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The Honolulu Advertiser
Posted on: Saturday, February 25, 2006

Distribution key to biofuel boom

By Garance Burke
Associated Press

A tanker truck carrying 7,700 gallons of ethanol roars past the East Kansas Agri-Energy ethanol plant in Garnett, Kan. The alternative fuel, increasingly used as a gasoline additive, is expected to make a small group of Midwestern distributors extremely wealthy.

CHARLES RIEDEL | Associated Press

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GARNETT, Kan. On early mornings at East Kansas Agri-Energy, trucks line up to unload bushels of dry yellow corn into a hopper. By nighttime, those kernels are ready to transform into fuel.

"That's the sound of money," said ethanol marketer Steve Rust, against the roaring sound of crushed corn passing through the colored pipes overhead.

Rust, who works for Colwich, Kan.-based ICM Inc., the nation's largest designer of ethanol plants, says the factory sends streams of patrons to the town of Garnett's tiny supermarket and keeps some Kansas farmers in business.

The tiny town of about 3,350 has also become part of a new supply chain, where a small group of fuel distributors and ethanol barons stand to make a mint shipping the alternative fuel from the Midwest, where it's made, to major urban markets on both coasts.

Ethanol plants have attracted hundreds of investors, including Microsoft Corp.'s Bill Gates who sank $84 million into West Coast producer Pacific Ethanol Inc. and venture capitalist Vinod Khosla, who is seeding BC International, which will make fuel from switchgrass. But just a handful of companies in the Corn Belt hold the keys to distributing the fuel, which will prove crucial to making ethanol available across the country.

"They don't grow a lot of corn in New York or New Jersey. It's going to be a very profitable situation," said Jim Jordan, a Houston-based consultant to the ethanol and transportation fuels industries.

The U.S. ethanol industry now has 95 plants nationwide. Analysts say that by 2012, it will double in volume, from producing 4.3 billion to 7.5 billion gallons of biofuel. That growth will be aided by the Energy Policy Act of 2005, which gives ethanol producers sizable subsidies, including a federal tax credit for small refiners.

American producers are still grappling with how to meet rising domestic demand. Six states, including Hawai'i, have passed laws that require ethanol-blended gasoline, and nine others are considering similar legislation, according to the American Coalition for Ethanol.

Archer Daniels Midland Co. chairman and CEO G. Allen Andreas told analysts last week he expects producers will get another bump, since ethanol companies' rising demand for American-grown corn will push corn prices higher. ADM, headquartered in Decatur, Ill., is one of the world's largest corn processors.

ICM president Dave Vander Griend and his brother developed the country's first commercial fuel alcohol in 1978. He said his company has since grown so large earning $200 million in revenue last year that it spun off its distribution business. Aventine Renewable Energy Holdings Inc., an ethanol producer based in Pekin, Ill., has started distributing to such major oil companies as ConocoPhilips Co. and Chevron Corp. Agriculture giants ADM and Cargill Inc. are in the shipping business, too.

But as states like California, Texas and New York roll out legislation forcing gas stations to sell a more environmentally friendly energy mix, they may be tapped to spend public money to help move the fuel to its final destinations.

Kansas, in the heart of ethanol country, is considering subsidies to build railroad terminals to export ethanol and biodiesel, another renewable fuel made from recycled oil, across the country. Tax breaks for growers also are being discussed.

Subsidies and rule changes are probably necessary to get the market going after all, it took more than a century to build the nation's underground oil pipelines.

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