Ethanol's flight path hit some turbulence in 2007. Production and consumption continued to grow, but rising corn prices and lower ethanol prices tightened producers' bottom lines. But when the going gets tough, the tough take a good hard look at their operations to see where an extra few cents a gallon can be squeezed out. EPM spoke with an assortment of producers about the state of production technology in the industry and how their companies are coping with challenging economics.

The Andersons
Neal McKinstray is the general manager of the ethanol division of The Andersons Inc. a diversified company with interests in the grain, ethanol and plant nutrient sectors of U.S. agriculture, as well as in railcar leasing and repair, turf products production, and general merchandise retailing. The Andersons operate ethanol plants in Albion, Mich., and Clymers, Ind. The company is building another plant that will come on line in the first quarter of 2008. McKinstray says that for The Andersons, efficiency is a combination of throughput, total conversion rate and energy consumption. "Those are the three key areas we focus on in terms of improvements," he says. "We are doing little bits of lots of things in all three of those areas to marginally improve. I'll be honest with you, I haven't invented a new mousetrap here. A lot of our work is focused on doing the right things in the right way and making marginal improvements in lots of different areas."

When looking at new technologies of interest around the industry, McKinstray's first thoughts were of processes that would allow diversification of the company's production and adding higher value product lines. "We are seeking to understand as much as we can about the operational capital and functional possibilities of a number of technological innovations," he says. "Oil extraction and prefractionation, for example, are a couple that immediately come to mind."

Next year will likely be one of incremental progress for The Andersons and the industry when it comes to process technology. "We are looking to take another step into the next level of technology," McKinstray says. "You can't do everything out there and you can't just make wholesale changes. You have to do it in a systematic and logical way. But in terms of a breakthrough technology that will be coming out in 2008, I guess I don't have an answer for you."

For The Andersons, the opportunities for efficiency gains are likely to be on the business side of the operation, managing feedstock costs and price risks. "We think that has the potential and in fact has already yielded significant bottom-line value," McKinstray says. "It's not operational and it's not technology but for us that is a key area of focus."

The Andersons have been a casual observer of developments in cellulosic technology, McKinstray says. "We have tried to stay abreast of developments but we are not a primary in research and would likely not be primary in research for cellulosic ethanol production," he says. "We're candidly skeptical. In our focus areas in the Midwest where corn is abundant and economical and highly profitable, we think the production of fuel ethanol will continue to be based on corn."

Looking ahead to 2008, McKinstray says it will be a lean time for the industry but in the long run it will strengthen his company. "For most ethanol producers 2007 was a very good year," he says. "We had some key learning experiences. Obviously for us it was a tremendous year because we started up another plant. 2008 is going to be more challenging because as more plants have come on, we have hit the blend wall. The easy lay-ups in margin generation and profitability are gone. How long that will last we don't know. We think we are positioned and prepared for it. But I think we can just assume that the markets are going to be much more volatile and the lay-up profits that many plants enjoyed through 2007 are going to be tougher to come by."

Prairie Horizon Agri-Energy
Prairie Horizon Agri-Energy LLC (PHAE) was founded in November 2003 and is headquartered in Phillipsburg, Kan. The company operates a 40 MMgy plant in Phillipsburg which came on line in July 2006. The plant is configured to use both corn and milo (sorghum) as feedstocks, says Mike Erhart, chief executive officer and general manager. He says efficiency is all about cents per gallon for his plant. "In other words, what does it cost per gallon to produce ethanol," he explains. "We've taken a lot of time and been very serious about understanding our plant, the process and putting models together to evaluate each process and what it costs to do those processes in the plant."

Making economic models of all the processes within the plant is the focus of PHAE's goal to make its plant as efficient as possible. Changes are modeled to discover not only how they would affect that part of the process, but how they would affect the overall efficiency of the plant. "It's really an understanding of all the aspects of the process," Erhart says. "We've done a complete evaluation of how our plant operates." Erhart lists chemical utilization, risk management and energy efficiency as areas where efficiencies can be improved.

"The big buzz is cellulose, but there is also prefractionation, enzymes and enzyme utilization, and energy efficiency," he says. "As far as what we are doing today, I just don't see anything really in 2007 that says ‘grab me.' The future I believe is cellulose and prefractionation and how that's going to look at the end of the day." PHAE is keeping an eye on developments in cellulosic ethanol. Erhart thinks whatever process proves successful will be an important development for the ethanol industry. However, the state of the art is far from commercialization at this point, in his opinion. "I see further development [of cellulosic ethanol] ahead but I don't see hard-core implementation of that on a huge scale," he says. "I don't think the technology is quite there yet."

