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Valero Now in the Ethanol Business

In an update to Big Oil Buys Big Ethanol, it is official:

Valero Energy, the Oil Refiner, Wins an Auction for 7 Ethanol Plants

Valero Energy, the country’s largest independent refiner, said on Wednesday that it would buy seven ethanol plants from VeraSun Energy for $477 million, giving the biofuel industry a lift at a time when it is suffering from excess production capacity and falling gasoline consumption.

VeraSun, the nation’s second-largest ethanol producer after Archer Daniels Midland, filed for Chapter 11 bankruptcy protection last fall. Valero’s purchase signals important new support for a flagging industry from an unexpected quarter. In recent years, refiners have opposed Congressional mandates for refineries to blend increasing amounts of ethanol in gasoline, arguing that it made neither economic nor environmental sense.

So, for the price of $477 million, which would be less than 5 days of profit for someone like ExxonMobil, you can be the 2nd largest ethanol producer in the country. Even for Valero, $477 million is a piece of cake. Like I say, people who think the ethanol industry is a threat to the oil industry don’t understand the difference in scale between the two. If ethanol starts to look like a good business model, the oil industry will buy up the assets without breaking a sweat. The first salvo has been fired.

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March 20, 2009 - Posted by | ethanol, oil companies, verasun

14 Comments

  1. Fair enough — but this is not really a vote of confidence in the future of the ethanol scam (sorry, business). This is the old vertical integration model — it is in the long-term interest of a refiner to own the source of the inputs to the refinery.

    Valero has presumably concluded that logic & economics will cut no ice with the Political Class. If they are going to be forced to blend ethanol, they might as well own the ethanol source. It does not mean Valero thinks ethanol makes sense on any non-political level.

    Comment by Kinuachdrach | March 20, 2009

  2. Fair enough — but this is not really a vote of confidence in the future of the ethanol scam (sorry, business). This is the old vertical integration model — it is in the long-term interest of a refiner to own the source of the inputs to the refinery.

    Valero has presumably concluded that logic & economics will cut no ice with the Political Class. If they are going to be forced to blend ethanol, they might as well own the ethanol source. It does not mean Valero thinks ethanol makes sense on any non-political level.

    Comment by Kinuachdrach | March 20, 2009

  3. Fair enough — but this is not really a vote of confidence in the future of the ethanol scam (sorry, business). This is the old vertical integration model — it is in the long-term interest of a refiner to own the source of the inputs to the refinery.Valero has presumably concluded that logic & economics will cut no ice with the Political Class. If they are going to be forced to blend ethanol, they might as well own the ethanol source. It does not mean Valero thinks ethanol makes sense on any non-political level.

    Comment by Kinuachdrach | March 20, 2009

  4. It does not mean Valero thinks ethanol makes sense on any non-political level.

    No doubt. They are just adding up the costs of complying with the mandate, and they figure it will be cheaper to own the source. It will also minimize their risk. But you are correct that if the mandates weren’t there, they wouldn’t touch this.

    RR

    Comment by Robert Rapier | March 20, 2009

  5. It does not mean Valero thinks ethanol makes sense on any non-political level.No doubt. They are just adding up the costs of complying with the mandate, and they figure it will be cheaper to own the source. It will also minimize their risk. But you are correct that if the mandates weren’t there, they wouldn’t touch this.RR

    Comment by Robert Rapier | March 20, 2009

  6. Ethanol seems bad idea, propped up by the rural-farm-Republican party axis. That reality is more powerful than the laws of physics.
    We can only hope that corn yields keep rising (they have tripled since WWII), while inputs keep decreasing, meaning the EROEI is not terrible.
    I wonder if all-ethanol cars, at higher compression ratios, make sense. Mixing ethanol with gasoline seems a sure loser.
    Given that we are now entering the age of the supergiant gas fields (Haynesville, now under development, is the largest gas field in US history) perhaps we should think again about natural gas fleets and cars.
    It looks like NG will be abundant and not expensive for decades to come.

    Comment by benny "centipede glut" cole | March 20, 2009

  7. Ethanol seems bad idea, propped up by the rural-farm-Republican party axis. That reality is more powerful than the laws of physics.We can only hope that corn yields keep rising (they have tripled since WWII), while inputs keep decreasing, meaning the EROEI is not terrible. I wonder if all-ethanol cars, at higher compression ratios, make sense. Mixing ethanol with gasoline seems a sure loser.Given that we are now entering the age of the supergiant gas fields (Haynesville, now under development, is the largest gas field in US history) perhaps we should think again about natural gas fleets and cars. It looks like NG will be abundant and not expensive for decades to come.

    Comment by benny "centipede glut" cole | March 20, 2009

  8. Hey, this is your old friend, Kdolliso, from “The Oil Drum.”

    I’m not trying to game you with the “Rufus;” I’ve been posting on blogspot under Rufus for about four years, or so. I, originally, intended to comment at TOD under my natural moniker, but I messed up and lost my first email verification, and ended up reregistering under kdolliso.

