Ethanol may be the loser amid cheap gas and an oil glut

As gas prices plummet toward the $2-per-gallon mark on a national level—with some regions already reporting $1 gas—forecasts are suggesting the bargain pump prices will last at least through the summer. 

The cheap gas, at a national-average $2.01 as of Monday morning, according to AAA, comes as a rare bit of positive financial news for American families. But the situation is likely to deal further damage to an industry that was already facing some serious financial challenges this year: ethanol, and the whole U.S. biofuels business. 

According to Bloomberg, biofuels producers were already going into 2020 dealing with a state of oversupply. But now with an oil glut (and price war) and demand falling off a cliff due to coronavirus-related stay-at-home orders around the globe, 

About a third of U.S. corn crops now go to the ethanol industry. While ethanol in gasoline remains controversial for many reasons, this is going to hit farmers hard. 

ExxonMobil oil refinery, Baton Rouge, Louisiana, by WClarke [CC BY-SA 4.0]

ExxonMobil oil refinery, Baton Rouge, Louisiana, by WClarke [CC BY-SA 4.0]

Several refiners are temporarily closing and ceasing corn purchases, as they scramble to find storage. And Reuters reported last week that oil traders have chartered at least five supertankers, as of Friday, to store excess oil at sea, after Congress nixed plans to buy more crude for the U.S. emergency reserve; storage ships are already being parked in the Gulf of Mexico. 

Trump administration policy hasn’t always been pro-ethanol. Former EPA administrator Scott Pruitt was soundly in the anti-ethanol category. His successor Andrew Wheeler has supported ethanol and biofuels policies but said last year that it’s not the EPA’s role to promote a particular type of fuel.

The business around corn ethanol boomed during the George W. Bush administration, when an ethanol mandate was introduced—first by the Energy Policy Act of 2005, then boosted by the Energy Independence and Security Act of 2007, which set targets for annual renewable fuel use through 2022 and then left it largely under EPA discretion for subsequent years. 

Ethanol infographic from coalition of livestock and poultry producers (crop)

Ethanol infographic from coalition of livestock and poultry producers (crop)

Higher amounts of ethanol have been shown to increase vehicle emissions that lead to smog in summer months, but last year the EPA relaxed the restriction, in what appeared to be a move from the Trump adminitration to woo agribusiness. So far, that push hasn’t resulted in significantly greater use of ethanol. Moving to E15 can often require costly hardware retrofits, with price tags approaching $25,000. 

There’s widespread opposition to E15 at the state level, plus ongoing pushback from consumers and several automakers (BMW, Mini, Mazda, Mitsubishi, and Subaru) that recommend against using E15 on their new vehicles.

As ethanol producers figure out a long-term fix (or a new business), one short-term hope for the business is harnessing all that extra ethanol production toward something that’s in a shortage rather than a glut: hand sanitizer. 

Source link