The July 8 Energy Information Administration (EIA) “This Week in Petroleum” report takes a look at the fast approaching ethanol blend wall, predicting ethanol’s share of the gasoline market will reach the 10% saturation point by the beginning of 2011.
During April 2010 an estimated 834,000 bbl/d (12.8 billion gallons per year [BGY]) of fuel ethanol was blended into gasoline, representing an average 9.2 percent of total gasoline product supplied by volume. The July EIA Short-Term Energy Outlook projects that the ethanol share of the gasoline pool could reach 10 percent in the first quarter next year when total gasoline consumption is expected to average about 8.8 million bbl/d (135 BGY).
The EIA report concludes, in an understatement, that “the blend wall is an important event moving forward for the ethanol industry.” However, some in the ethanol industry say the blend wall is already here. According to the EIA’s Short-Term Energy Outlook report, ethanol production will average 850,000 barrels per day this year and grow to 880,000 next year. The Renewable Fuels Association (RFA) notes that would amount to an annual total of 13.5 billion gallons in 2011. “That is nearly 1 billion gallons more than called for by the Renewable Fuels Standard’s requirement for “renewable fuel,” and unless EIA knows something more about EPA’s decision-making process on E15, we believe it is unlikely that the industry will produce that volume of ethanol next year,” said RFA’s Matt Hartwig. “Current markets are limited by the arbitrary E10 blending limit enforced by EPA. And while higher level use in the form of E85 and mid-level blends is expanding, it’s not happening fast enough to justify EIA’s 2011 predictions. Further, while the ethanol export market is growing rapidly, it still remains too small to absorb that much excess supply.”
EIA’s report says, “absent a relaxation of the 10 percent limit on ethanol blending in the general gasoline pool, and with still increasing ethanol production capacity, there will likely be downward pressure on ethanol prices as the blend wall is approached.” How low ethanol prices could go, the report adds, will also be determined by the cost of production (i.e., corn prices) and whether the ethanol blender’s tax credit is extended by Congress.