Adjusted Blend Lowers Quality of Ethanol, Big Oil Pockets the Change

September 17, 2013 07:29 AM

Ethanol production has changed recently and as the Renewable Fuels Standard (RFS) debate heats up, oil companies have shifted from sending out 87-octane gasoline as their base for ethanol blending to 84-octane. When the EPA enacted RFS, consumer demand for gasoline was expected to increase almost indefinitely. But recent trends show a dramatic drop in U.S. gasoline consumption due to increased efficiency in modern vehicles and a general trend for motorists to conserve gasoline.

84-octane gasoline cannot be used to fuel vehicles without an octane boosting additive like premium gasoline or ethanol. Gas station owners used to purchase 87-octane gasoline as an ethanol feedstock and add ethanol to increase the overall octane to 89.

Consumer advocates believe the new blend will create a lower quality gasoline and accuse oil companies of profit taking against the best interest of consumers. The move is expected to increase ethanol use by blenders as the new, lower octane feedstock will require more of an octane boost than the former 87-octane product. The result is a change in the overall octane rating of finished ethanol from 89 to 87, a two point decline against a three point decline in the octane of feedstock. However, prices are expected to remain steady for consumers, even as finished ethanol's octane rating falls.

Lower quality fuel at steady prices amid low corn prices are helping oil companies offset the high cost of RIN credits, which have skyrocketed from just a few cents per earlier this year to as high as $1.33 in July. The move to deliver ethanol based on lower octane feedstock is not just an end-around the blend wall but also a way to fulfill big oil's obligations to the EPA while profiting from the difference.


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