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Wednesday, March 21, 2012

Has Ethanol Lost Its License To Drive The Corn Market?



 

In the initial depths of the recession, agriculture was performing well, thanks to the demand for grain, and in particular for corn because of the demand for ethanol.  The ethanol mandate was creating demand for corn and prices kept rising, pushing commodity markets to new highs nearly every month.  Ah, those were the good old days.  Now the bloom is off the rose.  Gasoline demand is down, the blend wall is pushing ethanol demand down, and corn prices are not as strong as they once were.  Was Little Orphan Annie correct in assuming “The sun will come out tomorrow?”


When the Congress approved the Renewable Fuel Standard, conventional wisdom said by this time we would be consuming 150 billion gallons of motor fuel annually and a 10% ethanol blend would necessitate 15 billion gallons of ethanol, which would require nearly 5 billion bushels of corn.  But the recession dampened the upward demand curve, and now the current thinking is the need for only 13.4 billion gallons of ethanol to meet the demand.  That has reduced the demand for corn and batted back the price from the nearly $8 high.  The goal of 15 billion gallons of corn-based ethanol may be a footnote in an economic history book.

There are a number of dynamics working for and against ethanol today as a product that will remain integral to the agricultural economy, says Bob Wisner, biofuels economist at Iowa State University.  In his recent newsletter   Wisner says domestic ethanol use will be about 11% below the 15 billion gallon ceiling in 2015, when cellulosic ethanol was supposed to kick in and supply the nation with its voracious appetite for motor fuel.  He indicates 2015 may see about 3 billion gallons of cellulosic ethanol produced because the industry has had a much slower start to economic efficiency than expected.  But in the meantime, lower demand for gasoline means less demand for ethanol, regardless of its source and less profitability means reduced efforts in reaching the goals.  And he says the US ethanol industry will be capable of producing much more than needed if gasoline demand drops further, either because of the recession or increased fuel efficiency.


The blend wall, which is the ceiling for ethanol demand, could be raised with the use of E-15 or E-85, but there are major problems, mostly related to the lack of pumps at service stations and the reluctance of the auto industry to warrant the use of higher ethanol blends.  That not only retains the blend wall but stifles the demand for cellulosic ethanol.  While EPA has been giving indications it will expand its approval of E-15 that may have little impact if distribution is non-existent.  Wisner says the future of the ethanol industry is keyed on the production and distribution of advanced biofuels, which do not include ethanol made from corn.  That will be capped at 15 billion gallons of basic ethanol.  While that seems like the biofuels market is mature for corn growers, Wisner says there may be an opportunity from advanced biofuels, with the conversion of corn to biobutanol.

Biobutanol is considered a “drop-in” fuel, since does not required a specific blend percentage, can be transported in trucks or pipelines with regular gasoline, and have a much closer combustion and mileage performance to gasoline than does ethanol.  While the octane rating of biobutanol is less than ethanol is more than gasoline, but while the energy content of ethanol is only 66% of gasoline, the biobutanol energy content is 90% of gasoline.  The corn market should benefit, since biobutanol will be an added product and not replace ethanol.  We are likely in the early days of biobutanol, since production costs are not yet established, and Wisner says only 2-3 ethanol plants are being converted to biobutanol plants at this time.  He says, “If it proves to be competitive with ethanol and regulatory issues can be resolved, biobutanol may contribute significantly to future growth in value-added demand for corn.”


Summary:
Part of the steam lost in the corn market has resulted from the leveling off in the demand for corn by ethanol refiners.  This slowdown came from ethanol reaching the maximum of 10% of the nation’s motor fuel supply, then the demand for motor fuel declining because of the economy.  However, biobutanol, which is an advanced biofuel that can be made at ethanol plants with some modification, has the potential to replace gasoline without a limiting percentage blend.  Its octane rating is higher than gas, its energy content is higher than ethanol, and it provides better mileage than either ethanol or gasoline.

