Iowa Public Television


Ethanol Market Squeezed

posted on July 7, 2006

Hello, I'm Dean Borg. Mark Pearson is off this week. The period of time between Independence Day and Labor Day is the peak driving season for U.S. travelers. So it comes as no shock to learn gasoline prices are at historic highs as the summer driving season hits high gear. *The average price for a gallon of regular gasoline is $2.93. That's more than 70 cents a gallon higher than a year ago at this time. *The average price for diesel fuel has climbed to nearly $2.90 a gallon, some 55 cents a gallon higher than last year. *All this because oil prices this week topped $75 a barrel for the first time, ratcheting up prices at the pump. That's bad news for the energy intensive farm industry, which is just weeks away from a big harvest in the Heartland. Even the prospect of a booming ethanol market has been tempered somewhat with the news this week that ethanol-blended gasoline may no longer be the most attractive purchase at the pump.

Ethanol Market Squeezed

Ethanol has always been looked at as both a cost-effective method of cutting the price at the pump and a stepping stone to energy independence. But the predominately corn-based fuel has entered a period where the enticing price gap between blended and regular fuels is gone. One of the reasons can be attributed to the increase in demand for the limited supply of ethanol as MTBE is phased out in major cities.

In Iowa, the nation's top ethanol producer, the price at the pump for ethanol blends has traditionally been lower than the price of unleaded gas. Recently, though, it has reached parity or even a monetary disadvantage as supplies get tighter.

Lucy Norton, Iowa Renewable Fuels Association: "So as fast as our ethanol industry is growing in Iowa, and through out the Midwest, our demand is growing as fast and so it's kind of an equal pace right now. And so the value of octane is very high today and we're all seeing gasoline are rising, oil prices are rising so the value of ethanol is going up at the same time.

Though ethanol burns cleaner than unleaded fuel, there is a decrease in overall gas mileage. Generally, consumers have ignored the loss and voted with their wallets. Norton does not see ethanol usage decreasing despite the slightly higher price.

Lucy Norton, Iowa Renewable Fuels Association: "With an E10 blend that's been available for 30 years, the difference is negligible and most people don't notice it. Their buying it because they've been using it for years and like the product. Their supporting agriculture, community, and, you know , typically ethanol does sell for less than regular unleaded gasoline except for this period of time that we're in today. And so, it's the best fuel out there and it's the best buy for consumers."

Maybe so, but even the U.S. Department of Energy has questioned the ethanol industry's ability to satisfy demand during peak summer driving months. Incentives already in place continue to push the industry to record production levels. In 2005, 4.5 billion gallons were produced and with several new plants coming on-line the industry is on track to make even more this year. Despite the increased production there will be a delay as ethanol producers play catch-up with market demands.

Lucy Norton, Iowa Renewable Fuels Association:"'s gonna take some time for all of it to catch up but, you know, it could be six months, it could be eight months, it'll come back, it's a cycle and we've seen these cycles before where prices are just the opposite prices are extremely low and then they turn back around."


Tags: biofuels ethanol markets news renewable fuels