrees here in Lansing. In fact, we set a record - ironically on the first day of Spring - for the warmest temperature ever recorded in Lansing in the month of March. Only to beat it the next day, taking the temperature all the way up to 86 degrees. Truly unprecedented for the month of March. Then, in what seems like the most predictable turn of events in meteorological history, we had numerous frosts and freezes. Frost after frost after hard freeze after frost after freeze. It was crazy. The warm weather was fantastic for my lawn mowing business, which had never been started so early in the year before. Thankfully for my case, the numerous frosts and freezes did nothing to hurt the lawns I was responsible for mowing. But unfortunately, this warm weather also got crops going very early. For example, the cherry trees in the scenic Traverse City, Michigan area, had already begun to blossom. Once the hard freezes hit though, the blossoms were destroyed. Come July when it was time for the region to have its annual cherry festival, there were hardly any cherries available! Ironically, a festival intended on celebrating the northwest Michigan cherry crop instead used cherries that, if I recall correctly, we're actually imported from Poland!
Then of course, comes summer of 2012. Here in Lansing, we had seen several attempts just in June at cracking the magical 100 degree mark. On July 4th, 2012, it finally happened. The mercury reached 100 degrees in Lansing, not only making that the warmest Independence Day on record here - but also the first time we had seen triple digits in nearly 24 years! 99 the next day, and then 103 degrees on July 6th - the hottest temperature in 145+ years of record keeping here. I've come to realize though, that heat like this is rare in the Great Lakes state for a reason. If you want boring weather, Lansing, Michigan is your place. Lake Michigan blocks much of the bitterly cold arctic air from reaching us, and also keep temperatures cooler in the summer. So it takes a lot to break this pattern. The drought of 2012 was the key.
The drought was widespread, and in many areas, devastating. The worst of the drought, called "exceptional", was right in the heart of corn country out in Iowa and Nebraska. At one point, the category of drought considered moderate, or higher, had covered some 76% of the country. Think about that for a second. Much like 2008, we saw corn prices go through the stratosphere. As such, ethanol followed. September of 2012 was when I bought my first car (a flex fuel Chrysler Sebring), and was when I began paying attention to ethanol prices. At the time, I had never seen E85 below $2.99/gallon, so I assumed that $3.55 was high, but normal. When I bought my car in September 2012, I began running only E30 in it. I did not begin running E85 until just before Christmas. By then, E85 had finally declined in price, and my first fill of E85 was for $3.09/gallon.
I remember seeing an article at the beginning of 2013 that categorized 2013 as a "make-or-break" year for ethanol. As difficult as it was for me to admit it, I agreed with that assessment. Then 2013 proved to be a "make" year in every sense possible. Despite a rather soggy start to the growing season in the Midwest, 2013 saw an absolute bumper crop of corn. Some states, including South Dakota, saw record crops! Then in October 2013, yellow hose began. Now retailers in mid-Michigan and west Michigan are selling E85 at $1/gallon below gasoline. E85 sales immediately begin to increase. Before long, we had hit 3,100 E85 retailers. Then 3,200. Shortly after 2014 began, we hit 3,300.
Also, look at the regulatory hurdles that any fuel has to go through to get to the marketplace. All stations have to be inspected regularly, and this includes all fuels sold at that station as well as all dispensers located there. Ethanol blends have their own labeling, and E15 even has it's own label! Ethanol dispensers have to be specially labeled and colored. Then you have the costs of installing it. If there is already a spare tank underground, or a tank underground dispensing a product you don't sell, great. Conversions still aren't cheap, as you have to have an engineer inspect the setup, you have to have the tank drained and cleaned, and then you have to have a new dispenser installed. However, it is far cheaper than a brand new tank install, which can run you up to $100,000. That's a lot of cheddar for a station barely breaking even on gasoline sales. Then there is the cost of putting E85 in the sign. This is why a handful of stations who carry E85 don't advertise it on their street sign.
E85 and other ethanol blends had to go through thorough and extensive testing to be able to run in any automobile, and then be approved for sale to the public. Talk about expensive and time consuming. You also have to create vehicles that can run on this fuel, mass produce those, and then mass produce this fuel.
Yet somehow, E85 has managed to do all of this. Despite opposition, regulatory hurdles, hurdles beyond human control, and costs, E85 and ethanol have made substantial gains. As I said in front of the EPA back in December, a fuel that doesn't work for the American economy, harms the consumer, and has no promise, does not grow like [E85 has].
This alone is why I have so much faith in ethanol and why I've made it my personal goal to see it succeed. Ethanol is as resilient as it gets, and the fact that it has overcome all of these hurdles means it is never leaving. Ethanol is here to stay, and it has an enormous amount of promise for the American consumer, the American economy, the global economy, and the environment.
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