• 4 minutes Pompeo: Aramco Attacks Are An "Act Of War" By Iran
  • 7 minutes Who Really Benefits From The "Iran Attacked Saudi Arabia" Narrative?
  • 11 minutes Trump Will Win In 2020
  • 15 minutes Experts review Saudi damage photos. Say Said is need to do a lot of explaining.
  • 2 hours Iran Vows Major War Even If US Conducts "Limited Strikes"
  • 6 hours Shale profitability
  • 53 mins Memorize date 05/15/2018 cause Huawei ban is the most important single event in world history after 9/11/2001.
  • 26 mins Europe: The Cracks Are Beginning To Show
  • 1 min When Trying To Be Objective About Ethanol, Don't Include Big Oil Lies To Balance The Argument
  • 2 hours Hong Kong protesters appeal to Trump for support.
  • 14 hours Ethanol, the Perfect Home Remedy for A Saudi Oil Fever
  • 1 hour LA Times: Vote Trump out in 2020 to Prevent Climate Apocalypse
  • 19 hours Let's shut down dissent like The Conversation in Australia
  • 11 mins Ban Fracking? What in the World Are Democrats Thinking?
  • 12 hours One of the fire satellite pictures showed what look like the fire hit outside the main oil complex. Like it hit storage or pipeline facility. Not big deal.
  • 21 hours New designs will reduce transport fuels consumption
  • 19 hours A little something for all you Offshore swabbies
  • 23 hours Democrats and Gun Views
  • 5 hours US and China are already in a full economic war and this battle for global hegemony is a little bit frightening
Alt Text

Good News And Bad News For The Ethanol Industry

The ethanol industry saw some…

Alt Text

Energy Storage Boom Goes Into Overdrive

Cheaper batteries and increased use…

Alt Text

Bioscience Breakthrough Turns Plant Waste Into Gasoline

Bioscience engineers have been making…

Robert Rapier

Robert Rapier

More Info

Premium Content

Rising Ethanol Prices and the Lessons to be Learned

I thought it was a bit humorous recently — when corn ethanol prices dipped and were cheaper than both sugarcane ethanol and gasoline (even when adjusted for lower energy content)  — that some corn ethanol proponents pointed to this as a watershed event. Their underlying message, which was repeated almost daily in the comments on my blog, was that corn ethanol had now reached the point of permanent price competitiveness with gasoline. But I have repeatedly warned about price volatility in the energy business; that nothing is permanent. Today natural gas is $4 per million BTUs, but a few years ago it was $15. Oil has traded between $10 and $150 over the past decade. And corn — upon which corn ethanol is dependent — is not only strongly influenced by energy prices, it is a commodity in its own right and has volatility that can be influenced by crop failures around the globe.

Those who highlighted corn ethanol’s competitiveness in the summer have been pretty silent on the topic lately. The reason is that ethanol prices are sharply on the rise:

Schork Oil Outlook: Ethanol’s Late Season Surge

Since the end of June, spot ethanol CBOT futures for October delivery have surged 43% on the back of a strong export market along with substantial spikes in corn and sugar feedstocks. Strength in this market is motivated by new estimates from the USDA. In short, the crop yield forecast has been lowered and the volume dedicated to ethanol output has been raised.

So back in June, ethanol was briefly cheaper than gasoline. Today, ethanol on the spot market trades for $26.84 per million BTUs ($2.04 per gallon) and gasoline trades for $16.87 per million BTUs ($1.94 per gallon). (Sources, CBOT, EIA). But the point here is not to simply highlight that ethanol is now 60% more expensive than gasoline. After all, in the long run we may pay $50 per million BTUs of liquid fuel and be happy that the supplies are available. The lesson here is that energy prices, whether current as in this case with corn ethanol — or future speculations based on cellulosic ethanol or algae — are going to be subject to great volatility. In this context, a future projection of $2/gallon for cellulosic ethanol is meaningless.

A year from now, ethanol may once again be competitive with gasoline, or the situation could be even worse than it is now. I think one of the biggest risks hanging over the corn ethanol industry is that of a major crop failure in the Midwest. Imagine a terrible drought in Iowa that causes corn crops to fail. A corn ethanol industry that is heavily dependent on Iowa corn is going to need to scramble for supplies, and prices will be driven much higher. That would shed a spotlight on the industry that they would rather avoid; that is that ethanol could be subject to extreme volatility due to a crop failure OR to volatility in the energy markets. Public support for corn ethanol would probably vanish in such an event. People would be dealing with higher food prices as well if crops failed, once again focusing attention on the food versus fuel debate.

This scenario is certainly not out of the question. Energy cycles take place over many years, and most of the corn ethanol industry is less than a decade old. Whether the industry survives in the long run will be highly dependent on the crops coming in reliably year after year to keep price volatility to a minimum. The lessons people should take from rising ethanol prices are that energy prices are volatile, and nothing is permanent.

By. Robert rapier

Source: R Squared Energy Blog




Download The Free Oilprice App Today

Back to homepage



Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play