Celanese faces U.S. road block on ethanol

HOUSTON Wed Jun 15, 2011 7:46pm BST

Celanese Corporation Chairman and CEO David N. Weidman along with Steven M. Sterin, President, New Business Development and Chief Financial Officer answer questions as they participate in the Reuters Energy Summit in Houston June 15, 2011. REUTERS/Richard Carson

Celanese Corporation Chairman and CEO David N. Weidman along with Steven M. Sterin, President, New Business Development and Chief Financial Officer answer questions as they participate in the Reuters Energy Summit in Houston June 15, 2011.

Credit: Reuters/Richard Carson

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HOUSTON (Reuters) - Celanese Corp (CE.N) is spending more than $700 million to turn coal and natural gas into ethanol, but so far the chemical maker cannot sell any of the fuel in the United States.

U.S. renewable fuel standards dictate that 15 billion gallons of ethanol blended into gasoline each year come from corn.

That has presented an obstacle for Celanese, which thinks it has a groundbreaking technology that will wean the ethanol market off corn and government subsidies while also taking advantage of abundant coal and natural gas reserves.

Celanese has taken its ethanol technology, which it has repeatedly declined to explain, to China, hoping to supply that country's chemical industry with ethanol for paints and glues by 2013.

"When the U.S. standards were put in place years ago our technology wasn't available," Celanese Chief Executive Dave Weidman said at the Reuters Global Energy and Climate Summit on Wednesday. "We think there's strong consumer demand for something like this.

"It's certainly very economical. It requires the legislative re-look to allow it to be used."

Celanese is trying to obtain permits to build two new ethanol plants in China. Earlier this week it announced plans to expand a current facility in Nanjing, China, to bring its ethanol to market by 2013, a year sooner than initially planned. A demonstration facility in Clear Lake, Texas, should be running next year.

If current plans hold, Celanese hopes to produce 600,000 tons of ethanol per year in China. It does not have plans to build commercial ethanol plants in the United States.

Celanese's chief financial officer, Steve Sterin, has been aggressively lobbying U.S. federal legislators to change renewable fuel standards.

But so far Congress seems more interested in fighting about corn subsidies than altering fuel standards.

"We've received significant interest in our technology from other countries around the world that want energy security," Sterin said at the Reuters Summit, held at the Reuters office in Houston. "Frankly, we really want to see this American-developed technology applied in the U.S."

WALL STREET'S AMBIVALENCE

Among Wall Street analysts who cover Dallas-based Celanese there is deep ambivalence about the company's new ethanol technology.

Weidman and Sterin have repeatedly declined to present even the most basic overview of how Celanese's ethanol process works, causing some to assume it is just another a green fad in a long line of green fads that have duped Wall Street.

Celanese has branded the technology "TCX," but will not say why it picked that name, other than to note the acronym does not stand for anything. It says the process is connected to its acetyl business, though says it will not elaborate to protect its intellectual property. And it says its ethanol process produces far fewer greenhouse gases than corn fermentation, a claim that is hard to prove without details.

Andrew Cash, an analyst with UBS Investment Research, says he does not even have enough information on the technology to analyze how it could affect earnings.

Weidman acknowledged some need to wait to "actually see it and touch it and feel it." Others, he said, have given Celanese "the benefit of the doubt" because of its track record.

"It really is in the best interest of our shareholders that we not tell our competitors what we're doing and how we do it," Weidman said. "That's the basis for our practice around the discussion about the technology."

Celanese did say its ethanol should be competitive when crude oil costs more than $60 per barrel. Celanese can produce ethanol for $1.50 to $1.75 per gallon, Sterin said. Ethanol futures are currently trading around $2.75 a gallon, a level not seen since 2008.

In the meantime Celanese's other businesses, which make parts for cigarette filters and automobile plastics, are drawing in huge profits. The company's stock has jumped 71 percent in the past year alone.

But so far hopes to have United States ethanol sales bolster those numbers have fallen flat.

"We have the best economics in the world for ethanol," Sterin said. "But we can't sell a drop in the U.S."

(Reporting by Ernest Scheyder, Bruce Nichols, Matt Daily, Anna Driver, Kristen Hays, Braden Reddall and Michael Erman, editing by Matthew Lewis)

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