Production of ethanol in Idaho has hit a wall, knocked back by falling petroleum prices, oversupply in the industry, stagnating consumption and backfiring bets on corn futures contracts.

Pacific Ethanol of Sacramento, Calif., announced on Feb. 27 that it would temporarily shut down its 60 million gallon per year plant in Burley, leaving about two dozen workers without jobs less than a year after opening.

Another 20 million gallon ethanol plant, planned by London-based Renova Energy, sits half-built in Heyburn after the company ran into financial difficulties and couldn't finish construction.

The one operating ethanol producer in the state, Idaho Ethanol Processing in Caldwell, which can make up to 5 million gallons of ethanol per year primarily out of potato waste from nearby J.R. Simplot Co. sites, may face the prospect of a shutdown, too, because of downward price pressures, according to industry watchers.

"It's been a tough couple weeks," said Idaho Office of Energy Resources Bio Energy Manager John Crockett. "The industry we've been working hard to develop is shutting down."

Jon Van Gerpen, head of the University of Idaho Department of Biological and Agricultural Engineering, said corn ethanol producers have been squeezed from a number of directions. Many, including Pacific Ethanol, bought corn in futures markets to guarantee supplies when prices skyrocketed last summer, he said. But as prices plummeted along with the economy, producers ended up stuck with expensive corn.On the other hand, demand has dropped with petroleum prices, which means producers can't command good enough deals to make up the difference.

"They've got very thin margins right now," Van Gerpen said.

Still, the amount of ethanol blended with gasoline continued to skyrocket in Idaho last year, with nearly all of the state's gas stations switching to E10 - gasoline mixed with 10 percent ethanol.

The Idaho Tax Commission estimates December was another record- breaking month, with 4 million gallons of ethanol blended with gasoline, up from 665,000 gallons in December 2007, a more than 500 percent increase, according to Dar Walters, fuel tax program manager.

That's why House lawmakers voted 69-0 on March 2 to end the fuel tax exemption for ethanol, a measure proposed by Gov. C.L. "Butch" Otter to raise $4 million per year for highway maintenance. It amounts to 2.5 cents per gallon.

The bill, which must still be approved by the Senate, has faced little opposition from groups like the Idaho Petroleum Marketers Association, who say the exemption was a relic from the 1980s that accomplished its task of spurring ethanol consumption.

"We just saw that it was going to pass," said John Thompson, spokesman for the Idaho Farm Bureau Federation. "It wasn't a hill we wanted to die on."

Charley Jones, president and co-owner of Stinker Stores, a strong ethanol supporter, said the tax will be passed on to customers, though they probably won't notice since prices often fluctuate more than 2.5 cents per day.

Jones, though, lamented the state of Idaho's ethanol producers.

"A year ago I would have told you with absolute certainty that Idaho ... would have enough ethanol to blend 10 percent of every fuel gallon sold," he said. "Now, in 2009, there's no ethanol production in Idaho. That's a bad deal."

Van Gerpen said the Caldwell plant is "definitely close to the edge now."

"If they can't sell enough ethanol in the state, they will have to close," he said. "They're a lot smaller than the Pacific Ethanol plant, so they've got to be having at least as much pressure."

Officials from ED&F Man, operator of the Caldwell plant, did not return calls for comment.

Tim Raphael, spokesman for Pacific Ethanol, said he could not say when the Burley operation would reopen.

"We certainly look forward to using the Magic Valley plant when conditions warrant," he said.

Credit: Simon Shifrin

(Copyright 2009 Dolan Media Newswires)

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