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.
Next, I don't think anyone has built ethanol pipelines yet, so ethanol has to be trucked to where it is used which costs more than just piping it.
Finally, anytime you change what goes into gasoline, refineries and shipping points have be shut down to handle the change over. Since refineries are running at close to 100% of their rated capacity already, there isn't any capacity to pick up the slack during changeover. That causes price increases and shortages.
It also isn't cheaper when you consider it knocks mi/gal down by about 25%.
Why would making something here necessarily make it cheaper?
I didn't know this. Got a link to a source?
You are exactly right! This material can never be supplied by pipe line without a complete overhaul.
It sucks up every bit of moisture around, you will have to add a water dispersal agent to your tank every time you fill up.
Use this stuff in an older car the seals, gaskets and your rubber fuel lines go south. The "in tank" fuel filter is the first thing to go as the injection system becomes clogged. Your auto shop will love this!
No logical thought has gone into what will happen..Whats new?
The price of a gallon of ethanol is higher than the price of a gallon of gasoline. If you replace 1/10% os a gallon of gas with ethanol, you are adding a higher-priced product, which raises the price of the gasoline.
E85 gas is actually cheaper than regular unleaded gasoline right not, but that is due to a government subsidy which I understand is about $.50/gallon.
The price of ethanol would logically be higher further from where it it produced due to logistical costs of transport from where it is made (primarily the Midwest). No matter where it is sold, no matter the purchase price - ethanol production is subsidized by a tax credit to producers of 50 cents a gallon. So, from general revenues to ethanol producers - courtesy of Senators and Representatives from the Midwest, whether you use ethanol blend fuels or not - you're paying for them.
Very good synopsis, grasshopper.
I am not sure which fact is being researched. Google it and if you can't find it, I'll get the link for you.
If you're talking about a 10% ethanol blend, 25% sounds awfully high.
EPA MPG estimates for E85 (85% ethanol + 15% gasoline) in flexible-fuel vehicles is typically 30% less than for gasoline. Also, ethanol has 30% less BTU (energy) than gasoline.
So, theoretically, if all else is equal, a 10% ethanol-blend should result in a MPG penalty of less than 5% when compared to straight gasoline.
At any rate, a 25% penalty from a 10% blend doesn't sound right to me.
Isn't it simply that the wholesale price of ethanol is higher than the wholesale price of gasoline? So when you add it to gasoline the price increases.
Everyone is taking for granted that ethanol must be cheap, which is not the case.
difference in the energy of the ethyl alcohol molecure as compared with the assorted HC molecules which make up the gasoline mixture.
E-85 would produce the "desired" resuts.
Although, emprically, it does "seem" like 10% C2H5OH knocks mileage of my 2001 Silverado down at least 10% as well.
There was no provision ot have a supply line for ethenol! Replacing the millions of gallons of the MTBE was no match for what supplys we had in place. this is the Senates fault. The companys had no alternative but to discontinue the additive to avoid lawsuits.
As of 5 minutes ago, worldwide gasoline spot market price (for June delivery) is $2.12/gallon. Worldwide spot market price for ethanol (May delivery) is $2.62/gallon!
It's a good thing our cars don't run on 100% ethanol--or we'd be paying about 50 cents/gallon more than we are for just gasoline.
I guess that the ethanol companies are 'ripping us off' even more than the oil companies then, right? (sarcasm--off)
This is the congessional solution to all problems. MAKE THEM WORSE.
Another thing to consider is the btu rating of ethanol as compared to gasoline.
I don't know exactly, but I think gasoline is somewhere around 120,000 btu per part. Ethanol is only about 70 to 80,000 btu per part. That means that your engine needs to burn more ethanol to get the same performance as gasoline.
I'm doing this from memory. I don't remember the exact numbers, I read this in one of the popular science or mechanics mags.
As Ronald Reagan used to repeatedly say, "Government is not the solution, government is the PROBLEM"!
Exactly. That makes gasoline even CHEAPER when compared to other energy sources. Again, another example of government intrusion (due to environmental issues) increasing the price of gas.
The withdrawal of MTBE's from the market had the effect of reducing domestic fuel supplies. While ethanol now replaces MTBE's, previously both were available. The withdrawal of MTBE's also has the effect of making ethanol production wildly profitable, which will cause its production to expand, which will moderate the price.
If ya ride, ya gotta pay the Piper.
I operate an ethanol "plant". I have two varieties as output: wine and beer. The yeast I use produces an alcohol content of around 13% by volume for the wine, and 6% for the beer. Now if the feds would only remove the restrictions for distilling it I would be a much happier brewer!