Green Plains, Sunoco Deals Highlight Bargain-Basement Ethanol Plant Prices

Last Updated May 22, 2009 2:02 PM EDT

It's remarkable what ethanol plants are going for these days. Two separate ethanol plant purchases this week shine a glaring light on how far prices have dropped since last year. With prices this low, the ethanol-producing industry is going to experience rapid consolidation, that's already begun.

Philadelphia-based oil refiner Sunoco -- jumped into the ethanol-producing business this week with its winning $8.5 million bid for a Northeast Biofuels plant. The Volney, N.Y. plant cost $200 million to build back in 2006 and at full production can produce about 100 million gallons of ethanol a year.

The deal isn't without flaws. Northeast Biofuels, which filed for bankruptcy in January, was never able to get the plant into full production mode because of some design problems. Sunoco spokesman told the Philadelphia Inquirer it might have to spend $10 million to $20 million to get the plant to full production.

Even if it costs an additional $20 million, bringing the total investment up to $28.5 million, that is still an 86 percent discount. What's even crazier, is Sunoco outbid a consortium of companies that offered $1 million for the upstate New York plant. One million dollars! The most expensive home in nearby Syracuse is going for $1.3 million.

Sunoco's purchase marks the second oil refiner to get into the ethanol business. Valero Energy, the largest U.S. oil refiner, snapped up seven plants and a development site from bankrupt VeraSun's plants for $477 million. Valero said it paid 30 cents on the dollar for the plants.

This week ethanol producer Green Plains Renewable Energy bought two plants in Nebraska for $123.5 million. Green Plains purchased the plants from AgStar Financial Services, a lending group that bought them from VeraSun.

The acquisition makes Green Plains the fourth-largest ethanol producer in the U.S. and boosts its capacity by 45 percent. Green Plains CEO Todd Becker said the company paid the equivalent of 82 cents an operating gallonfor the plant, in MarketWatch.

Bankruptcy court has claimed at least 10 producers including Pacific Ethanol and Aventine Renewable Energy's filing in April.

This means a glut of ethanol plants is hitting the marketplace. Now that I've shaken off my initial too-cheap-to-be true sticker shock, I'm prepared to watch prices fall even further.

See BNET's previous coverage of the biofuels industry: