May 13, 2008
USDA Sees Slower Ethanol Growth; Biodiesel Feedstock Holding Tight
The latest global supply report from the U.S. Department of Agriculture (USDA) predicts that the big growth in domestic ethanol production will ease as the nation's feedstock corn prices remain high and stockpiles of the grain are diminished as demand outstrips production.
"The slowing pace of [ethanol] plant construction and expansion, and lower capacity utilization are expected to modestly dampen growth in ethanol corn use," said USDA in its World Agricultural Supply and Demand estimate released Friday. The report noted a 100-million-bushel cut in the amount of corn used to make ethanol in the current 2007/08 crop year, but it just represents a reduction in the expected increase, which for 2008/09 is anticipated to take up 4 billion bushels -- still an increase of 33% from the current year.
Corn prices are expected to remain historically high amid stocks expected to be pressed into long-time lows. The current year corn price forecast is $4.10-$4.40/bu, but USDA expects the 2008/09 could be even higher, averaging $5.00-$6.00/bu.
The next corn crop at 12.125 billion bushels would be down 7% from 2007/08, noted USDA. At the same time, corn supply falls 870 million bushels and, at a projected 763 million bushels, ending stocks would be the lowest in more than a dozen seasons. Ending stocks would be down 45% season-to-season, with USDA numbers suggesting that corn demand will exceed 2008/09 production by 635 million bushels.
The worldwide situation will not be in a position to fill gaps left by the U.S., noted USDA. "At the projected 99 million tons, 2008/09 global ending stocks are expected to hit a 25-year low."
Analysts, many of whom anticipated even lower corn supply prognostications from the USDA report, remained a bit skeptical. Some suggested USDA was reluctant to be more aggressive with its forecasts, fearing it could fuel what has already been a red-hot corn market. "These are pretty dangerous numbers, nevertheless," remarked one grain market analyst. "There's no margin for a less-than-smooth crop season when it comes to corn."
Meantime, greater production of soybeans and soybean oil is not expected to do much to dampen the cost of feedstock for U.S. biodiesel producers, according to USDA. Soybean oil prices will run 50-54cts/lb., compared to 52cts/lb. in the current season. Season-average soybean prices projected from $10.50-$12/bu next season would still be up from the $10/bu
in the current 2007/08 season.
"Biodiesel production is expected to use 15% of total soybean oil production for 2008/09 compared with 14% in 2007/08," said USDA. Soybean oil demand will diminish in the next season, mostly because of lower food use that offsets some increase in use for biodiesel production, added the agency.
Soybean production predicted at 3.1 billion bushels in 2008/09 will be up 520,000 bushels, or about 20.2%, from the current season, but that will only add about 3% to soybean supply, according to USDA. "Most of the production is offset by sharply lower beginning stocks."
Globally, overall oilseed production was seen recovering from the current season which visited the first year-on-year decline in output since the 1995/96 season. Next season, world oilseed production expected at 423 million tons would be 32.2 million tons higher that 2007/08 output. Still, ending stocks for the current season will be half-a-million tons from last month's prediction, said USDA, mostly "due to the lower projected soybean stocks in the United States."
"Nothing in the report is too surprising or unexpected," explained Soleil Group analyst Ian Horowitz in a research update. But it does mean that even if trend-line yields are achieved, supply will be historically tight, especially for corn. "Both yields and additional corn acres are
at risk for the 2008 crop as we move closer to the mid-May timeframe with plantings well
behind schedule."
May 8, 2008
Senate Dems Halt SPR Deliveries, Repeal Oil Tax Breaks in
Energy Proposal
With crude prices above $120/bbl and the start of the summer driving season around the corner, a handful of Senate Democrats introduced an energy bill this afternoon that would repeal $17 billion in tax breaks given to big oil companies and impose a 25% windfall profits tax on companies that fail to invest in renewable energy sources.
