The focus of this year’s National Ethanol Conference in Dallas, Texas was “Going Global.” As ethanol production has stalled in the United States due to the E10 blend wall, other countries around the world are slowly finding a taste for cleaner burning fuel.
As oil prices have dropped to $50 per barrel, the U.S. ethanol industry is operating at near breakeven margins. Naturally they are doing everything they can to maximize profits. This includes developing more offshore markets for their products.
In 2014, the U.S. exported 836 million gallons of ethanol up 35 percent from 2013 and the second highest annual total on record. U.S. ethanol was sent to 51 different countries on six continents. 836 million gallons only represents about 6 percent of U.S. total output in 2014. However, this market was virtually nonexistent eight years ago.The top export markets for the U.S. today are Canada, Brazil, United Arab Emirates and the Philippines. Other markets like Singapore, South Korea and India have begun to quickly ramp up imports of U.S. ethanol. A lot of focus for ethanol exports is put on Asia. As ethanol usage is currently low, countries like China and India have the fastest levels of fuel consumption growth in the world.
After my visit to China last year, I learned that there are over 125 different car manufacturers currently pumping out new vehicles at record levels. I also saw the smog in Beijing that everyone likes to talk about except the Chinese. To the disdain of the Chinese government, the U.S. embassy in Beijing keeps a daily record of air pollution levels. Those levels reached five times what is considered unhealthy for nearly a week in midwinter when smog gets more easily trapped by cold air. It only makes sense that they would look to ethanol to reduce fuel emissions and help clean up their cities.
The U.S. Department of Agriculture gave a presentation showing a ten-year projection for global ethanol consumption by country. The most sobering projection was that they show ethanol consumption dropping in the U.S. by 10 percent in 2024. Their reason for this is that they do not foresee any favorable changes to come for the Renewable Fuel Standards and therefore believe that the blend wall will stay where it is. Brazil showed the most dramatic increase in ethanol consumption, increasing by 50 percent over the next ten years to 9.5 billion gallons. If USDA numbers are accurate, the U.S. will still be the leading ethanol producer in 2024, producing over 12 billion gallons, despite facing market contraction.
While Brazil has its own problems, the one thing it has done well is to embrace renewable fuel production and consumption. Having been commonly accepted by the average Brazilian, approximately 90 percent of all lightweight vehicles in Brazil are now flex fuel. While most of these vehicles are what we would call compact cars, car manufacturers have been selling them like hot cakes. Despite a looming recession, vehicle sales have been hitting all time highs in Brazil as more people enter the middle class. They say that in third world countries when someone is brought out of the lower class and into the middle class, one of the first things they do is to improve their diets. In Brazil, the second thing they do is to buy a car. This has led to major traffic problems in cities across the country. Cities that were once designed for two out of ten people owning a car, now have to contend with 7 out of 10 people owning a car.
While oil production remains a growing industry in Brazil, they appear to play nicer with the ethanol industry. I wonder if that has anything to do with the fact that the government, through its state-owned enterprise, Petrobras, controls oil production. Since there are no big oil lobbyists to tell Congress what to do, could it be that government bureaucrats actually came to fair and impartial decisions as to what their country’s best energy needs would be?
Americans like to think they are the tip of the spear when it comes to technology and innovation, but when it comes to adopting ethanol we are far from being the leader. Midlevel ethanol blends have been used in other countries for over three decades. Brazil has been using E25 blends since the late 70’s, and their legislature is expected to increase that to E27 very soon. What comes to mind when you think of Thailand? Somehow being a pioneer of alternative energy is not it. And yet over half of all fuel stations in Thailand sell E20 as well as half of all vehicles in Thailand are approved for E20 use.
According to the Renewable Fuels Association, currently 2 percent of fuel stations in America offer E85. The RFA also says that that number has been increasing steadily in the last ten years, growing at 14 percent year. However, since we started near zero ten years ago, that doesn’t say much for total volume. If we were to continue at the same rate of growth, in another ten years we would have closer to 11,000 E85 stations as opposed to the 3300 that we have now. Assuming the number of fuel stations stay the same, E85 would be represented by only 7 percent of American’s fueling stations by the year 2023.
It is also why consumers need to talk to their local fuel station to advocate for increased ethanol blends.
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.
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