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Published February 17, 2009, 12:00 AM

Ethanol industry feeling economic squeeze

An ethanol industry leader from Aberdeen says about 20 percent of the industry has shifted to low gear. Bill Paulsen is board chairman of South Dakota Ethanol Producers Association and a vice president for Advanced Bioenergy, which owns the Heartland Grain Fuels ethanol plant in Aberdeen.

ABERDEEN, S.D. (AP) — An ethanol industry leader from Aberdeen says about 20 percent of the industry has shifted to low gear.

Bill Paulsen is board chairman of South Dakota Ethanol Producers Association and a vice president for Advanced Bioenergy, which owns the Heartland Grain Fuels ethanol plant in Aberdeen.

Everyone in the ethanol industry is feeling the economic squeeze, he said.

According to Paulsen, South Dakota ethanol facilities that can make a total of 250 million gallons of ethanol a year are standing idle. According to the South Dakota Corn Growers Web site, the total capacity of existing ethanol plants in the state is more than 1 billion gallons a year.

Others, such as the Poet biorefinery plant near Groton, are running at full capacity, said its manager, Kelly Kjelden. Still, “Poet Biorefinery facilities — and Groton is no exception — are positioned for tougher times,” he said.

Heartland Grain Fuels in Aberdeen and Huron also report operating at full capacity.

Across the nation, plants with a total capacity of 2.2 billion gallons a year are idle, Paulsen said. There’s 9 billion gallons of actual annual production in the U.S.

The idle capacity does not include plants operating at less than 100 percent, which account for another 700 million to 800 million gallons that could be produced in the U.S. but aren’t, Paulsen said. And it doesn’t include the capacity of ethanol plants partially built.

“A lot of construction has stopped,” Paulsen said.

One reason for the slowdown is that motorists started driving fewer miles when gasoline hit the $4 a gallon range last year, he said. Now that gas is around $2 a gallon, statistics show people are driving more, he said.

“Things might be turning around. We have seen some pickup.”

Consumers tend to buy the least expensive gas no matter what the prices for premium, regular and the 10-percent ethanol blend. The ethanol blend usually costs less because of subsidies to ethanol.

When the ethanol blend and regular gas are priced the same, drivers tend to grab the pump they’re accustomed to grabbing, so ethanol blend sales didn’t suffer, Paulsen said.

Many plants needed and bought corn when it was selling for about $7 a bushel. That still allowed a profit when gas was selling for around $4, Paulsen said. But when gas prices — and the price of ethanol — dropped, many plants still were using the $7 corn to make ethanol, he said.

“That put a tight squeeze on profit margins.”

He said the ethanol industry is working on ways to increase demand.

Paulsen said one approach is to make various percentages of ethanol blends available at the same pump, such as 20 percent and 30 percent. A bill in the 2009 South Dakota Legislature would revise tax laws to make it more attractive to gas station owners to install such pumps, called flex pumps, he said.

Increasing the availability of higher percentage blends would help stimulate the economy and the ethanol industry, said Poet’s Kjelden.

“It’s a step we can take right now to boost the American economy, create U.S. jobs and increase our independence from foreign oil,” he said.

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On the Net: http://www.sdcorn.org/ethanol/documents/EthanolMap.7.08—000.pdf

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