No ethanol: What’s holding Ohio back?

SALEM, Ohio – Reports have been buzzing for more than a year – some for three years or more – about proposed Ohio and western Pennsylvania corn ethanol plants.
To date, nothing is up and running. No ground has even been broken, despite big talk in all corners of the state.
So what’s the holdup? What will Ohio have to do to get in on the ethanol boom?
Several economists agree Ohio faces three major roadblocks to building and operating an ethanol production facility: cost to build, corn prices, and shallow livestock feedlots.
At the same time, a handful of advantages makes Ohio prime real estate.
Footing the bill. The biggest driver of plant construction across the nation is subsidies, said Matt Roberts, an extension ag economist from Ohio State.
Compared to western states, many of which offer tax incentives and grant funding to companies who develop plants, Ohio offers virtually no help to encourage building here, Roberts says.
State money or low- or no-interest loans have almost completely built several plants out west.
“Plain and simple, it’s easier to build a factory when you don’t have to pay for it,” Roberts said.
It’s that financing obstacle that has delayed planning of the North West Ethanol Federal support. More federal support for construction and production could be coming with the appointment of Mike Johanns as U.S. secretary of agriculture. Johanns is a past chairman of the Governors’ Ethanol Coalition and a supporter of ethanol production.
His home state of Nebraska is the nation’s third leading producer of ethanol.
For ethanol plants to take shape in Ohio, they’ve got to stand on their own from an economic standpoint, Sporleder said. Until that happens, it’s slow and cautious in Ohio vs. build-them-as-fast-as-you-can farther west.
Already tried it. Ohio once had an ethanol production facility.
In the 1970s and ’80s, South Point Ethanol made its home at a refitted petroleum plant near South Point, Ohio. It was a joint project of the Ohio Farm Bureau and Ashland Oil.
The 15-million gallon plant’s cost of production hovered somewhere near $5 per gallon, but the ethanol sold on the market for only about $1.15 per gallon.
“They didn’t operate there more than a couple years,” Sporleder said. The plant went bankrupt.
Retrofitting old facilities isn’t an option, Sporleder said. It’s expensive and there’s too much cutting-edge technology to try to make it work with anything old.
Cattle feed. Two other factors work against bringing ethanol to Ohio, according to the experts.
Ohio has a higher local corn price and a smaller livestock population.
Seventy percent of the cost of a gallon of ethanol is the price of corn, Sporleder said. On the eastern fringe of the Corn Belt, Ohio’s price and basis are both higher.
That doesn’t mean we can’t do it here, he adds, we’ve just got to make sure the economics of each plant make sense.
One way of boosting efficiency is writing business plans that include ruminant feeding facilities – dairies or beef feedlots.
Livestock are needed to consume distillers grain, a byproduct of ethanol production.
Ohio State Extension educator Jeff Layman cites a Nebraska plant that uses wet distillers grain for feed, cutting out the need for dryers in the plant’s construction.
Layman said it’s not uncommon for a single dryer to cost $1 million.
Natural gas. A plant must be built near a natural gas pipeline, since that’s the principal energy source for production.
However, the price of natural gas has risen significantly in the past three years and OSU’s Roberts said the increase has negatively impacted building plans here.
He calculates for every dollar increase per thousand cubic feet of natural gas, the production cost for a gallon of ethanol goes up 8 cents.
Have advantages. Roberts said the state does have advantages to buoy different groups’ plans to build here.
Location is critical to ethanol production, and the state has a number of suitable building sites.
It’s preferred that a plant be built near railways to ensure constant corn supplies and to give the factories a way to ship ethanol quickly.
Ohioans have built a good transportation infrastructure, including rail, road and waterways, Roberts said.
“It’s even better if it’s near a population center that uses ethanol,” Roberts said.
Population means gas pumps, which translates to a need for ethanol.
The Buckeye State is the country’s third-largest consumer of ethanol and is close to the East Coast, where a significant portion of the country’s population is concentrated.
Ohio State’s Sporleder said roughly 200 million gallons of ethanol are imported into the state every year, making way for five 40-million gallon plants.
“Just those five would be enough to service local demand,” Sporleder said.
Many outputs. According to Layman, there are two ways to make ethanol: wet mill and dry mill.
In Ohio, all but one proposed plant will be dry mill, Layman said. That means the plant grinds the corn, adds water, steeps and converts starch to sugar using enzymes.
That method offers more flexibility as far as byproducts go, including ethanol, carbon dioxide – fizz for pop –