However, according to a description of the major items in the energy bill, it doesn't appear that they are much different from previously introduced legislation this congressional session -- which has languished in one body or the other.
"The cumulative impact of disastrous Bush administration policies and priorities has created an energy and economic crisis that is now plaguing consumers at the gas pump and damaging our national security. ... The Consumer-First Energy Act addresses the root causes of high gas prices, holds 'Big Oil' accountable and puts consumers first," according to a press release from Senate Majority Leader Harry Reid (D-Nev.).
According to that same press release, the Democratic bill would:
--Temporarily halt government purchases of oil into the strategic petroleum reserve (SPR). Specifically, the bill calls for suspending purchases through December. Filling could resume when the 90-day average price of crude recedes to $75/bbl or less. "Energy officials have stated that by halting purchases for the SPR, the price of gasoline can be reduced 2 to 5 cents per gallon," the press release noted.
--Protect consumers from price gouging. The bill would give the president the authority to declare an energy emergency should there be a shortage, disruption or significant pricing anomalies in the oil market. Once an emergency is declared, setting an "unconscionably excessive price" during that time would be unlawful and subject to civil penalties. According to the bill's language, an "unconscionably excessive price" means an average price that "constitutes a gross disparity from the average price at which it was offered for sale in the usual course of the suppliers business during the 30-days prior to the emergency and grossly exceeds the prices at which the same or similar crude oil, gasoline, petroleum, distillates or biofuel was readily obtainable by purchasers from other suppliers in the same relevant geographic market within the affected area." Additionally, the excessive price would not be attributable to increased wholesale or operational costs.
--Stop market price speculation. The bill prevents U.S. crude traders "from routing transactions through offshore markets to evade speculative limits and sets forth reporting requirements. The bill also requires the Commodities Futures Trading Commission to set a substantial increase in the margin requirement for all oil futures trades, contracts or transactions," according to the press release.
--Stand up to OPEC. Specifically, the bill allows the U.S. Attorney General to bring an enforcement action against any country or company that is colluding to set the price of oil, atural gas or any other petroleum product.
Last week, Senate Republicans introduced the "American Energy Production Act of 2008," which would, among other initiatives, support clean coal-to-liquid fuels, expand domestic energy production on the Outer Continental Shelf, encourage the construction of new refineries and suspend the filling of the SPR for six months.
Additionally, in a recent speech, President George W. Bush called for Congress to allow for oil drilling in the Arctic National Wildlife Refuge (ANWR).
During a news conference this morning, Reid was asked about the differences between the two parties' energy bills. "We're looking forward. We believe there should be change. The Republicans are the status quo, as indicated with this piece of legislation they filed, which is just more of the same that they've tried to do over the last 15 years. Theirs is old, antiquated, and won't work. [The debate over] drilling in ANWR has been gone for some time, but they won't give it up," he added.
One Capitol Hill watcher said while there are some new items in the Democrats' energy proposal -- such as the suspension of the SPR -- "it is pretty much a rehash of past House proposals that could not get through the Senate. While lightening could strike, I think there is no chance this bill will get through the Senate," the watcher added.
The American Petroleum Institute (API) came out against the energy proposal. "It is regrettable that in an attempt to devise a bill that 'addresses the root causes of high gas prices,' the Senate Democrats are proposing legislation that would do the opposite, resulting in less, not more, much-needed supplies of oil," API said. "The biggest factor behind the price increase for gasoline is a record-high crude oil price, as global supply is stretched to meet escalating global demand. In their bill, Senate Democrats seem to acknowledge that 'supply' is an issue -- calling for a halt in refilling the Strategic Petroleum Reserve, seeking to penalize OPEC for not producing more crude oil -- yet they are doing nothing to address restrictions on our nation's own oil and natural gas resources," API noted.
The oil and gas trade organization also spoke against the windfall tax provision, as well as the price-gouging language, which "would function like price controls, and history has shown us that price controls have unintended consequences that distort market price signals that act to efficiently allocate fuel supplies."
