“Blend Wall” to Continue Affecting U.S. Market
The challenges facing the ethanol industry are multifaceted. U.S. ethanol production is approaching ever closer to an E10 “blend wall,” and the adoption of higher E15 blends is likely to occur slowly. The main federal incentive for ethanol expires at the end of the year, along with the tariff on foreign ethanol, and extensions of some form of incentive and tariff are likely to be at far lower rates than the government has provided in the past. California has implemented a statewide Low Carbon Fuel Standard, which will be progressively harder for U.S. corn-based ethanol to meet. Additionally, supplies of advanced biofuels are likely to remain constrained, calling into question whether this component of the U.S. Renewable Fuel Standard (RFS) can be met. Added to these overarching issues, crude oil and agricultural feedstock prices remain high and volatile.
Such is the backdrop for Hart Energy’s just-released multiclient study Renewable Ethanol: Navigating the Rapids, 2011-2015. The study contains in-depth analyses of the North American and Brazilian ethanol industries and markets. It was conducted in conjunction with Informa Economics, Inc., which conducted analyses and forecasts of the agricultural feedstock markets.
“This study is intended to assist ethanol companies, their suppliers, oil refiners and other interested parties in successfully positioning themselves for the market and policy conditions that will exist over the next five years,” said Scott Richman, Hart Energy’s executive director, global biofuels and agriculture, who served as project director. “It also provides a view of conditions over a longer planning horizon to 2022.”
Key findings of the study include:
Elevated energy prices will continue over forecast period, for both crude oil and refined products;
The era of inexpensive feedstocks is over – specifically for corn, sugar and soybean oil;
E15 remains controversial, yet is the most cost-effective pathway for obligated parties to comply with RFS;
Unbranded operations are likely to be the first adopters of E15, selling surplus Renewable Identification Numbers (RINs) to major branded companies, which are likely to stay on sidelines until pending legal, regulatory and operational issues are resolved;
E85 markets will remain very slow to materialize;
Little if any new investment will occur in the U.S. corn-based ethanol industry without a reallocation of RFS volumes;
Capital markets and investment are slow to respond to the need for more Brazilian ethanol to serve the U.S. and European markets, which will keep supplies tight for Brazilian exports over the next couple of years;
E25 will maintain a majority share of the Brazilian fuel market as consumers turn to it as the cost-effective choice, and Brazil will continue to import more refined products from the U.S.;
Once near-term supply tightness has been worked through, Brazilian ethanol will be imported into the U.S. at higher prices than U.S. corn-based ethanol;
Cellulosic ethanol and other advanced biofuel technologies will continue to fall short of RFS targets in terms of commercial viability, but supplies that are available will gravitate toward California due to the Low Carbon Fuel Standard, after the initial years as the standard becomes more strict; and
RIN prices will remain low for corn-based ethanol unless U.S. ethanol exports increase further or high corn prices limit ethanol production in 2011-2012. RIN prices will remain elevated for biodiesel and other advanced biofuels for at least the next couple of years.
More information on the study is available by contacting Scott Richman at +1.901.305.6467 or firstname.lastname@example.org, or by visiting www.globalbiofuelscenter.com.
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