In 2008, Erhart plans to chart a course that will guide PHAE through the rough waters ahead for the ethanol industry. "What I plan is simply ‘steady as she goes,' he says. "We're not going to have the margins to really go outside the box too far and try new things." Erhart thinks the long-term future of the ethanol industry is bright for those who can sit tight and get through this rough patch. "I'm 51 and don't intend to retire for another 20 or 25 years," he says. "I think [the ethanol industry] will see me through to that retirement. But I think 2008 will be a very tough year for ethanol. I think there will be tight margins and people will need to ask a lot of questions. What are the oil companies doing with $87 a barrel crude oil? What is the government doing when we as ethanol plants have answered the call to produce all these gallons of ethanol and reach their mandated quota? People need to ask all the right questions to the right people and understand the benefits of ethanol and what the industry is doing for them."

White Energy
White Energy Inc. operates a 45 MMgy ethanol plant collocated with a wheat gluten plant in Russell, Kan. The plant uses corn, milo and wheat starch from the gluten plant as feedstocks. White Energy is building two 110 MMgy plants in Hereford and Plainview, Texas. Kevin Kuykendall, White Energy's chief executive officer, says the company defines efficiency in several ways. "One is our true operating costs," he says. "What can we or have we done to mitigate [the cost] of the commodities? That would include the acquisition of corn and hedging programs and strategies. Then there is keeping our operating costs down for things like chemicals and all the other things. We have done a lot of work internally on our systems to maximize our yields."

White Energy's facility—which also provides a quarter of the wheat gluten for the baking industry in the United States—gives the company flexibility in managing its feedstocks. "We do some things differently," Kuykendall says. We have a wheat gluten facility where we can take the starch stream and feed it directly into our ethanol plant. That reduces our overall grain consumption at the ethanol plant."

The company also emphasizes efficiency. White energy has put a lot of money as well as time and effort into reducing overall costs at the plant, Kuykendall says. "We do everything we can to minimize our input costs and maximize our throughput," he says. "We have also done a lot of things with our vendors, enzyme producers and others, to get volume discounts. Then there is just overall efficiency of our plants. We've spent hard capital dollars on a water reclamation system that has reduced our water consumption by more than 25 percent over the past four months."

Even small improvements in overall efficiency can be important when margins tighten. In 2008, Kuykendall will focus on further improving the efficiency at the Russell plant in a variety of ways. "There are always things we could improve," he says. "We could do a better job on which markets we actually serve with our ethanol. From a distribution standpoint we could be reducing our transportation costs. We could be doing a better job in our plants on improving overall efficiency. We're implementing new technology that I think will probably reduce our operating costs in '08 by 3 [percent] to 5 percent. It's a technology that will allow us to automate and monitor more of our systems and the process itself. We're trying to squeeze pennies out of nickels here."

Kuykendall keeps close tabs on new developments in the ethanol industry and how they could help White Energy. The company is also actively developing new systems of its own that will help it hold down costs and add value to its production. "There are a few new technologies out there that I think will take off and be implemented on a pretty big scale," he says. "There are others that are close. We are developing things that will enable us to do different things with our distillers grains that will give us higher value products and diversify our products. There are several technologies that will enable us to reduce our operating costs in the coming years and there are several technologies in development that will do the same or add value to what I would call ‘off-the-shelf' products."

White Energy is devoting a good bit of money for capital projects in 2008, Kuykendall says. Part of that budget will be used to install the water reclamation system, which has proved itself in Russell, in the company's Hereford and Plainview plants, once they are operational. The two new plants will also have the new automation and monitoring equipment installed as well. "'08 for us will really be more of a focus on operating our facilities with a very, very low cost mentality by using technology," he says. Kuykendall sees ethanol prices starting to come back in the second or third quarter of 2008 as another corn harvest approaches. He also thinks bottlenecks in the distribution system for ethanol will work themselves out. "It will be a challenging year both for grain and ethanol," Kuykendall says. "But our belief here is that overall there is an economic incentive for the blenders to blend. We believe part of the bottleneck today is the capacity of the blenders themselves. So as blenders add capacity and come on line there will be more demand. Supply will continue to be bountiful for the next 18 to 24 months, but we think blending capacity will come on line sooner rather than later in a lot of the larger markets." That being said, Kuykendall is optimistic for the industry. "We're bullish. We think '09 and '10 are going to be good years. And we don't think that '08 is going to be quite the disaster people think it is. It will be tough on the smaller, less financed organizations. We're in pretty good shape. We are happy with our business plan."

