When federal environment Minister Rona Ambrose announced her government’s commitment in late May to mandate an average 5% renewable fuels content in gasoline and diesel across Canada by 2010, it was no coincidence that she made the announcement in Regina.

After all, Saskatchewan was the first province to mandate the use of ethanol in gasoline. Mind you, it took the province a few years to gear up sufficient production to meet the current 1% ethanol content mandate.

That’s expected to increase to 7.5% this fall, and will probably rise to 10% by 2007. Provincial production will rise above the 130 million litres required next year to achieve an average 10% blend of ethanol in gasoline.

The province has two plants producing ethanol, which together produce about 34 million litres annually. The Husky Energy ethanol plant under construction in Lloydminster alone will produce about 130 million litres, bringing Saskatchewan’s total production to about 164 million litres later this year.

By comparison, Ambrose’s target of 5% nationally by 2010 is considerably more ambitious and harder to attain.

Current Canadian production is about 750 million litres. This will have to increase by two-and-a-half times in the next five years to two billion litres annually to meet Ottawa’s 5% renewable fuels standard.

Although provinces such as Saskatchewan and Ontario will have surpluses, some provinces, such as Newfoundland and Labrador, have virtually no production. So much of the ethanol required to meet the 5% RFS will have to come from producing provinces. That is what Saskatchewan Deputy Premier Clay Serby and Lionel LaBelle of the Saskatchewan Ethanol Development Council are counting on.

Serby, the minister responsible for rural revitalization, believes ethanol may be the salvation of the agricultural sector. At the meeting with Ambrose and other federal and provincial ministers in late May, Serby pushed Ottawa to commit to having 50% of the ethanol feedstock originate from Western Canada. He also wants Ottawa to ensure more than half the ethanol plants are producer-owned through tax breaks and subsidies.

LaBelle believes ethanol can play a major role in diversifying agriculture from being the primary production of low-priced commodities into value-added processing. He envisions a Saskatchewan-based industry producing one billion to three billion litres of ethanol a year, largely from smaller plants tied to feedlots, which can use the ethanol distillation’s grain byproduct as protein-rich cattle feed.

And some see ethanol production as a business. Gary Drummond of Terra Grain Fuels Inc., a recently formed Regina-based firm, has announced plans to build a $130-million, 150-million-litre plant in Belle Plaine, Sask.

Drummond, who made his fortune in Calgary selling natural gas directly to 1.4 million customers in Ontario and elsewhere, has surmised that the economics of ethanol production look pretty good.

With wheat at $4 a bushel and oil pushing above US$70 barrel, the economics of ethanol are looking very good. Ethanol is now traded on the Chicago Board of Trade futures and options exchange, much like pork bellies.

So, Drummond has decided to build an ethanol plant — without government assistance. The former Regina lawyer and his business associates are putting up the 30%-40% equity — about $40 million-$50 million. The balance will be financed by a syndicate of lenders, led by Regina-based Conexus Credit Union, the province’s largest credit union.

When credit unions finance entrepreneurs to build ethanol plants, you know it’s an industry whose time has come. IE