This is an excerpt from EERE Network News, a weekly electronic newsletter.
Low Ethanol Prices a Boon for Consumers, a Bane for Producers
A glut in ethanol production caused prices for the renewable fuel to drop from August to October, although the prices started to rebound in September. According to VeraSun Energy Corporation, the price for a gallon of ethanol dropped by nearly 50 cents from the beginning of August to the end of September. The American Automobile Association (AAA) started tracking the cost of E85 (a blend of 85% ethanol and 15% gasoline) on its Fuel Gauge Report Web site in late September, and since then the fuel has stayed competitive with mid-range grades of unleaded gasoline, providing an incentive for consumers with flex-fuel vehicles to fuel up on E85. As of November 27th, the Fuel Gauge Report Web site shows E85 hovering around $2.50 per gallon, compared to $3.28 per gallon for mid-range unleaded gasoline. Even adjusting for a lower fuel economy while using E85, its effective price is competitive at about $3.29 per gallon. That's up from the price in late October, when E85 was at about $2.28 per gallon, yielding an adjusted price of about $3 per gallon. See the AAA Fuel Gauge Report.
With the prices down, at least three ethanol producers scaled back or stopped their expansion plans in September and October. VeraSun temporarily stopped construction on an ethanol refinery in Reynolds, Indiana, with plans to resume in 2008, but the company continued construction on four other facilities. Chippewa Valley Ethanol Company, LLC (CVEC) halted an expansion of its ethanol refinery in Granite Falls, Minnesota, while Glacial Lakes Energy, LLC (GLE) halted construction on a facility in Meckling, South Dakota. The companies cited unfavorable market conditions due to falling ethanol prices, high corn prices, rising project costs, ethanol coming into the market "at a higher rate than the gasoline market can reasonably absorb," and "the lack of a clearly defined path to significantly higher ethanol volumes beyond the 10% blend markets." But all three producers remain bullish on the long-term prospects for ethanol production. See the announcements from VeraSun, CVEC, and GLE (PDF 54 KB). Download Adobe Reader.
There are many reasons to be optimistic. In October, the Underwriters Laboratories (UL) announced the establishment of safety requirements for fuel pumps that dispense E85 and started accepting submittals for certification. The Ethanol Promotion and Industry Council (EPIC) said that the move toward UL certification would double the number of E85 fueling stations in the next year. Meanwhile, the impact of the federal Renewable Fuels Standard remains unclear. The first quarterly reports from fuel suppliers are due to the U.S. Environmental Protection Agency (EPA) at the end of November, while the EPA has just set the requirement for 2008. With a mandate to sell 5.4 billion gallons of renewable fuels next year, refiners, importers, and blenders of gasoline must blend in at least 4.66% ethanol by volume. See the UL and EPIC press releases and the EPA Renewable Fuels Standard Web site.