Big River Resources
Jim Leiting, general manager of Big River Resources LLC in West Burlington, Iowa, tells EPM how his plant is surviving today's hard economic times—and a large expansion project scheduled to wrap-up in late December is pivotal to its strategy. "We're expanding to capitalize on synergies, to get more production out of our existing assets like our grain receiving, or our employees," Leiting says. The plant is boosting production capacity from 52 MMgy to 92 MMgy. While the ebb and flow of market economics has ebbed more than flowed for ethanol producers recently—project delays and cancellations have been on the rise and investor money has waned considerably as profit margins narrow—Big River Resources plans on a margin revival fueled by more gallons.

Of course not all projects hold such an optimistic view of the future. "There are projects that were not as far along as ours, which have since been delayed," he says. "But many of those haven't even completed phase one." He expects delays to continue as projects and investors try to get a better view of the ethanol industry and its expansion. "With our plant expansion, we'll be reducing the per-unit cost of production"—the heart of efficiency at an ethanol plant. "It's a combination of different factors. We look at the total cost per unit produced of course, but we also have to look at what's happening with the coproduct. If producers only look at ethanol they could miss some returns on the coproduct side of things, and a higher quality coproduct means higher coproduct returns."

While Big River Resources' expansion has been underway all of this year, the plant upgraded and automated in 2006. "We put computerized controls on our distillation and drying systems, and on our thermal oxidizer and molecular sieves, to help manage energy consumption there," Leiting says—a smart choice considering those are the areas demanding the most energy.

As the added capacity comes on line, Leiting says his team will continue optimizing efficiencies, specifically in the area of enzymes and specialty chemicals utilization. "I wouldn't call it trial and error," he says, referring to optimizing the process during commissioning of the new production line. "We'll have a good start point and then we'll go in and fine tune it." He says other plants, much like his, will continue searching for ways to reduce energy costs and natural gas consumption, and will increasingly rely on automation to help achieve higher degrees of production efficiency. Diversifying product streams is always helpful in tight economic times. "There's a lot of interest in extracting a portion of the oil from the back end of the process, so I expect to see a fair amount of plants looking into this in 2008," he says.

Looking ahead, Leiting says cellulose advancements will come with the start up of pilot and demonstration facilities, such as Verenium Corp.'s plant in Jennings, La. "We'll see pilot plants built and come on line and the industry will digest and learn from those," he says. For the largely corn-based U.S. ethanol industry, Leiting says dry fractionation will continue to intrigue producers looking at value-added production methods to improve returns.

LifeLine Foods and Ethanex Energy
Dry fractionation has been talked about for years in the ethanol industry but producers have not been persuaded to adopt the capital-intense upgrades in large part because dry-milling economics have not demanded change. On Aug. 24 in St. Joseph, Mo., LifeLine Foods, 49 percent of which is owned by technology provider ICM Inc., held a ribbon-cutting ceremony to celebrate the onset of its 40 MMgy ICM-designed ethanol plant collocated with a food processing complex using dry fractionation. The purer starch stream goes to food production and the remnants are used to make fuel ethanol. The St. Joseph plant is an exercise in synergy and novelty, but another company is planning to implement stand-alone dry fractionation technology for its three projects and eventually plans to capitalize on producers' desires to retrofit if economic conditions of late 2007 persist.

Earlier this year, Ethanex Energy Inc. partnered with Buhler AG, a Swiss milling company providing Ethanex its dry fractionation expertise and equipment. "These are tough economic times," says Ethanex Chief Executive Officer Al Knapp. "Energy is a major input cost. By fractionating corn into its three components there are several advantages, one of which is foregoing the drying of two of those components. We're opting to take the fractionated coproducts (bran and germ cake) for use as biomass boiler fuel thereby eliminating natural gas." All three Ethanex projects—one in Waltenville, Ill., another in northern Illinois, and a third in northeast Kansas—are designed to produce 132 MMgy of ethanol.



