Relief at the Pump for Drivers? E85 makes a Comeback

What has been happening in renewable fuels marketing?

Well, you be the judge, according to the numbers (in this scenario, we have been using the July CME contracts).

$2.47 ethanol blended with $2.84 gasoline in an 85/15 ratio is supposed to give you $2.53 E85 fuel – without any additional discount by passing along the value of the RIN to the consumer. That RIN has been trading as high this year as $1.00 per gallon of ethanol — or a credit of up to $0.85 per gallon of E85.

Giving you a minimum price of around $1.68 per gallon of E85 – if RIN values stayed high, and the discounts were passed along to the consumer. That’s what Absolute Energy, a 115 million gallon per year ethanol plant, located near the Iowa-Minnesota border, is doing – essentially passing along the RIN value generated by blending ethanol.

By contrast, according to OPIS, recent prices for E85 at Iowa terminals were about $2.77 per gallon. Meaning that blenders were pocketing up to $1.09 profit per gallon, and ensuring that E85 fuel was uncompetitive with regular gasoline. (This week in South Dakota, the prices for E85 range between $2.77 and $2.93 per gallon).

E85 and the ethanol “blend wall”.

Now – why is that significant? In the United States, there has been much chatter about the “blend wall” – a maximum amount of ethanol that can be safely blended into the fuel supply. There’s some contention between the EPA and automakers over whether that limit should be 10 or 15 percent, and for which model years.

At 10 percent blending limits, the US ethanol market is limited by that blend wall to around 12 billion gallons per year — making ethanol a tough business to make money in, and making the 2022 US Renewable Fuel Standard targets of 36 billion gallons of (ethanol equivalent) renewable fuel very tough to reach. One of the key reasons that the American Petroleum Institute describes the Renewable Fuel Standard as “irretrievably broken” and deserving of repeal.

By contrast — were every car in the US a flex-fuel car, and every gas station capable of delivering E85 fuel, and were E85 renewable fuels affordable, the blend wall moves to something around 100 billion gallons. Which is to say, a moot point. One of the very reasons that Congress didn’t think that the blend wall would be so vexing an issue when establishing the Renewable Fuel Standard in the first place – they were counting on E85 to take off.