Ethanol Backers Press For More Gas Production

Gas Daily Thursday, March 22, 2007

Proving that energy, like politics, can make strange bedfellows, proponents of boosting ethanol production to help wean the country off fossil fuels are among the strongest advocates of increasing supplies of another fossil fuel: natural gas.

While ethanol is being touted as a clean-burning alternative to gasoline, ethanol supporters believe gas supplies must increase to help bring down the cost of fertilizer used to grow ethanol-producing corn. Gas makes up the bulk of the cost of nitrogen-based fertilizers.

“As ethanol demand grows and continues to grow, we’re going to see the requirement for more corn,” said John Urbanchuk, director of the Emeryville, California-based Law and Economic Consulting Group. He estimated that US farmers would “plant close to 87 million acres of corn this year and that means that demand for nitrogen fertilizer is going to increase.”

Lobbyists for the agriculture and fertilizer industries were major backers of a bill passed late last year to open 8.3 million acres of the eastern Gulf of Mexico to gas and oil drilling (GD 12/21). Last week, Senators Byron Dorgan, Democrat-North Dakota, and Larry Craig, Republican-Idaho, introduced a bill that would allow drilling within 45 miles of Florida’s coast (GD 3/15).

The National Growers Association supports increased offshore drilling but hasn’t yet taken a position on the latest bill, said Emily Olson, NCGA’s director of public policy for energy.

“We’ve seen dramatic increases in the price of natural gas, which increases our fertilizer cost,” Olson said. In 2000, farmers paid an average of $175/ton for nitrogen fertilizer; by 2006, the price had jumped to $560/ton.

“That severe jump in growth raises our input costs. That’s why corn growers have advocated for more access to natural gas in order to alleviate the pressure,” Olson said. “They’ve had to go overseas for some of their nitrogen.”

In addition to fertilizer costs, ethanol producers also must keep close track of the cost of gas used to supply energy to their plants, Olson noted. “There’s the affordability issue. It’s the easiest thing at this point for ethanol plants to use,” she said, adding that ethanol producers are “open to other forms of power generation.”

“We support any measures that increase the availability of natural gas,” said Harriet Wegmeyer, a spokeswoman for The Fertilizer Institute. “We were very supportive of those measures to open up areas of drilling.”

Although the institute lobbied for both the Energy Policy Act of 2005 and last year’s Gulf drilling bill, she said it has not yet taken a position on the Dorgan/Craig bill.

 “When natural gas supply is tight that naturally affects the fertilizer industry,”

Wegmeyer said, adding that the rapidly increasing demand for corn-based ethanol will trigger a corresponding growth in fertilizer demand.

“Corn is the most intensive nitrogen fertilizer-using crop that is grown in the

United States,” she said. “Farmers say they are going to be planting as many acres as they can and they’re going to be applying fertilizer to get the corn to get the ethanol. So there’s a definite boom or increased demand for fertilizer.”

Charles Nekvasil, a spokesman for fertilizer manufacturer CF Industries Holdings, said his company was “very much active” in lobbying for passage of last year’s bill to open additional Gulf acreage to drilling. The firm operates two of the largest nitrogen fertilizer plants in North America.

“The natural gas situation has had a very serious effect on the farm community,”

Nekvasil said. “Without increasing the production of natural gas, we’re putting our food security somewhat at risk.” JM