    Anyways, I think Valero might just be looking at impending “Peak Oil,” and, realizing that Rufus, and his N. Mississippi ilk aren’t, to a great extent, going to be driving Hybrids, has come to the conclusion that Ethanol is “Where the Growth Is.”

    Reasons for thinking this:

    1) Many smart oil analysts believe 2005/2008 represent the “Peak” in oil production.

    2) 50 – 70 Million cars being sold, globally, every year.

    3) People are, already starting to drive again (gasoline supplied UP a bit over 1% YOY the last several weeks) even though the Recession is Not Yet Over.

    4) Many Hybrids not delivering quite the performance that was hoped for. See yesterday’s article in Autobloggreen about Fusion Hybrid’s disappointing “Cold Weater Performance.”

    5) Likely adoption, soon, of higher ethanol blends.

    6) Congressional movement toward mandating of FFVs.

    7) Likely Success of Cellulosic Ethanol Projects. (Project Liberty/Poet, Enerkem’s announcement of refinery in N. Mississippi, Bluefire in S. Cal., Coskata, etc.)

    8) Non-farm states promoting localized non-corn solutions. (La – Renergie, Tn – Switchgrass, Fl – Sweet Sorghum, Mi/Ga – Wood waste, etc.)

    Although hybrids seem like a likely popular solution in places like L.A, Phoenix, Las Vegas, Houston, etc, Ethanol might well be much more popular in Troy, Mo, and Cut and Shoot (yes, that’s where Van Clyburne was from) Tx.

    After all, why would you buy the cow if you thought milk was going to be plentiful, and very, very cheap, forever?

    Comment by rufus | March 22, 2009

  9. Hey, this is your old friend, Kdolliso, from “The Oil Drum.” I’m not trying to game you with the “Rufus;” I’ve been posting on blogspot under Rufus for about four years, or so. I, originally, intended to comment at TOD under my natural moniker, but I messed up and lost my first email verification, and ended up reregistering under kdolliso.Anyways, I think Valero might just be looking at impending “Peak Oil,” and, realizing that Rufus, and his N. Mississippi ilk aren’t, to a great extent, going to be driving Hybrids, has come to the conclusion that Ethanol is “Where the Growth Is.” Reasons for thinking this:1) Many smart oil analysts believe 2005/2008 represent the “Peak” in oil production.2) 50 – 70 Million cars being sold, globally, every year.3) People are, already starting to drive again (gasoline supplied UP a bit over 1% YOY the last several weeks) even though the Recession is Not Yet Over.4) Many Hybrids not delivering quite the performance that was hoped for. See yesterday’s article in Autobloggreen about Fusion Hybrid’s disappointing “Cold Weater Performance.”5) Likely adoption, soon, of higher ethanol blends.6) Congressional movement toward mandating of FFVs.7) Likely Success of Cellulosic Ethanol Projects. (Project Liberty/Poet, Enerkem’s announcement of refinery in N. Mississippi, Bluefire in S. Cal., Coskata, etc.)8) Non-farm states promoting localized non-corn solutions. (La – Renergie, Tn – Switchgrass, Fl – Sweet Sorghum, Mi/Ga – Wood waste, etc.)Although hybrids seem like a likely popular solution in places like L.A, Phoenix, Las Vegas, Houston, etc, Ethanol might well be much more popular in Troy, Mo, and Cut and Shoot (yes, that’s where Van Clyburne was from) Tx.After all, why would you buy the cow if you thought milk was going to be plentiful, and very, very cheap, forever?

    Comment by rufus | March 22, 2009

  10. Hey RR,
    Do you think Valero might use these ethanol refineries to make something profitable (you know, without subsidies or bailouts, as was once the standard procedure) but unrelated to ethanol? Could you distill [whatever] in an ethanol refinery?

    Comment by Optimist | March 23, 2009

  11. Hey RR,
    Do you think Valero might use these ethanol refineries to make something profitable (you know, without subsidies or bailouts, as was once the standard procedure) but unrelated to ethanol? Could you distill [whatever] in an ethanol refinery?

    Comment by Optimist | March 23, 2009

  12. Hey RR,Do you think Valero might use these ethanol refineries to make something profitable (you know, without subsidies or bailouts, as was once the standard procedure) but unrelated to ethanol? Could you distill [whatever] in an ethanol refinery?

    Comment by Optimist | March 23, 2009

  13. Optimist, I don’t think so. They would have to have access to some other raw material in the Midwest where these refineries are located. Further, it would have to have characteristics that make it a good candidate for running through the refinery. Very long odds. You would have a much better chance of retrofitting this into something else if it was located on the Houston Ship Channel, where you can get lots of different raw materials in.

    RR

    Comment by Robert Rapier | March 23, 2009

  14. Optimist, I don’t think so. They would have to have access to some other raw material in the Midwest where these refineries are located. Further, it would have to have characteristics that make it a good candidate for running through the refinery. Very long odds. You would have a much better chance of retrofitting this into something else if it was located on the Houston Ship Channel, where you can get lots of different raw materials in.RR

    Comment by Robert Rapier | March 23, 2009


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