Skip to comments.Why does Ethanol additives cause gas prices to rise?
Posted on 04/27/2006 11:21:18 AM PDT by John GeyerEdited on 04/27/2006 11:47:26 AM PDT by Admin Moderator. [history]
I would assume that ethanol, being produced by fermenting American grown corn into a useable fuel, would make gas cheaper, not more expensive. Instead of making the price of gas rise, I would believe that it would fall because we are using a renewable, home grown form of fuel. I guess I'm an idiot for not understanding the reasons behind this, but I ask for someone with more experience to explain it for me. I was telling my father how ethanol would make gas cheaper, and now I feel like a complete moron. Help me understand.
Oh, so it's a lot like hydrogen powered cars and such.
Because they can.
There are several reasons that costs are higher with ethanol-added reformulated gas.
The market for the ethanol-added gasoline is not large - primarily the Midwest - and only a handful of refineries in the region are even producing ethanol.
Ethanol cannot be transported via petroleum pipelines because it tends to soak up water. It is typically transported by tanker truck, which limits the regions where it will be used.
Ethanol evaporates more quickly than other additives, so it must be mixed with low-volatility gasolines to meet government standards. These low-volatility gasolines are more expensive to make.
Then why is ethanol gas in Iowa 20 cents cheaper than the "real" stuff in Illinois?
I love your tag!
transportation costs + taxes
Because we allow it to.
The problem is the DEMAND for Ethanol. Big Oil is bidding the price up (and if I were REALLY cynical, I'd think this is a consipiracy to price Ethanol out of the market and to force the hands of those states who have outlawed MTBE, which is a known carcinagen).
The assumptions you've made would be correct under ordinary circumstances. Unfortunately these are not ordinary times.
Similar things will occur when domestic hydrogen automobiles are introduced.
Big Oil companies had a 19% increase in profits last quarter, they intend to keep it that way. The easiest way is to force Ethanol out of the competition and to create ill will against Ethanol at the same time.
This is no longer true. You get more out of ethanol than you put in, but the balance is not overwhelmingly positive. It is not equal to the balance you get from drilling oil, for example.
The real reason prices rise with the addition of ethanol is that ethanol is more expensive to make than gas (though the energy balance is positive), and it is much more difficult to transport and store. Until ADM and others can ramp up ethanol production to meet demand and the oil companies get off their lazy bums and develop a distribution system for ethanol, you'll see shortages from production and distribution. Combine that with general market panic, and prices rise....
I forgot another +
+ Illinois boutique gas formula requirements due to EPA Clean Air regulations.
1. I think I heard the cost of the switch from MTBE to ethanol in the refineries has something to do with what you're seeing. But, since I'm in flyover country where MTBE has never been used, I haven't paid much attention to it.
2. It could be that the supply of ethanol cannot keep up with the sudden increase in demand. I do know many new ethanol plants are currently in various stages of planning/construction.
Because it is subsidized by the federal government.
You really need to ask that?
It is the same reason that Strawberries are cheaper in California, and Oranges are cheaper in Florida. Come on!
Gas companies pay a royalty to ARCO for MTBE - that lawsuite cost us at the pump years back - now that MTBE is being taken out, we should have a reduction in gas because that fee is no longer paid for that additive.
Not true. I know what studies you might be referencing, and they do not take into account some of the refining, shipping and multiple 'cocktail blending' costs.
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