Sunoco made its initial bid just weeks after Valero Energy Corp., the nation's largest independent oil refiner, became an ethanol plant owner the same way.
"You are going to see [image-nocss] this become a trend...especially with the government wanting to go green," Daniel Flynn, who follows the renewable fuels industry for Chicago-based Alaron Trading, told AP. "There are a lot of these ethanol plants hanging by a hair. This could be the perfect time for the big companies to step in."
With Sunoco's acquisition this week, major oil refiners now control as much as 7% of the total industry capacity.
In April, San Antonio-based Valero bought seven large ethanol plants in the Midwest from bankrupt VeraSun Energy Corp., the nation's second-largest producer of ethanol, for $477 million. Sunoco snapped up the $200 million Northeast Biofuels plant in upstate New York for $8.5 million.
Over the past couple of years, Marathon Oil Corp. has acquired large stakes in ethanol plants in Illinois and Ohio, each with more than100 million gallons in annual capacity.
Philadelphia-based Sunoco will spend as much as $20 million to refurbish the plant and get it to its full 100-million-gallon-a-year production capacity by early next year.
Sunoco blends about 460 million gallons of ethanol with gasoline each year. The Fulton plant will supply nearly 25% of the ethanol Sunoco needs to meet renewable-fuels standards, said spokesman Thomas Golembeski.
The plant is close to Sunoco's main operations in the Northeast where many of its 4,700 gas stations are concentrated, but the shift in U.S. energy policy was a big motivator. "We also view this as a first step into an area of possible growth for the company," spokesperson Thomas Golembeski told AP.
The ethanol industry has been shaken by the financial crisis, said the report. Credit has frozen over and producers were wholloped by wild swings in the corn futures market, the feedstock for fuel. Ethanol prices have plunged. At a biofuels conference last week in Colorado, there were workshops for distressed businesses.
There are about 200 ethanol plants in the United States, according to the Renewable Fuels Association, a Washington, D.C.-based industry trade group. Between 170 and 175 of those plants are currently producing about 10.5 billion gallons of ethanol a year, Matt Hartwig, an RFA spokesperson, told the news agency.
About two-dozen other plants with an additional combined capacity of 2 billion gallons a year are currently idle, about half of them in bankruptcy, Hartwig added.
That is where big oil refiners, with much bigger revenues, come in. The entry of traditional oil companies is part of a natural industry evolution, Hartwig said. "You will continue to see the more familiar, farmer-owned model...but the industry is big enough, diverse enough for different business models and ownership structures."
Despite the ethanol industry's growing problems, demand for the fuel will increase. The U.S. Environmental Protection Agency's (EPA) proposed renewable-fuels standards call for a jump in ethanol production from nine billion gallons last year to 36 billion gallons by 2022. Under those standards, 15 billion gallons must be corn-based and the other 21 billion gallons from other biofuel sources such as willows or sugar cane.
That provision will effectively freeze the number of corn-ethanol plants that can be built and then used to apply toward the federal blending standard, Sander Cohan, an alternative motor fuels analyst with Energy Security Analysis Inc., Boston, told AP. Plants already built like Northeast Biofuels are grandfathered into the standard, he said. "Basically, they get a share of what is now a limited market, and as ethanol demand increases, these plants will get more valuable," he added.
Rick Kment of DTN in Omaha, Neb., said most oil companies were not interested in building their own ethanol production plants because of the financial risk. "I don't think they intentionally decided to sit back and then pick off troubled plants as they became available. It was a situation where the market changed, and since it changed it gave them an opportunity they didn't have before," Kment told AP. "But now that they are available at discount, it can be profitable."
But don't be surprised if the top U.S. oil companiesExxon Mobil Corp., Chevron Corp. and ConocoPhillipsdon't make the leap, Kment said. "For them, a 50 million gallon, or even a 100-million gallon plant would only produce a drop in the bucket of their total needs."
Click herefor previous CSP Daily News ethanol coverage.
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