South Dakota has become one of the fastest-growing states in the US, at the same time as it has achieved energy independence through development of its biofuels fleet.
Coincidence, or correlation? We look at the data, and the trends powering South Dakota’s biofuels industry.
If you happen to be a devotee of spreadsheets released by the Bureau of Economic Analysis — or simply one who prefers to create economic growth rather than bemoan its absence — the annual release of state-by-state GDP figures tells an important tale, though ignored in mainstream media.
The fastest-growing states? In order: North Dakota, West Virginia, Alaska, Texas, Louisiana, Iowa, Oregon, Oklahoma, South Dakota, Wyoming, Michigan and Nebraska.
Energy giants grow
With the exception of Oregon and Michigan, you might note that these are all energy giants in one way or another – Iowa, South Dakota and Nebraska being the representatives of agri-energy exporting states, and the rest being representatives of fossil fuel production (excepting to some extent North Dakota, which has a strong foothold in both oil production and agriculture).
There are many components to GDP, and agriculture and energy are just two – but we have been reporting data for years that suggests that energy independence is an important and under-recognized platform for state economies, and the data continues to pile up.
While that message may be a tough sell at the Wall Street Journal, it’s not so hard to find believers in South Dakota, which has been growing at a fast clip over the last decade despite a lack of the kind of below-ground energy assets that, say, North Dakota is blessed with.
South Dakota, by the numbers
It’s above ground energy assets – excess agricultural biomass – have pushed the state into energy independence – which is to say that its oil and biofuels production exceeds the in-state demand. And South Dakota GDP is up 48 percent since 2022, considerably ahead of the national pace.
Here’s the tale of the tape. Around 994 million ethanol equivalent gallons for in-state fuel demand (we’ve converted the 455 million gallons of gasoline and 190 million gallons of diesel demand into ethanol equivalents, here). On the production side, 110 million gallons in fossil fuel production, and 1.028 billion gallons in biofuels. The surplus for export? That’s around 14 percent – not enough to make South Dakota the Saudi Arabia of the plains states, but certainly Kuwait or Qatar come to mind.
The data can be downloaded here, and you’ll find the state by state current-dollar GDP growth on Table 4.
It’s an admirable economic record – and in South Dakota, you know that POET has something to do with it. It’s the ethanol giant that rose essentially from nothing, aside from exceptional vision regarding the role that ethanol and distillers grains could play in taking the farm sector, and South Dakota with it, from the kind of Farm-Aid, will-the-last-person-to-leave-please-turn-out-the-lights economy of the 1980s to a top 10 performer today.
Land prices have responded, driving wealth creation in another way. Back in May, we reported that pasture land prices are on the rise as a result of increased demand for planting corn, primarily for ethanol and for export. Annual rental rates in east-central South Dakota are nearly $62 per acre compared to $11.65 per acre in southwest South Dakota.
In recent years, the first-gen ethanol boom has cooled off – (though in May, Wagner Native Ethanol created a strategic partnership with Questus Global Capital Market Ltd to construct and operate a 72 million gallons dry mill corn ethanol plant.)
Today, what’s driving the South Dakota’s performance is not only its fleet of 15 ethanol plants and 1.016 billion gallons in current capacity.
Why and how is South Dakota’s agrienergy industry growing, evolving?
In our discussions with South Dakota players in recent weeks and in our Midwest tour, we heard five themes – though in many ways, they are built atop the foundation of the state’s first-generation fleet.
1. Cellulosic ethanol from the Badlands to Brazil. After many years of “when?”, the sector is moving from R&D to production. The POET-DSM Project Liberty in Emmetsburg, Iowa has broken ground and is expected to be complete by the end of 2013. POET and DSM are expected to deploy the technology to other POET sites – and have indicated that they see 25 million gallons of cellulosic ethanol capacity can be added on to an existing 100 million corn ethanol plant.
Back in January, Poet teamed with Dutch-based Royal DSM to create a 50/50 joint venture called Poet-DSM Advanced Biofuels that will produce cellulosic ethanol and license the technology to other plants in the U.S. and globally.
According to DSM, the joint venture is expected to be profitable in the first full year of production (2014) and to deliver substantial revenues with above-average EBITDA contribution in the medium/longer term. Sijbesma said that the JV would produce more than $100M in revenue from its first project, which would be priced competitively with corn ethanol.
But there’s activity in feedstock development as well as processing technology. Last week, POET Research and Agrivida announced the signing of a technology collaboration joint development agreement in the field of cellulosic ethanol. Under the terms of the four-year agreement POET and Agrivida will develop Agrivida’s technology platforms with the goal of significantly reducing the capital and operating costs of commercial cellulosic ethanol production facilities.
