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This Week in Energy: The Ethanol Debacle Heats Up

This Week in Energy: The Ethanol Debacle Heats Up

The ethanol debacle heats up ahead of summer; mini nuclear reactors get a boost;

Urgent Note for subscribers: Sorry for butting in at the start of this letter but I just wanted to let you know that we have delayed the price increase for Premium for 2 weeks. If you haven’t tried the service I urge you to do so. The special reports we publish in the main section of this letter are only a taste of what we can provide. Also it’s completely risk free to you. You can subscribe for 28 days – receive 32 reports and then make your mind up if the service is for you. Click here to find out more about the service.

This summer we can expect the Environmental Protection Agency (EPA) to set new targets for US ethanol use while the policy comes under massive criticism. The market has been unkind to the ethanol mandate, and we’re not sure how the EPA is going to now attempt to push through a higher blend ethanol in fuel—above the 10%/gallon, when ethanol supplies aren’t there.

So the new targets to be released this summer will require a bit of a re-think, and the EPA will have to decide how to resolve the issue, which could mean a lowering of targets or an elimination of them altogether.

Refiners and ethanol producers are up in arms over the mandate, which is already threatening to cause fuel shortages and higher prices for consumers—along with higher food prices thanks to the diversion of corn for the ethanol blend.

Of course, the beneficiaries of the EPA’s ethanol targets—primarily the corn-growing states—are hoping there won’t be any lowering of the requirements, but the market clearly sees things differently.

Those trading in Renewable Identification Markets (RINs)—otherwise known as ethanol credits—are also hoping the largesse of the forced mandate continues. The more difficult it becomes to blend low supplies of ethanol with gasoline, the more valuable these RINs become for traders. And the opposition to increasing this mandate from 10% is making the RIN market more vulnerable. For this year, it looks like refiners will be able to meet the ethanol requirements—with help from RIN credits—but next year looks impossible.

What will the EPA’s summer target be? No one’s quite sure yet, including the EPA, so it’s impossible to predict, but we’re inclined to think that the market will convince them that the planned 2014 target of 18.15 gallons of ethanol (up from this year’s 16.5 gallons) is unrealistic. 

Here’s one indication of how things are shaping up: The State of Florida this week moved to repeal its Renewable Fuel Standard and get rid of the 10% ethanol blend mandate.

Small modular nuclear reactors (SMRs) got a boost this week with the announcement that the first commercial SMRs will eventually be housed near the banks of the Clinch River in eastern Tennessee. Later this month, engineers will begin drilling core samples and conducting geologic, hydrologic and seismic research for the site and hope to have two prototype SMRs by 2022. The new SMRs will be 180MW, compared to the traditional nuclear reactors, which are between 500-1,000MW. The advantage of SMRs is that they can be removed as a unit, making them safer and easier to manage in terms of waste and recycling. And it’s all about the size of a Boeing 737. It’s very early days, but still a promising move forward.

Elsewhere in the world, we’re closely following events in Turkey, where mass anti-government protests have continued for a week and show no signs of abating yet, with Prime Minister Recep Erdogan horribly mismanaging the crisis. Our sources in Turkey say that Erdogan appears to be severely damaged and they are not sure if he can recover from this, while key members of his ruling Justice and Development Party (AKP) aren’t necessarily coming to his rescue. Despite what you may see on television and in the international newspapers, the atmosphere in Turkey among the protesters is one of jubilant empowerment rather than violent anger, and there is one clear beneficiary so far: Turkish President Abdullah Gul, who has taken a contrary stance to Erdogan and is pursuing a more conciliatory agenda, which is scoring him plenty of points with the public while Erdogan continues on with his strategy of arrogant defiance.

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Leave a comment
  • Billiam on June 09 2013 said:
    Want to save 13 cents on your next 1 lb box of corn flakes? Get rid of the corn.
  • Billiam on June 09 2013 said:
    Three things will happens if the ethanol mandate is lifted:
    The price of commodities will collapse.
    The price of gasoline will skyrocket.
    The price of food will not drop one penny.

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