Natural Gas Week
Ethanol Industry Bankruptcies Could Hit Industrial Gas Demand

Monday, November 10, 2008

Several US ethanol producers have filed for bankruptcy in recent weeks, which is bad news for natural gas bulls.

Verasun, the second largest US ethanol producer, filed for bankruptcy last week, following smaller producers Bioenergy, Ethanex, Greater Ohio Ethanol and Gateway Ethanol who did the same.

Since the use of natural gas in the production of ethanol and ammonia have been the key factors behind rising gas demand, industrial use of natural gas may flatten in coming months (NGW Aug.18,p1).

So far in 2008, 7.5 billion gallons of ethanol have been produced in the US. Production has far outpaced 2007 levels, which had reached 5.35 billion gallons this time last year to approach 6.5 billion gallons of total output in 2007.

"I don't think that the growth will be as prolific as it was between 2007 and 2008, but we're still on an upward trajectory. The slope of your curve will be muted a little bit," said Jack Weixel, manager of energy market fundamentals for Denver-based BENTEK Energy.

A number of causes may explain the string of bankruptcies. For one, volatile corn prices and swinging crude oil prices have created market uncertainty for producers.

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