Ethanol is on a northward track
Tom Stundza, Executive Editor -- Purchasing, 4/19/2006 2:00:00 AM
Ethanol is selling this month at an average $2.92/gallon for 200-proof material and continues to be “under significant upward pressure,” according to the Energy Department's Energy Information Administration.
Actually, the price of ethanol has been increasing steadily since 1999 (when it costs $1.78/gal) as the fuel additive has gained in popularity. While the domestic ethanol industry has ratcheted up production over the past year, a number of factors have pumped up demand for the biofuel beyond supply capabilities—and now have created pricing concerns:
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Last August, President Bush signed legislation creating a national renewable fuels standard to boost the use of such renewable fuels as ethanol.
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Last autumn, Congress passed energy legislation mandating a seven-year ramp up in the amount of biofuel blended into the nation's gasoline stocks, beginning with nearly 4 billion gallons in 2006 and rising to 7.5 billion gallons in 2012. Ethanol is expected to fulfill most of this requirement.
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Additionally, numerous states that use reformulated gasoline have banned the use of ethanol's only commercial competitor, methyl tertiary butyl ether, or MTBE, which has been found to contaminate underground water supplies.
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Congress last year decided not to include a liability waiver in the energy bill to protect refiners that blended MTBE into gasoline from lawsuits stemming from contamination. That touched off a rapid phase-out of MTBE from gasoline stocks ahead of May when the renewable fuel provisions in the energy bill kick in and refiners say they face liability exposure.
It has been estimated that demand for ethanol averaged about 263,000 barrels/day, or 4 billion gallons in 2005. This year, the domestic ethanol industry is believed to be producing 288,000 barrels/day, equal to 4.4 billion gallons for the year. The Renewable Fuels Association estimates domestic producers have the capacity to deliver at least 4.5 billion gallons this year. That would be more than the volume mandated by the energy legislation. But, the renewable fuels mandate coupled with the phase-out of MTBE and state fuel requirements is expected to produce a need for about 395,000 barrels of ethanol a day, or 6.1 billion gallons in 2006, according to the Energy Department. "While ethanol supplies are expected to remain tight this summer, sufficient new production capacity is under construction to replace MTBE and resume previous levels of discretionary ethanol blending in conventional gasoline in 2007," according to a short-term energy outlook released by the Energy Department's Energy Information Administration.
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