Ethanol Nonexistent Without Oil

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Ethanol Nonexistent Without Oil
Corn comes out of nozzle from a gas pump, shot on white with soft shadows-space for copy

With the 2020 election cycle dominating national news and the Iowa Caucus recently taking place, there was once again renewed attention on industries and debates relevant to the energy industry. Corn is king in Iowa, and you can’t talk politics in that state without touching on farming and the ethanol industry specifically.

The very mention of the word “ethanol” likely has many readers rolling their eyes and looking to flip the page to something relevant to hydrocarbon recovery from the earth’s crust. The oil and gas industry has often been seen to be at odds with ethanol, with the Midwest farmers and ethanol producers being the unwelcome guests at the energy production table. “King Corn” is invited to the party by government mandate and is sustained by a web of political interests and the unholy marriage of liberal environmental interests and deep-red Midwest Republican farmers. 

While ethanol and oil producers could (and will) argue late into the night regarding the ethanol industry’s viability outside of government mandates, it is worthwhile for both sides to pause and look at where we are 15 years past the Energy Policy Act of 2005, which was the genesis of the Renewable Fuel Standard (RFS). While the marriage of the ethanol and oil industry might have been arranged, the union has survived, and American ingenuity has produced vibrant offspring benefiting multiple sectors of the economy. 

An inconvenient truth that needs to be acknowledged: The ethanol industry could not exist without the oil and natural gas industry.

That truth goes well beyond the end-user fact that ethanol has to be blended with something to go into gas tanks. Ethanol producers are FANTASTIC customers of the shale gas industry and are completely dependent on natural gas to fire their boilers for fermentation processes. Each gallon of ethanol costs 15-21 cents of natural gas to produce. (131 billion gallons in 2018 earned natural gas suppliers over $20 billion in sales). 

After ethanol is made, the remaining “wet cake” is often dried by enormous gas-fired rotary dryers. The gas bill for a single rotary drier can be a million dollars per month, and large producers can have up to 16 of these dryers (ICM boasts more than 400 still in use nationwide). The ethanol industry produces 40 million metric tons per year with the natural gas portion of drying costs upwards of $30 per metric ton. 

With all of these billions of dollars in natural gas just to produce ethanol and dry a portion of the waste product for the livestock industry, perhaps it is certainly true that the gas industry would not want to lose ethanol as a customer. This doesn’t even take into account all of the petroleum products needed to raise the corn, get it to market, and the diesel trains and trucks to transport the product to blending and finally to market. But ethanol’s dependence on the oil industry isn’t what this article is about. Ethanol is likely “too big to fail” at this point, and our economy has adapted to include its use in a variety of ingenious ways. 

One industry that has been forced to adapt as ethanol production increased has been the beef industry. Corn has always been the largest U.S. feed grain, and with roughly 40% of the U.S. corn production going toward ethanol production, adjustments had to be made. Due to government subsidies for ethanol producers, ranchers could not compete with the buying power of ethanol producers and have had to develop efficiencies in their operations. A common efficiency has been to relocate feed yards and slaughterhouses in close proximity to ethanol producers. Stockyards are focused on “finishing” animals by adding muscle and fat feed the “wet cake” distiller’s grain as the primary ingredient in their ration. The close proximity prevents the wet-cake from spoiling prior to feeding and saves the ethanol plant from the expense of drying grain to add shelf life. 

The livestock feed industry has also been forced to adapt over the past 20 years due to ethanol production. Virtually every feed bag for bovine, equine, sheep, goat and big game list “distiller’s co-products” as their first ingredient. This is due to the high protein and fat (energy) content that remains after the starches from corn are converted to ethanol. Every bag of animal feed at feed stores across the U.S. is made possible by natural gas-fired dryers processing waste from ethanol production. 

Dedicated entrepreneurs in the feed industry have been working to further advance feed production technology for the processing of distiller’s grains. Original Equipment Manufacturers (OEMs) such as Rayeman Elements LLC and producers such as Dynamic Extrusion LLC have developed and deployed advanced production technology that can produce feed products from dry distiller’s grain that does not require binders and fillers. Feed production methods developed prior to the abundance of distiller’s grain required nutritionless binders and fillers to be added, which reduced the efficiency of the feed and increased costs on their feed bill by putting out diluted feed. 

Texas landowners who have benefited directly and indirectly from the shale oil boom are now able to leverage these new feed products to feed livestock and big game that are grazing on land that is producing shale oil and gas. The pure distiller’s grain feed is beginning to be distributed throughout north and central Texas, with both the beef and big game markets taking note that the lack of starch is perfect for ruminant animal health. 

As the economy continues to expand, it is important for all members of the oil and gas industry along with ethanol farming and ranching to understand how each sector benefits and depends on each other. Further educating the consumer base and electorate can serve as a hedge against dramatic policy swings along the election cycle which could threaten different sectors and the economic stability of the nation. Shale goes well beyond heat and fuel. Ethanol goes well beyond that 10% sticker at your pump. Kumbaya.

 

About the author: Nathan Kaspar is a 2002 Graduate of the University of Texas. He is a 24 year (active and reserve) veteran Naval Aviator. His four-year civilian career has been as Chief of Staff for Dynamic Extrusion LLC, makers of All-American Feed.

 

Shale Oil & Gas Business Magazine

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