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.