(Bloomberg) -- U.S. ethanol makers are either halting or significantly cutting their production after the rout in oil prices made biofuels uncompetitive against gasoline, and as coronavirus keeps many drivers off the road.
With oil prices down, ethanol makers lose about 25 cents per gallon of biofuel, said Scott Richman, chief economist at the Renewable Fuels Association trade group. Ethanol this week fell to a record low of less than $1 per gallon.
If too many drivers stay home, there won't be enough storage available to stow away unused ethanol. That could force plants to close down, according to Jeanne McCaherty, the chief executive officer of Guardian Energy Management, which overseas ethanol plants in Minnesota, North Dakota and Ohio.
“That is not a viable situation going forward,” McCaherty said. “If there is significant demand destruction we may have to shut down because of physical restrictions.”
Even before coronavirus prompted schools and offices to close across the country, the ethanol sector was struggling amid the U.S.-China trade dispute that hit ethanol exports, and after some oil refiners received federal waivers from blending ethanol.
One top U.S. ethanol producer, POET LLC, said in a statement it was “monitoring the situation closely and working with team members at each plant to stay ahead of market changes as the situation continues to evolve hour-by-hour and day-by-day.”
The Renewable Fuels Association issued a plea to President Donald Trump's administration not to appeal a court decision that could eliminate some of the waivers. The group is also hopeful for some sort of federal aid, Richman said, noting that oil producers will benefit from announced purchases for the U.S. strategic oil reserve.
“We haven't seen anything like this since the financial collapse and that impact was fairly short,” said Randy Doyal, the CEO of Al-Corn Clean Fuel in Minnesota. “This one, I'm afraid, we will feel longer than that.”
McCaherty, meanwhile, said there is one thing consumers can do to help: Take a leisurely drive. “I really love that idea,” she said. “Take a drive and maintain some social distance.”
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