How I see ethanol's future
Oct 11, 2013
Hello Pro Farmer Members!
I'll admit... I was less than happy about all the hubbub about the RFS today. If you've read this week's News page 4 of Pro Farmer, my attitude about the whole thing is clear.
What probably upset me the most is we don't even know if this is the proposal that was sent to OMB for consideration and analysis. Seriously... these proposals were on a "document" - at least I assume it's a document of some kind - that was dated August 26, a full week before the proposal was sent to OMB.
Now... a week's worth of time in Washington D.C. can either result in absolutely nothing, or it could result in sweeping changes that no body suspects. I imagine a week's worth of time at EPA isn't any different... so the actual proposal sent to OMB might - or might not - look a lot different than what was talked about this week.
It also got me thinking about something I've wondered about for a long time: How much ethanol would the country be using if we'd never had "mandated" use? You know, if the industry would have built up enough to cover the approximately 7-7.5 billion gallons worth of ethanol to cover the replacement of MTBE and then just let the market experience market-driven growth instead of mandated growth?
There's something a lot of ethanol-haters have probably forgotten (or never knew... or refuse to accept)... reformulated gasoline needs an oxygenate. And after they decided MTBE cause cancer, even the petroleum industry recognized ethanol as the most affordable source of octane to oxygenize gasoline. Which leads to what I believe is the future of ethanol...
Ethanol's octane value is grossly underrated by most in the industry. I realize there are other sources of octane, but ethanol appears it will be the most economical for quite some time. The auto industry can't hit federal mile-per-gallon goals with engine technology alone. They also can't do it on fuel technology alone. But - combine high-octane fuel with a higher-compression engine that runs cooler and turns out the same horsepower and the combination of fuel technology and engine technology will get us there. Because ethanol is the most economical source of octane, ethanol has a future as an octane for new fuel mixtures to power new engine technology.
And because I see that as the future of ethanol, I've gotten close (close) to saying we should just do away with the mandates. They're a PR problem. But you can't do away with the mandates... not yet. That's because the petroleum industry is still against the ethanol industry. That's true despite the fact that Velaro is a big-time refiner and ethanol producer and despite the fact that refiners are using ethanol to lower their refining costs and jack up the octane in what is now "E10-87 octane" gasoline instead of what used to be "E10-89" gas.
The production and sales of E10-87 gas is almost an admission by refiners that ethanol is here to stay... but not quite. At least they're using ethanol now to increase their profits instead of blending to satisfy a mandate. Without the mandate, however, it's probably too soon to assume refiners would continue to offer ethanol blended gas... until, of course, the auto industry starts putting out those higher-compression, cooler-running, high-horsepower engines.
Hubbub caused me to change my plans
The RFS hubbub also meant changing what we had on News page 4 of this week's newsletter. In the absence of USDA's Supply & Demand and Crop Production Report, we were planning to run the S&D tables, incorporating changes from the Quarterly Grain Stocks and Annual Small Grains Summary. We'll run those next week with commentary.
I'll also be talking about the S&D tables during a webinar Tuesday. Click here for info on the webinar.
That's it for now...
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