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MIKKEL PATES COLUMN: How to avoid an ethanol wreck

FARGO, N.D. - In an era when cookie-cutter logic seems to be the order of the day, there's a guy named Orrie Swayze of Wilmot, S.D., who keeps looking ahead and shaking up thinking in the ethanol industry. A radical crusader for ethanol for sever...

FARGO, N.D. - In an era when cookie-cutter logic seems to

be the order of the day, there's a guy named Orrie Swayze of Wilmot, S.D., who keeps looking ahead and shaking up thinking in the ethanol industry.

A radical crusader for ethanol for several years, Swayze is a former chairman of the South Dakota Corn Utilization Council and works through the South Dakota Farmers Union and the state veteran's groups to push for ethanol use as a way to add value to farmers' corn while promoting U.S. energy independence.

In the past year, Swayze has been a proponent of the so-called "blender" pumps that allow motorists to make their own blend levels of ethanol in their fuel. Consumers simply aren't choosing the 85 percent ethanol blend because it costs more than unleaded gasoline and doesn't deliver the fuel efficiency or "range" - distance of travel between fills.

Swayze cites Keith Collins, the U.S. Department of Agriculture's chief economist, who recently noted that ethanol plants currently under construction will top 8 billion gallons of production by 2008. A "conservative estimate" is that there'll be 10 billion gallons by 2010 and that others are predicting 12 billion.

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"Is anybody awake?" Swayze asks his industry cohorts. "At 15 billion gallons, the E10 markets are totally saturated. For practical purposes, they are saturated three years from now at 12 billion gallons. What is the plan?"

Swayze thinks groups such as the American Coalition for Ethanol, the National Corn Growers Association and Renewable Fuels Association need to plan now to avoid a "potential train wreck" in the ethanol industry.

Swayze says the groups are too reliant on a strategy of continuing to expand the nation's Renewable Fuel Standard to - in effect - force ethanol use. "There is something diabolical about using the government to mandate that consumers use the two least cost-efficient blends of ethanol - E10 and E85. Are we so inept we need a government RFS to market ethanol for us?"

The answer, Swayze says, is the blender pumps.

Swayze says that using E40 (a 40 percent effective ethanol blend, achieved by mixing 30 percent E85 with 70 percent E10) is showing similar fuel efficiency to regular unleaded. E85 doesn't. A small group of farmers started using the intermediate blends a few years ago, and local Cenex boards and manages in Britton, S.D., and Watertown, S.D., installed "blender" pumps to sell it until Cenex clamped down.

In Swayze's mind, the blends are best.

"So why do we make our best friend - the ethanol consumer - buy straight E85?" Swayze says. "Truth is, we can't. That's why E85 must be sold for 40 cents a gallon less or consumers won't buy it. Good for them. They are smarter than we give them credit for and obviously much smarter than the ethanol industry. We cannot and should not expect a minority of consumers owning E85 autos to pay a premium to use E85. We cannot expect autos to make higher-compression engines designed for E85 when there are no E85 pumps."

Not everybody is on the same page. Philip Lampert, executive director of the National Ethanol Vehicle Coalition in Jefferson City, Mo., responded to Swayze that the industry might work on encouraging more flex-fuel vehicle production. "Sure, we could just mandate production of FFVs, but with the financial condition of GM, Ford and DCX, are we really interested in adding costs to their current losses?"

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Second, if we want to use anything above E10 in a non-FFV, it is the motorist's problem because of federal laws that permit only E10 and E85, Lampert says. "Sure, consumers can make a choice, but if we start encouraging something that violates federal law (as it does today), it might require 'Director's and Officer's insurance' for the boards of groups that encourage it. Do we really know what happens to a non-FFV if we use 30 (percent) to 50 percent blends?" Lampert asks.

Good questions. My take is that the real issue is whether manufacturers use the ethanol content to void warranties. I like it that Swayze challenges conventional thinking, though. He says South Dakota Farmers Union ethanol supporters will attend the Cenex annual meeting in Portland, Ore., to reverse its position to say "yes, yes," on blender pumps.

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