Ethanol Blog

With the ethanol industry in the United States already on the ropes with negative margins and lost demand from small refinery waivers to the Renewable Fuel Standard, a group of senators led by James Inhofe, R-Okla., is asking EPA Administrator Andrew Wheeler to reset RFS volumes below the so-called blend wall.

The blend wall is reached when total ethanol production exceeds the E10 market for gasoline.

In a letter to Wheeler dated April 30, the 15 senators point to changing gasoline demand since the RFS became law, as reason to bring down the volume of biofuels blended in gasoline.

Also signing the letter are Sens. Bill Cassidy, Susan Collins, John Barasso, Roger Wicker, Pat Toomey, Steve Daines, John Cornyn, Cindy Hyde-Smith, John Kennedy, Michael Enzi, James Lankford, John Boozman, Tom Cotton and Shelley Moore Capito.

"Over a decade ago, the U.S. Energy Information Administration projected 2020 gasoline demand would exceed more than 170 billion gallons, thus the 15 billion gallon conventional fuel mandate represented less than 10% of the expected gasoline demand," the letter said.

"More than a decade since the RFS was passed into law, changes in consumer behavior and use of transportation fuels result in EIA now projecting gasoline demand for 2020 to be closer to 142 billion gallons, decreasing further to 137 billion gallons in 2022. As a result of this stark change in projected demand, we encourage the Environmental Protection Agency to acknowledge this market reality when resetting the statutory targets such that the contribution of conventional biofuel is set below an implied 10% level for 2020, or 14.2 billion gallons."

If I recall at the time the RFS came into law, the EIA forecasted rising demand for gasoline and other transportation fuels. Turned out the estimates didn't hit the mark more than a decade later.

So it is equally as fuzzy for forecasted declines in demand for gasoline and other transportation fuels to hold true a decade from now.

The fall of gasoline demand certainly doesn't benefit the growth of the ethanol industry. However, even petroleum companies are the first to admit they need ethanol to meet oxygenate requirements in gasoline because it is the most cost-effective oxygenate.

The senators' request seems to run counterintuitive to the notion that ethanol blended in gasoline reduces prices at the pump. Essentially, if less ethanol is blended consumers are likely to pay more at the pump.

The senators' real motives are outlined in the letter -- they don't want to pick winners unless it means picking petroleum over biofuels: "Based on market intelligence, we understand that demand for gasoline without ethanol remained strong in 2018 and early 2019 in several key domestic markets. According to one leading petroleum transportation, storage and distribution company, demand for 87-octane gasoline, without ethanol, from their terminals in 2018 remains consistent with demand in 2017."

Ethanol blending in the United States fell for the first time in 20 years this past year. The ethanol industry points to billions of gallons of biofuels waived as a result of small refinery waivers, as the culprit.

But the senators want even more reductions.

"We urge you to use the reset authority under the RFS program for the purpose for which it was intended and reset the statutory targets such that the implied contribution of conventional biofuel is below 14.2 billion gallons for the 2020 compliance year," the letter said.

This would be a devastating blow to the ethanol and agriculture industries.

If the RFS is dismantled piece by piece, perhaps lawmakers will look back a decade from now with regret.

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

(TN)

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