Ethanol regs push us into “the blend wall”

posted at 3:31 pm on March 9, 2013 by Jazz Shaw

Filed under the “we hate when we turn out to be right” category, domestic energy producers are facing some tough choices in the coming months thanks for a one – two punch of ethanol and government regulations. A combination of the drought this summer wiping out a fair portion of the corn crop and an unfunded mandate scheme by the federal government have resulted in there not being enough affordable ethanol for producers to blend into E-10 fuel. When producers can’t meet the minimum amount of “renewables” required by Uncle Sam, they have the choice of using RINs (Renewable Identification Numbers issued by the government) instead. Since the RINs are able to be traded, this makes them into a new sort of commodity exchange system, and like any other, when supply goes down, prices go up.

Prices of renewable fuel credits, needed by refiners to comply with the nation’s Renewable Fuel Standard, have skyrocketed over the past few months, an indication to some that the dreaded “blend wall” is close.

The price for the traded Renewable Identification Numbers (RINs) for corn-based ethanol have jumped from a trading range of about 2-3 cents/RIN to as much as 79 cents/RIN.

Trading for 2013 ethanol RINs Tuesday started the day at 75 cents/RIN and got as high as 79 cents/RIN before dropping back down to 75 cents/RIN by assessment time. Platts assessed RINS Tuesday at 75 cents/RIN.

The “blend wall,” as it’s known in industry circles, is the point where there is more gas to be blended than ethanol to use. They’ve known this day was coming for some time, but most analysts thought it would take a few years longer. The drought, as mentioned above, has accelerated the timetable. This leaves refiners with only a few choices, and none of them are good for you.

If RIN prices move too high, refiners will be left with three options that won’t be “popular,” said Jason Bordoff, Professor of Professional Practice in International and Public Affairs Director, Center on Global Energy Policy, at Columbia University, at the IHS CERAWeek conference. The options include passing the cost of RINs to consumers through higher retail prices, exporting products, or lowering refinery utilization rates.

Bloomberg has more on this, charitably translated into normal English for the layman. The key figure to watch here is the fact that we are currently projected to only have an available supply of 12.3 billion gallons of ethanol available for blending in 2013. To keep up with government mandates under the Renewable Fuel Standard, 13.8 billion gallons would be needed.

The long and the short of it is that they can either sell their fuel elsewhere, charge more for it to cover the cost of the RINs or produce less. (Which also drives up prices.) Either way, you lose and the EPA wins.


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Ethanol costs much more than gasoline and it is less powerful, so your fuel mileage drops.
Anyone else notice the loss of MPG just as the price of gas spiked up within the past month?
Summer blend!

OxyCon on March 9, 2013 at 3:40 PM

Holy ethanol Batman

koaiko on March 9, 2013 at 3:44 PM

I thought higher gas prices were always caused by speculators.

Curtiss on March 9, 2013 at 3:45 PM

Remember when gas was in the $1-$2 range? Now we have to be punished for having autos.

tom daschle concerned on March 9, 2013 at 3:48 PM

Boondoggle. Cancel mandates. If there’s a market for it, there will be ethanol. Stop forcing to make your buddies rich.

SarahW on March 9, 2013 at 3:48 PM

And the 15% ethanol that the EPA is forcing will negate car warranties, destroy engines, cause even worse fuel mileage, and raise the demand for anything corn-based- like food. Yes, we are from the government and we are here to help.

DAT60A3 on March 9, 2013 at 3:49 PM

Here in Oklahoma I only buy the 100 percent gasoline “blend”.

Does the EPA know this?

goatweed on March 9, 2013 at 3:57 PM

I don’t think a lot of folks realize that all this stuff about our huge natural gas and oil tar reserves are going to bring on a new economic boom is hogwash. This is so reminiscent of the Alaskan Pipeline scam of the ’70s.

Unless it’s on Federal lands it’s not “ours” anyways, and if it is on Federal lands it doesn’t matter-of what use is all this energy to a country that manufactures less and less all the time? It will be sold to China and elsewhere.

The $ will NOT trickle down, and illegal immigrants will be at least a plurality of the oil-gas work force as well as the Keystone Pipeline. The GOP doesn’t want to lose $ by paying top dollar to American workers, unionized or not. They along with the Dems want the influx of cheap labor to continue. Someday soon, it may well be we’ll so more Chinese workers here as well.

We’ll be just like Venezuela and other oil-rich countries that will suffer high energy prices and shortages though we’re sitting on top of huge reserves.

Hope I’m wrong, but I was over trusting these SOBs loooong ago, but it won’t be Federal Workers getting this stuff up out of the ground under the direction of Washington, it’ll be workers employed by various companies. This is potentially one of those uncomfortable moments when we have to choose free enterprise over our national welfare, because if we don’t, then we’re Socialists.

Dr. ZhivBlago on March 9, 2013 at 4:01 PM

Regulations for this. Regulations for that. Regulations for this and that and everything else. Regulations by the (hundreds) of thousands of pages. How does anyone keep track of them? And half the time the regulations are tainted by inside crony corruption. Send congress home early. It’s not their job to produce more stifling laws and red tape, as they seem to think it is.