May 6, 2008
Republican Senators to EPA: Consider RFS Waiver
Twenty-four U.S. Republican senators, including Republican presidential candidate John McCain (R-Ariz.), wrote to U.S. EPA on Friday, urging them to "begin the process of examining alternatives that ease the severe economic and emerging environmental consequences that are developing in America as a result" of the expanded renewable fuels standard (RFS).
"We are writing to convey the frustrations of consumers and animal agriculture producers about the consequences of food-to-fuel mandates that the U.S. Environmental Protection Agency is currently implementing," wrote the senators.
The expanded RFS requires the blending of 15 billion gallons of corn-based ethanol by 2015 and 1 billion gallons of biodiesel by 2012, the letter explained. "To meet this requirement, 30% of our corn crop and our vegetable oils will have to be diverted into our fuel supplies, severely impacting food and feed prices," the senators said.
"American families are feeling the financial strain of these food-to-fuel mandates in the grocery aisle and are growing concerned about the emerging environmental concerns of growing corn-based ethanol. It is essential for the EPA to respond quickly to the consequences of these mandates," the letter noted.
In addition to McCain, the Republican letter signers were: Sens. Kay Bailey Hutchison (Texas), Wayne Allard (Colo.), John Barrasso (Wyo.), Robert Bennett (Utah), Richard Burr (N.C.), Susan Collins (Maine), Bob Corker (Tenn.), John Cornyn (Texas), Mike Crapo (Idaho), Jim DeMint (S.C.), Elizabeth Dole (N.C.), John Ensign (Nev.), Mike Enzi (Wyo.), Lindsey Graham (S.C.),
Orrin Hatch (Utah), James Inhofe (Okla.), Johnny Isakson (Ga.), Lisa Murkowski (Alaska), Richard Shelby (Ala.), Ted Stevens (Alaska), John Sununu (N.H.), David Vitter (La.) and
Roger Wicker (Miss.).
An EPA spokeswoman said the agency "will be reviewing the letter and responding accordingly."
Meanwhile, biofuel supporters recently said they are only contributing a small role to higher food prices, and that gasoline prices would be even higher without their product in the market.
Sources expect these and other topics to be debated tomorrow, when a House Energy and Commerce Subcommittee holds a hearing on implementation of the 36-billion gal/yr RFS. Among those testifying are representatives from EPA, Natural Resources Defense Council, Grocery Manufacturers Association, National Petrochemical & Refiners Association and POET.
May 1, 2008
California Moves Closer to E10; Refiners Rebuffed
California is moving forward with plans to boost ethanol percentages to 10% from 5.7% by 2010, a move that could result in 600 million more gallons of ethanol in the market and present an enormous logistical challenge to blenders.
The California Air Resources Board (CARB) filed the necessary paperwork Friday to proceed with E10 after denying a petition signed by refiners asking the state to reconsider.
Previously, the Golden State was limited to a maximum 5.7% ethanol content due to tight
in-state volatility limits. Ethanol adds to gasoline's Reid Vapor Pressure (RVP), which can
lead to more evaporative emissions.
CARB filed the final rulemaking package to the state Office of Administrative Law (OAL) on April 25 and OAL has until June 9 to sign off on it. Accommodating E10 will mean changes to the state's Predictive Model which sets the clean fuel guidelines for refiners and blenders.
Although the reg change doesn't become effective until 2010, blenders are likely to take advantage of current economics and blend up to the maximum as soon as possible, according to Dave Hackett, a consultant with Stillwater Associates.
As part of its rule, CARB will help blenders get to 10% by allowing them to pay into a state fund if NOx levels are exceeded when extra ethanol is blended.
However, infrastructure challenges may stand in the way of a swift transition to E10.
Ethanol volumes will effectively jump to 1.5 billion gal/year from about 900 million gal/year
now, Hackett notes.
