Petroleum group discounts ethanol's role in gas prices

By Kris Bevill | February 27, 2012

In a Feb. 22 press call to discuss rising gas prices, the American Petroleum Institute’s chief economist, John Felmy, blamed crude oil prices for high prices at the pump, and said refinery closures and increasing exports of U.S. gas and diesel are not major factors in the spike in prices. Felmy said that, in fact, U.S. refineries produced record amounts of gasoline in 2011 and in January, due to their ability to produce more gasoline and diesel from every barrel of crude. He also noted that the use of biofuels has reduced the amount of petroleum fuels needed in the market. “We’ve had a mandate to have more biofuels in the refinery stream and so the total finished gasoline supplies have gone up as a function of all those things,” he said.

Felmy declined to acknowledge ethanol’s role in staving off even higher gas prices, however, despite consistent claims from the ethanol industry that the price of gas would be up to 10 cents higher per gallon if ethanol were not being blended. Instead, he indicated that API believes ethanol is an added expense for refiners. “Right now, the cost of ethanol on an equivalent Btu basis is above the cost of Refiners Blendstock for Oxygenated Blending,” he said. On Feb. 21, for example, he said ethanol’s price on a Btu basis was $3.34 per gallon whereas RBOB on a Btu basis was $3.07.

Ron Lamberty, senior vice president of American Coalition for Ethanol, countered that comparing ethanol and RBOB prices on a Btu basis is not a valid argument because fuel is sold based on octane, not Btu content. “Premium gasoline has the same Btu content as unleaded - but it costs a lot more because it’s higher octane,” he said. “If three or four octane points is worth 18-20 cents in premium gasoline, ethanol should be selling for about four and half bucks. The biggest concern refiners actually have about ethanol is that they don’t make it, and they’re going to say whatever they have to say and do whatever they have to do to hold on to their 90 percent gasoline mandate.” On Feb. 23, ACE noted that ethanol wholesale prices in the Gulf Coast were about 75 cents less than gasoline and said 10 percent ethanol blends currently save consumers 7 to 10 cents per gallon compared to unleaded gasoline.

Felmy also said refiners are concerned about the potential for hefty fines from the U.S. EPA if the E10 blend wall makes it impossible for obligated parties to meet the consumption requirements of the renewable fuel standard. “If we hit that blend wall and it’s less than what the mandates are, then considerable penalties will be brought to bear,” he said. “That’s my big concern right now in terms of ethanol and what could happen. We’re not there yet, but we’re getting close.”

The ethanol industry is of course also concerned about reaching the blend wall, a concern which could be alleviated by the widespread use of E15. ACE said it expects E15 to also be a more economical choice for drivers, saving them 11 to 14 cents per gallon compared to unleaded gasoline. “While there is no easy, silver-bullet solution to reduce gas prices, unleashing the ability for American ethanol to comprise a greater share of the gasoline market through E15 would provide immediate relief at the pump,” the group said in a statement. API, however, is opposed to the move to E15 and has filed multiple lawsuits challenging the EPA’s approval of E15 for use in 2001 and newer vehicles.