After shouldering some unusual market hits in recent years, the ethanol industry now faces new and more fundamental demand uncertainties as electric vehicles grow in popularity and capacity.
Some argue the sector will find new outlets for the plant-based fuels while others worry it will crumble beneath the collective weight of social, economic and environmental factors.
Both scenarios are plausible.
Why it matters: Ethanol draws one-third of Ontario’s corn crop. Losing that market without ample alternatives would have a significant impact on grain growers.
While the reduction in ethanol demand is concerning to grain growers and manufacturers of biofuel, industry representatives say those losses could be offset by demand for higher-grade industrial alcohol and byproducts.
Ethanol producers are already responding to changing trends.
Though traditionally used in gasoline, research continues into the role ethanol could play in other fuels.
Don O’Conner, a mechanical engineer and consultant for the energy sector, includes aviation fuel and an augmented role in diesel as two examples.
Speaking on behalf of Renewable Industries Canada, O’Conner says the market for the byproducts of ethanol production, such as corn oil and dried distillers grains, is growing. Other co-products are gaining traction as well, including animal feeds with customized protein levels for specific types of livestock.
“That’s something that’s gone from zero to 100 per cent in the last 10 years,” he says. “There’s still an awful lot of innovation happening within the ethanol sector.”
O’Conner’s sentiments are reflected by Stephen Nicholson, a Missouri-based senior grains and oilseeds analyst for RaboResearch Food and Agribusiness. Opaque as the future is, he believes it is possible ethanol and byproducts of the process could reverse roles entirely.
Ethanol itself could similarly be refined for other applications, from hand sanitizer to industrial processing and foodstuffs.
“Do those products become more valuable than the ethanol itself? The ethanol plant may still take corn but might focus on other products,” says Nicholson, adding some companies have already found profitable niche markets in this vein.
Currently, about 30 per cent of Canada’s corn crop goes to the ethanol market.
Though individual states vary, Nicholson says the United States average is between 30 and 40 per cent.
In conversations he has had with growers, trade associations and others, however, ethanol has not been identified as a future driver of corn demand. He says there remains a general concern over where new demand will come from.
He says the enormous demand from China, has been offsetting recent losses in the sector. But that won’t last forever, and whether other markets can realistically cover such a significant portion of North America’s annual corn crop remains to be seen.
“I would say there is a concern long term. We can out-produce the market very quick.”
Nicholson’s apprehension is shared by Grain Farmers of Ontario. For Paul Hoekstra, vice-president of strategic development, the difficulty of predicting what the ethanol market will look like has the organization turning attention to the development of new markets and greater domestic consumption.
In the short- and medium-term, Hoekstra says GFO continues promoting biofuels as one of the most cost-effective ways of supporting the country’s emission-reduction obligations, making them critical in the long-term transition to electric or hybrid vehicles.
Electric vehicles inevitable
O’Conner, Nicholson, and Hoekstra all reiterated a full electric transformation requires the bulk of the population to ditch their internal combustion engines, and for the infrastructure to be in place to support the switch, neither of which will happen overnight. That means ethanol and its portion of the corn market will not disappear for some time.
“Even if there turns out to be a drop in gasoline demand, we have a long way to go before it would have an impact on Canadian producers,” O’Conner says, adding Canadians and Canadian businesses currently use more ethanol than domestic manufacturers can produce.
Change is inevitable, however. Even before the pandemic’s onset, Nicholson says demand for ethanol was not increasing. Long-lasting ramifications such as altered work structures and the associated drop in commuting hours, though perhaps insignificant by comparison, haven’t helped.
These ideas were also summarized in a Great Lakes Grain webinar by Jeff Sherman, commodity risk consultant for Mid-Co Commodities.
“It’s a slow death, and will be a long very, very, very slow death, but yes, I think the electric vehicle market is the demise of corn ethanol. On the surface (that) looks like a bad thing…When we get to that point, the world demand for grains will offset the decline in ethanol.”