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Tuesday, March 06, 2012

Are We Really Exporting Ethanol So It Will Not Compete With Imported Gasoline?



 

Every day supertankers full of $100 per barrel oil are docking at US ports where other supertankers full of $1 per gallon ethanol have just departed for overseas markets.  While some folks have trouble understanding the economics of the exchange, others are happy there is a thriving ethanol industry in the US and a global market for it.  It adds value to corn, and somewhere around the world, motorists would rather have the lesser expensive motor fuel and let the US motoring public pay for the more expensive commodity.  Maybe, there is someone, somewhere who can make sense of this. But in the meantime, ethanol has a market.

The “blend wall” is that sky high object that ethanol ran head long into some months back when the 10% limit was reached in the nation’s motor fuel supply.  Currently, the recession has reduced demand to about 135 billion gallons per year, and 13.5 billion gallons of ethanol is the maximum that can be blended into regular gasoline.  We are there, but that is less than the 14.75 billion gallon capacity of the US ethanol industry, so what can be done with the excess?

Iowa State University economist Bob Wisner says exports are the way that ethanol can scale the blend wall and escape the chains of the Renewable Fuel Standard (RFS.)  Wisner’s latest renewable energy newsletter says there is a glut of ethanol:  storage facilities are full, gasoline use is down, ethanol returns are negative, and some plants have begun to close.  One safety valve would be E-15 or 15% ethanol blends, or E-85, an 85% blend, but merchandisers have not been anxious to install those pumps.  One of the problems is the restrictions on EPA’s latest approval for E-15, and another is Detroit’s reluctance to build cars for higher levels of ethanol fuel.  Wisner says with E-85 mileage about 24% to 28% less than gasoline, it needs to be priced 25% less than regular, but with the loss of the blenders’ credit, it will be difficult to achieve that savings at the pump.

Lower pricing of ethanol would unlock the price of corn from the price of crude oil, but Wisner says that lower price would have to be shared by corn growers, land owners, and ethanol plant operators.  Subsequently, the export market has been a good alternative to get around the blend wall.  For the 12 month period ending last November, the US exported 1.094 bil. gallons of ethanol, equal to 400 mil. bu. of corn.  He says after adjusting for DDGS replacement that added 25¢ to 30¢ to a bushel of corn.  With that level of exports, the US replaced Brazil as the largest exporter and that tenure will depend on Brazil’s use of sugarcane to make sugar or ethanol, the relationship between the dollar and the Brazilian real, foreign mandates for ethanol use, and the relationship between ethanol and gasoline prices.

With 6% of ethanol production being exported, that is one gallon of every 16 refined, which is a significant market.  Canada has been the leading market and purchased 239 mil. gals in 2011.  The EU was second, followed by Jamaica and Brazil.  A group of 57 other nations came in 5th place indicating a broad demand for some volume of ethanol.  Canadian ethanol production was about 357 mil. gal. and its total demand is increasing annually, with supplies also coming from waste product refineries.  Canada has a mandate for E-5 in the motor fuel, but different provinces have various internal levels mandated.  To meet the demand, Canada would need 525 mil. gal. per year, with part of that to be filled by imported US ethanol, before it meets a blend wall also.

The European Union’s imports increased sharply in 2011 to 227 mil. gal. in an effort to meet its internal 10% blend mandate.  The United Arab Emirates became a significant market in 2011, and Mexico has been increasing its imports.

Brazil is the wild card, since its once large exports were exchanged for imports when sugar prices were higher and it was more profitable to export sugar and buy ethanol.  That is changing and in recent days Brazil has indicated its intention to reduce sugar production, increase ethanol production, and return to exporting it.

Jamaica has been the Caribbean ethanol broker, since it could export ethanol to the US without a duty and had been resale point for Brazilian ethanol before the tariff expired at the end of 2011.  Corn and sugar economics were working against the Jamaican ethanol refineries and its plants have recently closed and its future is uncertain at best.

Wisner says US ethanol exports are a small share of the total market, but have grown rapidly and helping an industry with a saturated market.  The exports are primarily to neighboring countries, and to markets with mandates for ethanol use.  But in the longer term, US ethanol exports will compete at times with Brazil.  However, he says the rising price of gasoline will likely spur many nations to come to the US for ethanol, since we may have plenty to sell.  (Too bad we are not using it, instead of selling it.)

Summary:
US ethanol capacity exceeds the demand, and an outlet for excess ethanol has been the export market, since many nations have mandates to use ethanol, or want to replace higher priced gasoline with ethanol.  Higher percentages of ethanol use in the US have not yet been implemented with success.  The primary ethanol market for the past year has been Brazil which will become the primary competitor; due fluctuating sugar prices that now make ethanol exports more lucrative.

