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Ethanol Boom Is Running Out of Gas
By LAUREN ETTER and ILAN BRAT
October 1, 2007; Page A2 Wall Street Journal

Ethanol's frenzied growth over the past year is coming to a halt -- at least for now.

The price of ethanol has fallen by 30% over the past few months as a glut of the corn-based fuel looms, while the price of ethanol's primary component, corn, had risen. That is squeezing ethanol companies' profits and pushing some ethanol plants to the brink of bankruptcy.

Financing for new ethanol plants is drying up in many areas, and plans to build are being delayed or canceled across the Midwest, as investors increasingly decide that only the most-efficient ethanol plants are worth their money.

Some ethanol companies are "under deathwatch" now, says Chris Groobey, a partner in the project-finance practice of law firm Baker & McKenzie, which has worked with lenders and private-equity funds involved with ethanol.

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But ethanol has gotten snagged by its own success. The price of ethanol has dropped to about $1.50 a gallon, down from about $2.50 at the end of last year, according to the Oil Price Information Service. That is largely because too much ethanol is being produced. Part of the problem appears to be that oil companies aren't able to blend ethanol into gasoline as quickly as ethanol is produced.

By next year, U.S. ethanol capacity is expected to reach about 12 billion gallons, according to Eitan Bernstein, an energy analyst at Friedman, Billings, Ramsey Group Inc., based in Arlington, Va. Currently, demand is just less than seven billion gallons.

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