Ethanol push spurs plans for Md. plants

Three sites in running for state's first factory to convert corn to auto fuel

November 28, 2006|By Tom Pelton | Tom Pelton,Sun reporter

A national boom in the use of ethanol has lured eight companies into a race to build Maryland's first factory to convert corn into car fuel.

Two of the proposals would put ethanol plants on the Baltimore area's industrial waterfront in 2008 - one on Sparrows Point and the other in Curtis Bay. A third, on the Eastern Shore, will be considered today when Somerset County commissioners vote on a zoning change to allow a $136 million ethanol plant.

"Producing ethanol is quite compatible with what people already do in Somerset County - they raise grain here, and we're an agricultural industry," said Mack Shelor, a manager with Chesapeake Renewable Energy LLC, which plans to manufacture 50 million gallons of ethanol a year along U.S. 13 north of Pocomoke City.

"You can either make ethanol or you can buy oil from Arabs, which sends dollars offshore," Shelor said. He said his company's plant could be built by 2009 if he lines up financing and receives permits from the state and county.

The surge of interest in the once-marginal fuel is driven by a desire for freedom from Middle Eastern oil and billions of dollars in federal subsidies. Increased demand for ethanol is boosting income for corn farmers and could reduce global warming pollution - but it might also translate into higher food prices for consumers, because more expensive corn means higher feeding costs for cows and pigs.

Ethanol is grain alcohol, and it's been brewed for thousands of years as the intoxicating ingredient in liquor. But the odorless liquid also burns, and as oil prices have soared, ethanol has become increasingly popular as vehicle fuel. It can be distilled from corn, wood, sugarcane, even grass - with this last form, called cellulosic ethanol, considered the most potentially promising for energy production. But grass-based fuel is not yet in commercial production, and the industry in America is focused on corn.

Brazil, the world's biggest sugar producer, has replaced about 40 percent of its vehicle fuel with ethanol made from sugarcane. By contrast, the United States, which grows more corn than any other country, has replaced only about 3 percent of its gasoline with ethanol.

Subsidies play role

The demand for ethanol is growing fast, in part because of government mandates and subsidies, said David Silver, an agriculture industry analyst with J.P. Morgan Securities in New York. The 4.1 billion gallons of ethanol burned in the United States last year was four times the amount consumed four years earlier.

And last year's total could almost double soon, Silver said, because Congress required last year that companies add 7.5 billion gallons to the nation's vehicle fuel supply by 2012.

The main government subsidy for ethanol is a 51-cents-per-gallon federal tax break for fuel companies that add distilled grain to their gasoline as a way to reduce air pollutants. Ethanol is blended into gas at a ratio of up to 10 percent in many areas of the country with air pollution problems, including most of Maryland. It is increasingly replacing a fuel additive called MTBE that has been linked to cancer in lab animals.

Three gas stations in Maryland are among the few nationally that sell nearly pure ethanol - called E85, for 85 percent ethanol. But only 2.5 percent of the vehicles in the United States can run on this concentrated form without damaging their engines.

The rush to build corn ethanol plants in Maryland is a microcosm of the trend nationally, where about 50 ethanol plants are under construction and 107 more are operating. As a result, the price of corn futures - which reflects expectations of future markets - has soared 50 percent since September, from $2.40 per bushel to $3.60 this month, Silver said.

Chris Rice, alternative fuel program manager with the Maryland Energy Administration, said he believes no more than two or three ethanol plants will be built in Maryland. The first will probably rise next year on Sparrows Point in Baltimore County because that project appears to be further along than the others, he said.

Oil prices affect profit

Rice said producing ethanol becomes more profitable as oil prices rise. "A few months ago, it was a lot easier to get financing for ethanol plants because gasoline prices were higher and a lot of this market hinges on gasoline prices," said Rice. "If we all of a sudden get a plummeting of gas prices, you might see a lot of these financiers pulling the plug."

Boris Maslov, chief executive officer of Annapolis-based Ecron, believes gas prices are going to remain high. His company is proposing to start construction next spring on a $200 million ethanol plant at a former shipyard on Sparrows Point.

Maslov said the goal is to distill 110 million gallons of ethanol a year from 36 million bushels of corn, shipped in by rail from the Midwest and Maryland's Eastern Shore.

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