Ethanol firm POET eyes 1.5 bpg capacity

By Haitham Haddadin

NEW YORK (Reuters) - No. 1 U.S. ethanol company POET plans to increase production capacity by at least 25 percent to more than 1.5 billion gallons per year by the end of 2008, mainly by building new plants, the chief executive said Monday.

"By the end of the year we will be at over 1.5 billion gallons in total production capacity," Jeff Broin, chief executive of POET, said in a conference call during the Reuters Global Agriculture and Biofuel Summit.

This would put privately held POET in the No. 2 spot right after the merged VeraSun Energy Corp VSE.N whose November acquisition of ethanol maker US BioEnergy Corp USBE.O, if approved, would boost its ethanol output to a total of 1.6 billion gallons by the end of 2008.

U.S. ethanol production capacity has risen to 7.6 billion gallons per year, with interest in the fuel used as a gasoline additive rising as oil prices broke $100 per barrel recently. A new U.S. energy law signed by President George W. Bush late last month calls for the country to boost blending of biofuels five-fold to 36 billion gallons per year by 2022.

South Dakota-based POET -- whose current production capacity is nearly 1.2 billion gallons per year -- has four ethanol plants under construction and one plant under expansion, Broin told the summit.

POET, he said, was planning to build more plants down the road but he did not give any details on how much output capacity was likely to grow beyond 2008.

The company has also looked at buying existing ethanol distilleries, but so far no none have looked attractive, he said. Other industry players have "looked at joining POET," he said, without elaborating.

Broin's comments ran counter to remarks at the summit from other industry players who see the industry slowing. Scott Richman, senior vice president of Memphis-based Informa, said U.S. corn-based ethanol expansion is headed for a cooling-off period over the next 18 months until demand catches up with supply.

But Broin said that POET's competitive advantage is lower cost and more efficient production through improved technology. The technology, known as BPX raw starch hydrolysis, removes the need for heat in the ethanol production process, thereby reducing POET's energy costs.

"Our strategy is to be the lowest or best cost producer," Broin added.

Profit margins for distilling ethanol were crushed late last year amid record prices for corn, the main feedstock used to make the biofuel, but the profits have improved since late 2007, partly as record oil prices pulled up motor fuel prices.

(Additional reporting by Timothy Gardner and Matt Daily, editing by Matthew Lewis)