Entrepreneurial itch leads to ethanol production

At first, Dan A. Sanders and his son Dan R. Sanders knew nothing about the fuel-ethanol industry, but that didn’t stop them from diving in.

As a result, Northern Colorado is now reaping the benefits of their entrepreneurial itch.

The Sanders run Front Range Energy LLC, an ethanol business in Windsor with annual revenue of $150 million. Their aim is to build it into a cutting-edge ethanol production and distribution company that will become a major supplier for a growing market — and keep father and son in business together for some years to come. The fuel-ethanol business took off amid the burst of optimism for alternative energy sources that came in the wake of soaring oil prices and rising concerns about the environmental impact of coal-powered electricity.

Like solar and wind power, the fuel-ethanol industry has run into it share of challenges. Still, it is today a mature industry producing some 14 billion gallons of ethanol annually. The production process also yields products aside from fuel, offering producers the opportunity to target markets beyond energy.

Because fuel-ethanol historically has been made from grains, and the production process doesn’t greatly impact the environment, believers in sustainability are drawn to it. That was certainly the case with the Sanders. As they proclaim on their website, www.frontrangeenergy.com:

“We procure grain from local farmers and commercial resellers to manufacturer fuel ethanol, distillers grains, syrup, and carbon dioxide products…. FRE is proud to produce a renewable fuel, which displaces foreign sources of energy while enhancing our national security, cleans up tailpipe emissions, creates American and Colorado jobs, and supports our local, regional, and national economies.”

The Sanders family hails from lumber-mill country north of the Columbia River in Washington state. The Sanders dabbled in cattle as well as lumber after they relocated to Gresham, an eastern exurb of Portland, Oregon.

As Dan Jr. explained, he and his dad got to thinking about getting into a new line of work.

“We wanted a business that Dad and I could do together. We kept hearing about this ethanol business. It intrigued us. It was related to cattle, because the byproducts of ethanol production go into cattle feed. We fell in love with the concept of taking a renewable crop and making all these products from it.”

Although the Sept. 11 attacks put a crimp in their financing strategy for the new venture, they were undeterred. As their planning proceeded, they began to ponder the all-important location question.

Oregon wouldn’t cut it, but three states bubbled to the top: Kansas, Nebraska and Colorado. They chose Colorado, and then Weld County, based upon its proximity to a major ethanol market (Denver); the nation’s corn belt; a rich transportation network; a nearby natural gas supply.

Weld County also offered plenty of space for the large-scale production facility they envisioned. In 2004, they pulled equity out of their existing businesses and formed Front Range Energy.

“We really rolled the dice,” Dan Jr. said. “It is not cheap to get into this business.” In 2006, they produced their first batch of ethanol for the commercial market. Things were chugging along as planned — and then the recession hit.

Consumers were spending less money on fuel, and cattle ranchers were pulling in their horns on feed.

The Denver market for ethanol held fairly steady, helping to stabilize Front Range as it adjusted to the twin drops in demand. But then the industry absorbed another blow. “The equity markets took a plunge,” Dan Jr. said. “You had a weak equity market and weak dollar, and suddenly more money was moving into the commodities market. When that happened, it ran the price of commodities higher. No one (in the ethanol industry) saw that coming.

“Our margins got crushed. It was a new game for us. We really had to change our risk management strategy.” Today, Front Range is back on track and growing.

“We managed our way through it,” Dan Jr. said. “People here run the operation very well and efficiently. It’s a lot tighter margin situation, but it’s the new reality of the industry we’re in. We practice risk-management every day; you hedge your inputs and outputs.” For now, Front Range is primarily targeting the Colorado market for fuel ethanol.

Dan Jr. said there are only a couple of competitors in the state and that the market is well defined and large enough to support the local players. But the Sanders team isn’t easing up on the throttle. The industry is considered to be mature, with gargantuan players such as Chevron and Dow Chemical in the game. To compete, and to be responsive to the evolving technology so central to success in ethanol production, they are investing heavily in research and development, and exploring strategic partnerships. “Renewable fuels are going to be around forever, especially renewable biofuels,” he said. “We’ll see an adaptation in the industry from grain-based to more advanced biofuels. We’re working on that now. Our long-term strategy is to transition to advanced biofuels and to lead Colorado into the market.”

Do the Sanders foresee exiting the business via acquisition by one of the giants in the field? “We have no exit strategy,” Dan Jr. said. “Dad and I have a great relationship and we work well together. It never gets old. We’re in this for the long haul.”

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