Oil and ethanol industries pump up product debate in Iowa

Source: DAN PILLER, Des Moines Register • Posted: Wednesday, May 16, 2012

Renewable fuels group says ethanol cuts gas prices; oil group to release E15 study today

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Robert White, market development director of the Renewable Fuels Association, speaks about the value of ethanol at a press conference Tuesday at a Dahl’s gas station in Des Moines. / Andrea Melendez/The Register

Ethanol and the oil industry continued their escalating battle this week, with Iowa ethanol producers saying their product cuts gas prices while the petroleum industry argues that larger blends of ethanol can harm consumers and the environment.

Lucy Norton of the Iowa Renewable Fuels Association said at a news conference in Des Moines that instead of being criticized, ethanol should be credited with saving motorists up to $1.69 per gallon at the pump.

Norton quoted a study by the Iowa State University’s Center for Agriculture and Rural Development that was commissioned by the Renewable Fuels Association. It factors the $1-per-gallon difference in wholesale price between ethanol and gasoline, as well as other savings to the economy that accrue from exports of U.S. ethanol.

“Growth in U.S. ethanol production has added significantly to the volume of fuel available in the U.S.,” said ISU professor Dermot Hayes, one of the authors of the study.

Meanwhile, the American Petroleum Institute, which represents the largest oil companies, plans to release a study today of results on engine tests using 15 percent blended ethanol, which was legalized last year by federal regulators.

In a statement last month, the API noted that the use of E15 would require considerable upgrades of pumps and tanks at the nation’s retail gasoline outlets. “Selling E15 may increase the risk for staff and customer safety, and present environmental consequences,” the group said.

The federal Renewable Fuel Standard, passed by Congress in 2005 and revised in 2007, represents the basis for the demand for ethanol. The expansion of domestic oil production from new fields in North Dakota, which wasn’t envisioned even a half-decade ago, has emboldened many oil supporters to question the need for the RFS.

“Big Oil is going after the RFS any way they can,” said Robert White, director of market development for the Renewable Fuels Association in Washington, D.C., who came to Des Moines to appear with Norton and Monte Shaw, executive director of the Iowa Renewable Fuels Association, at Tuesday’s news conference.

Shaw said he was “comfortable” with the fact that both President Barack Obama and presumptive Republican nominee Mitt Romney have endorsed both E15 and the Renewable Fuel Standard.

In the short run, ethanol’s principal challenge is to return to the profitability of 2011, which was lost after the 45-cent-per-gallon blenders’ tax credit expired Jan. 1.

The lost tax credit has been the biggest factor in the drop in wholesale price of ethanol from more than $2.70 per gallon last November to $2.12 per gallon this week.

The widened margin between ethanol’s shrinking price and the $3-per-gallon wholesale price for gasoline is the main reason Iowa ethanol producers could make the boast that their product saves consumers money. But it also has robbed ethanol producers of most of their profits.

“The producers who are also selling corn oil are probably making a little money now, but most have their nose right at the water line,” Shaw said.

Prospects for the remainder of 2012 are uncertain. The U.S. Department of Agriculture last week forecast corn prices at $1 per bushel or more below the $6.20 paid in 2011, which will help ethanol producers.

But the U.S. Department of Energy forecasts gasoline consumption this summer at 8.8 million barrels per day, the lowest since 2001 and about 6.4 percent less than 2007’s record summer demand of 9.4 million gallons.

The reduced demand comes primarily from more fuel-efficient vehicles on the road, as well as cutbacks in driving habits after retail gasoline prices brushed against $4 per gallon in 2008 and again last year. Any declines in demand for gasoline would be mirrored in demand for the ethanol with which it is blended.

The $4 price was in play this year until a recent slump in crude oil prices, which have fallen from $112 per barrel at the beginning of March to a close of $93.98 Tuesday on the New York Mercantile Exchange. Oil last finished that low on Dec. 19.

In Des Moines, the average pump price this week is $3.37 to $3.39 per gallon, well below the $3.92 per gallon a year ago.

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