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State on verge of renewable energy boomJennifer M. Latzke In recent months, Oklahoma announced the first of four proposed ethanol plants has begun production. Spaceport Fuel, Burns Flat, Okla., received the first state permit to produce ethanol in December 2006. Two more plants are planned for Enid, and one is proposed in Shattuck. Oklahoma is on the verge of a new energy boom--and it has more to do with the crops on the land, rather than the oil deposits below.
A collaborative effort One of the proposed Enid plants is Oklahoma Ethanol, LLC. In 2002, OFU formed the entity, Oklahoma Farmers Union Sustainable Energy, LLC (OKFUSE) to research and apply for a grant from the state of Oklahoma to conduct a feasibility study about producing ethanol in the state. OKFUSE eventually received a $231,000 grant from the state, and had $265,000 in matching funds and in-kind contributions. OKFUSE's feasibility study found that an ethanol plant located in the north central portion of the state would be the most beneficial to Oklahoma producers and consumers. Plans went forward, and a site in Enid was offered by ADM. ADM had two elevators they had received during the Farmland bankruptcy proceedings that were essentially standing idle in Enid. The company offered the storage facilities and 40 acres to OKFUSE for construction. Now, at the same time, Chaparral Energy, LLC, an Oklahoma limited liability company, was also developing plans for an ethanol plant. OKFUSE and Chaparral met and realized that together the two entities could be more beneficial for Oklahomans than separately, and so they formed Oklahoma Ethanol. In October 2005, OKFUSE was replaced in the partnership by Oklahoma Sustainable Energy, LLC, and is now working with Chaparral in developing Oklahoma Ethanol. Whatever its family tree, Oklahoma Ethanol exists with one goal in mind, and that is to bring prosperity to Oklahomans through renewable energy. Chairman and President of the Board of Managers of OSE Terry Detrick discussed the status of Oklahoma Ethanol and renewable energy in Oklahoma.
The feasibility of ethanol "After the 2000 Census, we saw a continued degradation of the population of rural Oklahoma," Detrick said. "Everyone knows we lost a congressman because of the decline in our population. And, we had to face the fact that if we do the same old things we'll continue to get the same old results." Detrick, who's also vice president of Oklahoma Farmers Union, said that the organization looked at many options for adding value to Oklahoma agricultural production, but the group kept coming back to the promise of renewable energy. The feasibility study showed that Enid was centrally located near both grain producers and feedlots, and had the transportation and storage infrastructure available to meet an ethanol plant's needs. The plant proposed is a 55 million gallon ethanol plant, that can use 19.7 million bushels of grain per year. The facility will be able to use both corn and grain sorghum, and Detrick said the plant would most likely use a blend of the two crops. Because one of the co-products of ethanol, dried distillers grains, will be a revenue source for the plant, its important to have consistency in that product. "Whatever mix of corn and Sorghum that we might use must stay consistent because if someone has animals on this feed, they must have a consistent ration every day," he said. "Also, with a blend of corn and grain Sorghum we won't be entirely dependent on one crop or another." Just how will Oklahoma Energy meet its 19.7 million bushels per year of crop inputs, will be a main benefit to area grain producers. Detrick said the feasibility study showed that an average of 14.1 million bushels of corn and grain Sorghum production is available within 50 miles of Enid. "Just outside of that, within trucking distance of about 70 miles, we get into the heavy grain Sorghum and corn production of the central Great Plains," Detrick said. Once online, Detrick predicts that area farmers who need a reliable crop rotation for their no-till winter wheat will consider Sorghum as a viable crop that can make profits.
A new boom town Enid's new ethanol boom also includes the proposed Orion Ethanol Plant, a cooperative effort with Johnston Grain, an Enid grain merchandiser. "The project originated as a natural extension to our development of Gateway Ethanol in Pratt, Kan.," said Dr. Pat Barker, Chairman of Orion Ethanol, Inc., LLC, Pratt. "This 55 million gallon per year plant is under construction and is coming on-line in July 2007. We realized the advantages of the area, and Johnston Grain came to our attention because they dominate the nearby Oklahoma market. Their historical superior performance, and the quality of the entire organization made us natural partners." Orion Ethanol will collaborate with Johnston Grain to open two plants in the state--one located near Johnston's Enid terminal and one near its Shattuck location. This relationship will create several benefits for the farmers and communities near their locations. "The Co-Locate Agreement with Johnston Grain is common in the industry," Dr. Barker said. "It allows existing grain merchandisers to enhance their enterprise value, and the result is a win-win for their communities. "This series of plants is unique because they combine locations which are on the border of the corn Belt, as well as in the heart of cattle country," Dr. Barker said. "They also are closer to the enlarging Texas and West Coast markets for ethanol than the plants in the heart of the corn Belt." Drought-tolerant corn varieties will allow more corn to be grown in the nearby regions; distillers grains can be marketed to nearby cattle feeders; and the by-product carbon dioxide can be marketed to existing oil fields for tertiary recovery of soil, he added. It's estimated that the Orion Ethanol plant would use approximately 19 million bushels of corn and/or grain Sorghum each year. "Corn and grain Sorghum are our primary feedstocks," said Tim Barker, executive vice president, Orion Ethanol. "Local farmers will enjoy having a steady source of demand for their crops and will benefit from a slightly higher grain basis."
