The Push Out

Ethanol consumption is up, petroleum imports are down—is it sustainable?
By Kris Bevill | April 15, 2011

If ethanol were delivered with a marketing slogan at the pump, rather than a legal warning, a good choice might be: “Now displacing even more foreign oil!” It’s been the industry’s rallying cry for years. For many producers, it’s their mantra for staying in the business. They want to be a part of a domestic energy industry that helps to reduce the nation’s dependence on foreign oil. But is ethanol really displacing foreign oil? The proof is in the pudding, as the old saying goes, and the numbers are adding up in ethanol’s favor, despite the opposition’s continued unfounded claims to the opposite.

According to data compiled by U.S. DOE Energy Information Administration, the U.S. ethanol industry produced 13.23 billion gallons of ethanol in 2010, up from 10.75 billion gallons the year before. Of the total amount of ethanol produced in the U.S. last year, approximately 397 million gallons were exported, leaving about 13 billion gallons to be consumed by American vehicles. This total still represents less than 10 percent of the 138 billion gallons of fuel consumed by gas-powered U.S. vehicles last year, but it deserves to be noted that ethanol use has grown, and continues to grow. In 2001, 1.7 billion gallons of ethanol were used in the U.S. According to EIA estimates, 14 billion gallons of ethanol will be consumed in 2012.

Petroleum imports, meanwhile, are declining. The Renewable Fuels Association says ethanol production in 2010 reduced the nation’s demand for imported oil by 445 million barrels. “That is more oil than we import from Saudi Arabia each year,” RFA President Bob Dinneen says. “At a time of increased energy uncertainty and volatility, domestic ethanol production from a growing array of feedstocks is helping create the kind of economic and energy opportunities this country will need to regain control over our energy future.”

Sander Cohan, a principal specializing in alternative fuels at energy markets research and consulting firm Energy Security Analysis Inc., tracks petroleum imports and domestic ethanol consumption for his firm’s petroleum clients and notes that imports have been down during the first few months of 2011 while ethanol consumption has increased. But he hesitates to link the two. “There is evidence that [petroleum] is getting pushed out,” he says. “Ethanol blending has gone through the roof since the blending margins started opening up in mid-March,” he said in early April. “Imports have been pretty low, especially in the last two months. Whether or not they’re directly correlated remains to be seen.” He notes that because the ethanol industry is still relatively young, it’s difficult at this point to predict seasonal demand.

So while it is good news that more ethanol is being consumed and fewer gallons of oil are being imported, the question now is: How much can ethanol consumption grow? Cohan believes logistics is a key factor in answering that question. “Ethanol blending is just over 9 percent of total gasoline demand,” he says. “We’re starting to approach the E10 limit, which is the infrastructural limit. The trick for ethanol for that last 0.9 percent is going to be getting the ethanol to the pump.” In testimony delivered March 30 to the U.S. Senate agriculture committee, EIA Administrator Richard Newell said the agency expects slow growth in the ethanol industry over the next two years, due partially to the E10 blend wall. Concerns over potential misfueling and infrastructure limitations will result in a slow market penetration of E15, and E85 use is not expected to grow significantly, he said.

A few important factors are expected to continue to work in ethanol’s favor, however. Cohan says increasing blending requirements under the renewable fuel standard will continue to drive ethanol consumption. He also expects discretionary blending to continue, even if the blenders credit is eliminated, due to high gas prices. “Even though ethanol prices are relatively high, gas is still higher, so there is reason to blend ethanol,” he says. To that effect, Newell said in March that the EIA expects world oil markets to continue to tighten through 2012, which will likely translate into oil prices averaging slightly more than $100 per barrel for the next two years. The EIA’s short-term energy outlook, released on March 8, predicts retail gasoline will average $3.56 per gallon this year, an increase of 77 cents per gallon over the 2010 average. 

—Kris Bevill