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Gas Prices Would be $4/gal. Without Ethanol

Gas Prices Would be $4/gal. Without Ethanol


Based upon current market conditions and federal renewable fuels policy, 10% ethanol blends (E10) are keeping gasoline prices 12¢/gal. cheaper than they otherwise would be. As AAA reports, the current average price for gasoline is $3.88/gal. nationwide. Without ethanol, gas prices would average $4/gal. nationally.

These savings do not take into account the downward pressure ethanol puts on the oil market by virtue of being 10% of the nation’s gasoline supply. Previous estimates of that impact show ethanol is keeping gasoline prices up to 60¢ lower/gal. than they otherwise would be.

Renewable Fuels Association Vice President of Research and Analysis Geoff Cooper has taken a snapshot look at ethanol and gasoline prices as they closed earlier this week. The key points of his analysis include:

  • April 27, 2011 closing prices for May futures had RBOB gasoline (the base gasoline used across the country) at $3.45/gal. and ethanol at $2.64/gal. – a difference of 81¢/gal. Over the past several weeks, ethanol has generally been priced 60-80¢/gal. below gasoline and the spread has averaged about 40¢/gal. since the beginning of the year.
  • Based purely on the current 81¢/gal. differential between gasoline and ethanol prices, drivers should be seeing E10 blends priced 8¢/gal. less than regular unleaded. Don’t forget that blenders are still receiving the 45¢/gal. tax credit for every gallon of ethanol they blend with gasoline, which equates to another 4.5¢/gal. for E10. Under the current dynamics, most – if not all – of the value of the tax credit should be making its way to the consumer.
  • When both the current price differential between gasoline and ethanol and the blender’s credit are considered, E10 should be about 12¢/gal. less than regular unleaded at the pump. That’s an annual savings of more than $100 for the average American household, which consumes about 900 gal. of gasoline yearly.
  • If E15 blends were widely available today (EPA approved the use of E15 for cars, pickups and SUVs from model year 2001 and newer early this year), drivers of the approved vehicles would see E15 priced 19¢/gal. less than regular unleaded.
  • It is important to recognize that these figures are based only on the current price spread and tax credit. Ethanol also impacts gasoline prices in the aggregate by substantially adding to the fuel supply. This effect grows as the supply of ethanol increases. Several economists have estimated that the ability of ethanol to extend fuel supplies, coupled with ethanol’s relative discount to gasoline, means gasoline is 40-60¢/gal. less than it would be without ethanol. The impact may be even larger than that in cases where oil prices are extremely high, as is the case today.
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