MSC: Drought effects pose problems for US refiners

US refiners’ ability to meet federal requirements for renewable fuels will be strained for the rest of 2012. But that’s nothing compared with what they face in 2013, according to a recently updated analysis of grains and ethanol by Dallas consulting firm Muse Stancil & Co.

Severe drought since late spring in the largest corn-producing US states caused the US Department of Agriculture in early July to slash its earlier forecast for a record corn harvest. And since then, the drought has only worsened.

What had been earlier this year a comfortable margin for refiners and blenders between corn-based ethanol and motor gasoline prices has now nearly evaporated, due the much higher corn prices resulting from the worsening drought.

The update to the grains and ethanol forecast, according to Tod McGreevy, MSC vice-president and practice leader, commercial development, reflects the impact of drought on this year’s corn crop, expected ethanol prices through summer 2013, and the trading credits—known as renewable identification numbers (RIN)—in the US government’s renewable-fuels program.

Record forecast

What once appeared to be the largest corn crop in history is under severe threat. In spring 2012, US farmers planted more corn than at any time since 1937. This increase in acres planted and great growing conditions led USDA in late spring to forecast a total harvest of 14.8 billion bushels, a production level that would have surpassed the previous record by nearly 2 billion bushels.

By midsummer, however, about 53% of the US was suffering moderate to exceptional drought. Midwest and Great Plains states have been among the worst hit as 73% of Midwest states and 85% of Great Plains states were suffering moderate or worse drought.

The outlook is for drought to persist and perhaps intensify well into autumn. All 10 of the largest corn-producing states lie in the affected region.

In early July, USDA slashed its corn production forecast by 1.8 billion bushels, but unfortunately the drought has since intensified precisely when it could cause the most damage. MSC forecasts 2012 corn production of 10 billion bushels, well below USDA’s current guidance.

Ethanol reductions

The study said current corn stocks from the 2011 harvest are insufficient to offset the expected loss in 2012. On the assumption that sharply higher corn prices will force large reductions in exports and livestock feed, the ethanol industry must reduce production for 2012 by roughly 2 billion gal (a production ceiling of 12 billion gal total for 2012) in order to balance the remaining corn supply with demand. This will result in a shortfall of 1.2 billion gal compared with the 2012 Renewable Fuel Standard’s volume requirement.

Despite these reductions, corn stocks in 2013 would remain “uncomfortably low” by historical standards, providing solid underlying price support for both corn and ethanol markets.

The study finds the current RIN market for renewable fuel more than adequately supplied. The US Environmental Protection Agency shows that nearly 3.5 billion RIN were carried over from 2011. Of the total carryover of 2011 RIN, however, only about 2.7 billion could actually be applied due to the restriction that no more than 20% of the total renewable fuel volume can be satisfied with carryover RIN in any given year.

Unfortunately, the study concludes, dipping so heavily into this year’s RIN supply will likely leave very few carryover RIN for 2013. Absent federal intervention next year, says the study, refiners and blenders will have to satisfy their renewable fuel requirements with physical volumes. The RFS volume for conventional ethanol in 2013 is set at 13.8 billion gal and would largely be produced from this year’s diminished crop.

Ethanol prices likely will closely track corn prices rather than gasoline, according to McGreevy. Corn has recently been trading at or near record highs at many locations with little relief in sight. It is possible that ethanol prices could trade at a premium to gasoline through the end of summer 2013 (contingent on next year’s crop yields returning to trend and absent federal intervention).

Contact Warren R. True at warrent@ogjonline.com.

Related Articles

EPA approves Magellan’s Corpus Christi splitter project

12/12/2014 The US Environmental Protection Agency has issued a final greenhouse gas prevention of significant deterioration construction permit to Magellan Pr...

Keyera to take majority interest in Alberta gas plant

12/12/2014 Keyera Corp., Calgary, will pay $65 million (Can.) to buy a 70.79% ownership interest in the Ricinus deep-cut gas plant in west-central Alberta.

PBF Energy, PBF Logistics make management changes

12/12/2014 Matthew Lucey, currently executive vice-president of PBF Energy Inc., will succeed Michael Gayda as the company’s president. Todd O’Malley, current...

Repairs under way at ORPIC’s Muscat refinery

12/11/2014 Oman Oil Refineries & Petroleum Industries Co. (ORPIC) said it plans to resume operations at its 106,000-b/d Mina Al Fahal refinery near Muscat...

Qatar Shell lets EPCM contract for Pearl GTL operations

12/11/2014 Qatar Shell Ltd., a unit of Royal Dutch Shell PLC, has let a contract to a division of SNC-Lavalin Group Inc., Montreal, to provide long-term engin...

Phillips 66 advances plans for splitter at Sweeny refinery

12/11/2014 Phillips 66 has filed an application with state regulators for a permit to build a condensate splitter at its 247,000-b/d Sweeny refinery in Old Oc...

Chevron Phillips Chemical concludes Sweeny ethylene expansion

12/11/2014 Chevron Phillips Chemical Co. LP (CPCC) has completed installation of a furnace at its Sweeny petrochemical complex in Old Ocean, Tex., that will e...

Samref wraps Yanbu refinery revamp

12/11/2014 Saudi Aramco-Mobil Refinery Co. Ltd. (Samref), a 50-50 joint venture of Saudi Aramco and ExxonMobil Corp. subsidiary Mobil Yanbu Refining Co. Inc.,...

BPCL adds petrochemicals to Kochi refinery expansion

12/09/2014 Bharat Petroleum Corp. Ltd. (BPCL), Mumbai, plans to diversify into petrochemicals production as part of the ongoing integrated expansion and upgra...

White Papers

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Available Webcasts



The Future of US Refining

When Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST



On Demand

Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

register:WEBCAST


Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected