Gasoline prices have surged at the pump the past few weeks with some forecasting that they could set records in major cities this summer.
Unleaded gas prices took off to the races from a mid-December low adding 46 cents per gallon, while ethanol prices gained just 12 cents during the same time period.
April unleaded gas futures are trading 97 cents/gallon above the April ethanol contract on Feb. 16.
While gas prices have jumped, the price of oil has traded in a range since last November, mostly between $96 to $103/barrel.
Higher oil prices did not spark this latest jump in gas prices. Oil prices have traded at the current price level every month since last November. Also, while gas prices have surged, ethanol stocks have also surged to new record highs of more than 902 million gallons.
Ethanol plants are running out of storage to pump surplus ethanol into and are beginning to throttle back production. So while we don’t have an oil shortage, we supposedly have a gas shortage. Ethanol prices have gone down, while gas prices have gone up. What gives?
The ethanol industry has hit the blending wall where access to the motor fuel retail market is restricted by the E-10 blend limitation, blocking consumer access to ethanol supplies that have grown burdensome.
The Renewable Fuels Standard for corn ethanol is just 13.2 billion gallons this year and production is above that. The RFS for corn-based ethanol increases to 13.8 billion gallons in 2013, 14.4 billion gallons in 2014 and the 15 billion gallon limit in 2015.
The problem is that the blending wall created by the E-10 limitation is lower than the maximum RFS. The total RFS of all biofuels reaches 36 billion gallons in 2022.
The government mandated a level of biofuel use that is far above what there is market access for unless higher blends are adopted. This will ultimately limit the market access for cellulosic ethanol and advanced renewable fuels.
E-15 has been approved, but every stumbling block that ethanol opponents can throw in front of it is being attempted to slow and minimize its adoption into the market.
Big oil, big food and big livestock interests are attempting to knee-cap the ethanol industry by denying them market access for ethanol to consumers. Big oil takes billions in subsidies, while funding their political cronies in Congress to end the blender’s credit and freeze spending on new blender pump incentives to retailers. E-15 comes with too many restrictions.
In other words, the ethanol industry has the ability to lower retail pump gas prices right now except for the lack of market access put in front of it by ethanol opponents. There is a shortage of gas with prices climbing while a glut of cheap ethanol goes into storage.
The petroleum industry is reformulating expensive fuel for summer driving instead of using cheap ethanol. If the petroleum industry had its way, ethanol could sell for a nickel a gallon and they wouldn’t let the consumer near it.
All the talk about free market competition in the petroleum industry is baloney. The only reason they blend ethanol is because of the RFS. While that does open market access for ethanol, it also sets a limit at 10 percent of the motor fuel supply.
The petroleum industry sees the 10 percent blend as an annoyance. Mid-range blends sold through blender’s pumps are a threat to the petroleum industry’s market share although its use is in the interest of consumers and the country.
E-85 set off a firestorm reaction from the petroleum industry spending millions of dollars on a sophisticated anti-ethanol public relations media campaign as they fought to kill the ethanol industry image, just like Mitt Romney’s super-Pac attacks his opponents.
Big oil would rather buy crude from an Iran with a nuclear weapon than sell ethanol, even if ethanol is 97 cents/gallon cheaper than the gas they make. The petroleum interests couldn’t give a tinker’s damn that using more ethanol would lower the price of gas to consumers.
While flex fuel vehicles can use up to 85 percent ethanol, all vehicles can burn 20 to 30 percent ethanol just fine. Brazil uses mid-range ethanol blends for its entire fleet without problems.
Brazil has been buying U.S. ethanol because it has gotten cheap enough and if we are too dumb to use it, they will.
The resistance to higher fuel blends in the U.S. is political.
What we need are more blender’s pumps so that consumers can make that choice. USDA has those programs in place, needing funding.
The Environmental Protection Agency has approved E-15, but retailers will be slow to offer it.
By limiting access to retail fuel distribution the petroleum industry can effectively pressure the price of ethanol so that what it buys is cheaper.
This means that the market that we have now benefits the petroleum industry on more than one level and is far from being free or competitive.
If gas prices do soar this summer as some predict, it will be because of factors like limiting ethanol access to the retail market making sure that the blending wall holds back ethanol production.
If this country really wants oil independence then “tear that wall down!” Let consumers have access to higher ethanol blends. Why let the oil industry sustain our dependence on foreign oil, when we have a glut of cheap ethanol?
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
Please Enter Your Facebook App ID. Required for FB Comments. Click here for FB Comments Settings page