The feasibility of ethanol production in Texas

Abstract

Agricultural interests across Texas are looking at the possibility of an ethanol industry in Texas. Continued conflict in the Middle East, the ban of methyl tertiary butyl ether (MTBE) in California, and low commodity prices have all lead to increased interest in ethanol throughout the state of Texas. There have been several ethanol feasibility studies conducted. Most studies have been focused in other states, and only one incorporated risk on input and output prices. Very little research has been done in Texas. Previous studies are typically for a generic location and only looked at ethanol production from corn. This study looks at four different plant sizes in three different regions using corn and grain sorghum. This study incorporates risk on input prices (corn, grain sorghum, natural gas, and electricity) and the output prices of ethanol and dried distillers grain with solubles (DDGS). The regions that were analyzed in the study are the Texas Panhandle, the Central Texas region, and the Southeast Texas region. The results indicate that the only plants expected to generate a positive net present value (NPV) were the larger grain sorghum based plants in the Texas Panhandle. The smaller sorghum based plants in the Panhandle did not have a positive NPV. The only other plants that were close to having a positive net present value were the grain sorghum plants in the Central Texas Region. Sorghum in the Southeast Texas Region was not feasible. Using corn as the feedstock was not as feasible in any region. The results of a sensitivity analysis show that a small increase in the net income in the form of increased revenue or reduced costs would make all the plants profitable.