WASHINGTON, D.C. — Compliance with statutory volume requirements for 2014 ethanol production mandated by Congress through the Renewable Fuel Standard (RFS) in 2007 could have easily been met, according to RIN (fuel units) generation data released by the U.S. EPA on Jan. 15.
The data prove the RFS waiver proposed and later rescinded by the EPA was totally unnecessary, according to Bob Dinneen, president of the Renewable Fuels Assoc. (RFA) – as was the angst and political theater that accompanied it.
"EPA released production numbers based on reports that are filed with them on a monthly basis; lo and behold, 14.3 billion gallons of ethanol were produced last year," said Dinneen, recalling that EPA proposed cutting the statutory requirement of 14.4 billion gallons of ethanol per year to just 13.01 billion for 2014.
"Not all of that (ethanol) was blended. Some was used for exports, and there were some imports in there as well. Interestingly, it was significantly more than what they had proposed in November of 2013."
EPA has still not released its final Recommended Volume Obligations (RVOs) for 2014 production, though the agency has indicated it will do so in early 2015. Dinneen and others representing the renewable fuel industry are hopeful the RVOs for ethanol are greatly increased.
"What people expect EPA to do is to take a look at what was actually produced, what was actually blended, and set the RVO retroactively," he said. "We probably blended about 13.6 or 13.7 billion gallons, and that’s likely where the agency will put the RVO.
"Had they implemented the program according to the statute, clearly the data demonstrates we could have done more. There was no reason for all the drama last year, because we could have met the statutory requirement of 14.4 billion gallons."
As EPA and the White House put the final touches on their 2014 RVOs and turn their attention to 2015 and 2016, Dinneen feels the data send a strong message that the nation’s agricultural sector is up to the task of meeting or exceeding statutory requirements for corn ethanol – if EPA would only do its job by adhering to the RFS.
He’d like to see the RVO for corn ethanol raised for the next two years.
"We have been producing, on an annual basis, around 15 billion gallons per year. I don’t suspect we’ll keep producing at that rate unless EPA comes back and sets the RVO for 2015 at 15 billion gallons," he said. "Given the current economics and market signals, I feel there will be a correction, but refiners have to be willing to put in the infrastructure (blender pumps) for E85 or higher blends for us to be able to sell that much ethanol into the marketplace."
One day before the EPA announcement, the Energy Information Administration released data reflecting across-the-board increases for domestic ethanol inventories, production and implied demand. Some analysts pondered whether the recent dramatic drop in crude oil and fuel prices would affect demand for domestically produced fuels, including renewables, but ethanol is remaining competitive.
"One of the things that happens when the price of gasoline falls is demand increases. As Americans, we love to drive. That has an impact on ethanol demand as well, for obvious reasons," Dinneen said. (Most gasoline in the United States contains 10 percent ethanol.)
"But there is no question it’s putting a strain on margins today. Ethanol is remaining highly competitive with gasoline because of its octane value. This is a challenging time, but I think it is going to be short-lived. There are swings in the market; this has been a very big one, but we’ll get through it."
Volatility remains in both the ethanol and gasoline markets based on product availability and demand expectations, analysts agree. What isn’t widely agreed upon is how long the historic dive in crude prices will continue to keep fuel prices near or below $2 per gallon.
"I am not so foolish as to speculate on that, because anyone who says that they know, doesn’t. And anybody who would know wouldn’t say," explained Dinneen. "The cure for low prices is typically low prices.
"I think that you will see (crude oil) production curtailed. Venezuela has already indicated that they are going to cut production. You’ve already seen a slowdown in the expansion of drilling in the Balkans and elsewhere. So I think you will see a marketplace response."
The slide in crude and fuel prices is unlikely to be considered by the EPA when finalizing the 2014 RVO for ethanol, according to Dinneen.
While the recent drop in gasoline prices has been large enough to potentially threaten the competitiveness of ethanol in gasoline blends, corn ethanol could be guaranteed its place at the table for years to come if EPA increases its RVO to 15 billion gallons for 2015 and beyond.
"Higher ethanol production and lower ethanol prices have proven quite effective in the past at maintaining ethanol’s place in gasoline blends, and are likely to continue to do so in the future," noted Darrel Good, University of Illinois agricultural economist. "Whether ethanol is close to or has become uncompetitive depends on the assumed break-even price of ethanol relative to the price of gasoline."