The move to E10 is key to California's goal of reducing greenhouse gas emissions and replacing the "carbon intensity" of passenger vehicles by 10% by the year 2020. The Low-Carbon Fuel Standard will likely result in displacement of about 20% of gasoline sold in the state, according to Gov. Arnold Schwarzenegger's (R) office.
April 29, 2008
Citgo Rolling Out E10 in 28 Terminals
Citgo is telling customers it expects to convert to E10 in 28 terminals
across its marketing territory over the summer beginning with Atlanta on May 1,
OPIS has learned.
In a notice sent to jobbers this morning, Citgo outlined plans to roll out
10% ethanol in
other large markets including Romulus, Mich. (near Detroit),
Montgomery, Ala., and
Port Everglades, Fla.
The full list includes (estimated dates):
--Atlanta (TPSI terminal) - May 1
--Huntington, Ind. (Citgo terminal) - May 1
--Anniston, Ala. (Murphy terminal) - May 1
--Owosso, Mich. (Sunoco terminal) - May 1
--Romulus, Mich. (Marathon terminal) - May 1
--Bay City, Mich. (Marathon terminal) - May 1
--Granville, Wis. (Marathon terminal) - May 1
--Montvale, Va. (Citgo terminal) - May 5
--North Little Rock S, Ark. (Magellan terminal) - May 12
--Panama City, Fla. (Chevron terminal) - May 13
--Jackson, Mich. (Citgo terminal) - June 1
--Madison, Wis. (Citgo terminal) - June 1
--Niles, Mich. (Citgo terminal) - June 1
--Tampa, Fla. (Citgo terminal) - June 1
--Montgomery, Ala. (Marathon terminal) - June 1
--Zionsville, Ind. (Buckeye terminal) - June 1
--Albany, N.Y. (Citgo terminal) - June 15
--Doraville, Ga. (Citgo terminal) - July 1
--Montgomery, Ala. (ConocoPhillips terminal) - July 1
--West Memphis, Ark.(Premcor terminal) - July 1
--Memphis, Tenn. (ExxonMobil terminal) - July 1
--Hamden, Maine (Cold Brook terminal) - July 1
--Frazier, Pa. (Buckeye terminal) - July 1
--Coraopolis, Pa. (Highspire terminal) - July 1
--Champaign, Ill. (Marathon terminal) - July 15
--Port Everglades, Fla. (Citgo terminal) - July 31
--Birmingham, Ala. (Citgo terminal) - Aug. 1
--Greensboro, N.C. (Magellan terminal) - Aug. 1
April 15, 2008
Indiana Boosts E85 Incentive
An incentive for Indiana retailers to add E85 to their repertoire was recently beefed up, thanks to legislation signed by Gov. Mitch Daniels (R) in March. Under S.B. 360, retailers in the state are eligible to receive up to $20,000 toward the cost of installing or converting E85 equipment.
"Increasing the grant amount will allow retailers the availability and flexibility of putting [E85] in, and that coupled with more attractive pricing on the fuel itself and the [18cts/gal] tax credit we have out there will make this an attractive package for retailers looking to get into E85," said Kellie Walsh, executive director of the Central Indiana Clean Cities Alliance.
The Indiana Agriculture Department began administering the $1 million grant pool last July, allowing retailers to receive up to $5,000 toward the cost of adding E85 to stations. But because of the high price of installing E85 -- its alcohol content requires a dedicated storage tank, a dispenser and point-of-sale equipment -- Central Indiana Clean Cities Alliance members lobbied for an increase.
Indiana retailers can also benefit from an additional $5,000 grant made available by the Indiana Corn Marketing Council to retrofit existing equipment for E85, said Walsh. The combined $25,000 goes a long way toward what Walsh estimates is a $15,000-$60,000 investment to retrofit or replace the dispenser, clean the existing fuel tank and do structural work to the property in preparation for E85. In comparison, Phil Lampert of the National Ethanol Vehicle Coalition estimates the cost of installing all-new E85 equipment can range from $70,000-$200,000.
