Ethanol blend frustration

The Renewable Fuels Association (RFA) expressed their frustration yesterday on a statement about the Environmental Protection Agency’s (EPA) delay to increase percentage of US ethanol blends from 10% to 15%.

The EPA now expects to decide on a higher ethanol blend in the fall. DOE testing on higher blends in cars produced after 2007 will not be completed until September (three months later than originally expected), while approval for vehicles produced in 2001-2007 could be delayed until this winter.

“Equally frustrating as the current plan is EPA’s failure to consider calls to immediately approve the use of 12% ethanol blends. Existing oxygenate stacking rules would allow for it. Specifically, current “stacking” rules allow for the addition of up to 2 percent MTBE on top of currently allowed 10 percent ethanol blends. As ethanol and MTBE are both oxygenates, this additional 2 percent volume could be ethanol. In practice, a vehicle engine would not recognize if the oxygen content was from one fuel or two.” – RFA

RFA estimated that the increase up to E15 blends would mean a potential increase of 6.5bn gallons of new ethanol demand, displacing more than 200 million additional barrels of imported oil.

An analyst report from Jefferies & Company view that the timing delay is not that important given that the US is currently only blending at a rate of about 8.5%. Here’s the rest of their report:

  • Considering that vehicles produced after 2007 are only about 1/3 of the light vehicle fleet, even if 50% of those vehicles switch to using E15 it would imply an increase in ethanol demand of roughly 1bn gal. This would tighten ethanol industry operating rates to an estimated 94% from 87% currently, and, all else being equal, raise aggregate corn demand by 357m bu, or 3.2% of projected demand for the 2011/12 planting year. This increase could shift the expected corn inventory/use ratio for the end of 2011 to 6.6% from 9.5%, although we would note that even at 9.5%, corn stocks are near record lows and are supportive for corn prices.

  • Also this week, the EPA notified Archer Daniels Midland (ADM) that it will consider the company’s June 7, 2010 request to allow gasoline blended with up to 12% ethanol for all vehicles. This would serve as an interim solution if E15 cannot be approved for all vehicles in the near term. ADM argues that E12 is “substantially similar” to certified gasoline with up to 10% ethanol content. The EPA noted it will give careful attention to ADM’s request but that test data is needed for approval, and at this juncture, the Agency is not aware of any test data using 12% ethanol blends.

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