http://www.latimes.com/business/la-fi-peru29jan29,1,1599284.story?track=rss&page=2&ctrack=1&cset=true
Drive to produce ethanol steers energy firm to Peru
By Chris Kraul, Times Staff Writer
January 29, 2007
BOGOTA, COLOMBIA — The domain of snakes, scorpions and scrub brush since
time immemorial, a stretch of desert in northwest Peru could soon become
an unlikely generator of jobs and local well-being, thanks to the
booming U.S. market for ethanol.
At a ceremony this month, energy firm Maple Cos. closed a deal to buy
25,000 acres of unused and heretofore unwanted land near the city of
Piura. The Dallas company announced plans to invest $120 million in an
ethanol processing plant, a sugar-cane field to provide raw material for
the fuel and a mile-long underwater pipeline to the Pacific Ocean to
deliver fuel to tankers and onward to U.S. customers.
Maple President Rex W. Canon said the company would be capable of
shipping 30 million gallons of ethanol a year by 2010, perhaps growing
to 100 million in the following decade. Peruvian President Alan Garcia
attended the ceremony and beamed as he heard Maple promise that the
project would directly or indirectly create 3,200 jobs.
Gov. Cesar Trelles of the Peruvian region, also called Piura, which
includes the site, said in a telephone interview that the project would
spark economic development. He predicted that northwest Peru would some
day be an ethanol hub, producing 400 million gallons a year. That's an
ambitious goal — it would represent 7% of all the ethanol Americans
bought last year.
It's easy for entrepreneurs and government officials to wax on about
ethanol as they contemplate booming U.S. demand, which last year grew
30% and could have years of expansion ahead. President Bush, in his
State of the Union address Tuesday, called for increasing use of
alternative fuels such as ethanol — which can be made from sugar, grains
and even plant waste — as part of a strategy to reduce U.S. dependence
on imported oil.
Maple sees Peru, with its favorable growing conditions and trade
preferences with the United States, as the perfect platform from which
to fulfill such demand.
"The big driver for us is that Peru is one of the best places in the
world to grow sugar cane in terms of how many tons you can produce per
acre per year," Canon said.
"That gives us a cost advantage," he said of his privately held group of
companies, which has been developing and operating energy projects since
1986, with a focus on Peru since the early 1990s.
Spurring growth in ethanol demand are two factors: the high cost of
crude oil and the environmental harm that it and other hydrocarbons are
doing to the planet. Global warming and rising pollution have touched
off a grass-roots movement in the U.S. and other countries advocating
for cleaner-burning automobile engines.
But the market relies on more than consumer preferences. Much of
ethanol's market growth is a product of changing laws. Increasing
numbers of U.S. states, including California, require refiners to
substitute ethanol as an octane-producing gasoline additive in place of
MTBE, a chemical that has fouled water sources, is believed to be a
carcinogen and is being phased out of most refining.
Growing supplies have already begun to affect prices. Ethanol was
trading last week in New York for about $1.90 a gallon, down about 50%
from a record $3.986 on July 3.
At the same time, the boom in demand has driven the spot price of corn,
a primary raw material for ethanol, to about $4 a bushel on the Chicago
Board of Trade. Futures prices, which have surged nearly 90% in the last
year, reached a 10-year high of $4.205 on Jan. 17.
Sugar prices also are up, partly because of inclement weather in Brazil,
the world's No. 1 producer, but principally because more of the world's
crop goes to feed ethanol factories.
Demand for ethanol is expected to continue to surge as Detroit
automakers deliver on promises to manufacture more cars that can run on
the fuel. By 2010, the companies say, they will be rolling out at least
4 million so-called flex-fuel vehicles a year capable of running on 85%
ethanol. Only 1 million flex-fuel vehicles were produced last year.
Until last year, U.S. ethanol producers kept pace with demand. About 110
ethanol processing plants have opened in recent years, mainly in the
Midwest, and more than 70 are under construction across the country,
said the Washington-based Renewable Fuels Assn., a trade group.
California has four ethanol plants.
Nonetheless, demand has grown so rapidly in the last year that imports
of ethanol from Brazil, Costa Rica and Jamaica were needed to fill the
gap. Imports ended up supplying 10% of all ethanol sales last year, and
that percentage is expected to grow in coming years with more U.S.
supplies coming from tropical locales such as Peru.
Ethanol demand will continue to rise, boosters say, as long as oil
prices remain relatively high and consumer attitudes stay "green."
Ethanol accounted for 3% of all auto fuel sales in the United States
last year, compared with about 50% in Brazil, the most advanced country
in the use of green fuels.
Significant growth potential in ethanol consumption is expected as well
for Japan, China and India, where high fuel prices and pollution are
concerns, said Matt Hartwig of the Renewable Fuels Assn., a
Washington-based trade group.
With two new ethanol plants opening every month in the United States,
competition is tightening and the chance of a glut can't be dismissed.
Canon of Maple says he is not worried. Peru's growing conditions, its
low labor costs and the duty-free status of ethanol under terms of the
Andean Trade Promotion and Drug Eradication Act is expected to give
Maple an edge over other suppliers, even after accounting for the cost
of shipping ethanol by tanker.
Under the trade act, Peru and other Andean countries can export a
variety of agricultural products to the United States without paying
duties. The program's intent was to give farmers an incentive not to
grow coca, marijuana or the poppy from which heroin is made. Ethanol, as
a farm-based fuel, is among those duty-free products.
Maple is no stranger to audacious energy projects: In the late 1990s, it
built a 175-megawatt electrical power plant in the Peruvian jungle near
Pucallpa with two huge generators the company had floated up the Amazon
River on barges.
The Piura project will use irrigated water from the nearby Chira River
to transform desert acreage into productive farmland.
"This is uncultivated land. We'll build out a sugar-cane plantation, a
milling facility and an ethanol distillery," Canon said. "We'll also
build a small power plant that will use the bagazo, or waste, from the
sugar cane as fuel."
Money will go toward building a pipeline and an offshore docking
facility to load ethanol onto tankers destined for the U.S. and other
markets.
Trelles, the regional governor, says Piura has an expanding portfolio of
agricultural exports to the United States. Enormous mango and lemon
groves have been planted there in recent years to supply U.S.
supermarkets, taking advantage of the duty-free status afforded by the
Andean trade act.
To the south of Piura, farmers have planted snow peas and asparagus
grown specifically for air shipment to U.S. grocery stores.
But the Maple project will take the area to another level, and Trelles
hopes that other ethanol producers will follow with more factories.
"We are at a historic moment in the region," Trelles said. "With this
creation of a new industry, we will see wages go up, better conservation
of our water and more jobs."
The region is bracing for the effects of a bilateral free trade deal
that Peru and the United States have signed; the pact, which Peruvian
legislators have approved, may go into effect this year if Congress
passes it. The accord would make the trade preferences permanent but
would also open Peru to imports of U.S. grains with which rice farmers
in the Piura area cannot hope to compete.
Trelles says that as the Maple ethanol plant goes online, he hopes that
rice farmers in the area will switch to sugar cane. Such a change would
have an added benefit, the governor says, as cane crops need only
one-third as much water as rice.
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