Exports Needed to Boost Ethanol

With U.S. ethanol plants churning out record-high production, new export markets will be key for demand to keep pace with supply, industry experts say.

George Hayes, global ethanol trade coordinator with CHS, said first-quarter ethanol blending lagged last year’s pace, but the pace of blending has picked up again recently.

Yet ethanol production is still significantly outpacing total demand, he said.

“The margins for plants are currently very depressed. We’d look for the export sector to come in and balance the equation,” Hayes said.

From 2015 to 2016, total U.S. ethanol exports increased 26 percent.

“We’re projecting another 15 percent increase from ‘16 to ’17,” Hayes said. “India really is the bright spot for us.”

If India’s major oil refineries decide to import ethanol to meet blending mandates, it could mean a significant improvement in exports, he said.

CHS is also focusing on the Philippines, Canada, Mexico and Vietnam as areas of potential growth for ethanol.

“We are knocking on doors, opening up a new client base and supporting export initiatives with the U.S. Grains Council ... trying to export as many gallons as we can,” Hayes said.

He also expects Canada, the United Arab Emirates and Mexico to switch to higher ethanol mixes — supporting U.S. exports.

Without export growth, Hayes foresaw lower domestic ethanol production rates and higher domestic blending to solve the equation.

Despite last year’s growth in U.S. gasoline consumption, Hayes said expectations for similar growth in 2017 may be overly optimistic given projected higher prices.

The U.S. Energy Information Administration’s May 2017 Short-Term Energy Outlook predicted a 0.7 percent increase in total gasoline consumption in the second and third quarter. The report forecast fuel ethanol blending up 1.7 percent in the second and third quarter vs. a year ago.

Iowa Renewable Fuels Association Executive Director Monte Shaw said ethanol production appears to be “more or less on course with last year.”

“I do expect production to set a new record this year,” he said.

Shaw said key export markets and higher ethanol blends are likely to be among the factors influencing 2017 demand.

Boat fuel is one of the markets that has yet to add ethanol blends, but reaching 100 percent will not be easy, he said.

With 97 percent of gasoline sold in the U.S. containing at least 10 percent ethanol, E10 is not a growth market, Shaw said.

Growth of E15 is something Iowa RFA is excited about, he said, noting Kwik Trip’s decision to add an E15 unleaded 88 octane option at 400 to 500 stations.

“There’s a lot of stations out there that could take this move,” Shaw said. “This is a game changer. We think it will be the new normal.”

The loss of ethanol exports to China was a disappointment, Shaw said, and Brazil has contemplated tariffs on imported ethanol to protect its own producers.

While similar-sized export markets may be difficult to find, Shaw said he expected low prices to cure low prices.Mexico could also be a long-term growth area, with last year’s reforms in the Mexican gas industry opening the door to potential ethanol imports, he said.

He praised the approach of Mexican farmers who are supporting U.S. ethanol imports to demonstrate their country’s ethanol demand first, rather than blocking out imports before a market is developed.

As U.S. ethanol represents “the world’s cheapest source of fuel octane,” Shaw hopes other countries will follow this import-friendly approach.

Looking to biodiesel, Robert Stobaugh, a United Soybean Board member and National Biodiesel Board member who farms in Atkins, Ark., is optimistically looking for U.S. biodiesel consumption to approach 3 billion gallons in 2017.

Regulatory certainty from the EPA’s Renewable Fuel Standard decision last year is supportive, he said.

“Anytime we can get everybody involved to look at a biodiesel with fresh eyes, we tend to do better,” Stobaugh said.

Improved fuel efficiency could impact usage in 2017, but he also expected growth for biodiesel as a clean-burning fuel in markets like California.

On the opposite coast, biodiesel use for heating in the Northeast is also growing, he said.

In the biodiesel industry, “there’s always challenges,” Stobaugh said. The industry has worked hard to keep tax credits in place and maintain RFS numbers, showing a “proven ability to stay the course,” he said.

“Manufacturing is down pat,” he added.

For now, Stobaugh is glad to see his beans going in the ground, given wet planting conditions this spring.