Nearly 10 percent of the nation’s ethanol plants have stopped production over the past year, according to a New York Times article, partially because the drought has pushed corn prices so high that ethanol has become too expensive to produce.  A decrease in gasoline consumption has compounded the industry’s problems by reducing the demand for ethanol.

Backed by a federal government mandate that refiners use ethanol and a tax credit of 45 cents per gallon of ethanol, hundreds of ethanol plants were constructed in the Corn Belt.  The tax credit expired on December 31, 2011, but not before it had stimulated the building of ethanol plants.  The fate of dozens of those plants now hangs in the balance.  Referring to the plants that have been idled, Eric Lee, a commodities expert at Citibank, said “Is that going to be temporary or permanent?  It’s hard to say.”

Thousands of barrels of ethanol now sit in storage because there is not enough gasoline in the market to blend it with.  In addition, blends calling for a higher percentage of ethanol have yet to catch on widely in the marketplace.  Advanced cellulosic biofuels made from materials such as corn stalks and wood chips are yet to reach commercial-level production as some had predicted.

Demand for fuel has shrunk to 8.7 million barrels a day from 9.7 million in 2007, said Larry Goldstein, an economist and director of the Energy Policy Research Foundation.  As the gasoline market got smaller, so did the amount of ethanol it could absorb, because most service stations sell fuel with an ethanol content of 10 percent.  Although gasoline blends of up to 15 percent ethanol, called E15, has been approved, that fuel is not popular and is only available in a few corn-producing states.  The value of ethanol also has sagged.  Its price is created in part by the price of the gasoline it displaces, and gasoline prices have been relatively modest for the past few months.

In a related report, the lastest data from the Environmental Protection Agency (EPA) again shows no cellulosic production in the month of January.  Blue Sugar, the producer of the largest batch of cellulosic biofuel, which was exported, filed for Chapter 11 bankruptcy last month.

EPA’s mandate for cellulosic biofuels for 2013 is set at 14.0 million gallons, 62 percent more than the 2012 mandate of 8.65 million gallons.  Most analysts believe the mandate cannot be met since only 20,069 gallons of cellulosic biofuel was available for purchase last year and even less could be available this year, many analysts predict.