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Author Topic: what are the reasons why ethanol is added to gas Back to Topics
All-Star Author

Joined:Dec 2008
Message Posted: Mar 14, 2013 5:02:12 PM

what are the reasons why ethanol is added to gas
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Champion Author Oakland

Joined:Aug 2012
Message Posted: May 14, 2013 9:27:06 AM

It is an attractive corn subsidy.
with the direct subsidy loss, profit margins for producers is getting squeezed significantly. Also with the loss of import tariff, the market will face introduction of foreign produced ethanol.
The ethanol producers are hoping the mandate will suffice.Aren't mandates great?
Champion Author Indiana

Joined:Jan 2012
Message Posted: Apr 18, 2013 5:49:40 PM

To let congress have a good fealing that they are doing something...
Champion Author Houston

Joined:Mar 2011
Message Posted: Mar 19, 2013 11:48:20 AM

I read the article. You still completely miss the point. There are 2.5 surplus RIN's on the market. That's it no more. Refiners will need 1.3 billion of those RIN's to meet this years target. That leaves a surplus of 1.2 billion. There will be no other surplus RIN's created this year. So next year when the mandate moves to say 16.5 billion then you will need the remaining 1.3 billion surplus RIN's, plus about 2 billion more that don't exsist. So what does that mean? Two things, first the value of the remaining RIN's will increase significantly. I make no claims as to what the real value of a RIN will be tomorrow, next week, or next year. You and your article want to take a near term current year look at the situation and say that when the oil indusrty throws around the value of ten cents they are wrong and state your numbers. I won't get into an arguement of specific value, however having studied economics as an undergraduate and in graduate school I do know this. The scarcer an item and the more demand there is for it, the price will increase. I only know of one historic situation where that did not hold and that was the Irish potato famine of the 1800's so don't quote that in a response, I am aware of it. In virtually every other case economics say the price will go up. How much I can't say, but most definitely it will increase. Second the industry will need to blend a lot more fuel with ethanol next year to have a chance at meeting the mandate. To accomplish the additional blending will require spending a lot of money. Tank work will be required at stations, terminals, and more ethanol transportation will be required. The vast majority of the expansions that occured to accomidate 10% ethanol blends were sized for just that 10% so a jump to 15% will cost literally billions of dollars to convert the whole system. Yes ethanol is cheaper than gas, but in the near term there are hidden costs of conversion therefore the move to a nationwide system of 15% ethanol will cause fuel prices to increase. I am not opposed to that but the reality is with price sensativity at an all time high the average consummer will not greet the conversion to higher ethanol blends with open arms.

I understand and agree that the ethanol subsidies have dropped, however if as in another topic we want to say legitimate tax treatments to oil companies are subsidies then one could adequately argue that the rising mandates included in the Renewable Fuels Act are in a way subsidies to the ethanol industry by forcing the fueling business to pay substaintial amounts of money to facilitate the additional sales of ethanol.

As I have said in numerous posts over the years on this board, I am not anti ethanol, however I am very pragmatic concerning the fact that increased ethanol usage will cost consumers more money for a period of time and ignoring that fact at an ethanol at all cost mentality is not going to sit well with the majority of fuel buyers in this country.
Champion Author Illinois

Joined:Apr 2011
Message Posted: Mar 19, 2013 11:05:56 AM

"The year-to-date average RIN price has been $0.32, according to OPIS. The March average has been $0.84. For the sake of argument, we will aggressively assume RINs average $0.80 for the entire compliance year of 2013. Therefore, the total cost of the 1.3 billion RINs needed for 2013 compliance would be $1.04 billion. When spread across projected gasoline consumption of 133.8 billion gallons, the RIN cost would be $0.0078 per gallon (less than eight-tenths of a cent). That’s a far cry from the oil industry’s wild claims of $0.10 per gallon. It should be noted that $0.0078 per gallon is a worst case scenario that assumes: 1) the full cost of the RIN is passed through to the consumer, 2) obligated parties had to purchase RINs at an average of $0.80, rather than using banked RINs that were obtained at far lower prices (e.g., the average RIN price in 2012 was $0.03), 3) EIA is correct that only 13.1 billion gallons are produced in 2013, 4) obligated parties continue to refuse to offer E15 in meaningful quantities, 5) actual 2013 gasoline demand is consistent with projections at the time the RVO was set, and 6) ethanol stocks remain relatively steady at roughly 800 million gallons.

