Study Calls U.S. Ethanol Lowest-Cost Motor Fuel

Ethanol produced in the United States has been the most economically competitive motor fuel in the world over the past four years, an analysis released by the Renewable Fuels Association (RFA) said today.

The study, conducted by ABF Economics Agriculture and BioFuels Consulting, examined wholesale prices paid for ethanol, gasoline and alternative octane sources in several U.S. and world markets from 2010 to 2013.

“After increasing nearly seven-fold between 2000 and 2009, total ethanol production has been relatively stable over the past four years, averaging 13.4 billion gal annually,” it said. “Moreover, the ethanol industry is producing sufficient quantity to reliably supply the U.S. gasoline market with a 10% ethanol blend (E10) and is poised to meet demand for an E15 blend for approved motor vehicles.

“Reflecting this enhanced competitiveness and maturation,” it added, “ethanol prices (both FOB plant and delivered at key U.S. markets) have declined, while crude oil and conventional gasoline prices remained stable or increased.”

The spread between ethanol and RBOB has averaged 30-40cts/gal over the past four years in the New York, Chicago and Los Angeles markets, the study said, with the difference averaging more than 60cts/gal in 2012.

“Thus, ethanol blended with RBOB to produce reformulated gasoline at a 10% (E10) blend has reduced the cost of motor fuel to consumers,” it stated. “This does not include the additional downward impact ethanol has on gasoline prices as a result of extending supplies and reducing demand for crude oil.”

The report also said that ethanol produced in the United States is less expensive than anhydrous ethanol imported from Brazil.

Exchange rate policy has affected the competitiveness of Brazilian ethanol both in the U.S. and EU, according to the report, as the real depreciated by nearly 32% against the U.S. dollar and 28% against the euro between January 2010 and December 2013.

“The effect of this is to reduce the price of Brazilian ethanol in terms of dollars and euros and improve the relative competitiveness of Brazilian ethanol,” it said. “Still, even with depreciation of the real, U.S. ethanol has been more cost competitive than Brazilian ethanol in key U.S. and world markets over the past several years.”

That is particularly relevant in the California market, according to the study, because the state’s fuel policies compel fuel suppliers to import Brazilian ethanol in lieu of U.S. ethanol.

“Through its carbon intensity scheme, the LCFS has created ‘pull demand’ for Brazilian ethanol that otherwise would be uneconomical to import,” it said.

“Use of Brazilian ethanol in place of U.S. ethanol theoretically raised the price of E10 for California consumers by 8cts/gal over the past four years,” it added.

During that period, Brazil supplied nearly 78% of the fuel ethanol imported by California, according to the report.

Ethanol produced in the United States is also competitive with Brazilian ethanol in the EU, it said.

“The duty paid price of U.S. ethanol delivered at Rotterdam was less expensive than Brazilian ethanol in 2010, 2011 and much of 2012,” it stated. “However, the anti-dumping duty imposed by the EU against American ethanol combined with the devaluation of the real made U.S. ethanol more expensive than Brazilian ethanol in 2013.

“When the duty expires in 2017, the U.S. is expected to regain its competitive position in the EU marketplace,” it added.

The report concluded by saying that ethanol’s competitive advantage is expected to increase further, as U.S. ethanol and feedstock producers adopt new technologies and crude oil prices continue to trend higher.

RFA CEO Bob Dinneen lauded the study’s findings.

“Despite the fact that ethanol offers greater consumer choice at a lower cost, entrenched petroleum companies continue to erect barriers that deny access to larger volumes of renewable fuels,” Dinneen said. “In a truly free market, consumers would always choose a fuel that is produced domestically, is better for the environment and climate, and costs much less than gasoline.”

The full report, titled “The Economic Competitiveness of U.S. Ethanol,” is available at: http://ethanolrfa.3cdn.net/815864fbfad35bc4ae_f7m6b1ysu.pdf.

–Michael Schneider, mschneider@opisnet.com

Copyright, Oil Price Information Service

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