Savings at the Pump

89 cents per gallon saved in 2010
By Holly Jessen | May 13, 2011

On April 27, May futures for reformulated gasoline (RBOB) were $3.45 per gallon, compared to $2.64 per gallon for ethanol—81 cents higher. With recent crude oil prices, that price spread ranged from 60 to 80 cents per gallon for most of April and has averaged about 40 cents per gallon since the beginning of 2011, says Geoff Cooper, vice president of research and analysis for the Renewable Fuels Association.

The price spread, along with savings from the blenders credit, translates into real savings at the gas pump. In addition, Cooper points out, ethanol also impacts gas prices by adding to the fuel supply, an effect that grows as ethanol production increases. “Several economists have estimated that the ability of ethanol to extend fuel supplies, coupled with ethanol’s relative discount to gasoline, means gasoline is 40 to 60 cents per gallon less than it would be without ethanol,” he says. “The impact may be even larger in cases where oil prices are extremely high, as we are seeing today.”

A report from the Center for Agricultural and Rural Development confirms that  from January 2000 to December 2010, ethanol production reduced wholesale gas prices by an average of 25 cents per gallon. In the Midwest, the impact was larger, reducing gas prices by 39 cents per gallon. Looking at 2010 only, thanks to the impact of crude oil prices and increased ethanol production, ethanol reduced the price of gas an average of 89 cents per gallon—58 cents per gallon in the East Coast and $1.37 per gallon for the Midwest.

The report also delved into what might happen to U.S. gas prices if ethanol production were halted immediately. With the ethanol industry now supplying 10 percent of the U.S. fuel supply, oil refiners would not be able to make up for that supply in the short term, leading to increased gas prices. “Under a very wide range of parameters, the gas price increase would be of historic proportions, ranging from 41 to 92 percent,” the report said.

Meanwhile, at the same time the CARD report was released, oil companies announced massive profits, leading to more calls for an end to oil subsidies. BP raked in $5.5 billion in 2011 first-quarter profit, topped by Exxon’s $10.65 billion and Royal Dutch Shell’s $6.3 billion in profits. Notably, Exxon’s first-quarter profits amounted to a 69 percent increase. “It’s time we end the handouts to big oil companies,” says Tom Buis, CEO of Growth Energy. “It’s time we take what are the hidden costs and put them out in the sunlight. Let’s see what it really costs the taxpayer for our addiction to foreign oil.”  —Holly Jessen