U.S. ethanol prices rise on hopes fuel waiver boosts demand after Harvey

Source: By Michael Hirtzer, and Chris Prentice, Reuters • Posted: Tuesday, September 5, 2017

CHICAGO/NEW YORK (Reuters) – U.S. ethanol prices rallied to a two-week high on Friday on hopes a government fuel waiver allowing the sale of higher blends will boost demand after storm Harvey disrupted biofuel blending and exports at the Houston hub.

Hundreds of gas stations in 38 states as of Wednesday could sell a blend with higher ethanol content, known as E-15, after the U.S. Environmental Protection Agency said they could switch to the winter blend two weeks earlier than normal.

The EPA’s decision to relax fuel standards to avert price hikes at the pump was a lifeline for the ethanol industry, which has been beset this year by too much supply, weak profit margins and import tariffs from two of its biggest global customers, China and Brazil.

“This builds the demand faster,” Todd Becker, chief executive officer of No. 3 ethanol producer Green Plains Inc, said of the EPA waiver. “It will be short-term helpful.”

Ethanol futures sank to a one-month low on Wednesday of $1.49 per gallon, in part on worries of reduced blending after Harvey halted a quarter of domestic oil refining.

On Friday, ethanol settled at a two-week high of $1.56 per gallon, boosted by optimism of the EPA waiver.

“The E-15 waiver got people excited for (higher) blends,” said Jordan Fife, a Houston-based merchant at BioUrja Trading LLC. Blenders will be able to use more ethanol per gallon of gasoline, boosting demand temporarily despite the gas shortage, he said.

E-15 gasoline contains 15 percent ethanol, up from the usual blend of 10 percent, and typically is off limits until Sept. 15, after the three-day U.S. Labor Day holiday weekend and the end of peak driving season.

About 4 million barrels of ethanol were in storage along the Gulf Coast as of Aug. 25, the day Harvey hit land as a hurricane, representing roughly 20 percent of U.S. supplies of 21.3 million barrels, according to the U.S. Energy Information Administration.

As many as 500 of railcars carrying ethanol, or about 15 percent of Green Plains’ fleet, were still halted on Friday around Houston after railroads including Union Pacific Corp and BNSF Railway stopped traffic, Becker said.

The company may consider diverting those trains if delays persist longer than a couple of weeks, he added.

One trader suggested that persistent delays could prompt producers to bring forward maintenance shutdowns to ease bottlenecks.

Becker said Green Plains currently had no plans to move up annual maintenance on its plants that mostly occurs in September and October.

Top ethanol producer Archer Daniels Midland Co was “managing through the conditions,” a company spokeswoman said without elaborating.

No. 2 ethanol producer POET LLC did not respond to requests for comment.

About 6 percent of U.S. ethanol production is exported, most of it through Gulf Coast ports including Houston. Some producers were shipping trains to New York Harbor as an alternative export port, a U.S. ethanol trader said.

Reporting by Michael Hirtzer in Chicago and Chris Prentice in New York; Editing by Andrew Hay