The news on the ethanol front this morning is, shall we say, mixed. First, Pacific Ethanol (NASDAQ:PEIX) announced yesterday that it would increase its non-cash impairment charge for the suspended construction of its plant in California’s Imperial Valley. The company took a third-quarter charge of $26.6 million, but will issue updated financials upping the charge by $14.3 million less estimated future undiscounted cash flows. The effect, according to the company, will be an increase in future non-cash gains "to the extent the company is discharged from its construction-related liabilities." Shares are up nearly 2%, to $0.7127, on the news.
Good news is so scarce in the ethanol business these days thatPacific’s bookkeeping adventure is also boosting Aventine Renewable(NYSE:AVR) by about 2%, to $0.95/share. Ethanol stocks are probablyalso getting a little boost from yesterday’s announcement by thefederal EPA that it is increasing next year’s requirement for renewablefuels by 2.1 billion gallons, to 11.1 billion gallons, for 2009. That’sabout 8% of expected US gasoline consumption for next year.
There are now 160 firms making ethanol, mostly small and privately held,and using corn as feedstock. US Sugar Corporation, a privately heldcompany, announced that it is considering building a 100 million galloncellulosic ethanol plant in Florida that would use sugar cane bagasseas a feedstock. The plant would be a joint venture with Coskata Inc.,another private company funded by venture firms including KhoslaVentures, whose namesake, Vinod Khosla, was an early investor inPacific Ethanol (and Sun Microsystems (NASDAQ:JAVA), for that matter).
The impetus for the cellulosic plant is the decision by the state ofFlorida to withdraw some of US Sugar’s land from cultivation in aneffort to restore a portion of the Florida Everglades. US Sugar plansto apply to the Florida Energy Office for matching funds to conduct anearly engineering study for the project. The company also wants to geta piece of US Department of Agriculture loan guarantees that have beenearmarked for biofuels that do not use food crops as feedstocks.
Ethanol–the fuel that keeps on giving. As long as the federal government keeps pushing out more money to support it. Sheesh. The TARP is the acronym for "Troubled Asset Relief Program." Maybe ethanol companies can band together to get a "TERP" through Congress.
Paul Ausick
November 18, 2009
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