The Cellulosic Competition

In essence, first-generation refiners like VeraSun, Aventine and Pacific Ethanol were pitched three strikes: In the rush to meet production commitments in the pre-crash environment, they overpaid for plants and facilities; rising corn costs and sluggish ethanol prices squeezed their margins; and now, they're being marginalized by newer, more efficient technologies, such as cellulosic ethanol.

An example of the competition is South Dakota-based POET Ethanol Products, the nation's largest producer of corn-based ethanol, which recently announced that it nearly halved the cost of producing cellulosic ethanol from corncobs. By slashing capital costs and utilizing an improved enzyme mix at its pilot plant, privately held POET says it reduced the per-gallon cost of making ethanol from $4.13 to $2.35.

What's more, the company now predicts it will be able to compete head-to-head with gasoline in just two years.

Ethanol Refiners: Where Are They Now?

So, what does all this mean for these first-generation ethanol firms? Well, look fast; they're not likely to be around much longer:

VeraSun Energy Corp. (Pink Sheets: VSUNQ), which last traded at $0.005, recently won approval from the U.S. Bankruptcy Court to liquidate the company under Chapter 11. All 158 million shares of the outstanding common stock will be cancelled, and shareholders will not receive any distribution, property or other securities. Several class action lawsuits have been filed against VeraSun executives, claiming they misrepresented the company's financial condition to investors.

Pacific Ethanol, Inc. (Nasdaq: PEIX), which last traded at $0.3825, faces delisting from Nasdaq for failing to comply with the marketplace's $1 bid requirement. Subsidiaries of the Sacramento-based company, which house its four production facilities, filed for bankruptcy protection back in May. A $1.9 million judgment payment, due this month from Pacific, could wipe out what remains of the company's liquidity.

Even Aventine Renewable Energy Holdings, Inc. (Pink Sheets: AVRNQ) has seen better days. The company, which last traded at $0.47, filed a voluntary Chapter 11 petition for reorganization in April.

Endnote

1. Ethanol refiners may realize yields deviating from those depicted here. For the sake of simplicity, revenue from the sale of co-products, such as distillers' grains and the receipt of subsidies, are not reflected in these figures. Co-product revenues may constitute 20-25 percent of the cost of delivered corn.

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