The ethanol industry is struggling again thanks to lower gasoline demand and higher corn prices. Plant shutdowns that started with players at the high end of the supply curve have now spread to the larger companies, including Valero and ADM who have reduced or idled capacity. Crush spreads today stand at less than 10 cents a gallon.
Demand growth by blending more ethanol in gasoline is going to get difficult. In 2011, the average gallon of gasoline in the U.S. had 9% ethanol against the allowable 10% (E10) for all cars. Although the Renewable Fuels Standard and the EPA have allowed up to 15% (E15) for “newer” cars, new testing commissioned by a joint auto-oil industry group is suggesting that E15 could damage valves and other auto parts, reduce engine compression and power, and lead to poorer operational performance and higher emissions. It seems unlikely that oil companies, refiners, and retail outlets will adopt E15 anytime soon.
– Uday Turaga
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