Aventine delays finish of Aurora West ethanol plant

If there's a bright spot to the financial difficulties on Wall Street, it's that gas prices have fallen 25 percent since record highs were recorded last summer.

In Grand Island Tuesday, gas prices for E10 fell below $3 per gallon, with regular gas prices about 10 cents higher. On July 16 of this year, regular gas prices hit a record high of $4.10 per gallon.

But while consumers are enjoying lower gas prices, the economic turmoil is slowing down ethanol plant construction in Nebraska, according to Todd Sneller, administrator for the Nebraska Ethanol Board.

On Tuesday, Aventine Renewable Energy announced it was extending the construction time of its Aurora West 113-million-gallon ethanol facility.

The move, according to Aventine officials, should allow Aventine's other ethanol facility currently under construction in Mount Vernon, Ind., to begin producing ethanol and operating cash flow before the Aurora West facility begins production.

Aventine Renewable Energy -- Aurora West, LLC is currently constructing the 113-million-gallon ethanol facility in Aurora. The facility's start-up, which was expected to occur in the first quarter of 2009, is now scheduled for the second quarter of next year.

According to Daniel Trunfio, chief operating officer of Aventine, the change should help the company stretch its liquidity in this "unprecedented time of capital market instability."

"We remain fully committed to producing ethanol at both the Aurora West and Mount Vernon expansion projects," Trunfio said.

According to George Hohwieler, president/CEO of the Aurora Cooperative, Aventine and Kiewit's decision to schedule the Aurora West, LLC ethanol production facility start-up for the second quarter of 2009 holds to the original agreement of the project crafted by the Aurora Cooperative and Aventine in the spring of 2006.

"The Aurora West project has a number of contingencies built within the multi-plex," Hohwieler said. 

He said one important feature is the Aurora Cooperative grain terminal and its ability to load and unload BNSF shuttle-trains. 

"We can stage two 110-car unit trains and load the trains back-to-back," Hohwieler said.

"As Aventine/Kiewit completes the construction phase of Aurora West, LLC, the Aurora Cooperative is in an outstanding position to direct grain shipments to national and international destinations via our BNSF shuttle-train loading facility." 

He said that at a time of capital market instability, Aventine has "displayed market responsibility and proactiveness." 

"The Aurora Cooperative appreciates their efforts and looks forward to supplying grain and marketing co-products at the Aurora West, LLC ethanol site beginning in the summer of 2009," Hohwieler said.

Sneller said the announcement of the Aurora West construction delay "reflects that the capital markets are pretty tight and so there's a lot more discipline in terms of not having to rush construction schedules."

"There is a very methodical, orderly pace that reflects the changes we are seeing in the marketplace," he said.

Sneller said that when many of the ethanol plants were built, the companies took a look at financial performance that anticipated a number of different scenarios.

"Many of those scenarios anticipated historically high corn and gasoline prices and therefore ethanol prices," Sneller said.

But gas and corn prices, which were earlier anticipated to continue their skyrocket advance, have now fallen dramatically in the past three months.

Sneller said one of the consequences of the drop in gasoline prices is a decline in ethanol prices.

"While that is good for consumers, it also raises some additional challenges for the ethanol industry," Sneller said.

Coming along with the fall in ethanol prices is a decline in corn prices, which have fallen nearly $3 per bushel since reaching record highs early in the summer.

Corn prices are now under $4 per bushel.

Sneller said as long as the relationship between the cost of gas and corn is maintained, "ethanol producers can continue to operate on at least a break-even margin and many of them are still making small profit margins -- not nearly what they were a year ago, but still able to operate the plants."

Since ethanol is a bargain, Sneller said he expects its market share to grow.

"While we will see a reduction in total motor fuel use, I think the percentage drop for ethanol will be a smaller drop than for gasoline because ethanol is a better bargain and a better blending component at the prices it's currently available," he said.

But, because of the nation's financial troubles, Sneller said they are now seeing significant reductions in projections they made a year ago for 2009 ethanol production.

"We have seen that drop by several hundred million gallons in terms of projects that have been abandoned or delayed," he said.

The economic turmoil is having a "profound effect" on proposed ethanol plants in Wahoo, Carleton, and Sutton that have either shut down construction or abandoned plans for plants.

On a national level, Sneller said because of the current financial problems, there could be some mergers or a selloff of ethanol companies across the country and in Nebraska.