US Biofuel Makers Expect Weaker Demand from 2020 Blending Mandate

July 09, 2019

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by Meghan Gordon (S&P Global Platts) Ethanol RINs fall after EPA proposes 2020-21 volumes; EPA declines to restore 2016 volumes flagged by court; Platts Analytics sees ethanol inputs above 10% this summer -- The Trump administration's proposed 2020 biofuel mandate -- for refiners to blend 20.04 billion gallons, up less than 1% from this year -- could lead to flat or slightly lower US ethanol demand after factoring in small refinery waivers expected to be granted next year, Renewable Fuels Association President Geoff Cooper said Monday in an interview.

Cooper said the implied conventional ethanol mandate of 15 billion gallons has created closer to 13.5 billion-14 billion gallons of ethanol demand because of widespread refinery exemptions the Environmental Protection Agency granted.

"Those volumes are below the E10 blendwall," Cooper said. "The [Renewable Fuel Standard] is not functioning to really drive growth in E15 and E85, and RIN prices are remaining low and not doing their job to push those higher blends into the market."

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EPA wants to keep the 2021 biodiesel mandate at 2.43 billion gallons, prompting immediate criticism from biodiesel producers. The biodiesel requirement gets set an year ahead of the other categories.

Renewable fuel would make up 10.92% of US transportation fuel supply next year before any refinery waivers, if volumes are approved as proposed.

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The biofuel industry had hoped for a 2020 conventional ethanol mandate of 15.5 billion gallons, after an appeals court ruled in 2017 that EPA had improperly waived 500 million gallons in the 2016 mandate.

But EPA said in the proposal that adding the gallons retroactively "would be unduly burdensome and inappropriate." READ MORE

EPA Hurts Ethanol Demand in Proposed RVO levels for 2020 (Hoosier Ag Today)

Pete Ricketts, Ethanol board express disappointment in EPA’s RFS volumes proposal (Grand Island Independent)

EPA Proposes 2020 Renewable Fuel Volumes (NGT News)

Trump's EPA stands up for consumers and freedom by standing up to the ethanol lobby (Washington Examiner)

When will enough ethanol be enough? (Washington Examiner)

Opinion: Ditch ethanol at U.S. gas stations (CantonRep.com)

CoBank: Ethanol margins to remain low in 2019 (Ethanol Producer Magazine)

Trump Defends Refinery Waivers By Noting Expanded Ethanol Sales (Bloomberg/Yahoo! Finance)

Trump intervention delaying EPA biofuel waiver action, sources say (Reuters)

EI5 blend fuel availability increases (Hydrocarbon Engineering)

Excerpt from Grand Island Independent: Margins remain weak -- News of the EPA’s proposal comes at a time when operating margins for ethanol producers will likely remain weak for the rest of this year under the weight of abundant production, according to a new report from CoBank’s Knowledge Exchange Division.

The report said that declining corn production this year will also squeeze margins and some ethanol plants will be forced to shut down or idle their production due to high corn prices or insufficient supplies.

The CoBank report said that exports remain one area of optimism for ethanol producers, but that optimism is based on China’s plans to convert to E10 blend gasoline nationally by the end of 2020. In the meantime, the report said, domestic U.S. ethanol demand will likely be flat over the next two years.

“For margins to go up, supply will need to go down,” said Will Secor, an economist in grain and farm supply for CoBank. “This will be a painful process for some higher-cost producers as they look to reduce production or exit the industry. Consolidation and a slow grind to higher margins will be themes in the coming years as the industry works through changes to absorb excess production capacity.”

The report said that ethanol plants had expanded capacity after several years of positive margins. However, margins began sliding in the summer of 2018 and plants have struggled to remain profitable since then. With stocks expected to remain above 900 million gallons through the rest of 2019, margins are expected to stay low.

E15 brings hope

One potential growth area, the report said, is E15 now that it can be sold year-round. The report noted that some retailers will need to invest in additional infrastructure to support E15 sales and will have to weigh the costs of new pumps, tanks or other equipment against the potential profits from offering E15.

The report said that increased demand for ethanol due to E15 will be limited in the next three years as retailers make these investments and consumer acceptance builds. In the longer term, the E15 fuel market will be able to provide stronger support to ethanol plant margins.

Secor said that persistent, low margins will drive ethanol plants to diversify their revenue streams.

“The ethanol plant of today could turn into the corn bio-refinery of tomorrow,” he said. “One could expect co-product offerings to expand and investments in these co-product lines to increase. These co-product investments may include equipment to produce high-protein dried distiller grain with solubles, corn oil optimization, and new buyers for carbon dioxide.” READ MORE