Consumer-grade gasoline contains about 10 percent ethanol to comply with federal regulations, but with drivers putting fewer miles on their cars, less corn is being used in fuel production. ©Thinkstock.com
LANSING — Less than a year after a brutal drought damaged corn crops across the Midwest, the ethanol industry is looking to recover from its first national decline in 15 years.
Though Michigan’s corn crop was damaged less than those in nearby Indiana and Illinois, production of ethanol — an alcohol-based fuel made from corn — slowed at its refineries while other facilities throughout the U.S. idled or were shut down.
For example, the Global Ethanol Inc. Riga facility near Blissfield was able to maintain its 46 employees through last year’s drought but experienced declines in output, plant manager Bill Welever said.
“The ethanol industry is highly dependent on the weather and, in turn, there’s peaks and valleys,” Welever said. “Over the course of the last six years, there’s been a lot of ups and downs.”
Jim Zook, executive director of the Michigan Corn Growers Association, said this year’s crop projections look promising, but extended cold temperatures and heavy rainfall have delayed planting a few weeks for many farmers.
While the industry is climbing out of its most recent valley, dollars-per-gallon margins remained positive after months in the red at the end of 2012. However, profits have fallen short of expectations set just a few years ago.
The state has five refineries, but in 2008 five more were proposed and another was under construction. All those projects were dropped because production at the five established facilities already exceeded demand, Zook said.
In addition to Global Ethanol in Riga Township, the other plants are in Albion, Caro, Marysville and Lake Odessa.
Mitch Miller, CEO of Carbon Green Bioenergy in Lake Odessa, said the facilities generally have between 40 and 50 employees and can produce between 50 million and 60 million gallons per year.
Zook said the state produces about 240 million gallons of ethanol per year, mostly for gasoline. Consumer-grade gasoline contains about 10 percent ethanol to comply with federal regulations.
But a down economy deters drivers from logging long miles, and the proliferation of more fuel-efficient vehicles has led to a decline in fuel consumption.
“We used to burn 150 billion gallons of fuel, but now we only burn 135 billion gallons so that’s a 10 percent decrease,” Zook said of declining U.S. fuel consumption since 2006.
The exact relationship between gasoline consumption and ethanol demand is muddled, however, as much of ethanol use depends on and, in some ways, is limited by government regulations.
The Renewable Fuel Standard, which was set in 2005, requires gasoline producers to have mixtures with 10 percent ethanol or pay to opt out. Miller said in recent years, most companies that supply petroleum in the state opted for the ethanol mix.
“In the state of Michigan, it’s approaching 100 percent,” Miller said.
The standard all but guarantees biofuel a place in the market, but it doesn’t provide much more room for upward mobility. That’s because petroleum manufacturers are reluctant to reduce their profits any more than they have to, Zook said.
That leaves the ethanol industry with e10 (10 percent ethanol) and e85 (85 percent ethanol), which requires a special type of engine.
John Griffin, executive director of the Associated Petroleum Industries of Michigan, said mixtures above e10 would harm most standard engines.
Ethanol proponents point to studies that show e15 mixtures to be no more corrosive than e10 and cite use of e15 in NASCAR racing engines, which travel hundreds of miles per race.
Griffin and others in the petroleum industry sound more skeptical.
“It might be fine for NASCAR, but most of the cars on the road are not designed to handle that kind of fuel,” he said.