White House Stalls Ethanol Expansion in Midwest Amid Price Concerns

by Jarrett Renshaw and Stephanie Kelly (Reuters) The White House is stalling action on requests by Farm Belt states to allow regional sales of gasoline blended with higher volumes of ethanol after oil industry warnings that the move could cause regional supply disruptions and price spikes, according to two sources familiar with the matter.

The decision underscores concerns within President Joe Biden's administration over fuel prices, as opinion polls show inflation and the economy as key vulnerabilities for his 2024 re-election bid. In an NBC News poll released on Sunday, just 38% of respondents approved of Biden's handling of the economy.

Governors from eight Midwestern states - Illinois, Iowa, Kansas, Minnesota, Nebraska, North Dakota, South Dakota and Wisconsin - petitioned the Environmental Protection Agency last year to let them sell gasoline blended with 15% ethanol, or E15, all year, arguing it would help them lower pump prices that soared following Russia's invasion of Ukraine in February 2022.

The EPA last March issued a proposal that would approve the request by the governors. The agency subsequently missed deadlines to finalize the proposal after oil refiners including HF Sinclair Corp (DINO.N) and Phillips 66 (PSX.N) warned that a patchwork approach to approving E15 sales would complicate fuel supply logistics and raise the risk of spot shortages.

The two sources familiar with the administration's thinking, speaking on condition of anonymity, said the White House decided to delay action on the matter following the oil industry's warnings in part because of concern that higher pump prices in certain states could hurt Biden's re-election chances.

The oil and ethanol lobbies have produced dueling studies that show how allowing E15 in some states would impact prices, with predictable results. Oil industry-backed studies showed price increases, while ethanol industry-backed studies showed any price increases offset by utilizing lower-cost ethanol.

University of Houston energy economist Ed Hirs said the average U.S. consumer does not understand oil markets, leaving the White House and Biden's re-election campaign vulnerable to accusations that approving the requests by the governors caused fuel prices to spike, even if something else was to blame.

"There is an unwritten rule that high gas prices mean the incumbent won't get re-elected," Hirs said. READ MORE

Excerpt from KNEB: U.S. Senator Pete Ricketts (R-NE), released the following statement in response to reports the Biden administration is “stalling” ethanol expansion this summer in Midwestern states:

“The Biden administration needs to follow the law and keep their commitments for this summer. President Biden has overlooked and underestimated the economic and environmental benefits of biofuels like ethanol as part of our energy portfolio. Ethanol saves consumers money at the pump, it is made in the USA and a boom to Midwest state economies, and it’s good for the environment.” READ MORE

Excerpt from Argus Media: US midcontinent gasoline prices may tick higher than normal next summer as eight midcontinent states seek to retain year-round sales of 15pc ethanol gasoline (E15) in a proposed reformulation that could pinch regional supplies and constrain pipeline movements.

The potential shift to year-round E15 could lead to portions of the midcontinent adopting a boutique grade of gasoline particular to the region that would be used for blending to produce the E15. The boutique grade would be 7.8 Reid Vapor Pressure (RVP), a more expensive specification, as opposed to the 9.0 RVP gasoline that is typically used during the summer months.

This lack of uniformity in gasoline specifications may cause logistical problems, with pipelines unable to make the necessary changes to accommodate two separate RVPs of CBOB before the 2024 summer. The change may also result in an inability to draw product from other regions, leading to higher prices.

Gasoline prices at the pump could potentially increase by between 8¢-12¢/USG if the proposed rule were to go through, said US refiner HF Sinclair in its 15 November petition to the US Environmental Protection agency opposing the move, citing a study conducted by energy consultant Baker and O'Brien earlier this year.

Southern US midcontinent suboctane gasoline prices averaged $2.62/USG from April through December this year, while Chicago's Buckeye Complex CBOB averaged $2.49/USG in the same timeframe.

Ethanol industry groups released a study conducted by energy consultant MathPro in December 2021 that estimated the cost of a nationwide shift to E15 gasoline at approximately 2¢/USG. Petroleum industry organizations say the MathPro study is flawed.

The change to E15 may benefit the environment as well with the Renewable Fuels Association claiming that E15 gasoline produces 40-50pc less greenhouse emissions than crude-based gasoline. The association also argues that the use of more US-made ethanol can increase energy independence and reduce the effects of market shocks.

E15 has been available for sale across the US since 2019, but a federal court in 2021 found that the Clean Air Act exclusively offers a fuel volatility waiver to refiners to produce 10pc ethanol gasoline. The EPA has worked around this ruling for the last two summers by issuing temporary emergency orders allowing the sale of E15 because of the Ukraine conflict's squeeze on fuel supply. The EPA currently intends to issue a final ruling by late March next year.

The change could also result in additional costs and losses in production for refiners. Segregating 7.8 RVP gasoline from 9.0 RVP gasoline could result in a 12pc decrease in production, HF Sinclair said in its petition to delay the change, citing a 2005 report from the US Government Accountability Office. The US midcontinent produced an average of 2.53mn b/d of finished gasoline between April and September this year, according to data from the US Energy Information Administration (EIA). Ethanol blending in the midcontinent averaged 248,000 b/d during that period. READ MORE