OUTLOOK ’18: US ethanol eyes global markets amid rising production, slack demand

HOUSTON (ICIS)–US fuel ethanol producers, staring at multi-quarter low pricing and deflating domestic motor gasoline demand, must eye growth in international markets in 2018 to keep a healthy supply and demand balance.

Finished motor gasoline demand this year was down by 1.1% from last year, as the US Energy Information Administration (EIA) reported cumulative daily demand for 2017 at 9.277m bbl/day, down by over 100,000 bbl/day from 9.381m bbl/day in 2016.

But even if demand were to strengthen, it cannot counter rising supply, as cumulative daily fuel ethanol production was up 4.2% in 2017 from last year.

This production is showing no signs of abatement, according to industry groups.

Annual domestic ethanol production stood at approximately 15.9bn gal this year, a figure expected to grow to 17bn gal by the end of 2018, the ethanol trade group Renewable Fuels Association (RFA) said.

“If [the fuel ethanol industry is] going to grow, we have to increase demand,” RFA CEO Bob Dinneen said at the industry’s yearly trade convention.

As a result of that 1bn gal annual excess, producers must find global markets to find a place for the fuel. Marketers are eyeing the coastline, filling up vessels in new-build terminals.

In early December, Green Plains and Jefferson Energy Companies loaded its first vessel at their joint-venture Beaumont, Texas terminal with nearly 3m gal of ethanol destined for Brazil. The terminal sent its second shipment of 10m gal to India shortly after that.

On the regulation front, in a sharp contrast to what US President Donald Trump said on the campaign trail in 2016 and in his early days of office in 2017, ethanol policy will largely remain status quo for 2018.

Promises to chip away the Renewable Fuel Standard (RFS) were unfounded, leaving the 10% (E10) blending of fuel ethanol into the nation’s gasoline pool the same, even as the Trump administration stocked the Environmental Protection Agency (EPA) with an oil industry-friendly leader in Scott Pruitt.

Ethanol groups applauded the decision, but wrangled for a higher, 15% blend (E15) in the gasoline pool.

While the energy policy of Trump had a minimal affect EPA mandates and regulations, the influence of those policies had on price movement was undisturbed with rising production and slack gasoline demand.

Gasoline prices have continued firming throughout 2017 on stronger crude oil futures.

On the fundamental level, corn prices will continue to play a significant role in the movement of ethanol prices in 2018, as record crop yields came through this year, and are expected for the year after.

The decline in corn prices proved bearish for ethanol, as prices mostly moved downward through the year.