In Illinois, both projects have been permitted and Ethanex anticipates breaking ground yet in 2007. Delta-T Corp. is the technology provider for the Waltenville project. Alan Belcher, Ethanex executive vice president of technology, says dry fractionation will become more prevalent in the U.S. ethanol industry over the next five years. "This whole industry of dry fractionation for ethanol production is unproven," says Brian Williams, marketing manager with Buhler. "As we talk with ethanol producers they tell us they need a different approach." While some starch loss occurs as a result of dry fractionation—2 percent to 4 percent according to Belcher—the benefits outweigh that particular drawback. "Traditional dry-mill plants don't see any starch loss," Belcher says. "But we're trading some starch loss for energy savings, additional capacity and new coproduct streams." Even though Ethanex's three projects are greenfield sites, Williams says retrofitting existing ethanol plants with the Ethanex/Buhler design would "be a better fit"—especially for plants looking to expand production capacity. "There are process efficiencies so if you're looking at expanding from 40 MMgy to 80 MMgy, our design could have you producing more than 100 MMgy without spending what would be needed in a dry mill to get double the capacity," Williams says. "This is because of the pumping and drying efficiencies. A 40 MMgy plant with two dryers, for instance, would only need one more dryer at 80 MMgy."

Buhler is not only looking at processing corn but is also "investigating the cellulose side of the equation," Williams tells EPM. "In 10 years, we'll be more into the cellulose industry, making ethanol from corn bran—bran is a good feedstock. It's always there as a coproduct. It's clean because there are no contaminants from the field." Buhler is also working with Crown Iron Works Co. looking at biodiesel production from corn oil—another way to diversify product streams and enhance the bottom line.

U.S. BioEnergy
In August, U.S. BioEnergy Corp. planned to implement what it has trademarked, U.S. Bio Process Technology, at four of its plants in Albert City and Dyersville, Iowa, Hankinson, N.D., and Janesville, Minn. "We took our intellectual property, our training systems, our way of operating, and our debottlenecking principles and applied those to our 100 MMgy plants," Gordon Ommen told EPM this summer. "We think we're a little different. Some people, when they run the plant harder, lose efficiencies so they trade off running harder for conversion ratios. But we're able to run them hard and keep our conversion ratios good—a lot of volume and efficiency at the same time." Company officials weren't eager to divulge any specifics though. "We're not trying to be cute, but we've invested time in figuring out how to run our plants well, train our people—and we're kind of protective of our way of doing things." Second-quarter conversion ratios were 2.86 gallons per bushel. "That's one of the highest in the industry," Ommen says. Three of the four plants at which the company will utilize its trademarked in-house process technology are still under construction. All three U.S. BioEnergy plants currently under construction are scheduled for completion in 2008.

Alchem Ethanol
The case of Alchem Ethanol LLP in Grafton, N.D.—one of the nation's first commercial ethanol plants built in the 1980s—is poignant testament to the adversities ethanol producers and plant workers endure as a result of unfavorable market conditions. Earlier this year, EPM spoke with Alchem owner Harold Newman and plant operations manager Rich Johnson. When EPM posed the question of what the future holds for Alchem to Newman his response was, "The future looks good. We'll continue operating in an efficient manner. Virtually all of our equipment is new and we have extremely efficient employees." The plant shut its doors a few months after those hopeful conversations, citing high corn and low ethanol prices as the reason.

Over the years, Alchem was able to keep production costs under control and increase process efficiencies by using the least amount of enzymes possible, switching to better performing enzymes, longer fermentation times and gaining a better understanding of the plant itself. In the past 10 years, Alchem's beer concentrations went from 13.5 percent to 17.5 percent, according to Johnson. For Alchem's heat and steam needs the decision was made to swap natural gas for coal in 2005, according to Johnson. "We just haven't been able to get the heat we need out of it," he told EPM. This summer Johnson said if he could figure out how to get more heat out of the fluidized bed coal-fired boiler, Alchem would stick with coal—intimating the plant may switch back to natural gas. Johnson also explained that the reason Alchem was only producing 80 percent of its 10.5 MMgy capacity was the low-heat value from its coal-powered energy system. At the time, Johnson also said, "The future here looks good. The plant has been paid for several times over now. It's a nice place to work." Before the shutdown EPM asked Johnson if the plant executives had any concern over its competition—extremely large, efficient, modern plants. "There's always a little concern over that. We are talking about expanding, but right now it's just that—talk. But the talk is going to 18 MMgy." The plant anticipates reopening in 2008, but this remains to be seen.

Ron Kotrba is an Ethanol Producer Magazine senior staff writer. Jerry W. Kram is an Ethanol Producer Magazine staff writer. Reach them at rkotrba@bbibiofuels.com and jkram@bbibiofuels.com or (701) 746-8385.