January 19, 2009

 

The US ethanol industry is using less corn to make less fuel than expected, but that's likely a temporary situation and won't hinder the development of second-generation cellulosic ethanol made from products like wood chips, US Department of Agriculture Secretary Ed Schafer told Dow Jones Newswires.

 

"I don't think it's a problem," Schafer said in an interview this week about signs that there is dwindling demand for corn by ethanol producers. "It's disappointing."

 

Government forecasts that were predicting a smooth production climb of 9 billion gallons of corn-based ethanol in 2008 to 11 billion gallons in 2009 are now not so clear, Schafer said.

 

The US ethanol industry has been plagued recently with bankruptcies and production halts from companies that suffered from sharply fluctuating corn and gasoline prices in 2008. The USDA has lowered its 2008-09 marketing year forecast for corn usage by the ethanol industry for two consecutive months, from a 4-billion-bushel prediction in November to 3.6 billion bushels in January.

 

Schafer primarily blamed low oil and gasoline prices and fluctuating corn prices for dragging ethanol production down but said that situation will likely turn around soon. And, regardless, there is enough excitement and financial backing for cellulosic - or second-generation - ethanol to make sure the industry thrives, he said.

 

"It certainly doesn't stop our progress towards the second generation of cellulosic ethanol, or biofuel," Schafer said.

 

One tool the USDA is already using to spur cellulosic ethanol production is its ability to issue loan guarantees, the first of which is scheduled to be issued by Friday to help fund the construction of a commercial plant in Soperton, Ga., that will make ethanol out of wood chips, grasses and corn stover.

 

Schafer predicted it will only be a matter of about 15 months before the plant is at least partially operational with the initial capacity to pump out 10 million gallons of cellulosic ethanol per year.

 

But that's just the beginning, Schafer said. The government will be helping companies build the plants and, once they are built, they will produce cheaper fuel than traditional corn-based ethanol.

 

"The capitalization for a cellulosic ethanol plant is higher - it cost more to build than it does a corn ... facility - but it's a lower cost per gallon," Schafer said. "Second generation is better because it's a lower cost of production per gallon than corn-based ethanol."

 

Unlike corn-based ethanol, cellulosic ethanol is often made from entirely refuse material. The first commercial cellulosic ethanol plant will primarily be using wood waste products, but there are also pilot projects producing fuel from orange peels, corn cobs and other material usually discarded.

 

"We use about 150 billion gallons of gasoline in the US annually," Schafer said. "Looking at fuel made from wood chips, for instance, there is enough waste wood from furniture, lumber, brush clearing, fallen trees ... to produce 140 billion gallons a year. So you could almost meet all your needs with just wood waste."