Ethanol plant begins production

The Northwest's first ethanol plant rises from an arid tract of land along the Columbia River, where trainloads of Midwest corn are being turned into 200-proof alcohol motor fuel and cattle feed.

The new plant in Boardman, Ore., was built by Pacific Ethanol, a publicly traded company that last year attracted an $84 million investment from Microsoft founder Bill Gates. Company officials, who held a kickoff ceremony Friday, plan to produce some 40 million gallons of ethanol that will be blended with gasoline and sold to motorists.

"Our world is demanding an alternative to oil, and we are a small step in that direction," said Tom Koehler, a Pacific Ethanol vice president.

This $100 million plant is among dozens built across the country in recent years, a construction boom that has pushed annual U.S. production capacity to more than 6.5 billion gallons annually and brought new investment in many rural communities.

But the launch at Boardman comes at a difficult time for the ethanol industry, which has been buffeted by critics who want to pare back federal support for this alternative energy, and by a sharp decline in the product's selling price.

Critics attack the growing amount of cropland devoted primarily to energy rather than food production. They have also cited the environmental costs of expanding Midwest corn production, which requires large amounts of fossil fuels and can result in soil erosion and water pollution from fertilizers.

For producers, the markets are the most immediate concern, as their expanding output during the past 18 months has sent ethanol prices diving from highs of more than $3 a gallon to spot market prices as low as $1.50 a gallon. That has put some new ethanol plants on hold and prompted analysts to predict an industry shakeout.

Last week, VeraSun, a major Midwest ethanol producer, suspended construction of a 110-million-gallon-a-year ethanol plant in Indiana because of poor market conditions.

But the fledgling Northwest industry is still expected to expand. A second ethanol plant is scheduled to begin operations next spring in Clatskanie, Ore., and a third is scheduled to come on line in 2009 in Longview.

All of these sites are far from the Midwestern cornfields that produce most of the feedstocks.

But Pacific Ethanol officials are convinced that the advantages of being close to major markets for the fuel and cattle feed more than make up for the extra costs of shipping the Midwest corn to corporate plants in California, Colorado and now Oregon.

At the Boardman plant, the starch in each bushel of corn is expected to produce some 2.8 gallons of ethanol, which will be shipped to market by barge — rather than on high-priced train cars leased by Midwest distilleries, according to Koehler.

The distillation process also has a byproduct: protein-rich stillage that can be fed to cattle. In the Midwest, there is a big glut of this stillage, which is often dried so it can be shipped to more distant feed markets. But the Boardman plant is located near major dairies and cattle-feed lots, so the stillage — nearly 60 pounds per bushel at a 65 percent moisture content — can be shipped wet to these operations.

"We consume 30 percent less energy because we don't have to dry the stillage," said Doug Dickson, a Pacific Ethanol vice president. "It's a big savings."

The new Boardman plant's earnings are tied to the volatile commodity markets for both corn and ethanol. "It changes day to day. It's hard to stick a stake in the sand and say today we are profitable," Dickson said.

Overall, the company has entered into contracts that help lock in profit margins. And for the first six months of this year, Pacific Ethanol reported a profit of $5.1 million on sales of more than $213 million, according to a financial-disclosure document.

In an ethanol industry that includes such agribusiness giants as Archer Daniels Midland, it is still a relatively small player. But the company wants to be the biggest marketer and producer of renewable fuels in the West, and intends to keep expanding.

Over time, the company hopes to buy more field corn from Northwest farmers. But a big expansion of these fuel crops would be difficult in the Northwest. Most Oregon and Washington farmers grow vegetables, orchard fruits, wine grapes and other, higher-value crops on the prime irrigated lands.

If the technology eventually becomes profitable, Pacific Ethanol would like to upgrade its plant to handle cellulose, fibrous materials such as wheat straw, which could then be turned into fuel, according to Koehler.

"I think they have a good business model, and that [ethanol] market is not going to go away on the West Coast," said Jeffrey DeReamer, managing director of Ethanol Market, a consulting firm that also publishes a newsletter about ethanol.

When it's finished, the new plant in Clatskanie, 200 miles west of Boardman, will be bigger than the Boardman plant. It is scaled to produce more than 100 million gallons of ethanol a year — more than double the output at Boardman.

"We should be fully operational by March or April," said Chuck Carlson, president of Cascade Grains.

Another company, US Ethanol, has done site work in Longview for a plant that is scheduled to be in operation by early to mid-2009, according to Tawni Camarillo, a project spokeswoman. US Ethanol also plans to establish a network of pumps to market E85. The first pump is scheduled to open this fall in the Longview area.

Hal Bernton: 206-464-2581 or hbernton@seattletimes.com