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Colin Chilcoat

Colin Chilcoat

Colin Chilcoat is a specialist in Eurasian energy affairs and political institutions currently living and working in Chicago. A complete collection of his work can…

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Has U.S. Ethanol Production Topped Out?

Has U.S. Ethanol Production Topped Out?

It’s onward and stubbornly upward for the U.S. ethanol industry, which shows little sign of slowing after a record year in 2014.

Weekly ethanol production matched its record high in the first week of June, equaling output from the week ending December 19, 2014. At 992,000 barrels per day (bpd), production is up 20,000 bpd from last week and more than 100,000 bpd since the beginning of May.

Federal mandates like the Renewable Fuel Standard (RFS) – enacted in 2005 and expanded in 2007 – have turned the fuel additive into a $40 billion industry. Buoyed by high exports – up 33 percent from 2013 – ethanol production totaled more than 14.3 billion gallons in 2014. For its part, corn also had a record year with production reaching 14.2 billion bushels.

Currently, fuel ethanol accounts for approximately 10 percent of the total volume of finished motor gasoline consumed, though there are questions surrounding just how much higher that share can go. Put simply, there are limitations, both legal and practical, on the amount of ethanol that can be blended into the gasoline supply. Related: Crude By Rail Falling Out Of Favor

Source: EIA

This limit, or “blend wall,” is a factor of ethanol’s lower energy content, higher consumer cost, and the market limitations surrounding higher blends like E85. As a result, and despite its rapid growth, ethanol use has fallen behind the RFS targets – a gap that is expected to widen as gasoline consumption declines toward 2020.

Source: USDA

In an effort to address this plateau and reestablish realistic targets, the Environmental Protection Agency – in May – proposed a set of changes to the RFS for 2015 and 2016. Toward 2016, the proposal calls for a 9 percent increase in the use of renewable fuels by volume. However, targeted growth for conventional corn ethanol is lower at only 5 percent. Related: Why The Oil Rally May Well Be Over

Instead, the EPA is pushing advanced biofuels, raising the target more than 20 percent by 2016. The proposal is due to be finalized in November.

Advanced biofuels like cellulosic ethanol – made from corn husks, stalks, other waste residues, and native grasses – have long been seen as the RFS’ endgame, though their development has lagged far behind expectations. 2014 was very much a breakthrough year for the industry, which saw the opening of the first commercial-scale plant. Early entrants like Abengoa, Poet, and Royal DSM have largely avoided the kinds of losses felt by their oil industry counterparts.

Still, moving forward, there are more questions than answers. While the EPA proposal addresses any lingering uncertainty regarding RFS support, it does little to solve the market-based problems surrounding both conventional and cellulosic ethanol.

Domestically, much of the nation’s automotive fleet and fueling infrastructure cannot support higher ethanol blends like E15 and E85, nor is there demand for them among consumers.

Moreover, the fuel additive’s environmental efficacy is questionable at best. A recent study from Environmental Working Group (EWG) suggests the carbon intensity of corn ethanol is 20 percent greater than standard gasoline. EWG estimates that the production and use of E10 in 2014 resulted in 27 million tons more carbon emissions than if U.S. drivers had burned straight gasoline. Related: The End Of The Beginning For Renewable Energy?

All told, exports present the most compelling – and necessary – opportunities for growth. Global demand is trending up, but a strong U.S. dollar may favor lower cost producers like Brazil. Securing markets abroad will be key as bigger players like Archer Daniels Midland and Green Plains Energy face shrinking margins.

The financial weight and political significance suggest corn ethanol isn’t going anywhere. However, barring drastic changes to the RFS, it’s gone about as high as it can go. Of course, biofuels are far from played out; one need only look toward biogas – and its multitude of uses – to discover that the industry still has much to offer.

By Colin Chilcoat of OilPrice.com

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  • tom on June 17 2015 said:
    I use E-85 in both of our family flex fuel vehicles and plan to continue doing so. Ethanol provides a very competitive alternative to gasoline even at its reduced energy content due to its much lower price. Ethanol has a very high octane rating and significantly increases the octane rating of fuels it is blended with. I have used elevated blends such as E-15 up to E-30 in other vehicles with no problem. The elevated blends eliminate engine pinging when under heavy load. I have had zero mechanical problems using ethanol and all my vehicles run very smoothly with no extra maintenance. When cleaning an old gasoline tank I have found Ethanol to be a very good cleaning agent for removal of gasoline gum and varnish deposits from fuel system. I wish the oil industry would stop fighting ethanol as the US oil industry still imports a net of about 4,000,000 barrels of foreign oil each and every day, 365 days a year. Seems like we should support the American Ethanol Industry for its many benefits. If we will hang on to ethanol we will eventually be able to raise engine compression ratios to get even better fuel economy. That's one of the great benefits of ethanol - clean burning, very high octane.
  • Ron Wagner on June 17 2015 said:
    Ethanol is actually less expensive than gasoline per unit of energy! Just check oilprice.com! It is also cleaner despite the green extremists. Lack of E85 at a competitive price is a factor related to it being sold by gasoline dealers. E-15 is needed soon.
  • Kamsan on June 18 2015 said:
    "Domestically, much of the nation’s automotive fleet and fueling infrastructure cannot support higher ethanol blends like E15 and E85"
    Correction: Something like 85% of the vehicle fleet supports E15. Most of any system made for E10 will work for E15, and american cars have been made to handle that since the 80ies/90ies. Even manufacturers guarantees for new vehicles are overwhelmingly allowing of E15 (70% of new cars) and there's like 15 million flexfuel vehicles, or 7% of the overall fleet. The vehicle fleet can easily support up to 22 billion gallons or so. That is, if everyone could/would fuel up.

    The bigger problem is the limited amount of pump stations equipped for E85 and other higher blends than E10. It was only until 2011 that Sweden of all places had more E85 pumps than all of the US, and the situation isn't much better today (still improving, by a couple of hundred stations a year). Pump availability is heavily slanted to the corn and ethanol producing states, however.
    The other pump related issue is the RVP rules that limits E15 sales during the summer half, which also holds back investments in E15 and other mid-ranges.

    And finally, customer demand is an issue, but mostly from the lack of availability (pumps) and the wide array of misinformation out there (no, Ethanol will not melt/explode your car's fuel systems unless it's from the

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