Adkins Energy LLC

Source: Energy Digital

Date :04/08/2007 16:55:00

Adkins Energy LLC is on the leading edge of the move to renewable fuels, but concerns over the impact on corn prices and competition from gasoline refiners poses a challenge to the industry

Written and produced by James Buchanan & Nick Ledue

Anyone discussing the twin concerns of environmental protection and reducing North America’s reliance on foreign fossil fuel sources is also likely to be mentioning ethanol.

Ethanol, a corn-based product, crops up — pardon the pun — in a number of issues that range from reducing air pollution, to lowering the cost of fuel for our cars, to being blamed for the rising cost of groceries at the supermarket.

No matter what the conversation, ethanol is here and it is playing a vital role in the resurrection of many rural economies, as many of the plants processing corn into ethanol are being constructed in America’s grain belt.

One such plant is owned by Adkins Energy LLC, which according to its website, operates a $69 million corn-to-ethanol facility and cogeneration plant that is able to process approximately 15 million bushels of corn annually.

Based in Lena, Ill., the company is the result of a decision by local farmers to create more demand for the corn they grow. Adkins Energy LLC, says its website, was started by the members of the Pearl City Elevator board of directors, which believed a local plant would provide a valuable outlet for locally grown corn.

Pearl City Elevator, Inc. is itself an 87-year-old cooperative that, according to its website, promotes a full line of products and is a full service cooperative selling fuel, propane, feed, chemicals, and fertilizer, as well as its tradition grain services. The cooperative has more than 4,000 members and has grown to report more than $40 million in annual sales.

What came out of the Pearl City Elevator’s board was the creation of the Adkins Energy Cooperative, which includes more than 400 members from 12 counties in northern Illinois and southern Wisconsin.

From these beginnings, the company has developed as a partnership between the Adkins Energy Cooperative and Pearl City Elevator to form the Adkins Energy LLC.

According to its website, Adkins Energy LLC is one of only a few ethanol producing cooperatives in the U.S. that is solely owned by farmers.

Since its founding, Adkins has grown rapidly and now reports that it produces 42.5 million gallons of denatured ethanol, 75,000 tons of distillers dried grains and solubles, and 150,000 tons of wet distillers grains, also known as wet cake. The latter of these two products are used as fodder for livestock.

The cooperative has also brought a number of benefits to the surrounding communities, which includes the creation of 35 new fulltime jobs, the company supports more than 280 indirect jobs that include construction and trucking, and uses 15 million bushels annually of corn grown locally, which equals $33 million in purchases from these farms.

Despite all of this success, Adkins faces many of the same challenges as other ethanol producers, not the least of which is competitive practices of the oil and gas industry.

According to a report published in July of 2007 and written by Mark Cooper, director of research for the Consumer Federation of America, titled Big Oil v. Ethanol: The Consumer Stake in Expanding the Production of Liquid Fuels, Big Oil (his term) perceives ethanol as a threat to its hegemony.

Cooper argues that these companies have kept refining capacity stagnant as a means to influence the price of gasoline. In this manner, gasoline refining is a choke point that works to push the price of gasoline up at the pump.

He further argues that public policies promoting reduced consumption of gasoline — such as improved fuel efficiency standards in cars and the increased use of biofuels, of which ethanol is one — have large oil companies feeling threatened.

“The reaction of Big Oil to public policies to promote increased biofuel production and use clearly indicates that the oil companies do not want competition to undercut the tight market they have helped create and maintain in the U.S. gasoline market,” Cooper writes.

Therefore, these companies, he asserts, have taken up arms to influence decisions by the federal government to support increased production of biofuels.

“Having systematically failed to increase their refining capacity to meet growing and expected demand, the major oil companies have now declared war on a key policy that can help alleviate the shortage — the expanded production of alternative transportation fuels, particularly biofuels,” writes Cooper.

He also argues that these companies also have resorted to using competitive strategies to limit sales of E85 at the gas stations they sell their gasoline to. The term E85 refers to a motor fuel blend that is 85 percent ethanol and 15 percent gasoline. Not all automobiles can burn E85, but the list of manufacturers designing and building flexible fuel cars — cars that can burn E85 and regular unleaded gasoline — is growing.

Ethanol also faces criticism because the use of corn has driven the price of a bushel of corn up. Critics allege price increases in corn have driven up the cost of most groceries because it increases the cost to feed cattle and use corn as an ingredient in food.

However, according to a press release by the American Coalition for Ethanol on July 23 of this year, a new study by John Urbanchuk of LECG, LLC, found that rising energy prices have twice the impact on the Consumer Price Index for food than does the price of corn.

Urbanchuk’s study says a 33 percent increase in crude oil prices results in a .6 to .9 percent increase in the CPI for food, while a similar increase in the price of corn results in an increase of .3 percent.

“Critics of ethanol are stirring controversy where none exists, because higher food prices have more to do with $3.50 per gallon of fuel than with $3.50 per bushel of corn,” says Brian Jennings, American Coalition for Ethanol vice president. “While corn prices might add $10 per year to a person’s grocery bill, skyrocketing gasoline prices are taking an additional $10 per week out of people’s pockets.”

The press release goes on to say that farmers are meeting the demand for corn, which is responsible for price increases, by planting more corn. According to the USDA’s Prospective Plantings Report for 2007, there are 15 percent more acres planted with corn than last year, which is the highest level since 1944.

“Farmers base planting decisions upon market signals, and these 92 million acres of planted corn show that the supply and demand of the marketplace is functioning as intended,” says Jennings. “Despite a clearly coordinated public relations attack by special interest groups trying to pin food price increases on the ethanol industry, the evidence doesn’t support the accusations.”

Obviously, ethanol is becoming a considerable industry and with its ability to produce 42.5 million gallons of ethanol, Adkins is making its contribution while providing a sales outlet for locally grown corn.