 

Posted by Stu Ellis on 03/06 at 11:00 PM | Permalink

Comments

Some time ago, this writer ebarked upon an enquiry to determine the economics of at least a partial substitute of ethanol for petroleum fuels (e.g., gasoline or Diesel). This was several years ago, accordingly have little chance of finding the exact numbers that were obtained, by now. Fact is, as you know from high school chemistry class, ethanol produces a "cold" flame - very much fewer BTU's per gallon than almost anything else. It has been historically considered an emergency fuel when petroleum products were not readily available. As I recall, the total (drilling, production, refining, etc.) process for petroleum cost is about 18 cents the dollar of retail price. Ethanol requires about 89% of market price in total production cost (planting, fertilizing, combining, distilling, etc. - very labor-intensive - and a waste of food) as to sale price. So here we have a high production-cost, low-quality fuel selling for minimum money while we're buying the low production cost, really high-priced (but good) stuff . Not only that, at least some of the ethanol blends can be highly corrosive/destructive to fuel systems - and if yesterday's chemistry is still true, acetone (another petroleum-based product) is required in the mix to blend the two. Meanwhile, have seen articles about shortages of feed corn, someplace. Am writing this out of ancient memory. Hopefully, someone can shed some light on this and explain why whatever is happening now makes sense... And someone will explain why whatever this writer has written hereinabove is complete foolishness.... Sincerely, Clue-Free (Still)... (Still) Clue-Free- Thanks for your insight on the economics of oil production. I had not seen the 18-cent figure before, and I assume that is to convert Texas crude into something burnable in your and my trusty vehicle. While it will be a long time before society can uncouple from petroleum, there will be quite a few that would certainly like to uncouple from OPEC oil and let our economy rely on US biofuels and US petroleum fuels. ~Stu

Posted by: Frank at March 7, 2012 6:06AM

I can't compete with a battery of super statistics. Figures don't lie but liars can figure. The benefits of ethanol all depend on who is providing the info. My observation is that our local small town store now offers ethanol free gasoline at a premium price. This must be the result of the ended ethanol mandate. They can't keep it on the shelves. I put that stuff in my car and get twice the power with a third better MPG. Everyone in town buys their gas at that store now. Livestock growers all over this country all say what we say. Burn fuel not food in our cars. Sharon: As noted in the article, ethanol does have slightly lower power, and should be priced lower by the merchandiser. And, the lower cost of ethanol compared to gasoline was one thing keeping gas prices lower than they were. Here in the land of ethanol the price of gas has nudged $4, and many families have had to cut back at the grocery store, just to buy gas to get there. I would also think your dairy herd may benefit from DDGS from the ethanol plant, and that would help the feed budget. ~Stu

Posted by: Sharon Squires at March 7, 2012 10:10AM

When it is priced at "a wash"..15% lower than the 15% effeciency you usually lose...what American would not want to buy from here vs. abroad? More argument than facts in the ethanol "debate". PS: Biodiesel and Natural Gas are additional alternatives.

Posted by: David at March 8, 2012 2:02PM

Ethanol-free fuel uses specialized petroleum products/chemicals to achieve adequate octane. I understand that it is much more expensive to make those additives from petroleum than the price of ethanol that serves the same purpose. In addition, those chemicals are much nastier than ethanol which, in large amounts is certainly dangerous, but also is ingested by billions regularly. And, although today's ethanol comes from corn, soon many feedstocks will be converted to ethanol and to the other molecules that make transportation fuel. As to the power issue--when you use high blends of ethanol in engines optimized for the properties of gasoline, of course they don't run as efficiently. Next generation engines (tomorrow's Ecoboost and Ecotec engines) will get better mileage via use of higher octane fuels. We can choose, as discussed in this article, to use expensive petroleum-based chemicals to make those fuels--or we can use less expensive, home-grown advanced ethanol made from total biomass (cellulose, etc.), energy crops, ag, forestry and food processing residues and waste; with animal feed co-products. And keep the money circulating in our own economy.

Posted by: Joanne Ivancic at March 8, 2012 8:08PM

When are you guys going to get it? The only reason why ethanol doesn't get the gas mileage as gasoline is because A. the engines are optimized for gas not ethanol and B. the gas used in ethanol is a much lower quality than gas without ethanol. It's a stacked deck by the oil industry. As for the cooler flame of ethanol that's an asset as it cools the charge in the engine, E-85 is in demand on the race car circuit for that very reason.

Posted by: Francis Patrick at March 8, 2012 9:09PM

OK - Here's my last offering on this matter. It supports most of my original statements. Do with it as ye shall: http://www.telegraph.co.uk/motoring/classiccars/9108430/The-ethanol-threat-to-classic-cars-and-bikes.html

Posted by: Frank at March 10, 2012 7:07PM

If the entire US corn crop were turned to EtOH, it would replace only 2% of the world fuel demand. Just keeping your tires properly inflated would save 2mpg, or ~10%... Best estimates say there' only 50 yrs of oil left, so that 2% savings means now it'd last 51 yrs.... The amount of energy demand in the world is huge. Biomass can't come anywhere close to filling the need... A simple carburetor modification is all that is needed to use natural gas as an adequate automotive fuel source. We've got 6 centuries worth of NG right here in the US... EtOH for fuel is a boondoggle. What the corn producers gain, the meat producers lose.

Posted by: t brandt at March 11, 2012 5:05PM

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