Duprey
strikes gold in ethanol
By Verne Burnett
The Trinidad Guardian
Port
Spain
Petroleumworldtt.com
05 06 07
CL
Financial’s visionary chairman Lawrence
Duprey seems to have struck gold again with his
foray into the ethanol business, after finding
success in methanol.
Two
years ago when he created Trinidad Bulk Traders
Ltd (TBTL), a subsidiary of Angostura Holdings
Ltd, it was intended to take advantage of a significantly
under-utilised quota under the Caribbean Basin
Initiative (CBI) allowing duty free entry of ethanol—or
fuel alcohol as it is more popularly known—into
the US.
Duprey asked his bright young men and women to
explore the feasibility of the project also with
an eye to possible synergies between ethanol and
the potable spirits which are the stock in trade
of the group.
He
believed he could craft a profitable business
out of the continuing worldwide concern about the
environment and energy security. “Those two
items are the push factors for ethanol worldwide,” said
Curtis Mohammed, general manager of TBTL.
Duprey could not have chosen a better time to
get into the business. Already in high demand when
he conceived the idea, the CL Financial chairman
has seen worldwide demand for ethanol explode and
the fuel become headline-making news. Indeed, global
demand for ethanol is forecast to outstrip supply
for the foreseeable future.
Ethanol got a big push when US President George
W Bush recently mandated that the US must consume
35 billion gallons of biofuels by 2017 in an effort
to reduce American dependence on oil. Bush believes
the expanded use of ethanol could eventually help
wean the US off its need for foreign oil, officials
say, lessening energy dependence on volatile Middle
Eastern nations and Venezuela where President Hugo
Chavez has been increasingly strident of late in
his anti-American rhetoric.
Future so bright
Curtis
Mohammed, general manager of TBTL, said the company
has contracts up to 2010 for the output
of the existing plant and a firm two-year contract
for the production from the second phase expansion.
He also has some “good and firm contracts
for three years.”
In
a Wall Street Journal article published on March
9, Mohammed admitted that TBTL wasn’t
profitable last year “because its 50-million-gallon-a-year
dehydration plant couldn’t get enough fuel
from Brazil.”
The paper quoted Mohammed as saying he is confident
of profits this year.
Mohammed
told the Guardian that last year was really the
plant’s first full year of operation,
its set up year, during which it was working out
all the “little bugs.”
He
also explained that the ethanol market was not
favourable “which is a real risk for
all persons entering this business.”
He
said TBTL was also working out its relationship
with Petrotrin but now things are more like “business
as usual.”
He
said, “at the end of the day it will
be very good financially for our business here
because we have worked out all the bugs. It will
be good going forward. Definitely. we are going
to make a profit this year.”
Indeed,
Mohammed said the plant has “already
surpassed our production commitments for this year.”
He observed that the cost of fuel alcohol on the
world market is high and rising. He said fuel alcohol
has even graduated to commodity status with increasing
volumes being traded on exchanges.
In
the overview to its Annual Energy Outlook 2007,
the US Energy Information Administration, reporting
on Energy Trends to 2030, said that “the
use of alternative fuels such as ethanol, biodiesel
and CTL, is projected to increase substantially...as
a result of the higher prices projected for traditional
fuels and the support for alternative fuels provided
in recently enacted Federal legislation.”
The document went on to predict that the use of
ethanol would rise from four billion gallons in
2005 to 14.6 billion gallons in 2030 (about eight
per cent of total gasoline consumption by volume).
It said that ethanol use for gasoline blending
would rise to 14.4 billion gallons and E85 consumption
0.2 billion gallons in 2030.
Quick to build, quick to market
Facts about ethanol
Ethanol is made from corn, sugarcane, switchgrass
and other plant materials. It has a variety of
uses: it is heavily used as a solvent in the
manufacture of varnishes and perfumes, essences
and flavourings, medicines and drugs, in disinfectant
and to preserve biological specimens.
However, its fastest growing use is as an additive
in gasoline to produce E85, a blend of up to 85
per cent fuel ethanol and 15 per cent gasoline
by volume, and E95, a blend of 95 per cent fuel
ethanol and five per cent gasoline by volume.
Securing a large part of its financing at “extremely
low interest rates” from a US ExportImport
(Exim) bank and taking advantage of freezone status,
the project was off and running despite a few early
missteps which put the company in trouble with
the Environmental Management Agency.
TBTL
set to work constructing a 50 million gallon
a year ethanol dehydration plant inside Petrotrin’s
abandoned Point Fortin refinery compound, in an
agreement exploiting synergies between the two
companies.
Construction
of the original plant began in January 2005 and
the facility was online by August 2005.
It began commercial production in September 2005.
At a formal opening ceremony on September 12, 2005,
Duprey said the plant was being built “to
capitalise on the growing global demand for cleaner
motor vehicle fuels.”
With plans for future expansion to 100 million
gallons a year, TBTL is now moving ahead on schedule
with the second unit that would double the output
of the facility.
Discussing
the project with representatives from a range
of European spirits companies acquired
by Angostura and executives from the group’s
other subsidiaries at Angostura’s annual
Spirits Group Technical Seminar and Workshop two
months ago, Mohammed make the expansion sound like
child’s play.
He said the plant was designed as two separate
units of 50 million gallons each.
“The
plan was to install a 100-million-gallon-a year
plant; all the apparatus was for something
on that scale. But from a commercial risk point
of view, it was decided to put the heart in first
because that lowers your working capital requirement
and minimises your risk. During the course of the
plant working we licked any problems in start up
and operation, then we decided to go ahead and
complete the rest.”
