ARLINGTON, Va. -- Consumers and Congress have made a plea for better environmental protection and the weaning of the United States from its fossil-fuel addiction. They're also demanding lower gasoline prices to ease the burden at the pump. So can the two desires be met in a single product: ethanol? Not likely, especially in the short-term, say petroleum experts.
Ethanol prices have just gone crazy in the last couple of weeks, Dan Gilligan, president of PMAA told CSP Daily News. We're suffering from a disorderly expansion of ethanol. The industry cannot [image-nocss] meet the demand that they put [on themselves].
The result is being seen across the country as more and more states begin mandating the use of ethanol. This past week in Louisiana, Gov. Kathleen Blanco said the State Legislature will have to provide financial incentives to ensure Louisiana drivers don't pay more at the pump when the state switches to using ethanol.
But Gilligan said there's a bigger problem Louisiana lawmakers should consider. We think ethanol has great potential, he said, but these mandates, especially the state ones, are totally a bad idea. If you can't haul gasoline between Mississippi and Louisiana because Louisiana has a biofuel mandate, you're just creating enormous fungibility problems for the industry. I'm just flabbergasted that in Louisiana the epicenter of the petroleum industry they can't figure this out.
But Blanco reiterated she would sign legislation that would mandate the sale of ethanol-mixed gasoline once production of the additive reaches a certain level, according to a report in The Advocate.
Blanco said she doesn't think requiring ethanol will cost Louisiana drivers more. That is not the legislative intent, she said. We'll work through those details over time.
The market price for ethanol-blended gasoline is 67 cents higher than regular unleaded gasoline, according to Chicago Board of Trade and the New York Mercantile Exchange. Thus, Gilligan said he thinks the ethanol industry has painted itself into a corner, at least temporarily.
[The ethanol industry] went to Congress and lobbied for a national mandate, and now they're struggling to meet all the demand that's been placed on them, he said. It's really going to hurt consumers if there's not some cooling off [of demand].
Both Gilligan and Brian Milne, editor of DTN's MarketWire publication, believe ethanol prices will eventually come down with several ethanol plants under construction or on the drawing board. But in the short-term, we are going to see the issue of tightness in supply, Milne told CSP Daily News. But longer term, we're seeing a tremendous amount of ethanol production coming on-line, and that should certainly offset that, maybe as early as next year. We'll see how quickly the production centers get rolling.
Ultimately, however, neither market-watcher expects the average gasoline price to be much different than without ethanol as part of the mix.
By next year at this time. you would expect that ethanol would help moderate prices long-term because you are reducing susceptibility to the volatility in price in crude oil, said Milne.
And as to whether ethanol use will reduce the use of fossil fuels in the United States, Gilligan is skeptical. Hopefully that is true, he said. The faulty logic in all of this is that it takes an enormous quantity of natural gas or hydrocarbon fuel to make ethanol. It's a mirage that's being painted on the Hill that somehow ethanol is going to break our dependence on fossil fuel and foreign oil. It's not.
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