Is the Long Ethanol Boom Coming to a Close?
by Scott Irwin and Darrel Good (Department of Agricultural and Consumer Economics University of Illinois)…The rise in ethanol production has recently run up against what is known as the “blend wall.” Domestic ethanol consumption is almost entirely in the form of low level blends with gasoline capped at 10 percent, although small amounts have been consumed as an 85 percent blend. The approach of the 10 percent blend wall is apparent in the inclusion rates presented in the next to the last line of Table 1. The inclusion rate is calculated by converting estimates of total BTUs of motor gasoline consumption provided by the U.S. Energy Information Agency (EIA) into an estimate of gallons of motor gasoline consumption. The rate is then calculated as the ratio of domestic ethanol consumption to total motor gasoline consumption. The calculated inclusion rate increased from 8 percent in 2009 to 9.5 percent in 2011. The jump in the inclusion rate was driven by the increase in ethanol consumption and the overall decline in motor gasoline consumption.
The ethanol inclusion rate for 2012 is expected to be even higher as domestic ethanol production remains large, exports decline, and motor gasoline consumption stagnates. Projections from EIA indicate an increase of only 0.2 percent in motor gasoline consumption in 2012. It appears that the ethanol inclusion rate could increase to about 9.8 percent in 2012, although the year is not yet half over so considerable uncertainty remains. While one can quibble with the details of projecting the ethanol inclusion rate, there is little doubt that we are very close to the 10 percent blending wall in 2012.
…There are only two obvious ways for the blend wall to expand. The first is rapid implementation of 15 percent ethanol blends (E15) recently approved by the EPA. The second is for total motor gasoline consumption to increase fairly rapidly. Domestic ethanol production could also increase beyond current levels without an expansion in the blend wall if ethanol exports increased. Following is a brief discussion of these three ways through or around the current blend wall. READ MORE
Editor’s note, see also: Next Generation Engines And Fuels Forum 2012 June 18-20 Washington, DC for a discussion of a fourth option, high octane fuels for nextgen engines to meet proposed CAFE standards of 54.5 mpg.