Web exclusive posted March 3, 2008 at 10:55 a.m. CST

While on line ethanol capacity increased during the last quarter of 2007, the industry experienced declines in both capacity under construction and proposed, according to Soyatech's latest quarterly Biofuels Index. The findings support information reported in earlier issues of the Biofuels Index, which suggested a leveling off of corn-based ethanol build-out.

The report said total ethanol on line capacity increased approximately 407 MMgy, representing a growth of nearly 6 percent. However, ethanol capacity under construction decreased by 344 MMgy, a decline of 5.4 percent. Proposed ethanol capacity contracted by 577 MMgy, or 3.5 percent.

"We are circumspect about the numbers for total planned capacity, as it is very easy to announce plans," said Jacob Golbitz, director of research for Soyatech and its parent company HighQuest Partners. "Additionally, some groups that have suspended or cancelled their plans have not made those decisions public. As a result, we believe that there is ‘phantom capacity' reflected in these numbers. To get a better handle on this situation, in the fourth quarter of 2007, we began tracking planned facilities that had exhibited no signs of life over the past four quarters and began labeling that cumulative planned capacity as ‘unconfirmed.'"

According to the report, total on line biodiesel capacity increased approximately 202 MMgy, representing an 11 percent growth. Biodiesel capacity under construction over the period grew by 239 MMgy, or 17.5 percent, while proposed biodiesel capacity, contrary to ethanol, increased by 210 MMgy, or 9.7 percent. Approximately 173 MMgy of proposed biodiesel capacity was cancelled in the fourth quarter of 2007, which was offset by the 306 MMgy in new proposed capacity announced during the same quarter.

"As with ethanol, we are looking at phantom capacity in biodiesel and have determined that approximately 313 MMgy falls in our ‘unconfirmed' category," Golbitz said.

According to the Biofuels Index report, inadequate infrastructure for the distribution of ethanol—commonly referred to as the "blend wall" —continues to keep ethanol prices below gasoline prices, which may benefit the industry over the long term by giving petroleum companies an economic incentive to blend with ethanol. This would result in lowering the blend wall as more infrastructure is developed to get ethanol to the market. However, this positive development could be offset by high corn prices, which place financial pressure on ethanol producers and give added support to consolidation now taking place in the industry.