energy.agwired.com

The media has been sounding the alarm about higher gas prices today, following the release of the Energy Information Administration’s latest forecast. What’s interesting is that the report shifts the blame for the rising prices from ethanol to the oil industry, which the Renewable Fuels Association was quick to point out in a press release.

EIA Administrator Guy Caruso said consumers can expect gasoline prices to be 25 cents higher on average this summer. Caruso attributed 19 cents of that increase (or 76%) to high world oil price and said that the increased use of ethanol would affect gasoline prices by “just a few pennies.”
“Today’s report from EIA is a much more accurate reflection of what is going on in the gasoline and ethanol markets as refiners voluntarily eliminate MTBE from the nation’s gasoline supply,” said Renewable Fuels Association President Bob Dinneen. “Were it not for the tremendous growth of the U.S. ethanol industry and the availability of ethanol, refiners’ decisions to eliminate MTBE this spring would send gas prices through the roof.”

RFA also sent out a Fact Sheet about ethanol and gas prices that seems to have been heard by the media, as most articles have either not mentioned ethanol at all or just briefly in reference to the MTBE transition. AAA blamed it all on the government, according to CNN Money, quoting spokesman Geoff Sundstrom. “The refining industry has had to go on a crash course conversion to ethanol, and of course it’s coming at the worst possible time,” he said. “It seems the whole process could have been managed better by the federal government.”

Analysts are saying that the US will be importing more ethanol this summer to keep up with demand caused by the phase-out of MTBE. According to a Dow Jones story,

U.S. cane-based ethanol imports are expected to more than double in 2006 from 511 million liters in 2005. “Moving U.S. ethanol, produced in the heartlands, to population centers on the coasts, where demand is heaviest, is a logistical challenge,” said Edward Murphy, downstream general manager of the American Petroleum Institute in Washington. “Because ethanol absorbs water and corrodes pipelines, it must be trucked or moved by rail to consumption areas for final blending.” More tanks are needed to store and blend ethanol on the East Coast, where it’s difficult and expensive to construct them. Imports, however, have the advantage of arriving at major population centers.

In other words, the petroleum industry is contending that it’s easier to import ethanol than it is to truck it from the midwest. Not sure I believe that.

The article also notes that with the increased demand – guess what? – the price of Brazilian ethanol is going up. It’s also significant to note that while there is a tariff on ethanol imports from Brazil, the Caribbean Basin Initiative allows a limited amount of ethanol to come in duty free from 24 nations. So, the call to lift the tariff on foreign ethanol is being sounded by lawmakers. One is Connecticut Governor Jodie Rell, who is asking her state’s congressional delegation to support lifting the tariff to provide “much needed relief” from rising gas prices, according to an AP report.
I think it makes good political sense to lift the tariff, at least temporarily, to help with the short supply situation here – but I have serious doubts that it will provide any relief from rising gas prices since it’s as good as any excuse to raise gas prices.