Gasoline prices are bad enough, but what’s up with these ethanol prices?
That’s what readers wanted to know this past week. I’ve written over the summer that ethanol offered a competitive alternative to gas, even though it delivers a bit less fuel mileage.
But that’s not true lately. E85 ? the 85 percent ethanol blend hyped as a new domestic alternative to imported fossil fuels ? is running by my tally at about 20 cents less to as much as 40 cents more than unleaded regular, depending on the gas station and area of the country.
A cursory survey showed prices for a gallon of e85, made from grain alcohol, ranged from $2.19 to $2.79, while unleaded regular sold for $2.38 to $2.55. (That was before Hurricane Rita-related price hikes.)
That’s a far cry from May, when a gallon of e85 sold for as little as $1.69, which at the time was about 60 cents below the price of unleaded regular.
That made it a bargain for consumers with flexible-fuel cars that could accommodate the high-octane ethanol blend. All late-model cars can use the more available 10 percent ethanol blend.
So what happened? Industry experts say unexpected demand sucked up huge portions of supply ? so much so that some Midwest ethanol plants temporarily ran dry.
Government researchers say ethanol blends like e85 burn cleaner and more efficiently than fossil fuels, but they provide 10 percent to 20 percent less energy per gallon.
However, when ethanol prices were much lower than gas prices, that didn’t matter much. Consumers could still save on fuel.
That boosted ethanol’s popularity ? so much so that the resulting publicity helped push through incentives in Congress to support more ethanol plants and e85 gas stations.
Just last week the Kansas Corn Commission, the National Ethanol Vehicle Coalition and United Bio Energy announced that at least 20 new E85 fueling sites will open in the next year in Kansas.
Ethanol got a further endorsement when the fuel additive MTBE was proven to be hazardous to ground water.
Cities like Denver, Phoenix and Albuquerque had to replace MTBE with ethanol to meet environmental mandates to cut emissions. That sucked up more ethanol.
Industry officials happily projected a 500 percent increase in retail demand for ethanol-blended fuel, a shot in the arm for Midwest farmers and ethanol plant investors.
Sure enough, as gas prices soared, more retailers blended ethanol with their gas to reduce their costs and offer competitive prices, a market trend that went into hyperdrive after Hurricane Katrina threatened supplies.
Part of the cost savings resulted from a 5.1 cents per gallon ethanol subsidy from the U.S. government.
“When you get low on supplies, how do you extend it? Add ethanol,” said Robert White, a spokesman for the Jefferson City-based National Ethanol Vehicle Coalition.
“Producers began adding more e10 to extend the supply of fuel. And available stocks (of ethanol) were depleted overnight,” White said. The price rose dramatically.
That’s not all bad if you value the lift to a domestic industry struggling to gain a foothold for an alternative fuel promising cleaner air and less dependence on foreign producers.
Consider that Americans burn through 140 billion gallons of gas every year. In contrast, U.S. ethanol plants produced 3 billion gallons of ethanol last year. But industry experts say new plants opening in Missouri, Kansas and other states will add a billion more gallons this year.
But that doesn’t offer much consolation to fuming consumers frustrated by rising prices at the gas pump.
“We were using ethanol as a price advantage,” said Tom Kolb, co-owner of Jefferson City Oil and Midland Oil Co, one of the first stations to ethanol in Missouri.
“It kept the price of gas down. But we used so much that we soaked up excess supplies of ethanol. Now the advantage has gone away. So retailers have gone back to straight gasoline.”
Kolb said that since May his cost for ethanol had increased by $1.25 a gallon. He said that on the spot market, ethanol was selling for about $2.40 a gallon, not counting additional taxes and freight charges.
After adding costs and factoring in the government subsidy, the real cost to the retailer is between about $2.10 and $2.30, accounting for the wide swing in pump prices.
So there you have it, another harsh lesson on supply and demand in an industry that offers few competitive products.
What’s next? Kolb thinks that as retailers back away from ethanol and as more plants come on line, supplies of ethanol will increase and prices will drop again.
“Then we’ll get back into it,” he said.
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