Ethanol Wrongly Accused of High Gasoline Prices

Ag industry sets out to keep ethanol from taking blame for high gasoline price. Jacqui Fatka

Published on: Apr 19, 2006

After President Bush's State of the Union address, the nation was buzzing with excitement about the potential of ethanol. Now, the tables are turned and ethanol is getting blamed for the Department of Energy's prediction of higher gas prices.

Agriculture industry leaders held a conference call Tuesday in hopes of setting the record straight.

In the upcoming months refiners will make a full switch from the oxygenate additive MTBE to ethanol, with a full MTBE-phase out expected by the end of May. This isn't because of the energy bill or Clean Air Act requirements, explains Bob Dinneen, Renewable Fuels Association president.

DOE expects gas prices to rise nearly 25 cents. American Farm Bureau Federation President Bob Stallman says the biggest driver in that price increase is current crude oil prices, breaking last August's records of $70/ barrel. "Ethanol affects prices by a few pennies," Stallman states.

Dinneen adds that nearly 85% of ethanol is sold in long-term contracts of 6-12 months. Ethanol prices were negotiated well in-advance of knowing current crude oil prices, he explains. Ethanol spot market prices vary from $2.40-$2.50, although that is irrelevant for contract ethanol purchases, Dinneen says.

Ethanol is criticized for not being shipped by pipeline. Brazil built a pipeline system to accommodate ethanol. However, Dinneen explains that the U.S. pipeline originates in the gulf to accommodate gasoline. For ethanol to take advantage of that it'd have to be shipped down to the Gulf. Instead, it is moved from the Midwest to the costs by rail, with a cost of 11-12 cents a gallon, a competitive figured which is also calculated into contract costs.

Legislation unlikely to increase Brazilian imports

In 2005, the U.S. imported 130,000 gallons of ethanol. Brazilian ethanol imports incur a 2.5% ad valorem tariff, plus a 54-cent-per-gallon duty. Dinneen says the tariffs in place are not a barrier, and imported ethanol can compete when the market demands it.

National Corn Growers Association Vice President Jon Doggett says a legislative fix to temporarily allow increased Brazilian imports is unlikely. "Look at how much Congress isn't getting done," he says, adding if it wasn't introduced by now it's difficult to accomplish before this fall's elections.