Ethanol: Saving Drivers Money at the Pump
by Scott Richman (Renewable Fuels Association) Gasoline prices are high—up 50% in 2021 and rising further this year, with California prices reaching record levels—but what’s worse is that they might go even higher, given the distinct possibility of a Russian invasion of Ukraine and oil hitting $100 a barrel or more.
Given the strong tie between oil and gasoline prices, the impact of surging oil prices is evident. What is harder for drivers to see when they fill their tanks, however, is that ethanol helps hold down the price of gasoline, in two ways.
First, ethanol is usually less expensive than petroleum-based gasoline, and associated credits toward the federal Renewable Fuel Standard (known as renewable identification numbers, or RINs) also help offset the cost of gasoline. An example of these cost savings can be seen in wholesale prices of fuel sold at the Omaha rack, as reported by the Nebraska Energy Office. The data set is unique in that it includes a monthly price history for sub-octane gasoline blendstock (84 AKI) as well as regular-grade ethanol-free (E0) gasoline (87-AKI). To reach the minimum octane rating required for sale at retail (87 AKI), the 84-AKI blendstock must be blended with 10% ethanol; however, the 87-AKI E0 can be sold without such blending.
In January, sub-octane gasoline blendstock was $0.08/gallon cheaper than 87-AKI E0 gasoline on average at the Omaha rack, which is typical since increasing octane at the refinery using hydrocarbon sources is costly and energy intensive. Moreover, ethanol was priced $0.25/gal below 84-AKI blendstock and $0.33/gal under 87-AKI gasoline. The cost of producing E10 by combining 90% blendstock with 10% ethanol averaged $2.33/gal after accounting for RIN value—$0.22/gal less than the price of 87-AKI ethanol-free gasoline (Figure 1).
E15 provided even larger savings, given the proportionally higher level of ethanol used and RINs made available. E15 could have been produced for $2.26/gal—$0.29/gal less than 87-AKI ethanol-free gasoline.
Although data are not available for February, OPIS reported that the ethanol price was $2.09/gal for the most recent week, a decline of $0.13/gal from the January average.
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A second way that ethanol helps lower gasoline prices is by reducing the consumption of petroleum-based gasoline, which translates to lower demand for crude oil.
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In a 2019 study, energy economist Dr. Philip K. Verleger, Jr. used an econometric model to estimate the impacts of the RFS on crude oil and gasoline prices. He determined that by expanding fuel supplies, the RFS reduced the price of crude oil by $6/barrel on average from 2015 to 2018. In turn, gasoline prices were reduced by an average of $0.22/gal, the equivalent of $250 annually for a typical household.
The study also showed that ethanol significantly helps dampen gasoline price shocks that result from sudden oil market disruptions, which is timely given that the recent tensions between Russia and Ukraine have driven crude oil prices well above $90/barrel, the highest level in eight years. READ MORE
Gas, Ethanol Prices to Soar Amid Russia-Ukraine Conflict (Southeast Ag Net; includes AUDIO)
Ethanol Saves Money at the Pump (Energy.AgWired.com)
Can ethanol lower gas prices and reduce emissions? (Farm Progress)
Excerpt from Southeast Ag Net: Gas and biofuel prices will go even higher amid conflict between Russia and Ukraine, but biofuel leaders argue that corn ethanol will still be cheaper than gasoline and able to meet demand. There’s no arguing that fuel prices go up during war.
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But Renewable Fuels Association chief Geoff Cooper argues the ‘flip-side’ of that coin.
“But we fully expect that ethanol is going to remain at a discount to gasoline. As I said, we’re 50 to 60-cents cheaper today. We expect that to continue because the primary driver of ethanol prices is—believe it or not, it’s not oil prices—it’s corn prices. It’s what is our feedstock costing.”
So, if oil hits 100 dollars a barrel.
“If you have a hundred dollar a barrel oil, ethanol producers can afford to pay more for corn and still make a margin and still deliver a product to the marketplace that is lower cost than gasoline.”
Which the biofuels industry argues is the key reason to boost the use of ethanol, including with higher blends, to expand the nation’s fuel supply and reduce price shocks from global events like war. READ MORE; includes AUDIO