The new law also extends grant availability beyond retailers to state municipalities, counties, towns and cities, said Walsh.
March 6, 2008
Study: E20 Poses No Problems for Minnesota Vehicles
In what may be a boost for those seeking approval of higher ethanol blends, research
released today by the state of Minnesota indicates that using an E20 blend "does not
present problems for current vehicles or fuel dispensing equipment and provides similar
power and performance."
For ethanol blends higher than 10% to be used (not including E85), the U.S. Environmental Protection Agency (EPA) must issue a waiver. In 2005, Minnesota Gov. Tim Pawlenty (R) signed a bill requiring E20 in all gasoline by 2013, unless ethanol has already replaced 20% of the state's motor fuel by 2010. Minnesota officials, through the University of Minnesota, had been conducting tests of E20, required to receive the waiver for the use of E20.
Over the past year, OPIS had been tracking Minnesota's E20 research efforts, which included four concurrent studies: Vehicle Fuel System Materials Compatibility; Vehicle Drivability; Vehicle Exhaust and Evaporative Emissions; and Vehicle Fuel System and Engine Durability. Officials involved in the testing had been mum about its progress, but today the Minnesota Department of Agriculture released findings of two of those studies, on materials compatibility and
vehicle drivability.
"Based on the materials compatibility and drivability testing results of this scoping report, there are no issues that would prevent moving forward with the comprehensive testing required to certify E20 as a federally approved motor fuel," the study said.
According to the summary of the study, for the drivability testing portion, the researchers used 40 pairs of vehicles from the University of Minnesota Twin Cities Fleet Services car pool, using a cross section of MY2000-2006 vehicles from Chrysler, Ford, General Motors and Toyota. All vehicles were fuel-injected and some included hybrid models. For the study, one vehicle in each pair was fueled with non-oxygenated gasoline, while the other was fueled with E20. The vehicles were driven over the course of a year to expose the vehicles and the fuels to different weather conditions and experts in vehicle drivability were also brought to Minnesota to conduct similar testing.
"While there were two vehicle issues raised during the fleet testing that were not fuel related, the 20% ethanol blended fuel proved effective at both powering the vehicles successfully and was also non-distinguishable in performance by either the university drivers or the professionally trained drivers," the study noted.
The study also evaluated the effect of E20 on materials commonly found in conventional vehicle fuel systems, including components made of various metals, rubber and plastics. Specifically, the researchers compared the effects of E20 vs E10 and non-oxygenated gasoline on the materials found in automotive, marine and small engine fuel system components. While the study did find some issues with all metals exposed to the E20 and with some of the rubber materials, "[t]est results indicated E20 was compatible with the vehicle fuel systems," according to the summary.
"Until now, there has been limited information available on the performance of fuels with higher ethanol content," said Minnesota Agriculture Commissioner Gene Hugoson. "This research gives us solid information on how these fuels can be expected to perform in today's vehicles," he added. The state plans to soon officially file for a waiver request from the EPA to allow for E20 to be used.
The emission testing is still ongoing, according to the researchers, and will be released as soon as the comprehensive testing is complete. The study, done in cooperation with the Minnesota Department of Agriculture, the Minnesota Pollution Control Agency and the Renewable Fuels Association (RFA), also included input from refiners, automakers and small engine manufacturers, with funding support from the Minnesota Corn Growers Association and the Council of Great Lakes Governors.
RFA praised the E20 study findings, while the American Coalition for Ethanol pointed to similar results in tests it conducted recently, which found that mid-range ethanol blends can, in some cases, provide better fuel economy than conventional unleaded gasoline. "[T]he new research strongly suggests that there is an 'optimal blend level' of ethanol and gasoline -- most likely E20 or E30 -- at which cars will get better mileage than predicted, based strictly on the fuel's per-gallon BTU content," according to a summary of that study.
