The biofuels era: A changing of the guard?
The last assumption is based on current price relationships that suggest that biodiesel blending is uneconomic and will be blended only to the extent required to meet the advanced RFS. The availability of Brazilian ethanol for import is an open question. Annual imports over the past six years have ranged from 16 million gallons in 2010 when high sugar prices limited Brazilian ethanol production to 731 million gallons in 2006 when the U.S. was transitioning away from the use of MTBEs. Availability is dependent on the magnitude of Brazilian production, demand from other importers, and internal policies affecting domestic consumption. Imports are on track to reach 500 million gallons this year. The assumption of 830 million gallons of imports appears to be a realistic cap, but deviations from that amount do not substantially impact this analysis.
click image to zoom The net effect of these assumptions on the advanced component of the RFS is shown in Table 2. Notice that the combination of 1.28 billion gallons of biodiesel (already proposed by the EPA) and 830 million gallons of imported Brazilian ethanol is assumed to be sufficient to meet the advanced component in 2013. These two numbers add up to 2.75 billion gallons because, as noted earlier, one gallon of biodiesel is equal to 1.5 gallons of ethanol in terms of complying with the RFS ([1.28 X 1.5 = 1.92] + 0.83 = 2.75). With the assumed cap of 830 million gallons of Brazilian ethanol imports, biodiesel production ramps up sharply from 1.28 billion gallons in 2013 to 3.113 billion gallons in 2015. This is the only way the advanced component can be met under these assumptions if the EPA does not write down the total advanced component of the RFS.
- The ethanol "blend wall" is 13.3 billion gallons per year,
- Ethanol blending margins are favorable and insure that the market demand for ethanol in the U.S. is at least 13.3 billion gallons
- The maximum amount of Brazilian ethanol is imported each year,
- Banked RINS are used only when the RFS for renewable biofuels exceeds the blend wall, and
- Ethanol exports total 700 million gallons per year.
The assumption of a constant blend wall of 13.3 billion gallons is based on the expectation that total U.S. fuel consumption will continue to moderate and that implementation of E-15 will continue to proceed slowly. The actual blend wall could obviously deviate from 13.3 billion gallons, but the implications for ethanol production and corn consumption are straight-forward and easily calculated. Ethanol exports are harder to anticipate. Ethanol was not exported prior to 2009. Exports totaled 398.5 million gallons in 2010, 1.195 billion gallons in 2011, and are on track to reach about 740 million gallons this year. Large exports since December 2010 have been supported by reduced Brazilian ethanol production and are not expected to be sustained. Again, the impact of deviations from the expected level of exports on domestic ethanol production and corn consumption can be easily calculated.