Houston - The days of snapping up undervalued ethanol plants for expansion are over, Green Plains Renewable Energy's chief executive told investors on its most recent conference call.
Plants with the right equipment and good locations could no longer be bought up for prices once below $1/USG of production capacity, Todd Becker told investors. The shift dried up obvious opportunities to expand but supported the value of the ethanol producer's own assets, he said.
“I think those days - to buy those cheap ethanol refining assets - are over,” Becker said.
Green Plains Renewable Energy reported producing 56mn USG more ethanol in the third quarter than during the corresponding period of last year, and it described efforts to expand beyond production.
The company reported selling 184.6mn USG of ethanol in the third quarter, up from 128.9mn USG in the same quarter last year. Plants coming out of maintenance helped boost output and would push the average production for the year to more than 900,000 b/d, Becker said.
A federal mandate increasing required ethanol usage to 13.2bn USG, solid export markets and early adoption of E15 blend fuel in nine midcontinent states next year should more than make up for the end of a federal tax credit on ethanol this year, according to Becker. Political pressure to keep tight Brazilian supplies in that country for its own domestic use will also help the US market and could support a 400mn-600mn USG export market, he added.
“It's not like nobody's buying ethanol in 2012 because there's no tax credit,” Becker said. “In fact, we've seen really no drop off in demand for our product out of our plants at this point for the first quarter.”
The company took 40pc of its income from the quarter from non-ethanol sources. Green Plains has terminal and agribusiness operations, and has worked to expand into algae.
Becker said the company planned to break ground on a 5-acre test farm for algae by year's end. That facility will use carbon dioxide captured at Green Plains' Shenandoah, Iowa, plant for algae production, and could expand to become a 400-acre project on the site.
Algae is worth considerably more as a food supplement than as a fuel on the current market. The company eyed replacing the 10mn metric ton fish meal market with algae, though fuel was also a potential product, Becker said.
“What we think about every day is the path to profitability,” he said. “If there's no path, then a project will come to a stop, but nothing is telling us to stop this project.”
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