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Valero Plunges Into Ethanol

Christopher Barker
March 20, 2009

I've been attempting to teach an old dog new tricks lately, and I can confirm that the old adage is tried and true. But Valero Energy (NYSE: VLO  ) proved it's no old dog this week, by delving into the ethanol business in a major way.

Beating out ethanol giant Archer-Daniels-Midland (NYSE: ADM  ) with a $477 million bid, Valero is the proud new owner of seven ethanol plants in the American heartland, facilities which formed a major chunk of operations for the now-bankrupt VeraSun Energy.

I must admit, I have little regard for corn-based ethanol as a fuel source. Last year's enormous surge in corn prices alone was enough to convince this Fool that having humans and cars competing for the same fuel source can't possibly end well.

Alternative energy was a hot topic in the CAPS blogs last summer when oil prices surged, and the case against corn-based ethanol was convincingly argued through some excellent posts. Oil refiner Tesoro (NYSE: TSO  ) recently challenged ethanol requirements in California on the basis of reports showing that ethanol production actually increases greenhouse gas emissions … a point conceded by a spokesman for the California Air Resources Board.

Corn continues to trade above historical price levels, and gasoline demand remains depressed, making the business of et