Aemetis transitions from corn ethanol to advanced biofuels at Keyes plant

In California, Aemetis announced that its 60 million gallon per year capacity ethanol facility in Keyes, CA has completed maintenance and Advanced Biofuels retrofit, and is now restarting production.

Last December, the EPA issued a final rule, determining that ethanol made from grain sorghum at dry mill facilities qualifies as a Renewable Fuel under the Renewable Fuel Standard — and that “grain sorghum produced at dry mill facilities using specified forms of biogas for…process energy and…electricity, qualifies as an advanced biofuel under the RFS program.”

Accordingly, the Aemetis plant will start up using corn as the principal feedstock, with a transition to using grain sorghum when fully operational.

Aemetis imported milo from Argentina in Q4 2012 at a cost savings of about $0.90 per bushel under corn. They require approximately 22 million bushels per year at capacity, so the milo savings are more than $18 million per year.

Add $18 million to the $24 million additional cash per year from advanced biofuels RIN’s, subtract about $8 million for the increased cost of biogas, and the net increase in cash flow is about $34 million per year.

As Aemetis CEO Eric McAfee outlined for shareholders in a conference call just before Christmas: ”[The] market disadvantage for corn ethanol facilities allowed Aemetis to acquire the 60 million gallon per year Keyes ethanol plant near Modesto, California. The plant originally cost $132 million to construct, and was acquired in July 2012 by Aemetis for only about $15 million in cash and approximately 11% of Aemetis fully diluted shares. On an actual cash cost basis for the investors in the Keyes plant, this transaction values Aemetis common stock at about $6 per share.

“Aemetis originally leased the Keyes plant in late 2009, and then retrofitted the plant to implement Aemetis design upgrades at a total cost of about $8 million. The plant was restarted in April 2011.”

“We have an exceptionally capable technical and operations team at Aemetis, as demonstrated by the timely completion of this maintenance process and Advanced Biofuels conversion,” said Eric McAfee, Chairman and CEO of Aemetis. “About $5 million of capital investment and new working capital has been invested since the plant shutdown in mid January in order to convert to the use of milo (grain sorghum) from both domestic and international feedstock producers.”

McAfee stated, “The Keyes plant is unique in several ways, including its location near a deep water Pacific port, enabling the importation of lower-cost, lower-carbon, Advanced Biofuels feedstocks. The plant was constructed with a Combined Heat & Power system in order to produce electricity and heat from natural gas onsite, rather than relying solely on grid power. By sourcing biogas instead of natural gas and using lower-cost grain sorghum feedstock, the Keyes plant can now produce Advanced Biofuel that is expected to generate valuable D5 Advanced Biofuels RIN’s under the recent EPA rules.”

Who else can benefit?

Not every ethanol plant in the world is going to be able to access these improved economic opportunities — just yet. For now, the advantage for Aemetis occurs because it is 40 miles from a deep water Pacific port, not a Midwest ethanol plant located 1,000 miles from the Gulf of Mexico (with transloading and rail costs).

For now, this EPA approval turns destination ethanol plants on the coasts into facilities with a significant cost advantage in milo/biogas Advanced Biofuels. It also puts some major attention on growers and developers of grain sorghum in the US – and Chromatin, for example, has been hard at work in that field.

Potential winners for now? The Aemetis project; Pacific Ethanol (60 mgy ethanol plant located in Stockton, CA); we also like the Pacific Ethanol plant in Boardman, OR (adjacent to Port Morrow, largest port on the Columbia River); the currently-shuttered Clatskanie plant in Oregon may also be a beneficiary.

The risks

Well, the risks are several. RFS2 is repealed or modified; corn prices sink materially below grain sorghum; biogas prices skyrocket. Ethanol prices collapse as overcapacity hits the ethanol blend wall. There are only a handful of public investment vehicles that are correspondingly advantaged in the new economics.

More efficiencies at Keyes

Back in November, Edeniq announced that Aemetis will test Edeniq’s Cellunator technology to boost ethanol yields and will conduct large-scale commercial testing of Edeniq’s cellulosic ethanol Pathway platform.

Edeniq’s Cellunator technology produces sugars by milling corn and other plant materials into “right-sized” particles of feedstock that can be more easily converted. Edeniq is installing Cellunators at the Keyes plant.

More on the story:

The New Milo-naires: Corn, milo and the Biofuels Market’s Invisible Hand

More on Aemetis and its strategy.