Rand Paul has a point. Here he admonishes a Democrat regulator for the endless regulations on lightbulbs and other products that are infringing on our free choice:

http://www.youtube.com/watch?v=FAn1FWInBi0&ii=DemsAntiChoice

anotherJoe on March 9, 2013 at 4:12 PM

…oh oh!…there is that picture of JugEars thingy peeking out again!

KOOLAID2 on March 9, 2013 at 4:13 PM

Ahem…

“IF using corn for food instead of subsidized, crappy fuel could save just ONE life…”

ProfShadow on March 9, 2013 at 4:16 PM

Dr. ZhivBlago on March 9, 2013 at 4:01 PM

What cheap labor? People are earning good money in shale oil biz, earn good money working on oil rigs, etc.

Buy Danish on March 9, 2013 at 4:21 PM

Strangulation by regulation, the Democratic way.

hillsoftx on March 9, 2013 at 4:26 PM

Barry is totally happy with higher gas prices.

GarandFan on March 9, 2013 at 4:29 PM

The Ogabe Regime’s ultimate goal:

Flintstones-mobiles for all but the Kremlin and Warren Boofay, of course.

Best start toughening up those feet. Yabba-dabba-doooooooo.

viking01 on March 9, 2013 at 4:46 PM

Dr. ZhivBlago on March 9, 2013 at 4:01 PM

What cheap labor? People are earning good money in shale oil biz, earn good money working on oil rigs, etc.

Buy Danish on March 9, 2013 at 4:21 PM

Surely…and Americans used to make good money in manufacturing and agriculture.

Dr. ZhivBlago on March 9, 2013 at 4:48 PM

Who wants to bet that Al Gore and Berkshire Hathaway own about a billion of these things.

29Victor on March 9, 2013 at 4:53 PM

Another coming crisis is E15 (15% Ethanol) fuel, which the EPA recently approved. Many engines are not certified for use with this high a percentage of Ethanol and will be damaged by it. Fuel stations that carry E15 have to be able to switch their pumps back to E10 on consumer demand, but there’s always some E15 left in the hoses that will be delivered when that happens. Never fear, though, the EPA has a fix for that: Require E10 buyers to buy at least 5 gallons! Isn’t that clever? Exactly how the gas companies are supposed to require minimum purchases, what they do if a self-serve customer doesn’t comply, and who is responsible for the engine damage isn’t the EPA’s problem. Neither are motorcycles, which can’t tolerate E15 and have tanks smaller than 5 gallons.

Isn’t Big Government fun?

Socratease on March 9, 2013 at 4:59 PM

I still remember Charles Grassley clapping like a trained seal when W introduced a lot of ethanol claptrap which paved the way for the current regime’s latest ploy.

The sad fact is politicians of both parties couldn’t resist the chance of corn states getting some ethanol loot at the expense of future freedoms in all states.

viking01 on March 9, 2013 at 5:06 PM

All according to plan…

stefanite on March 9, 2013 at 5:11 PM

We need a state (probably Texas) to tell the EPA to f-off. If it’s OK for California to ignore federal drug and immigration laws, then other states should be able to ignore what laws suit them.

stefanite on March 9, 2013 at 5:16 PM

Reposting from the nuclear environmentalist thread…

The reality is that most “environmentalists” are not actually aiming at protecting the environment, but are in fact Malthusians who want to destroy the vast majority of humankind and live on a planet of a few tens of thousands of humans. Any energy source that supports more than a few is automatically deemed against the “environment”. This is why they push for solar power and wind power even though they require vast amounts of rare materials to produce which require massive mining operations and are also very low density energy sources requiring thousands of times the physical footprint to create the same amount of energy as traditional power plants.

Anything that subverts a thriving human society ultimately becomes environmentally friendly. Mercury in light bulbs. No problem, because it ultimately lowers the quality of life of the humans who use them. Putting food into your gas tanks, even though it creates more pollutants? No problem, because it ultimately lowers the quality of life of the humans who use them. Spreading millions of acres of wind turbines, solar panels and destroying the habitats of endangered species? No problem, because in the end, it lowers the quality of life of the humans who use them.

Poke an “environmentalist” hard enough and you find either a Marxist or a Malthusian inside. Green on the outside, red on the inside.

astonerii on March 9, 2013 at 5:19 PM

The U.S. Environmental Protection Agency is an INVALID, ILLEGITIMATE BUREAUCRACY.