Further, ethanol continues to sell at a considerable discount to gasoline. Year-to-date, ethanol has traded for $0.58 per gallon less than gasoline. This means a gallon of E10 (10% ethanol/90% gasoline) would cost $0.058 less than a gallon of unblended gasoline (100% gasoline). Therefore, even when a worst-case RIN price is included, ethanol-blended gasoline still offers significant savings to U.S. consumers. If RIN prices average $0.80 and the ethanol discount to gasoline averages $0.58 per gallon, and if both impacts are fully passed through to retail, E10 would still be $0.05 per gallon cheaper than unblended gasoline."
Champion Author Houston

Joined:Mar 2011
Message Posted: Mar 18, 2013 11:32:23 PM

As stated in the article you quote it is estimated that we will need to use 1.3 billion surplus RIN credits from prior years of the 2.5 million available. What that fails to to consider is that the target blend number goes up each year and the concern that there are not enough credits being generated due to the blend wall. By the authors admission we will need 1.3 billion of the surplus this year alone. What about 2014 and 2015. It is apparent from many other sources other than the ethanol industry that more credits will be needed than will be avilable. That makes them a scarce resource. Therefore the price is increasing. So many RIN's are generated by companes that do not need them they will seek the best value they cn get for them, so they will sell them for as much as they can get.

Once again this is a situation created by the Renewable Fuels Act and somehow the ethanol industry wants to turn the whole thing around to say it;s all big oils fault. Since big oil is the one having to by a lot of the credits on the market to meet the standard why in the world would they want to drive the price of them up?
Champion Author Illinois

Joined:Apr 2011
Message Posted: Mar 18, 2013 5:21:31 PM

"Oil companies have suggested that increased prices for conventional ethanol RINs (Renewable Identification Numbers) are leading to higher gasoline prices at the pump. Some have even deceptively claimed RINs are adding as much as $0.10 per gallon to the retail price of gasoline. This assertion is completely absurd and is easily disproven with a series of very simple calculations. Truth be told, ethanol continues to sell at a discount to gasoline and continues to offer savings at the pump, even when the impact of higher RIN prices is considered."

Stop the RINsanity: Fact-checking Big Oil’s claims on RIN price effects
Champion Author Houston

Joined:Mar 2011
Message Posted: Mar 18, 2013 2:43:39 PM

RIN's are another creation of the Renewable Fuels act. I find it somewhat disingenuous to say that it is something the oil companies use to create hysteria in the market place. The reality is that the law said that refiners have to have so many RIN's to cover the equivilant amount of gas they produce from blending ethanol into gas. The market is such that the RIN's are not necessarily generated by the refiners. The RIN is actually created at the point where the ethanol which has a unique identifier that is about a 20 digit number that can trace it back to where and when and by whom the ethanol was actually made is blended with the gas. This happens at a terminal where the gas and ethanol are stored and only blended together as it is loaded onto the truck for transport to the station. Whoever does this is considered the "blender of record" gets the RIN. Many of the RIN's created at this point are by companies, and individuals who have no need for them. They are not refiners therefore the Renewable Fuels Act does not apply to them. Refiners on the other hand need those RIN's to adhere to the law. Therefore a secondary market was born in order to monitize and trade them.

Note that the oil inductry had nothing to do with the creation of the system. Legislators wrote and enacted the law. The majority of the RIN's purchased in the market are by refiners who need them to satisfy the law. Their other option would be to produce less fuel. By so doing they could possibly meet their RIN's requirement but the obvious problem becomes that their is less gas on the market, and prices go up even more.

Yes the start of the process is the making of the ethanol which creates the identifier. Then they sell the ethanol to whoever wants to buy it. Oil companies, terminals, other companies, etc. then blend it with gas to create the RIN. But for the ethanol industry to say that oil companies are creating hysteria to say the Renewable Fuels Standard is broke is an incorrect statement. Many refiners sell their product at the refinery gate into pipelines and the company buying the fuel then transports, stores, and blends the product with ethanol to create the RIN. The refinery then has to go to the market to buy the credits to support their fuel production because they are not the blender of record.

To me it would suggest that the law applies unecessary burdens on the refiners who in many cases don't generate the RIN's but are required by law to have them. The law forces them to buy them on the open market.
Champion Author Manitoba

Joined:May 2012
Message Posted: Mar 18, 2013 1:59:20 PM

Champion Author Alabama

Joined:Jun 2009
Message Posted: Mar 18, 2013 11:06:02 AM

The primary reason is that it makes some people feel good about "doing something for the environment." Doesn't matter that its a net negative, its "doing something".

