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03-21-2013 09:00 AM
An article on the Big Oil vs Ethanol issue. Nothing new, but something to keep up to data on since alot of us sell our corn to all the local ethanol plants.
Big Oil, renewable fuels advocates point fingers at each other as the cause for high fuel prices
Gasoline prices remain stuck above $3.50 per gallon despite the highest monthly domestic oil production in 21 years.
Big Oil and renewable fuels advocates on Wednesday blamed each other for motorists’ continued pain at the pump.
Big oil companies said the federal Renewable Fuel Standard, which requires that ethanol account for at least 10percent of the 136 billion gallons of gas consumed by U.S. automobiles each year, is driving up fuel prices.
The ethanol industry, on the other hand, says Big Oil is trying to divert attention from high gas prices. Because ethanol is cheaper than gasoline, they say blaming biofuels is the rhetorical equivalent of a dry hole.
Both sides agreed Wednesday that the matter is likely to come before Congress in some manner this year. Renewable energy people want an investigation of oil company pricing. The oil companies want Congress to repeal the six-year-old Renewable Fuel Standard that is the basis for demand for ethanol and biofuels.
“We call on Congress to repeal the Renewable Fuel Standard, which is helping to drive up gasoline prices,” said Bob Greco, director of downstream operations for the American Petroleum Institute.
U.S. Sen. Chuck Grassley, a Republican from Iowa, the nation’s top ethanol-producing state, predicted that oil interests hoping to end the federal fuel mandate likely put up a tough fight.
“But I think we can win it,” Grassley said. “What’s wrong with a little bit of promoting of alternative energy — and it’s 10 percent of what you burn in your car — instead of importing 10 percent more from Venezuela or places in the Middle East where they hate us and are using the money to kill us?”
A repeal of the fuel standard would have huge implications for Iowa, where 60 percent of its nation-leading corn crop is ground for ethanol, and other Corn Belt states.
Since the standard was enacted in 2007, Iowa farmers have enjoyed record high corn prices and incomes. Cash receipts paid to Iowa corn farmers have doubled to $15billion, and that extra money pushed land prices and farm implement sales to record levels.
In Iowa, that agricultural prosperity has helped bring the state’s unemployment rate down to 5 percent, well below the 7.9 percent national average.
Elsewhere, however, the Renewable Fuel Standard has drawn criticism from livestock groups upset with high feed costs that are an aftermath of record high corn prices, as well as food processors, grocery chains and restaurant groups.
Big oil companies have fired back with lawsuits and claims that ethanol blends higher than the 10percent can damage automobiles and other engines that power devices ranging from lawnmowers to boats.
Although crude oil prices have maintained their levels above $90 per barrel this year, primarily because of instability in the Middle East and continued high demand from emerging markets in China and India, the oil industry is looking at a future of slack domestic demand at a time of rising production.
Average daily production of 7.15 million barrels per day in mid-March of this year was 22 percent higher than a year earlier and the largest year-over-year daily production increase since 1951. The bulk of the increased production comes from the new Bakken Field in North Dakota.
The U.S. Department of Energy said Wednesday that monthly crude oil production, which was as low as 4.9 million barrels per day as recently as 2008, is expected to reach 8million barrels per day by late next year.
That would put the U.S. domestic production within hailing distance of all-time high production of 10 million barrels per day set in 1970.
Meanwhile, the oil industry is coming off two consecutive years of declining U.S. consumption, due primarily to better fuel standards in cars and trucks. The oil industry has turned to biofuels, which have taken 10 percent of the domestic gasoline market, as a source of irritation.
Greco introduced an API-financed study that purports to show that the biofuels mandates will raise the cost of refining gasoline by as much as 30 percent through 2015, with the cost passed on to consumers.
A leading factor in those projected cost increases are the increased premiums that refiners will be expected to pay if they are not buying ethanol themselves to blend with their gasoline.
Biofuels advocacy groups pushed back in protest.
“The fact is that ethanol sells cheaper than gasoline,” said Bob Dinneen, president of the Renewable Fuels Association.
On Wednesday, the $2.60-per-gallon futures price for ethanol was 47 cents cheaper than the $3.07-per-gallon price for wholesale unleaded gasoline on the New York Mercantile Exchange.
Mark Meyer, president of Keck Inc., a major petroleum marketer in Des Moines, dismissed the idea that such premiums being paid by the oil industry are boosting the price of gasoline.
Meyer, whose company buys ethanol and biodiesel daily, says that premium should cause ethanol prices to drop.
Meyer said big oil companies are on surer ground with their argument that the slack demand for gasoline, down by 1.5 to 2 percent annually over the two years, is cutting into oil company sales and thus profits.
Tom Buis, head of the renewable energy advocacy group Growth Energy, said the oil industry is creating the controversy because renewable fuels are cutting into their market.
“They want 100percent of the market, and the Renewable Fuel Standard gives ethanol 10 percent, and that’s too much for oil,” Buis said.
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