Minnesota Ethanol Producer Ramping Up Production of Industrial Alcohol Used in Sanitizers

  • Thursday, 26 March 2020 08:17

Star Tribune

Mar 25, 2020

Chippewa Valley Ethanol at least has some consolation during grim times for the biofuel industry. The west-central Minnesota company also churns out industrial alcohol, a key ingredient in hand sanitizer.

“It’s nice to have a little product diversity,” said Chad Friese, Chippewa Valley’s CEO. “In a market like this, it makes a difference.

Much of the ethanol industry has been floundering in red ink for the last year, hurt by a glut of supply and declining demand due to trade restrictions and a flood of federal exemptions on ethanol use by smaller oil refineries.

Now, with much of the country’s economy shut down, demand for transportation fuel has nose-dived and so have ethanol prices. However, during the COVID-19 outbreak, the need for sanitizers — and the industrial alcohol that goes in it — has spiked, helping some U.S. ethanol producers, including one in Minnesota.

“I haven’t seen ethanol prices this low since the mid-1990s,” said Brian Kletscher, CEO of Highwater Ethanol and current board president of the Minnesota Bio-Fuels Association, a trade group.

None of Minnesota’s 17 operating ethanol plants have temporarily shut down due to the current crisis. But like their peers across the Midwest’s ethanol belt, they are contemplating cutting biofuel production if they haven’t already.

Highwater Ethanol in the southwestern Minnesota town of Lamberton cut output by 20% on March 19, Kletscher said.

He said he has heard “rumblings” of other Minnesota ethanol plants doing the same. Throughout the country, the ethanol industry is trimming production by 20%, he said. Indeed, output will have to be curtailed if the ethanol storage system — tanks, even rail cars — fills up.

Minnesota is the nation’s fourth-largest ethanol producer and hosts 17 operating biofuels plants. The ethanol sector is an important part of the state’s agricultural economy.

Under the U.S. Renewable Fuel Standard, most fuel sold as gasoline is required to include 10% ethanol. President Donald Trump’s administration has increased the number of ethanol hardship waivers for smaller refineries, incensing biofuel makers that say it cuts demand for their product.

Now, with COVID-19 paralyzing much of the economy, demand for transportation fuel has been whacked.

“I think we will see demand destruction of 25 to 30 percent, or even up to 40 percent over the next month due to COVID-19,” Kletscher said. New York and California, two states that have been virtually shut down by their governors, are two of the nation’s biggest fuel markets, he added.

The duration of the public safety lockdowns, of course, will likely determine the depth of the ethanol industry’s troubles.

“When we get through this, people will be antsy to get out,” Kletscher said. “We are getting close to the driving season, too, and that will also increase demand.”

Chippewa Valley Ethanol in Benson is getting pummeled by declining fuel demand, too, but unlike other biofuel plants in Minnesota it produces industrial alcohol. Normally a staid, niche market, industrial alcohol demand is hot.

“We have been in this market for many years, and have just seen some large growth,” said Chippewa CEO Chad Friese. “We have a strong customer base in the sanitizer market.”

Normally, industrial alcohol accounts for about 15% of Chippewa Valley’s production, with ethanol making up the rest, Friese said. But with the COVID-19 crisis, that percentage has risen to 20% and even as high as 22%.

Making industrial alcohol from ethanol requires a further step in distillation. It also requires permits from the U.S. Food and Drug Administration and the federal Alcohol and Tobacco Tax and Trade Bureau. Chippewa Valley, a longtime producer, has both.

If the ethanol demand slump is prolonged, other ethanol makers may also seek such licenses and rejigger their production setup to produce industrial alcohol, Kletscher said.

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