The American ethanol industry was once considered to be a pillar of a national environmental fuel strategy, but now the ethanol biz has fallen on hard times. And a new study says the future might be even more difficult. Hart Energy’s just-released multi-client study, “Renewable Ethanol: Navigating the Rapids: 2011-2015,” contains in-depth analyses of the North American and Brazilian ethanol industries and markets … and prospects aren’t all that rosy.
U.S. ethanol production is moving ever so close to the so-called E10 “blend wall” -- the point at which ethanol is mixed into gasoline in the United States under the E10 (10 percent ethanol) formula. As if that isn’t enough, the adoption of higher E15 blends is likely to occur slowly, the study said, and the main federal incentive for ethanol expires at the end of the year, along with the tariff on foreign ethanol. Extensions of some form of incentive and tariff are likely to be at far lower rates than the government has provided in the past.
It seems that the ethanol industry is being pounded from all sides. California has implemented a statewide Low Carbon Fuel Standard, which will be progressively harder for U.S. corn-based ethanol to meet. And supplies of advanced biofuels are likely to remain constrained, calling into question whether this component of the U.S. Renewable Fuel Standard (RFS) can be met. Added to these overarching issues, crude oil and agricultural feedstock prices remain high and volatile.
So does the study offer much in the way of hope? Not really. Here are some key findings:
- Elevated energy prices will continue over forecast period, for both crude oil and refined products
- The era of inexpensive feedstocks is over -- specifically corn, sugar and soybean oil
- E15 remains controversial, yet it is the most cost-effective pathway for obligated parties to comply with the Renewable Fuel Standard
- E85 (85 percent ethanol and 15 percent gasoline) markets will remain very slow to materialize
Little, if any, new investment will occur in the U.S. corn-based ethanol industry without a reallocation of RFS volumes, and the study also concludes cellulosic ethanol and other advanced biofuel technologies will continue to fall short of RFS targets in terms of commercial viability, but supplies that are available will gravitate toward California due to the Low Carbon Fuel Standard.
