Upton plant insulated from ethanol market roller coaster

By Mary Garrigan, Journal staff | Thursday, June 26, 2008

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The nation's only operating cellulosic ethanol plant -- in Upton, Wyo., and owned by Rapid City's KL Process Design Group -- is insulated from the high corn prices that are causing plant-delay problems for others in the ethanol sector, a company spokesman said Wednesday.

Brookings-based VeraSun Energy Corp., the nation's largest ethanol producer, announced Wednesday that it would delay the startup of a third new ethanol plant, in Hankinson, N.D., because of "current volatility in the market." Last week, VeraSun delayed production at new plants in Welcome, Minn., and Hartley, Iowa.

"Ethanol is currently being sold at a deep discount to unleaded gasoline, which has caused us to delay the startup of these facilities until the outlook for ethanol selling prices and overall margins improve," Don Endres, VeraSun's chief executive officer, said in a written statement. VeraSun stock, which had traded as high as $17.75 in the past year, was at $4.04 Wednesday.

"Everybody in the ethanol sector is suffering from the same issues that VeraSun is," said Tom Slunecka, vice president for marketing and business development for KL Process Design. "But as the cellulosic ethanol industry grows, we will be insulated from the effects of speculative commodities trading."

High corn prices are affecting daily profits and investor confidence in corn-based ethanol, Slunecka said. He blames speculators for the rise in corn and other commodity prices, as well as for the huge jump in crude oil prices, all of which are being driven up beyond the actual market demand.

Corn futures on the Chicago Board of Trade hit an all-time high of $7.91 per bushel in June. Corn prices have surged more than 80 percent in the past year amid global demand for it by food manufacturers, livestock producers and corn-based ethanol plants.

The three corn-based ethanol plants that VeraSun delayed are capable of producing 110 million gallons of ethanol annually. The much smaller Upton plant uses wood chips and other forest waste products, not corn, to create 1.5 million gallons of cellulosic ethanol each year.

Slunecka said it is important to grow the cellulosic ethanol industry because it will be insulated from the effects of speculative commodities trading.

"As an engineering company working in second generation cellulosic ethanol, we have many, many more opportunities because we are not impacted by commodity traders for our feed stocks," he said.

Thirteen companies have announced plans to bring cellulosic ethanol plants on line, but to date, only KL Design Process has an operating plant in the U.S.

Currently, the Upton plant, which is a commercial/demonstration facility that employs 12 people, is going through a series of upgrades and continues to "perfect the technology and science" of cellulosic ethanol, Slunecka said. KL plans to bring a second cellulosic plant on line within 12 months but declined to say where it would be built.

The 2007 energy bill passed by Congress in December includes a renewable fuel standard that requires 36 billion gallons of ethanol be part of the nation's fuel supply by 2020.

A last-minute change to the energy bill prevented biomass from public lands and federal forests from being used as part of that renewable-fuels standard mandate, but KL hopes Congress will revisit that issue.

The energy bill is especially favorable to cellulosic ethanol, in terms of research dollars, plant-development funds and subsidies to suppliers of cellulosic feed stocks, Slunecka said. He is confident those subsidies will pay off for the American consumer and taxpayer.

"There's enough biomass in the country to fuel most of our energy needs. Cellulosic ethanol is one more alternative fuel that we must invest in," he said.

The Associated Press contributed to this story.

Contact Mary Garrigan at 394-8427 or mary.garrigan@rapidcityjournal.com