BLOOMINGTON -- With a gallon of gas now about $3.80 in the Twin Cities -- a dollar more than last year -- ethanol's biggest supporters say they've found an upside: It could be worse.
That's according to a new study (funded in part by the Renewable Fuels Association) that claims the average price of a gallon of wholesale gas in the U.S. was 89 cents lower in 2010 because of the increased production of ethanol, which is blended into gas. In the Midwest, where the corn-based biofuel's production is at its maximum, that jumps to $1.37 per gallon.
The study by the Center for Agricultural and Rural Development at Iowa State University is hardly the final word on ethanol's impact on gas prices, which is doubted or minimized by critics. But it is being touted by groups like the RFA and the Illinois Farm Bureau as gas prices remain stubbornly high.
In Illinois, the ethanol question is key: 25 percent of the state's corn now goes to make ethanol, the IFB says. That's the equivalent of the entire nine-county Pantagraph area's output in 2010 (about 342 million bushels) -- and then some.
"That's a fairly large market share that needs to remain viable," said IFB spokesman Craig Fata.
Currently, the gas used by most vehicles can contain up to 10 percent ethanol. With ethanol futures currently trading 30 cents or so less than wholesale gasoline prices, blending in the biofuel is believed to lower the cost of retail gas for drivers.
The Energy Policy Research Foundation, a group supported by oil and energy companies, disputed that notion in its own study released last month. The report said the rapidly rising cost of corn will actually help drive up pump prices, and that the "true price" of ethanol is much higher when converted into what it calls "gasoline energy equivalent basis."
Ethanol's real impact is very hard to pinpoint due to the high number of independent variables, like trying to determine the market value of a bottle of water among a group of people stranded in the desert, said Rick Kment, an analyst who tracks biofuels at ag information service Telvent DTN.
"It really depends on how big is the crowd, and how deep their pockets are," among other factors, Kment said.
The 10 percent blend (E10) prevents supply shortages and controls the cost of gas, said Bill Fleischli, who represents gas stations as executive vice president of the Illinois Petroleum Marketers Association and Illinois Association of Convenience Stores. He said stations carry E10 because it is competitively priced -- and the 20 percent state sales tax break helps too.
"You're never gonna see gas down to 90 cents a gallon again, but (ethanol) will help slow the explosive growth of wholesale gasoline" costs, Fleischli said.
Average Twin City gas prices peaked at about $4.19 in early May, as crude oil prices soared. Anything the U.S. can do to displace foreign oil imports and use something homegrown is beneficial, said Harry Cooney, manager of customer risk management in the energy division at Growmark, the Bloomington-based ag cooperative.
"That's a real broad statement, but it's true," Cooney said.
But the price of corn has almost doubled in the past year, peaking at nearly $8 a bushel in April. At One Earth Energy, an ethanol production plant in Gibson City, the rising cost of its main feedstock means 2011's margins will be about half of 2010's, said General Manager Steve Kelly. The plant, which can produce about 100 million gallons of ethanol a year, sends most of its fuel by rail to the East Coast, some of it for E10.
People should pay more attention to the ethanol effect, Kelly said. He noted the price difference between regular gas and E85, an 85 percent ethanol blend for flex-fuel vehicles that today sells for about 50 cents less per gallon on average, according to E85Prices.com.
"All we focus on is the price of gas," Kelly said.
A recent U.S. Environmental Protection Agency decision will soon allow E15 -- 15 percent ethanol -- to be used in vehicles model year 2001 and newer. States like Illinois are waiting for guidance on how to implement E15 at the pump.
"If we continued to see a trend like we're seeing now, where the ethanol is favorable, adding more ethanol is only going to make your price more favorable," said Growmark renewable fuels supply manager Brigette Harlan.
For that favorable price "spread" between ethanol and wholesale gasoline to flip-flop, there would have to be some significant drop in wholesale gas, coupled with a catastrophically bad corn crop, Harlan said.
"Commodities tend to move together in herd-like mentality enough that it's seldom that would occur," added Growmark's Cooney. "But in the markets these days, you see just about anything."
Reporter Ryan Denham can be reached at twitter.com/ryanpantagraph
A look at U.S. ethanol production, by year:
|Year||Millions of gallons|
SOURCE: Renewable Fuels Association