The purchase of seven ethanol plants by the country's largest independent refiner, Valero Energy, "signals important new support for a flagging industry from an unexpected quarter," reports Clifford Krauss of The New York Times.
Valero is buying the plants from bankrupt VeraSun Energy for $477 million, a fraction of what it would cost to build new plants. The purchase surprised many observers, since oil refiners have traditionally opposed federal mandates to blend ethanol in gasoline.
The discounted price is what may have tempted Velaro to enter the ethanol industry. Chris Ruppel, an energy analyst at Execution, said, "Ethanol is still a lousy business, but if you can buy the plants for cents on the dollar, it looks a lot better as Washington is likely to keep mandated production targets."
Still, it looks likely that the ethanol industry will remain weak. It "is expected to produce about 10 billion gallons this year, leaving much of the industry’s capacity of 12.5 billion gallons idle," writes Krauss. (Read more) The federal government is considering raising the minimum percentage of ethanol in gasoline, but at the same time is also considering whether the fuel meets new renewable-energy standards in light of its indirect impact on rain forests, which are cleared to fill demand for crops replaced by U.S. corn grown for ethanol.
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