Everyone can agree that the price of gasoline is higher than it has ever been. However, no one seems to agree on any way to make it lower, even though an obvious answer is staring us right in the face – ethanol. According to the Renewable Fuels Association (RFA), it’s simply a matter of Ethanomics 101. Listen up, class!
Increased Ethanol Use Will Help Ease the Price Of Gasoline
Ethanol costs significantly less than gasoline. As of March 8, 2022, the price of gasoline was $3.68/gal (April RBOB futures), while the ethanol spot price was $2.55/gal. That is, ethanol is currently trading at a $1.13 per gallon discount to gasoline.
In addition, each gallon of ethanol comes with a free Renewable Identification Number (RIN) attached, which was worth $0.98 on Tuesday. The price differential and RIN value can be seen in significantly lower retail prices for 15% ethanol blends (E15) and especially E85 versus regular unleaded at the pump across the country.
US Ethanol Can Fully Offset Russian Gasoline-Equivalent Import Volumes
Russia accounted for 7% of combined U.S. imports of crude oil and products over the last three years. If the unused capacity in the U.S. ethanol industry were brought online, the additional production could fully replace the amount of gasoline we have been getting via Russian petroleum imports.
The gasoline-equivalent volume of Russian imports averages about 1.7 billion gallons per year (bgy).
U.S. ethanol production capacity is 17.7 bgy. Over the last month, ethanol production has averaged 15.6 bgy on an annualized basis. The unused capacity of 2.1 bgy can fully offset the 1.7 bgy of gasoline-equivalent imports from Russia that are now banned.
In addition, we have current ethanol stocks of 1.1 billion gallons, equivalent to nearly 30 days’ usage, which can be utilized while ethanol production ramps up toward full capacity.