Posted by Stu Ellis on 03/21 at 11:08 PM | Permalink

Comments

I am actually seeing less and less stations that offer E-85 anymore. I see the cars with the emblems but seriously, the BP and Shell stations I go to do not have that at any of the pumps anymore. Thanks, Chip. Sad report. ~Stu

Posted by: Chip @ Home Remodeling at March 22, 2012 3:03PM

So, are you projecting that fuel will continue to contain 10% ethanol plus 15% or so biobutanol (made from corn or other renewable feedstock) with the rest either petroleum or other bio-based molecules if engine design doesn't change? Joanne: I certainly am in no position to make that projection, but only passing along the information that I have digested. Corn-based ethanol will have limits, either from the RFS, marketplace, or future food policy. However, other forms of alcohol fuels are showing promise of availability from agricultural operations. ~Stu

Posted by: Joanne Ivancic at March 23, 2012 5:05PM

There are several inaccuracies in this article. Butanol is not a 'drop in' fuel, it is an alcohol like ethanol and has blending restrictions like ethanol. That limit is presently 11.5% but might be expanded by extending an existing limited waiver for 16% to be universal. Since butanol has a higher energy density, its production rate will be something like 80% for that of ethanol for any given amount of feed stock. This will result in an proportional increase in cost of production and price. Its 'higher octane rating' needs further examination. The figure normally quoted as 96 is a RON number, but it has a significantly lower MON number of 74. In the US we use a RON + MON /2 for retail reporting which gives butanol a octane rating of only 85. This is not sufficient to increase octane ratings to a level that we need. Butanol's real value will be in a tri-blend of gasoline, butanol and ethanol. Butanol combined with ethanol will reduce volatility and water adsorption and separation issues. Bill: Thanks for your insight. I had not heard of a "drop-in" fuel until I read Bob Wisner's piece. Do you see it to be part of the future as he does? And if so, what will be the economics, if those can quantified at this point? ~Stu

Posted by: Bill Brandon at March 24, 2012 10:10AM

Stu - To be a true 'drop-in' fuel, it must have the same molecular composition as a petroleum fuel. Butanol, ethanol and bio-diesel all have oxygen in the basic hydrocarbon structure. Oxygen is good in reducing emissions and improving air quality. Bio-diesel can also add lubricity to a low or no sulfur diesel. From a use/replacement perspective, drop-ins will be required for 25% - 33% of our fuel needs. These uses include airline jets and the military. Ethanol can be an effective fuel to replace not only gasoline, but diesel (ED95 is 95% ethanol and 5% diesel additive. ED95 is presently being used in Sweden and Thailand). ED95 can be used in heavy trucks and train locomotives. We have known how to make 'drop-in' fuel for almost 100 years but it has not been economical. Higher petroleum prices and improved technology is changing the economies. Several approaches are being commercialized now with a target price equivalent to $70 - $80 per barrel oil pricing. Drop-in gasoline will be less economic that ethanol when used in an engine optimized for ethanol rather than gasoline. All drop-ins will be longer chain carbon molecules so ethanol will be more desirable from a GHG standpoint. Drop-ins are are easier to market because government approval is easier to get. There will be a place for both drop-in and alcohol fuels and bio-diesel. I hope the future will be heavily weighted toward ethanol, but that is far from certain. I think we will see blending of butanol in a very short time. Some significant technology advancements (or failures) will be seen in the next two years. Bill: Again, thanks for the contribution to our understanding. It provides more of a economic glimmer on the horizon for agriculture to be an ethanol source. ~Stu

