Ethanol puts oil imports at a ‘tipping point'

By Kris Bevill | October 14, 2010
Posted Nov. 3, 2010

A newly released two-year outlook conducted for oil majors and refiners worldwide predicts that ethanol's growing market share, combined with expanding U.S. refinery operations, will cut the need for gasoline imports by more than half of 2008 levels within the next two years. The report, issued by energy markets research and consulting firm Energy Security Analysis Inc., estimates that gasoline import requirements will dip to below 400,000 barrels per day by 2012, down from an average of more than 1 million barrels per day in 2008.

Sander Cohan, ESAI principal and the firm's leading alternative fuels researcher, said the report, which focused on North American, South American and European markets, is a definitive example of a changing tide in the worldwide transportation fuels market. He attributes ethanol's growing impact in the U.S. to renewable fuel standard (RFS) requirements and lagging gasoline demand. "You have a relatively large volume of ethanol coming into the gasoline market and the finished gasoline market only growing by a relatively small volume," he said. "So what's getting pushed out is petroleum fuel."

Ethanol's growing impact on petroleum demand should indicate to oil companies that they need to give serious consideration to ethanol when forming their business strategies, according to Cohan. While increased ethanol blending is already occurring, its impact on gasoline imports is expected to dramatically increase in the coming two years. "This is a tipping point," he said. "The volume of ethanol blending in the United States has moved from something that is a relatively small amount to something that is a substantial and very real part of mainstream fuels. This is a change to the business model that should be addressed sooner rather than later."

Petroleum companies are savvy firms, Cohan said, and they will likely adjust their strategies to integrate ethanol accordingly. "They'll see it as a challenge to adapt to," he said. "They'll see it as a concern, but it's been our opinion for awhile now that there's a great synergy to be had between the logistical and capital advantages that conventional petroleum has and the innovation happening in alternative fuels. It's a natural matching and it's likely that you'll see a lot more participation from refiners and oil producers in the alternative fuels world."