European ethanol prices fall as gasoline blenders choose MTBE

London (Platts)--12Apr2006
European ethanol prices fell this week, pressured by weak demand as
blenders sought to blend MTBE, market sources said Wednesday.

Spot ethanol prices were pegged at Eur630-635/cu m FOB Rdam on Wednesday,
Eur7.50/cu m below last week's close of Eur637.50-642.50/cu m. Although some
offers were notionally cited at Eur640/cu m, deals for April lifting were
heard transacted at Eur630/cu m and Eur610/cu m FOB Rdam.

European blenders and refiners were choosing to blend MTBE, rather than
ethanol, as an oxygenate in gasoline at a factor of around 1.00, or parity
with 10ppm premium unleaded gasoline barges, a British-based blender said.
European gasoline production has increased recently, bolstered by a wide
naphtha-gasoline spread of around $100/mt, with producers churning out greater
volumes of low-octane naphtha-based gasoline. As a result, blenders were
optimizing refining economics by utilizing cheap MTBE versus other components
such as ethanol or alkylates.

British-based blender Greenergy, which bought MTBE this week, typically
sprays ethanol into its gasoline blends. But, with MTBE cheap as a blendstock,
it made sense to blend up to the maximum 15% in gasoline, a Greenergy
trading-source said this week.

"If you have no mandate to blend ethanol why not blend MTBE," a
European-based consumer said. "Subsidies (for biofuels) may not be high enough
to keep using (ethanol), (it would make sense) to use MTBE." Another European
MTBE trader said, "As long as the (gasoline-to-MTBE) factor is close to
parity, MTBE is a better value (gasoline) component."

In addition to current price, MTBE has advantages over ethanol, he
said. MTBE can be stored in tanks, while ethanol must be splashed or blended
directly, so is logistically more costly. MTBE also has no water constraints,
with a water tolerance of up to 2%, while any water contamination in ethanol
makes the product useless as a gasoline component.

"As long as MTBE remained at a similar price to mogas, then (refiners)
were going to blend it," a British-based blender said. With gasoline crack
values above $13.50/mt, as per Platts data Wednesday, producers such as
Lyondell and SABIC Europe would continue to make MTBE, he said. Demand for
MTBE had firmed slightly, but not enough for the gasoline-to-MTBE factor to
rise beyond parity with gasoline, the blender noted.

--Miguel Cambeiro, miguel_cambeiro@platts.com

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