FULTON, N.Y. -- When Sunoco closed on the acquisition of a bankrupt ethanol plant for pennies on the dollar last week, it became just the latest oil refiner to step into the alternative fuels market.

Traditional refiners under pressure to reduce emissions are finding new avenues to meet evolving environmental standards -- and finding big bargains along the way.

Sunoco Inc. made its initial bid just weeks after Valero Energy Corp., the nation's largest independent oil refiner, became an ethanol plant owner the same way.

"You are going to see this become a trend especially with the government wanting to go green," said Daniel Flynn, who follows the renewable fuels industry for Chicago-based Alaron Trading.

"There are a lot of these ethanol plants hanging by a hair. This could be the perfect time for the big companies to step in."

With the acquisition by Sunoco, major oil refiners now control as much as 7 percent of the total industry capacity.

In April, San Antonio-based Valero bought seven large ethanol plants in the Midwest from bankrupt VeraSun Energy Corp., the nation's second-largest producer of ethanol, for $477 million. Sunoco snapped up the $200 million Northeast Biofuels plant in upstate New York for $8.5 million.

Over the past couple of years, Marathon Oil Corp. has acquired large stakes in ethanol plants in Illinois and Ohio, each with more than a million gallons in annual capacity.

Philadelphia-based Sunoco will spend as much as $20 million to refurbish the Fulton plant and get it to its full 100-million- gallon-a-year production capacity by early next year.

Sunoco blends about 460 million gallons of ethanol with gasoline each year.

The Fulton plant will supply nearly 25 percent of the ethanol Sunoco needs to meet renewable-fuels standards, said spokesman Thomas Golembeski.

The plant is close to Sunoco's main operations in the Northeast, where many of its 4,700 gas stations are concentrated, but the shift in U.S. energy policy was a big motivator.

"We also view this as a first step into an area of possible growth for the company," Golembeski said.

The ethanol industry has been shaken by the financial crisis.

Credit has frozen over and producers were hurt by wild swings in the corn futures market, the feedstock for fuel. Ethanol prices have plunged.

At a biofuels conference last week in Colorado, there were workshops for distressed businesses.

There are about 200 ethanol plants in the United States, according to the Renewable Fuels Association, a Washington, D.C.- based industry trade group.

Between 170 and 175 of those plants are currently producing about 10.5 billion gallons of ethanol a year, said Matt Hartwig, an RFA spokesman.

About two dozen other plants with an additional combined capacity of 2 billion gallons a year are currently idle, about half of them in bankruptcy, Hartwig said. SUBHEAD: More traditional oil refineries are going green.

Originally published by WILLIAM KATES Associated Press.

(c) 2009 Tulsa World. Provided by ProQuest LLC. All rights Reserved.

A service of YellowBrix, Inc.