He
said since all the infrastructure—including
all the necessary engineering work for the second
phase expansion—was done at the time the
plant was established in 2005, phase two is virtually “plug
and play,” to borrow an IT term. Mohammed
said the expansion is expected to be completed
and commissioned by June, 2007.
Backward integration
Ethanol is made from corn, sugarcane, switchgrass
and other plant materials. It has a variety of
uses: it is heavily used as a solvent in the manufacture
of varnishes and perfumes, essences and flavourings,
medicines and drugs, in disinfectant and to preserve
biological specimens.
However, its fastest growing use is as an additive
in gasoline to produce E85, a blend of up to 85
per cent fuel ethanol and 15 per cent gasoline
by volume, and E95, a blend of 95 per cent fuel
ethanol and five per cent gasoline by volume.
TBTL
does not produce the alcohol itself but uses “feedstock” initially
imported from Brazil and, more recently, also from
Central America, China and other Asian countries.
Mohammed said the company would prefer to deal
with a regional supplier who would grow the sugarcane
and produce the alcohol. He said he has already
held talks with the Guyana and St Kitts governments.
Mohammed
said the company’s vision is to
eventually integrate backwards into regional sugar
production “once the political will and the
economic backing is there.”
That means acquiring huge plantations, a proposal
likely to be assisted by the collapse of the sugar
industry in the Caribbean.
Indeed, Mohammed observed that people are talking
more and more every day about converting the failing
sugar production facilities in the region into
ethanol production.
He estimated the company would need 150,000 acres
of land to grow sufficient sugarcane to produce
the alcohol it needs to meet the requirements of
the existing 50 million gallon a year facility
alone. To satisfy the expanded plant its needs
would double to 300,000 acres of land.
“Where will I get that? Certainly not in
Trinidad,” he said, answering the question
of whether TBTL is talking to the Government about
acquiring the assets of the defunct Caroni (1975)
Ltd.
Mohammed
acknowledged that “backward integration” will
probably have to happen through arrangements with
governments rather than outright ownership of the
plantations. This is because all cane lands in
the region are owned by governments rather than
private companies, quite the opposite of what obtains
in Brazil, for instance.
He
added that such backward integration will produce
synergies for the rest of the group as far as sugar
sources and security of feedstock for molasses
and cane juice and high test molasses. He said
90 per cent of the sugar cane production from these
estates could be for the group’s commodity
alcohol (fuel alcohol) business while the remaining
ten per cent would go to its rum production.
Mohammed
told participants at the Angostura Spirits Group
Technical Seminar that the success of the
project was due to the plant being quick to build
and quick to market, and backed by a large and
stable parent company. However, he said there were
challenges: one was the uncertainty surrounding
the CBI quotas and the other was “getting
the State petroleum company—Petrotrin—to
work with us.” VB
Another challenge
One of the challenges Curtis Mohammed failed to
mention was the ever-present lobbying by US politicians
against imported ethanol. Senators representing
corn growing states are eager to erect barriers
to keep foreign ethanol out of the US to protect
US corn farmers.
But
president of the Inter-American Development Bank
(IDB) Luis Alberto Moreno in an IDB article
published February 7, pointed out that the US ethanol
industry clearly cannot produce enough ethanol
to meet the country’s needs.
“The limits of this approach are already
apparent,” he said. “Corn prices shot
up 80 per cent in 2006 due to booming demand from
ethanol distilleries. Rising prices for cornflakes,
corn tortillas and corn-fed beef could easily produce
an anti-ethanol backlash among consumers.
“If US ethanol producers are struggling
to meet today’s demand without unacceptable
consequences, how are they supposed to supply the
vastly greater quantities envisioned by President
Bush’s proposal?
“The markets are already providing an answer,” he
said.
“Despite
a 54-cent a gallon tariff, US ethanol imports
more than quadrupled last year, to 616
million gallons, according to the US International
Trade Commission. Brazil accounted for more than
two thirds of the total, followed by Jamaica and
China. Now, in addition to Brazil, half a dozen
Latin American governments are either expanding
or launching serious ethanol programmes, and investors
are underwriting more than 100 new distilleries
in Central and South America.
“The
economic and political case for importing ethanol
is compelling. Ethanol derived from sugar
cane is far more energy-efficient than that produced
from corn and, as a result, far cheaper. Thanks
to their climate and abundant endowment of agricultural
land, many Latin American nations are uniquely
suited to grow sugarcane. Importing Latin American
and Caribbean ethanol would make the US supply
more reliable by diversifying sources and minimising
disruptions caused by bad weather or plant diseases
in a single producing country. It would also lead
to lower and more predictable prices for ethanol-gasoline
blends at the pump.
“A
hemispheric ethanol market is already taking
shape. Major US agricultural firms such
as Cargill Inc are forming ethanol joint ventures
with counterparts in Latin America and the Caribbean.
Last month Maple Cos, Houston-based energy firm,
broke ground on an ethanol complex in northern
Peru that will export all its production to the
US.
“International
trade in ethanol, though still less than ten
per cent of total production,
is rapidly increasing. And the Inter-American Development
Bank is providing technical assistance to several
Central American governments that intend to create
ethanol industries with technology and expertise
provided by Brazil and other countries.”
Trinidad
Guardian
Thursday 3rd May, 2007
Copyright ©2007
Trinidad
Guardian All Rights Reserved.