ABOLISH the EPA, now !

listens2glenn on March 9, 2013 at 5:38 PM

Ahem…

“IF using corn for food instead of subsidized, crappy fuel could save just ONE life…”

ProfShadow on March 9, 2013 at 4:16 PM

.
Dittos !

listens2glenn on March 9, 2013 at 5:41 PM

Remember when gas was in the $1-$2 range? Now we have to be punished for having autos.

tom daschle concerned on March 9, 2013 at 3:48 PM

I can remember a bunch of us getting really teed off at Sunoco when they raised the price of their HIGH TEST gas from $.249/gal. to $.269/gal.
Just outrageous to think that any gas was worth that much! /

Solaratov on March 9, 2013 at 6:12 PM

One of the educational benefits of watching old Mission Impossible episodes from the early 1970s is seeing the gas station signs (in central Los Angeles) where it’s 26 cents for regular and 29 cents for premium… again, in downtown L.A. of 1972.

viking01 on March 9, 2013 at 6:29 PM

Related:
http://wattsupwiththat.com/2013/03/08/a-bridge-in-the-climate-debate-how-to-green-the-worlds-deserts-and-reverse-climate-change/#more-81728

Basically, beef production, done right, can reverse desertification, and is the only way of producing useful food from a large fraction of the Earth’s land surface.

Count to 10 on March 9, 2013 at 6:39 PM

the sad thing is that this is strictly state-run/crony capitalism/central planning (choose your own words). The enviros know this is dubious and the little guys get the shaft.

Chu’s dream of 8 dollar/gal is achievable. The good news is that if you are an automaker, once the old cars stop working, you get to build lots of little tiny barry.cars, that get 55mpg.

the hard left always seems to win these things, by hook or crook. But it is an easy game for them, given the left-wing press corps

r keller on March 9, 2013 at 6:40 PM

The long and the short of it is that they can either sell their fuel elsewhere, charge more for it to cover the cost of the RINs or produce less. (Which also drives up prices.) Either way, you lose and the EPA wins.

Unintended consequences.

Steve Eggleston on March 9, 2013 at 6:44 PM

We need a state (probably Texas) to tell the EPA to f-off. If it’s OK for California to ignore federal drug and immigration laws, then other states should be able to ignore what laws suit them.

stefanite on March 9, 2013 at 5:16 PM

Serious questions for philosophical debate:
When does a nominal law cease to be an enforceable law?
Which “players”, and how many, are the determiners?

AesopFan on March 9, 2013 at 6:44 PM

“with the nation’s Renewable Fuel Standard”

Correction: “with the unelected regulators’ Renewable Fuel Standard.”

Is there any product they have not regulated and messed up?

PattyJ on March 9, 2013 at 7:20 PM

The options include passing the cost of RINs to consumers through higher retail prices, exporting products, or lowering refinery utilization rates.

I think those two equal the former. Expect higher prices.

unclesmrgol on March 9, 2013 at 7:46 PM

The long and the short of it is that they can either sell their fuel elsewhere, charge more for it to cover the cost of the RINs or produce less.

Or, we could march on the EPA with pitchforks and tar and feathers, and end this insanity once and for all. I prefer that fourth option. Just saying.

GWB on March 9, 2013 at 8:58 PM

The good news is that if you are an automaker, once the old cars stop working, you get to build lots of little tiny barry.cars, that get 55mpg.

r keller on March 9, 2013 at 6:40 PM

The good news is that those “barry cars” will be up against the F150s and such when it comes to crunch time. The conservatives have most of the guns, and most of the decent heavy vehicles. It ain’t gonna be purty when they come a-knockin’ for us.

GWB on March 9, 2013 at 9:27 PM

We need a state (probably Texas) to tell the EPA to f-off. If it’s OK for California to ignore federal drug and immigration laws, then other states should be able to ignore what laws suit them.

stefanite on March 9, 2013 at 5:16 PM

Well, Texas does have plenty of refineries which could supply the state with plenty of ‘real’ gasoline.

It sure would be fun to watch the regime going bonkers over an “ethanol opt-out” by people who could back it up.

:-)

Solaratov on March 9, 2013 at 9:33 PM

I thought higher gas prices were always caused by speculators.

The Government is the greatest speculator.
Just as modern famines are caused by governmental intervention/Ag Policy upsetting the market place, the yo-yo’ing of gas prices, more often than not, is caused by government energy policies effecting the supply/demand curve.
If they didn’t just hate the privately owned vehicle, and the freedom that it affords individuals, they would heed the lesson that Ronald Reagan gave them in Jan-81 that ended the gas-lines and odd-even rationing – just decontrol the market.
But that is something that our little Fascists oops, Progressives could never do.

Another Drew on March 9, 2013 at 9:46 PM

I’ve heard this stuff gunks up motors in cars made before a certain date, anyway.

avagreen on March 9, 2013 at 11:19 PM

One of the educational benefits of watching old Mission Impossible episodes from the early 1970s is seeing the gas station signs (in central Los Angeles) where it’s 26 cents for regular and 29 cents for premium… again, in downtown L.A. of 1972.

viking01 on March 9, 2013 at 6:29 PM

And clean, well paved streets too.

TugboatPhil on March 10, 2013 at 12:10 PM

Would our subsidy of the ethanol industry be throwing money into the corn hole?

trl on March 11, 2013 at 2:01 AM

Corn hole involved here, just not in the way you’re thinking.

Prop Gun on March 11, 2013 at 11:58 AM