The ethanol effort would have been far better served making biodiesel than ethanol. But few own/drive diesel automobiles in the USA so few would have been able to "participate."

Diesel prices are high because the ratio of diesel to gasoline you can get out of a barrel of crude is pegged at the diesel side. Price is high to limit the demand. But commercial users can't afford to park their vehicles so they pay any price demanded and pass that on to consumers.

Ethanol production would do more good if it was producing biodiesel than ethanol.

Hopefully natural gas prices stay down so producers can afford to build synthetic diesel plants making diesel from NG. They say $6/million BTU produces diesel at roughly the same cost as $100/barrel. NG is currently $4, has been as low as $2.
Champion Author Winnipeg

Joined:Oct 2002
Message Posted: Mar 18, 2013 6:34:13 AM

nurdco says: "EPA winter fuel mixtures is actually gasoline antifreeze"

Ah, no, the basic difference is actually more butane in the winter blend.
Champion Author Colorado Springs

Joined:Apr 2008
Message Posted: Mar 18, 2013 2:12:58 AM

EPA winter fuel mixtures is actually gasoline antifreeze.... which used to Sold at 10c to a quarter
Champion Author Illinois

Joined:Apr 2011
Message Posted: Mar 17, 2013 10:56:49 PM

RedRider1OK wrote: "Google (RINs and the ethanol blend wall) and learn why we will continue to pay more for fuel."

I did and here is what I got. Big Oil and Big Oil Shill propaganda.

"But at the Renewable Fuels Association, Bob Dinneen, the president, said that the refiners were the sellers of the credits as well as the buyers, so that it was a flow of money among the oil companies. Ethanol companies make the fuel, he said, and sell it to refiners, who either use it themselves to meet their obligations, or use it but spin off the credit for sale to someone else.

When I see volatility like that in any market, it’s not market fundamentals at work, it’s probably something else all together,” he said. “It’s more like the oil companies trying to create a little hysteria to support the notion that the Renewable Fuel Standard is broken, but I think it’s working just fine."
All-Star Author Oklahoma City

Joined:Mar 2008
Message Posted: Mar 17, 2013 8:39:20 PM

Because of a federal mandate called the RFS. By adding ethanol to our fuel it lowers our MPG's, increases our cost per mile and most recently it raises the price we pay at the pump do to the RINs that the refiners are forced to purchase. Google (RINs and the ethanol blend wall) and learn why we will continue to pay more for fuel.

Without the mandate, ethanol would become extinct.
Champion Author Boston

Joined:Aug 2005
Message Posted: Mar 17, 2013 8:18:17 PM

"what are the reasons why ethanol is added to gas"

Ethanol replaces MTBE(methy-tertiary-butylether) which was added to fuel to reduce CO emissions. MBTE had been found to be leaking into and contaminating water supplies.
Champion Author Illinois

Joined:Apr 2011
Message Posted: Mar 15, 2013 9:44:44 AM

Shockjock1961 wrote: "It's mandated by the government to insure that the ethanol and corn producers have a means to rape the consumer...."

How exactly does it cost you more?
Champion Author Illinois

Joined:Apr 2011
Message Posted: Mar 15, 2013 8:47:38 AM

tdioiler wrote: "But then the subsidies would have to change as less gas taxes are collected and being substituted for tax subsidy fuel."

tdioiler since you claim federal ethanol subsidies exist, please list them.

tdioiler wrote: "If the cars were made to actually run ethanol (even higher mixes) then it would be great."

Even Ford Model T was able to run on ethanol, so how are modern cars not able to run on it?
Champion Author Detroit

Joined:Jul 2011
Message Posted: Mar 14, 2013 9:43:36 PM

Cuts the price down 5% so it looks good and green too!

But is it really both? If the cars were made to actually run ethanol (even higher mixes) then it would be great. But then the subsidies would have to change as less gas taxes are collected and being substituted for tax subsidy fuel.

It's a losing position to have the increased mixes in those cases.
All-Star Author North Dakota

Joined:Nov 2012
Message Posted: Mar 14, 2013 7:36:15 PM

cheaper to sell it with gasoline than straight gas to reduce dependency on foreign oil
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