However, independent auto consultant Gary Herwick, a former official at General Motors, warned the ethanol industry not to rush the testing process. "Before we can say with any confidence that E20 has no problems, we need more testing. ... We need to understand all the issues to avoid a potential consumer backlash," he said. Specifically, he recommended the emissions testing, as well as that on catalytic converters.
The full study is available at www.mda.state.mn.us.
Report Offers Data for Gauging E85 Profitability
According to a report published by the National Renewable Energy Laboratory (NREL), replacing a mid-grade tank with E85 is the most profitable way to introduce E85 to a station, regardless of throughput, and replacing a premium-grade tank is the least.
The conclusion, obtained through a discounted cash-flow analysis of E85 profitability, is based on a comparison of three primary equipment configuration scenarios: installing a new E85 tank, replacing a mid-grade tank with E85 and replacing a premium-grade tank with E85.
"Replacing a mid-grade tank is the most profitable because there's no trade-off," said Caley Johnson, an analyst at NREL and co-author of the study. A retailer can still continue to sell mid-grade, he said, by blending premium and regular gasoline at the dispenser.
In its analysis, NREL assumed an annual throughput of 70,000 gal/year of E85, based on the average Minnesota retail station.
"We looked at why and when to sell E85," said Johnson. "It's not for everyone, everywhere. But there are many stations where it would be profitable. This study looks at whether you can sell it profitably."
NREL researchers also looked at the impact of several different factors weighing on E85 retail profitability and found that the volume of E85 moving through a station had the biggest influence. Not surprisingly, the influence of equipment costs on profitability depended on whether new or existing equipment was used. In the case of a new tank, it was the second-most influential factor, but one of the least when using existing tanks. Required ROI and maintenance and operation costs had similar, marginal effects. Base taxable income had a negligible influence.
The report further assesses the current state of the retail gasoline industry and the potential solution that E85 can offer. According to the report, 2006 EIA data that shows the gasoline margins have been decreasing more than 0.5cts/gal every year for the past 12 years is attributable to increased competition over relatively undifferentiated gasoline, and more accessible retail locations. But while gasoline margins are decreasing -- just 6% of a retailers' gross margin after transport, according to EIA Petroleum Navigator 2007 -- margins on in-store goods have been increasing, now averaging 30%. E85 can be the differentiating factor to pull customers into the convenience store, especially given the growing number of fleets mandated to use E85, the loyalty of environmentally minded customers and the fact that ethanol's lower BTU content requires more trips to the station, according to the report.
But is E85 hot enough to be worthwhile? In Minnesota, where a quarter of the U.S.'s E85 retail stations are located, EIA data shows demand increasing since 1997, when the state's oxygenate mandate requiring E10 to be sold statewide went into effect. The average station in Minnesota sold 74,000 gallons of E85 in 2006, much in part to state mandates and proximity to ethanol plants and feedstock. Stations have also found success by being relatively close to an FFV registration location, partnering with a fleet, advertising well, being ideally located and being able to price E85 below regular gasoline, said the NREL report. According to Jim Gentry, Director of Fuel Purchasing for GasAmerica Services, Inc., that ideal price differential is 20% in order to maximize profitability.
Peter Horrigan, president and executive director of the Mid-Atlantic Petroleum Distributors' Association based in Maryland, sees the cost differential as the most important factor for East Coast retailers, where the buzz around E85 is not as prevalent.
"If it's priced right people will buy it, [but] put it one penny over regular gasoline," and people return to buying regular fuel, he said. "No matter what you say about motoring public, they are concerned about the economics."
Although it's harder to price E85 20% below retail on the East Coast, where greater transportation costs must also be factored in, Horrigan believes it is possible, especially if it's blended on location. But he said members of his association in general don't see E85 retail as profitable, considering that just a small percentage of vehicles are even capable of running on E85.
The full study measuring E85 profitability is available through the U.S Department of Energy website. See www.eere.energy.gov/afdc/fuels/ethanol_business.html.