Chemical profile: US ethanol

05 April 2013 09:24  [Source: ICB]

USES
The consumption of ethanol in renewable fuel applications has grown considerably in the last few years. The use of ethanol as fuel currently accounts for approximately 80-90% of global consumption. Ethanol has been increasingly used as an additive in gasoline, replacing methyl tertiary butyl ether (MTBE).

 
SUPPLY/DEMAND
Data from the US Energy Information Administration showed that ethanol inventories were down 6.0% at 17.4m bbl in the week ended 22 March from 18.5m bbl in the previous week.

Meanwhile, ethanol production was at 805,000 bbl/day, down from 809,000 bbl/day the previous week. Ethanol production is down by 9.4% from 889,000 bbl/day in the same week a year ago. Imports were stable at 27,000 bbl.

The US ethanol industry produced 13.3bn gal in 2012, down from a record 13.9bn gal in 2011, according to the US-based Renewable Fuels Association (RFA). US ethanol production capacity currently exceeds 14.7bn gal, according to the RFA.

The ethanol industry had a tumultuous year in 2012. Much of it was caused by a record drought that devastated the US corn crop and sent corn prices surging. As result, many plants had to severely reduce production or shutdown altogether. Analysts expect the 2013 corn crop to be one of, if not the largest one ever, as many drought-ravaged areas in the midwest have started to see some relief. The industry has also been faced with the backlash from the US Renewable Fuel Standard (RFS), which requires ethanol and other biofuels to be blended into the gasoline pool.

The requirement for 2013 is 13.8bn gal. For 2012, the requirement was 13.2bn gals. There was just enough ethanol produced and blended into the gasoline pool to make it.

As gasoline production drops off, as it has for the past several years, and the RFS requirement increases, the day will come when ethanol will have to be blended into gasoline at higher than 10%. This scenario is called the "blend wall".

Oil and gas companies, as well as car manufacturers, say blending ethanol at higher levels, such as in E15 or gasoline with 15% ethanol, is damaging to older vehicles.

Some say the answer is not in the widespread adoption of E15 but the implementation of E85, which can be used in Flex Fuel vehicles.

PRICES
US fuel ethanol spot prices were assessed mostly weaker for the week ending 27 March as ethanol inventories slumped to levels not seen since early 2012.

Corn futures for the prompt May contract settled at $7.35/bushel on 27 March, up 3 cents/gal from 20 March. Sources say corn supply remains tight, and may get even tighter as demand from ethanol plants has been strengthening in recent weeks.

Midwest prices were weaker at $2.61-2.62/gal, compared with $2.62-2.63/gal the week ended 27 March, while Chicago prices were also weaker at $2.56-2.57/gal compared with $2.57-2.58/gal the prior week. Southern California prices were stable from the previous week at $2.80-2.82/gal. New York Harbor prices were also stable at $2.70-2.71/gal.

TECHNOLOGY
Currently, fermentation processes based on starch or sugar-based feedstocks, such as corn and sugarcane, are being used to meet the demand for ethanol as a fuel.

Dry milling continues to be the production process of choice, while wet milling makes up a much smaller portion of the market. An increasing amount of ethanol is produced from non-traditional feedstocks such as waste products from the beverage, food and forestry industries. In the near future, ethanol will be produced from agricultural residues such as rice straw, sugarcane bagasse, corn stover, municipal solid waste and energy crops such as switchgrass.

OUTLOOK
Industrial ethanol producers have struggled to push through price increases in recent months.

While nominal rises have been heard in the market, most sources say rollovers have been the norm and will most likely be the case for the second quarter of 2013.

High corn prices have put pressure on ethanol producers, but an improving economy has helped mitigate losses.


By: Bobbie Clark
+1 713 525 2653



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