Posted by: Bill Brandon at March 26, 2012 9:09AM

Agreed, biobutanol can reportedly be transported via our existing petroleum pipeline infrastructure, making it what some might call a "drop-in" fuel (as compared to ethanol). But even if biobutanol has a higher (relative) octane rating than gasoline, yet contains only 90% of the [BTU] energy content of gasoline (as stated in paragraph 5), then how can it - given the same engine CR - provide "better" mileage" than gasoline? Something doesn't jive. Finally, according to OEM vehicle service manuals I've seen for FFVs, vehicle range per tankful will decrease by 27-30% on E85. Considering that energy content equates to vehicle range, where did the 34% loss of range figure for ethanol (66% BTU of gasoline) cited in the article come from? BTW, the ethanol lobbyists claim a 10% loss of range with E85. "Figures lie, and liars figure" Bob: Thanks for the input. I was surprised at the conflicting numbers myself, but not bing in a position to question Bob Wisner, I chalked it up to infamiliarity with the nuances of petroleum math. ~Stu

Posted by: Bob Rodriguez at March 26, 2012 9:09AM

Bob - Take all percentage figures of ethanol compared to gasoline with a grain of salt. First, gasoline BTU content will vary especially from winter blends to summer blends. Government figures state GASOLINE mileage may vary as much as 27% depending on many factors. Milage loss using E85 will less if you are traveling under load, like pulling a boat or something. This is because ethanol gives a better torque curve. Only a 10% drop when using E85 is possible depending on driving conditions.

Posted by: Bill Brandon at March 26, 2012 10:10AM

Why not just go to octanol and cut the useless oxygen content by 75% rather than half. Or, we could do the really intelligent thing and stop turning precious feed grains into a plentiful commodity.

Posted by: John Green at March 27, 2012 5:05PM

John Green: We are doing all we can to find alternatives to grains for biofuels. Agricultural waste like sugar beet pulp and sugar cane bagasse, energy grasses, intercropped oil seeds like camelina or canola, sorghum, forest slash, algae, etc. Feedstocks that can revitalize depressed industries like the pulp/paper industry in the US. Find out more at www.AdvancedBiofuelsUSA.org and see the categories under "Feedstocks" along the right margin of each page. You can make ethanol from these--or the other molecules that go into making fuel and other chemicals.

Posted by: Joanne Ivancic at March 28, 2012 9:09AM

To Bill: My understanding of an engine's torque curve (viv-a-vis its peak torque RPM) is directly dependent on it's volumetric efficiency at any given RPM (assuming of course that the engine is naturally aspirated). That said, how is it that ethanol can affect the engine's TORQUE CURVE?? Also, how does pulling a heavy load decrease the normal MPG disparity (i.e. lost vehicle range) between ethanol and gasoline? Does the consistently wider throttle opening (heavier load) enable ethanol to optimize the difference? Please explain... Bob

Posted by: Bob at March 28, 2012 7:07PM

The true benefit of ethanol is its octane. Here is how it works. Normal gasoline is about 87 octane. At 87 an engine knocks at about 120 psig. This is a compression ratio of 9.16 (=134.7/14.7 absolute pressure). Mercedes Benz has made smaller engines for years by requiring gasoline octane above 93. At 93 octane the engine will knock at about 11 compression ratio or 147 psig (=161.7/14.7). Now ethanol with an octane near 105 can go to about 15 compression ratio or 205 psig (=220.5/14.7). So that allows the engine manufacturer to reduce the piston area by 1.6 or piston diameter by 1.27. In other words, for the same horsepower the engine just got 27% smaller. Smaller hood size, smaller frame, etc and the car can drop the equivalent of 1 passenger weight. Lower weight means the MPG can nearly equal the MPG of petroleum gasoline, in spite of the lower energy content of ethanol. BTW, the torque for ethanol is greater than for gasoline by 1.64 (=220.5/134.7). Methanol has even better octane, hence the reason why drag racers use methanol instead of gasoline (better torque due to higher compression ratio). The only way to get higher torque is higher compression ratio, and the only way to get higher compression ratio is by increasing octane. So the issue is to get the refiners to increase octane and that will allow the engine manufacturers to reduce engine size. Butanol will not allow higher compression ratio. John: Thanks so much for the explanation. Stu

Posted by: John McIntyre at April 16, 2012 9:09AM

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