How badly is COVID-19 slamming biofuels industry? 30% reduction of ethanol production capacity, nearly half offline in coming weeks?

The Numbers

With the industry facing capacity reduction here is what biofuel leaders had to say on the topic of current numbers and impact of COVID-19:

“Motor fuel demand is plummeting, with many analysts expecting a 40-60% drop in U.S. gasoline consumption in the next few months,” said Geoff Cooper at Renewable Fuels Association. “Because nearly every gallon of U.S. gasoline contains at least 10% ethanol, the collapse in consumption is hitting ethanol producers especially hard. These demand challenges are compounded by the effects of the ongoing Saudi-Russia oil price war, trade disputes, and refinery exemptions under the RFS. In response to plunging demand, ethanol prices have fallen to record lows in recent weeks and onsite storage tanks are completely full at most production facilities.”

“Our latest tally suggests 36 plants with annual capacity of 2.7 BG have fully idled production since the beginning of March. Another 63 plants have reduced their output rates by a collective 1.7 BG (these plants have reduced production anywhere from 10-50%). Another 13 plants with 0.8 BG of capacity were closed/idled due to other factors prior to March 1 (i.e., prior to the onset of the COVID-19 pandemic). So, overall about 4.4 BG of capacity has come offline since March 1. If you add the capacity that was already idle (prior to March 1), the total is about 5.2 BG idle. That is approximately 30% of the industry’s total production capacity. We’re aware of another 15-20 plants that have stopped buying corn and are likely taking steps to wind down production in the next week or two. Plants are idling production left and right. The speed and scale of this pullback in production is completely unprecedented. We’ve never seen anything like it in the industry’s history, not even when the bubble burst in 2008/09.”

Emily Skor at Growth Energy told The Digest, “The escalating crisis threatens to take a terrible toll on rural communities, where farmers and biofuel producers have been stretched beyond the breaking point. The plunge in biofuel demand sparked by COVID-19 has generated a perfect storm, adding to the burdens created by a foreign price war over oil, continued trade barriers, and regulatory uncertainty here at home.” She highlighted that this week’s EIA weekly data “showed that gasoline demand is the 10th lowest EIA has ever recorded and the lowest in more than 25 years. Ethanol production is at 12.8 billion gallons annualized and 1.08 billion gallons in stocks.”

Her prediction? “Nearly half the industry may be offline within weeks, and without swift and decisive action in Washington, many more may soon halt grain purchases or close their doors completely,” said Skor.

Skor noted that “A few weeks back, Pro-Exporter, a respected agricultural economics firm, has outlined one conservative estimate showing a 957 million gallon drop in ethanol demand from March to May, which equates to a 331 million bushel loss in corn demand.” She also noted that “Last week, OPIS conducted an industry webinar where they predicted gasoline demand will drop by more than 50 percent through the summer months and that the demand destruction will start showing up in EIA numbers the last week of March and that April will be even worse. However, OPIS pointed out that consumer shopping trips and recreational trips could be key factors in driving up gasoline demand this summer as these two factors represent about two-thirds of typical summer demand for fuel. Summer gasoline prices could stay around $1.75-$2.25/gallon unless major cutbacks in oil production happen soon.”

Donnell Rehagen, National Biodiesel Board CEO, shared his thoughts with The Digest from the biodiesel perspective: “While diesel fuel has seen a drop in demand, it has been somewhat less drastic than on the gasoline side so far – the decline in demand is likely to become more pronounced as more of the economy is shuttered. Jet fuel demand has been hit hardest, which had an immediate impact on sustainable aviation fuel. Our industry uses a wide variety of feedstocks – about 40% come from recycled fats, oils, and greases – that are also impacted in a variety of ways by the emergency. Biodiesel and renewable diesel are critical in keeping our trucks running, our economy moving, and our skies cleaner, both during the current COVID-19 crisis and as our world recovers from it afterward.”

“While there have been negative impacts and uncertainty for everyone in the workforce, biodiesel and renewable diesel included, our American clean-fuels companies have stepped up big time. Not only producing fuel critical to powering the movement of goods, but many have also made major contributions to their communities in emergency response volunteering time, energy, and resources.”

Continue reading for how long they think the impacts will last, if they foresee a wave of M&A movement like in 2008-09, and what actions could alleviate the pain for the industry.