Location, labor and legislation As with any business, location is a vital key to Oklahoma Ethanol's future. In Enid, Detrick said, a close proximity to livestock feeders means a better price for dried distillers grains and less freight costs. "And, with literally tens of thousands of acres of idle land in conservation, farmers can be producing Sorghum in a crop rotation with winter wheat." The Oklahoma Ethanol plant will employ about 40 highly specialized employees in well-paid positions, Detrick said. "The U.S. Department of Agriculture shows that an ethanol plant can create about 1,200 additional jobs, though," he said. Everyone in a community can benefit from a new ethanol plant--on-farm labor, labor at local grain facilities and feedlots, and local retail businesses who will see local customers with more money to spend. Another labor benefit from an ethanol plant, such as Oklahoma Ethanol, will be the need for trained workers, college graduates who might not otherwise return to a small rural community will be able to find employment. "We'll have our own in-house lab so there's a need for chemists, and operators and grain procurement and risk management people," Detrick said. Adding Orion Ethanol to the mix, and Enid is an Oklahoma town primed for an economic boom. Dr. Barker explained that the Orion Ethanol plant would create at least 53 full-time full-benefit jobs at the plant, creating as many as 300 more jobs in the community at large. "The plant will expand the local economic base of the community--direct spending of $150 to $300 million translated into a multiplier of three to five times overall," he said. The legislative climate in Oklahoma is favorable to new ethanol start-ups. "One of the things we looked at, early on before we got into this, was to see what we could do in Oklahoma to match what other states are doing," Detrick said. "At first, the Oklahoma Legislature approved a 20-cent per gallon tax credit on ethanol production, which was a wise thing. That meant that you had to be in production and contributing to the economy before you could get the tax credit. The thing is, no one realized how long it would take to get a plant in operation. That 20-cent credit expires in 2008, but there's talk that this year legislative leaders will revisit and extend that credit beyond 2008." "Ethanol producer incentives vary by state," explained Joshua Barker, executive vice president of marketing for Orion Ethanol. "And, both Kansas and Oklahoma have producer tax credits in place. For properly qualified ethanol plants, producers can expect tax credits of up to $1 million per year, depending on the size of the facility. At this point, Orion is not planning on receiving any federal ethanol producer incentives."
The status of Oklahoma Ethanol The only thing holding back Oklahoma Ethanol from breaking ground on its Enid location is the issue of water from the city. "Enid has water available, but the infrastructure is such that in its current state the city isn't sure whether it can deliver," Detrick said. The plant would use about 650,000 gallons of water per day, but would also utilize water reclamation technology to recycle most of that. "Basically, the ball is in the city's court," Detrick said. "They have to make up their mind to deliver and how much." As for a "Plan B" if the Enid location falls through, Detrick said there are numerous possibilities. "Enid is not the only place suitable," he said. "We originally planned to move dirt in September 2006. With these difficulties with Enid, we had to postpone that. We will not start pushing dirt or construction until we have an agreement worked out with Enid." Once an agreement is reached regarding water, however, Detrick said the plant can be constructed in 12 to 16 months. Orion, as a publicly traded company, cannot comment on the status of any capital raise, however Orion's majority-owned subsidiary, Gateway Ethanol, LLC, in Pratt, Kan., will begin commercial production in July 2007, Joshua Barker said. "Orion intends to develop additional low-cost ethanol facilities in areas that fit our business model," he added. "We are also analyzing synergistic business opportunities in areas ancillary to ethanol production." "The most significant hurdle we have faced is increasing capital costs of ethanol projects," Tim Barker added. "Global pressures on the raw materials used to construct the plants has increased significantly over the last six months and resulted in substantially higher capital requirements. "There's also a significant educational challenge to bring an ethanol project into a community," he added. "But, the people in Oklahoma have been warm and receptive to our projects and we are truly grateful for the support we have received." A companion, not an alternative The thing to keep in mind about ethanol, Detrick said, is that it's not an alternative to petroleum fuel, but rather a companion to it. "All blends, whether biodiesel or ethanol are blended with petroleum," Detrick said. "We won't ever become entirely energy independent, but we can produce enough renewable fuel to help us cherry-pick where we buy our petroleum from. The days of cheap energy are over, but we're not out to produce cheap energy on the backs of producers. We just want to keep the money at home that's been going to countries who don't like us and instead keep it at the farm gate in Oklahoma."
Jennifer M. Latzke can be reached by phone at 620-227-1807, or by e-mail at jlatzke@hpj.com.
0 None None Date: 1/26/07
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