RFS Roundup: As Gasoline Prices Plummet, Refiners Nix Ethanol Blending

Nationwide, gas prices are at a five-year low.  According to AAA, the average price at the pump is $2.19 a gallon for standard E10 (10 percent ethanol, 90 percent gasoline).  While drivers are rejoicing, falling gasoline prices have put a damper on surging domestic oil production. They also provide a reminder that domestic oil production does not shield the United States from the vagaries of the global oil market. OPEC has been quite clear that its decision to flood the global oil market is in hopes of severely diminishing (if not killing) U.S. shale oil production to preserve its market share.  The falling market for oil has also put ethanol producers in a tight spot.  Corn prices are rising from their September low, and currently ethanol futures are trading 13 cents a gallon higher than gasoline, a situation not seen since mid-2013. Given the uncertainty for the 2014 and 2015 blending requirements for renewable fuels under the Renewable Fuel Standard (RFS), combined with the climbing price of ethanol, refiners have instead turned to the ethanol credits market for compliance.

On the one hand, increased gas consumption also increases ethanol consumption, since it is blended into all gasoline. Decreasing gasoline prices have already caused more miles to be driven, and consumers are falling back in love with less fuel efficient cars.  However, the effect on ethanol production is mixed. Refiners have the choice between blending ethanol into gasoline, or purchasing Renewable Fuel Identification Numbers (RINs), for compliance under the statute.  When produced, each gallon of ethanol produced is given a RIN.  Refineries must either blend ten percent ethanol into their gasoline, or purchase RINs, in order to comply with the statute. Ethanol blending has dipped to 9 percent, as more refiners instead choose comply with RINs. Climbing RIN prices in 2013 led refiners to pressure the administration to relax the 2014 renewable fuel standard.  As in 2013, RIN stockpiling and subsequent RIN price spikes may again lead to pressure from refineries to cut their ethanol blending requirements for 2014 and 2015. 

For more information see:

Gasoline Price Plunge in U.S. Slowed by Higher Ethanol Costs, Buisness Week 

Oil Tumbles to 5 1/2-Year Low as OPEC Reaffirms Stance, Bloomberg 

US ethanol premium over RIN value tumbles to record low, Platts