VeraSun Energy Suspends Construction of Refinery

VeraSun Energy Corporation (NYSE: VSE) announced on October 2 that it was suspending construction of a 110 million-gallon-per-year ethanol biorefinery due to current market conditions. The company expects that construction will be resumed in 2008 if market conditions improve. The company had only completed site grading and preparation work on he effected plant.

"We believe it's important to be mindful of the current market conditions and manage our business accordingly," said Danny Herron, VeraSun Chief Financial Officer and Senior Vice President. "Given the abrupt change in market conditions that have seen ethanol prices drop nearly 50 cents per gallon in the last 60 days, it is prudent for us to adjust our current pace of expansion. Due to Reynold's early stage of development, we believe it is wise to suspend investment until the market provides an acceptable return."

"We have a large business that we are growing rapidly with four facilities continuing under construction," said Don Endres, VeraSun Chairman and CEO. "We remain confident in the outlook for our industry and believe that with ethanol currently priced at a dollar less than gasoline, it provides a great value as a high-octane, clean-burning renewable fuel that will drive additional blending throughout the nation."

Priced at a dollar less than gasoline, blending ethanol with gasoline now reduces the price of gasoline, but does not provide as great a profit margin for producers as it previously did. This is evidence that market forces are at work and the out of control expansion of corn ethanol producers will be moderated. Although I support the development of the ethanol market, it is time that subsidies on corn ethanol be reduced so that cost reduction improvements to biorefineries will be implemented. See the previous post on Poet to see what cost reduction practices are being planned by one producer.

Update: Loan guarantees for improvements to reduce cost would be OK for corn ethanol. Full subsidies for cellulosic ethanol would be OK until processes are more developed and costs are under control.

Comments

[N. Davis]

Too bad. I guess greed is the incentive in this market as well. The desire make and use less polluting fuels must be taking a back seat to profit. Maybe the company should apply for a government grant, or special legislation like the railroad robber barons of the 19th century.

[GreyFlcn]

==Priced at a dollar less than gasoline==

Holy S***. NO!

http://i-r-squared.blogspot.com/2007/09/e85-pricing-reports.html

Get your damn facts straight.

GreyGlcn,
1. The prices quoted on i-r-squared were for retail, not wholesale prices as VeraSun was using.
2. Don't shoot the messenger - It was clearly indicated that I was quoting directly from the VeraSun press release that the post was based on.

Jim

[RoySV]

Hope it never resumes - Virtually all large scale biofuel pushers are fraudsters funded by congressional pay-offs.

A new recent summary of University study of biofuels potential
http://www.theoildrum.com/node/3033#more

Only thing worth doing is sugar cane.

[David Stone]

N. Davis:
I guess greed is the incentive in this market as well. The desire make and use less polluting fuels must be taking a back seat to profit.

These fuels are not less poluting; their overall impact is more than gasoline.
Ethanol is NOT green.

And even if it were, of course companies want to make a profit. That is why they exist. Even good things can only be sustained if the companies involved make a profit; that gives them the ability to continue.

It is only bad if the companies bend or break good regulations, i.e. break the law, to make profit.

[David Stone]

RoySV:
Virtually all large scale biofuel pushers are fraudsters funded by congressional pay-offs.

That makes them no different to big oil.
Yes, believe it or not, the oil industry is subsidised. So is the auto industry, as are most large companies.

This is called protectionism, an anti-capitalistic practise in a country which claims to be capitalistic.

[greg]

I think all this effort to kling to the internal combustion engine is only delaying the inevitable. It will end eventually.
All the areas being used for biofuel production would be better put to use with forests.
Help the earth recover from our insane exploitation of natural resources. Pretty soon all that will come out of wells will be salt water.
Now if the fruit of a tree is used, say avocado or something like that, it would be better than corn.
Have you ever looked under the hood of your car? You can't even see the actual engine in there! And all this ingenuity gets scrapped every 5 to 10 years! Crushed by a gas guzzling machine. But it always comes back as the model of the year, more complicated than the last one.

[JohnBo]

“Virtually all large scale biofuel pushers are fraudsters funded by congressional pay-offs. That makes them no different to big oil. Yes, believe it or not, the oil industry is subsidised. So is the auto industry, as are most large companies.”

When I read the above regarding subsidies for big oil companies and auto manufacturers, I never see any proof. The way I see it the large companies pay a huge amount of taxes. Any break these companies get is well deserved. Folks like David Stone toss out slander and hate for successful groups of people (companies) who provide many great services and products we use. By the way, I am not employed or connected to any such company… this is just an observation from my perspective. May I add that I appreciate the successful companies of individuals who make my life better. I even invest in them via stock and they provide me some income. Why people hate success is beyond me. There seems to be those who hate and envy the success of others and David Stone seems to be one of them.

[greg]

I support them too! Everytime I fill up my tank. Poor guys, give them a break!

[Kit P]

After suffering a long rant from a successful artist about greedy energy companies, I asked how long it took him to make a sculpture that was selling for more than my house. He also thought the college art professors should be paid a higher wage by the government that engineers at a power plant. I calculated his time based on my salary, added 10% for the cost of his tools and wrote hime a check. His refused my offer. I said he was greedy, that he should move into a smaller, house where he could use public transportation, and provide his art to the poor.

I find it interesting that those who buy expensive cars, drive to Starbucks and buy a cup of coffee for than more I than spend for my family's energy needs in a day, will call energy companies greedy. I just read a local story about increases in electric rates. This poor man might not be able to eat at restaurants as often because he has a big 4 bedroom house.

The other thing about greedy energy companies. They do it 24/7.

[butterfly valve]

Greed is indeed makes a lot of people poor...

[Made in China]

Made in China