Gasoline and ethanol prices are likely to rise in the near term across the US, according to D. Mark Routt, a Dallas-based senior oil analyst with Energy Security Analysis Inc. of Wakefield, Mass.
Ethanol increasingly is being shipped to the US East Coast for blending with reformulated blendstock for oxygenate blending (RBOB) to make reformulated gasoline (RFG) required in that region.
“East Coast finished RFG prices are expected to rise in order to ‘price up’ ethanol and attract a constant supply,” Routt said. “At the same time, Midwest gasoline, now without ethanol, would need to find another octane alternative. But those alternatives are either banned or much more expensive than ethanol.”
Midwestern states prohibiting methyl tertiary butyl ether in gasoline can expect higher prices, Routt said. Some refiners are shutting down sales of gasoline containing ethanol in the Midwest. California already has replaced MTBE with ethanol in RFG. Now the New England states in particular are demanding more ethanol in order to avoid using MTBE in gasoline.
“You’ve got this huge demand pull from the eastern seaboard, really it’s the northern third of the eastern seaboard...these areas haven’t got a choice, they’ve got to take ethanol,” Routt told Oil & Gas Journal. That will pull ethanol out of the Midwest, particularly from areas where it is blended primarily for use as an octane booster.
RFG supply
Midwestern refiners will have to decide how to replace the ethanol supply being shipped to the East, Routt said.
He estimates that over one third of US gasoline demand is RFG. Of this amount, 60% currently contains MTBE and is going to switch to ethanol.
“We do know that replacing MTBE-RFG with ethanol-RFG is going to worsen the supply-demand balance because ethanol-based RFG is less energy dense than MTBE gasoline,” Routt said. “We are going to have an immediate 1.5-2% increase in demand for those areas making the switch for drivers to go the same distance.”
Although he believes ethanol supply to be sufficient, he also expects “spot price excursions, particularly in the New England area” where gasoline prices could briefly spike above $3/gal.
Logistics
The ethanol supply crunch already is being felt now and will continue at least through May 6 when MTBE lawsuits can be moved into the federal court system. The ethanol supply chain faces issues of delivery of this new and necessary component of gasoline into terminals, then blended with RBOB to make finished gasoline, and finally delivered into service stations.
“Every single tank on the eastern coastal area that used to contain MTBE gasoline is going to have to be pumped, and the old MTBE gasoline has to come out,” Routt said. “Then they have to make sure that there is no water in all those underground tanks. They also have to make sure the tank is suitable for ethanol use; not all of them are. Finally, they may also have to remeter the pumps and ensure they are compatible with the ethanol mix.”
At the terminals, ethanol needs to get blended into RBOB, Routt said, adding that many terminals do not have the space for separate tanks to do this, and many terminals lack access to the rail system used to deliver bulk ethanol.
For instance, he said one solution being contemplated is taking a tank wagon full of RBOB and then driving it to a railroad spur where ethanol is splashed into it. Then, the tank wagon will be driven to the service stations. ✦