Meanwhile, South Dakota-based KL Energy changed its name to Blue Sugars in June, following extension of its long-term co-development agreement for cellulosic ethanol with Petrobras. Company CEO Peter Gross noted that the company’s scale-up factor from our demo plant to full-sized industrial units is in the range of 10-15, and that Petrobras is already working on its first industrial cellulosic ethanol plant slated for start-up in 2015, after licensing Blue Sugar’s technology for use in its Brazilian sugarcane mills.
2. Isobutanol. One of the vanguard products in advanced biofuels and for integrated biorefineries is isobutanol made by converting first-gen ethanol plants over to the higher-density four-carbon molecule that can be sold into fuel markets as a drop-in fuel, or sold into the chemical markets. Gevo’s second conversion project will take place in Redfield, SD – and its first project, in Luverne, MN, is just a few miles from the SD border. Start-up at Redfield is expected in 2013.
3. Corn oil. Corn oil, these days, is widely extracted as an added-value product for ethanol producers – payback usually comes within three years – but it also has proven to be the fastest-growing affordable feedstock for biodiesel producers.
14 plants have now installed POET’s patent-pending corn oil technology, bringing total annual production capacity to approximately 235 million pounds per year, enough to provide feedstock for approximately 31 million gallons of biodiesel. POET has been selling Voilà corn oil into biodiesel and feed markets since January 2011, and strong demand for the product has prompted plans to upgrade the majority of the plants in the POET network.
The following POET Biorefining plants have adopted the technology: Hudson (S.D.); Ashton, Coon Rapids, Corning, Emmetsburg, Gowrie, Jewell and Hanlontown (IA); Laddonia (MO); Lake Crystal and Glenville (MN); and Big Stone, Hudson and Groton as well as the POET Research Center in Scotland (SD).
4. State support and public-private partnership. South Dakota has been second to none in terms of state support for everything from capacity-construction to developing downstream markets through blender pumps.
In February, the state government approved a subsidy of 20 cents per gallon for ethanol plants to transition over to butanol, and is capped at $4 million per facility. Redfield management said that the overall impact from the state government incentive plan, will be a positive one cent per gallon.
Meanwhile in February the state Governor’s Office of Economic Development (GOED) hosted meetings for petroleum retailers, to introduce the state’s new Ethanol Infrastructure Incentive Grant Program. The program was created to help station owners defray the cost of installation of ethanol blender pumps, which offer consumers a greater variety of fuel choices, including non-ethanol fuels and higher blends like E15, E30, and E85.
And last month, the Governor’s Office of Economic Development has made available $960,000 in grants to help support installation of blender pumps with $200,000 awarded on a competitive basis while the remaining funds will be awarded on a first-come, first-served basis. Applications are currently be accepted.
5. Plant efficiency and sustainability. One of the factors that has driven POET’s success has been its technology development, which it can then deploy across its substantial fleet. The company has driven up yields per bushel from 2.7 to 2.9 in recent years, with 3.0 gallons per bushel seen at times – and there’s the afore-mentioned corn oil technology.
One that’s been overlooked is water conservation. Last summer, POET applied for permits to use storm water in its plant instead of discharging it. Currently, the plant uses 440,000 gallons of water per day, and is charged $1.35 per 1,000 gallons of water by the city of Mitchell for water from Lake Mitchell. These funds are currently used to repay the bonds the city used to install a pipeline from Lake Mitchell to the ethanol plant before it opened five years ago. Now, POET has figured out a way to reuse storm water in the industrial process – good for cost control – good for costs.
Oh, and one more thing
Now, we mentioned five themes.
There’s a sixth that is too small to be described as a trend, but it is pretty fascinating all the same. It’s a project over at the South Dakota School of Mines and Technology, which won a $750K NASA grant to develop cyanobacteria to produce energy dense fuels, high value chemicals, O2, and cleansed water directly from CO2, sunlight, and wastewater.
Associate Professor Ruanbao Zhou said at the time: “This project will help NASA’s Aeronautics Research Mission Directorate address the goal of providing renewable, energy-dense biofuels in a sustainable manner, while supplying technology to sequester carbon dioxide released by an astronautics crew…” It’s a little known fact that a four-person space crew generates enough CO2 to produce 4 pounds of biomass per day to supplement on-board food and fuel needs. Not to mention reducing the need for CO2 scrubbers and providing a source of fresh water.
Keep in mind that it takes nearly 400 pounds of rocket fuel to deliver a gallon of water from the Earth to the Moon. Now, that’s what we call an energy efficiency opportunity.
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