The Economic Competitiveness of U.S. Ethanol
by John M. Urbanchuk (ABF Economics/Renewable Fuels Association) … Reflecting this enhanced competitiveness and maturation, 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.
Consequently:
1. U.S.-produced ethanol continues to improve its economic competitiveness relative to gasoline.
2. U.S. ethanol is routinely less expensive than anhydrous ethanol imported from Brazil.
3. But for the effects of the European Union (EU) countervailing duty and depreciation of the
Brazilian real, ethanol produced in the U.S. would continue to be the most cost effective source of
imported ethanol for the EU.
4. Ethanol is the most cost competitive source of octane, as well as oxygen to meet Clean Air Act
requirements.
In short, U.S. ethanol has emerged as the lowest cost transportation fuel and octane source in the world
over the past several years. This study addresses several issues relative to the competitiveness of
American-made ethanol in three key U.S. markets: New York, Chicago and Los Angeles. This analysis
uses price data covering the period of 2010 through 2013 from both public and commercial sources.
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4. Ethanol is the most cost competitive source of octane, as well as oxygen to meet Clean Air Act
requirements.
The prohibition of lead in gasoline in 1995 forced refiners to look to other sources of octane. Alternative sources of octane include ethanol, MTBE (methyl tertiary-butyl ether), and alkylates. MTBE is a chemical compound that is manufactured by the chemical reaction of methanol and isobutylene.
Alkylates are produced by refineries by combining light hydrocarbons such as propylene and isobutene.
Most automobile engines require fuel with octane ratings of 87 to 93 to avoid knocking. Nearly all gasoline blendstock produced by refiners today is 84 octane and lacks sufficient octane to meet minimum posted levels in most states. The way blenders achieve the 87 octane minimum is to blend in higher octane additives. Ethanol has a high octane rating of 113, MTBE has an octane rating of 110 and alkylates have octane ratings in the 90 to 98 range. Blenders can add 10 percent ethanol to an 84 octane blendstock to achieve the minimum 87 octane level. In order to reach the same octane level blenders would have to use 11 percent MTBE and 13 percent alkylates. Due to its favorable price and high octane rating, refiners have shown a preference for ethanol in recent years.
Federal Clean Air Act Amendments of 1990 required gasoline refiners to incorporate oxygen to produce cleaner-burning motor fuel to reduce emissions of carbon monoxide and ozone-forming compounds in the atmosphere. As mentioned earlier, gasoline reformulated with an oxygenate (RFG) is required in cities with high smog levels and is optional elsewhere. According to the USEPA, RFG is currently used in 17 states covering about 30 percent of gasoline sold in the U.S. Currently ethanol is the primary source of oxygen for refiners.
MTBE and alkylates also add oxygen to gasoline. MTBE was widely used by refiners until it was found in drinking water sources in a number of states and several passed legislation to ban its use. The Energy Policy Act of 2005 failed to provide MTBE producers and refiners with protection from liability for costs for contaminated water supplies and the product was voluntarily removed from the market in 2006.10
Alkylates can be used as a replacement for MTBE and as an alternative to ethanol, but again the higher octane rating and lower cost of ethanol makes it preferable to alkylates. READ MORE and MORE (Renewable Fuels Association)
Ethanol Report on Cost Analysis 9:00
The report is voiced by reporter Cindy Zimmerman in the format of a complete program called “The Ethanol Report.” Please feel free to use as you wish, edited or in its complete form. If you have any problems downloading the audio files, please contact ZimmComm New Media at 850-780-6617. Links to separate sound bites from the interview can be found below.
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A new analysis by the Renewable Fuels Association shows ethanol to be the most economically competitive motor fuel in the world over the past four years. RFA Senior Vice President Geoff Cooper gives some of the major findings of the report. Ethanol-cost-1 :35
Cooper says the study also compared the cost of U-S ethanol to that produced by other countries like Brazil, which has particular relevance in the California market. Ethanol-cost-2 :42
For the long term, the study suggests that the cost of producing ethanol in the US will continue to fall. Ethanol-cost-3 :33
Cooper adds that bigger corn crops and more efficient use of corn in making cellulosic ethanol will also contribute to lowering the cost of production. Ethanol-cost-4 :46
