Ethanol Stays In Gasoline Even If Mandate Ends

Ethanol, the best-performing energy commodity this year, is cheaper than gasoline, encouraging refiners to use the biofuel even if President Barack Obama’s administration ends a requirement to do so.

A 48 cent-per-gallon discount to gasoline provides companies including Exxon Mobil Corp. and Valero Energy Corp. (VLO) an opportunity to profit by blending the corn-based additive into fuel, while easing prices at the pump for consumers. Marketers may use ethanol as they look for the cheapest way to boost engine performance and reduce pollution.

The most severe U.S. drought in fifty-six years has prompted lawmakers from both parties to ask the Obama administration to suspend the mandate because of the potential impact on food costs. Ethanol will consume forty-two percent of this year’s corn crop, according to government estimates, up from forty-one percent last year. The biofuel has been blended into more gasoline than ever this year, Energy Department data show.

Denatured ethanol for September delivery slipped 0.4 cent to $2.660 a gallon in electronic trading on the Chicago Board of Trade. It’s climbed 21 percent this year, more than the sixteen percent gain for gasoline on the New York Mercantile Exchange.

Still, the biofuel is fifteen percent cheaper than gasoline with which it’s mixed, known as RBOB, or reformulated blendstock for oxygenate blending. A 2007 U.S. law enacted under President George W. Bush, known as the Renewable Fuels Standard (RFS) requires refiners to mix 13.2 billion gallons of renewable fuels, such as ethanol, with gasoline in 2012 and fifteen billion gallons by 2015.

On an annualized basis, production has averaged 13.6 billion gallons so far this year, above the target. Output has fallen fifteen percent from a record 963,000 barrels a day, or a 14.8 billion gallon pace, as of December 30.

The U.S. had the hottest July ever, the government said August 8. Just 23 percent of the corn crop was in good or excellent condition on August 19, the worst assessment for this time of year since 1988, the Agriculture Department said on August 20. One bushel of corn makes at least 2.75 gallons of ethanol.

Twelve Republican and thirteen Democratic senators asked Environmental Protection Agency Administrator Lisa Jackson, who enforces the program, to suspend or reduce the country’s ethanol targets in an August 7 letter because of the drought.

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