Pump Prices May Fuel Ethanol Decision in June
Ethanol prices have more than doubled over the last few months due to harsh weather conditions and transportation bottlenecks spurred by railway congestion, adding to ethanol producer woes that are already mounting over the uncertainty of government blending mandates.
With oil from the Bakken shale and Canada fighting railway congestion as well, and approval for the Keystone XL pipeline an ongoing question mark, prices are soaring and ethanol is getting the short end of the stick because the profit margins are smaller.
The end result is a glut of supply at ethanol refineries, some of which have had to temporarily shut down.
In terminals at New York, Chicago and the on the Gulf Coast, spot prices for ethanol have risen to over $3.50 per gallon from under $2.50 per gallon just in the last month.
What it means is that ethanol—which has traditionally been cheaper than gasoline—is now more expensive. And in the US, prices at the pump carry a heavy political weight.
As the Environmental Protection Agency (EPA) considers a potential revision of the 2014 ethanol mandate, this price jump could be the market indicator that sounds the death knell for ethanol producers who are hoping there won't be any downward revisions in the renewable fuels plan.
In June, the EPA will have to set a floor for the amount of ethanol oil refiners will be required to blend into the mix for this year. In November last year, the EPA proposed reducing the 2014 corn ethanol requirement by 1.4 billion gallons to 15.2 billion gallons--a proposal that has had ethanol suppliers up in arms.
And the oil industry is fighting back with its own resources. This week, securities filings showed that ethanol blending credits cost refiners at least $1.35 billion last year—or three times the cost of 2012, according to a 31 March Reuters report based on disclosures from only nine refiners. The costs are related to the necessity of purchasing Renewable Identification Numbers (RINs), which are paper credits refiners have to use in order to meet quotes for ethanol blending.
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The article Pump Prices May Fuel Ethanol Decision in June originally appeared on Fool.com.Written by James Stafford at Oilprice.com.
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