Chevron ponders ethanol plants
By Joe Carroll, Bloomberg News
San Ramon-based Chevron Corp., the second-largest U.S. oil company, is exploring investments in ethanol plants to guarantee steady supplies of the gasoline additive for its refineries.
Chevron is examining whether larger ethanol distilleries could be built to lower production costs, Donald Paul, chief technology officer, said in a telephone interview. Chevron would be the first major oil company in 26 years to invest in U.S. production of the grain-based additive.
The company is weighing the possibilities "because we're a major buyer of ethanol," Paul said. "Ethanol today is dominated by people who are not from the traditional fuel-making business."
Ethanol prices more than doubled in the past year as refiners phased out a competing fuel additive that polluted groundwater. Demand will continue to surge because of last year's Energy Policy Act, which requires U.S. refiners to almost double ethanol use by 2012 to 7.5 billion gallons a year, which is 70 percent more than U.S. production capacity today.
Interest in alternative fuels has been spurred by rising petroleum prices and growing concern about oil supplies. President Bush has touted ethanol as a source in reducing the country's dependence on foreign oil.
Chevron last week announced it acquired a 22 percent stake in a Galveston, Texas, company building a plant that will refine soybean oil into diesel.
Crude oil touched a record $75.35 a barrel last month in New York, and gasoline pump prices in the United States are near the all-time highs reached in September after Hurricane Katrina.
"The oil industry has come to the realization that ethanol is here to stay," said Matt Hartwig, a spokesman for the Renewable Fuels Association, a Washington-based trade group. "It wouldn't be surprising to me at all if they decided to come aboard."
Texaco Inc. was the lastmajor oil company to invest in U.S. ethanol when it partnered with CPC International in 1980 to convert a mothballed Illinois sugar-beet refinery into a corn distillery.
Texaco, now part of Chevron, abandoned the project in 1995, selling the business to Tulsa, Okla.-based Williams Cos. Morgan Stanley bought Williams' ethanol subsidiary in 2003 and renamed it Aventine Renewable Energy LLC.
Pekin, Ill.-based Aventine is now the third-biggest U.S. ethanol maker, behind Decatur, Ill.-based Archer Daniels Midland Co. and Brookings, S.D.-based VeraSun Energy Corp.
Ethanol, a form of alcohol distilled from
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grain or sugar, accounted for 3 percent of the gasoline burned in the United States last year, according to figures from the U.S. Energy Department. The additive is used to reduce tailpipe emissions, improve engine performance and stretch gasoline supplies.
Royal Dutch Shell Plc, the world's No. 3 oil company, owns a stake in Iogen Corp., a Canadian company trying to develop enzymes that can break down wheat stalks and straw for ethanol. Iogen does not produce ethanol on an industrial scale.
Shares of ethanol producers have soared since the energy act was signed last year and Bush made the additive a cornerstone of his plan to slash U.S. dependence on Middle East oil in his January State of the Union address.
The shares of Andersons Inc., a Maumee, Ohio-based grain hauler that is building two distilleries and owns a stake in a third, have risen 139 percent since Bush's Jan. 31 speech.
Shares of Pacific Ethanol Inc. climbed 125 percent since Bush's address. The Fresno-based company, whose backers include Microsoft Corp. Chairman Bill Gates, plans to build five West Coast distilleries.
Shares of Archer Daniels Midland have risen 44 percent since the state of the union address.
VeraSun and Aventine are planning to sell shares to the public for the first time later this year, according to registration statements filed by both companies with the U.S. Securities and Exchange Commission in March.
Ethanol has been added to gasoline in the Midwest and parts of the mid-Atlantic region since the early 1990s to comply with federal anti-pollution rules.
Demand began to expand in coastal areas in 2004 when California and New York, which burn one-fifth of U.S. gasoline supplies, banned MTBE. The only widely available alternative is ethanol, according to the Energy Department in Washington.
By the end of May, almost all the MTBE in the U.S. will have been replaced with ethanol because refiners are worried about lawsuits over MTBE contamination of drinking water supplies, said Fabrizio Zichichi, executive vice president of U.S. clean-oil products at Noble Group, an ethanol broker.
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