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Soyatech Releases Findings From Quarterly Biofuels Index (2.13.2008)

BAR HARBOR, ME -- Soyatech has released summary findings from its latest Biofuels Index, a quarterly database that tracks planned and actual build-out of biofuels production capacity. Data collected in Q4 2007 indicates that, while online ethanol capacity increased over the quarter, the industry also experienced declines in both capacity under construction and capacity in planning. This supports information reported in earlier issues of the Biofuels Index that suggested a leveling off of corn-based ethanol build-out.

According to Soyatech's Q4 2007 Biofuels Index, total online ethanol capacity increased from 6,915 million gallons per year (MGY) at the end of Q3 2007 to 7,322 MGY at year-end 2007. This increase of approximately 407 MGY represents growth of nearly 6% over the quarter. During the same period, ethanol capacity under construction decreased by 344 MGY from 6,355 MGY in Q3 to 6,011 MGY, a decline of 5.4%.

Ethanol capacity in planning contracted by 577 MGY, or 3.5%, during Q4, from 16,310 MGY at the end of Q3 to 15,733 MGY at year end. Soyatech noted that some of this reduction in capacity in planning was due to projects moving from the planning phase to actual construction. At the same time, approximately 675 MGY in planned capacity had been cancelled or postponed.

"We are circumspect about the numbers for total planned capacity, as it is very easy to announce plans. Additionally, some groups that have suspended or cancelled their plans have not made those decisions public. As a result, we believe that there is 'phantom capacity' reflected in these numbers," said Jacob Golbitz, director of research for Soyatech and its parent company, HighQuest Partners. "To get a better handle on this situation, in Q4 2007 we began tracking planned facilities that had exhibited no signs of life over the past four quarters, and began labeling that cumulative planned capacity as 'unconfirmed'," he added.

During Q4, total online biodiesel capacity increased from 1,831 MGY at the end of Q3 2007 to 2,033 MGY by year end. This increase of approximately 202 MGY represents 11% in growth. As with ethanol, biodiesel capacity under construction contracted over the period, from 1,365 MGY in Q3 to 1,126 MGY at year end, a decrease of 239 MGY or 17.5%. However, biodiesel capacity in planning increased by 9.7% over Q4, from 2,154 MGY to 2,364 MGY. Approximately 173 MGY of biodiesel capacity in planning was explicitly cancelled in Q4, which was more than offset by the 306 MGY in new planned capacity announced during the quarter.

"As with ethanol, we are looking at phantom capacity in biodiesel, and have determined that approximately 313 MGY falls in our 'unconfirmed' category," said Golbitz.

The Biofuels Index also reports that an inadequate infrastructure for the distribution of ethanol, known as the "blend wall," continues to keep ethanol prices below gasoline prices.

"While this situation may not be favorable for individual ethanol producers, we believe that it may benefit the industry over the long term by giving petroleum companies an economic incentive to blend with ethanol. If ethanol continues to sell at a discount to gasoline, that incentive is likely to result in a lowering of the blend wall as more infrastructure is developed to get ethanol to market. Also acting as an incentive are provisions of the 2007 Energy Bill, including a Renewable Fuel Standard (RFS) requiring fuel producers to use at least 36 billion gallons of renewable fuel by 2022," Golbitz noted.

Golbitz added, however, that the pricing differential between gasoline and ethanol caused by the blend wall is taking place at a time when corn futures are selling at more than $5 per bushel on the Chicago Board of Trade. Soyatech projects that these high corn prices will place added financial pressure on ethanol producers and strengthen the trend towards consolidation now taking place in the industry.

As noted in previous issues of the Soyatech Biofuels Index, investment in ethanol production by publicly-traded companies is more heavily represented in current online capacity and capacity under construction, than in planned capacity. Soyatech views this as another indicator of maturity in the corn-based ethanol industry. However, developments in cellulosic ethanol could significantly change this dynamic and result in a ramp-up of planned capacity for second generation ethanol production.

"While we believe that major hurdles remain in developing a significant cellulosic ethanol industry, we also note that of the 36 billion gallons per year RFS for 2022, 21 billion gallons are required to be 'advanced' or second generation biofuels," stated Golbitz.

Updated each quarter, Soyatech's Biofuels Index includes detailed data on the biofuels industry, including:

  • tracking of production in all three phases of development: planned, under construction and operating, with data residing in a pivot table that can be manipulated by subscribers to determine current and future production, feedstock demand, etc., on a regional or more tightly focused geographic basis;
  • searchable plant-level lists of ethanol and biodiesel production facilities, including capacity and location (geographic coordinates built-in), and where possible, feedstocks, permitting status and projected ground-breaking and operational dates; and
  • analysis of financing sponsors for plants and projects: publicly-traded companies vs. privately funded facilities.

A subscription to the Soyatech Biofuels Index may be obtained by logging on to www.soyatech.com or by calling 800-424-SOYA.

About Soyatech LLC

Soyatech (www.soyatech.com) assists companies in the food and agri-business sector assess and develop market opportunities through reports, conferences, publications and consulting services. Founded in 1985, the company publishes the annual Soya & Oilseed Bluebook, the industry's leading source of information on companies and products, an industry-focused email newsletter (in daily and weekly editions), and Soyatech.com, the award-winning business-to-business online resource for the industry. Soyatech's information services are referred to by thousands of the world's leading commodity, food and biofuels companies in over 100 countries every business day. Soyatech LLC is headquartered in Bar Harbor, Maine, with offices in Boston and St. Louis.


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