Refiners dispute claim that ethanol has minor impact on prices

Refiners dispute claim that ethanol has minor impact on prices

Washington (Platts)--18Apr2006

The National Petrochemical and Refiners Association Tuesday rejected
claims by the ethanol industry that ethanol use has a negligible impact on
gasoline prices.

"The unit price of ethanol is only part of the puzzle when it comes to
determining the impact of an ethanol mandate on gasoline prices," said Bob
Slaughter, NPRA president said in a statement. "First, because of ethanol's
physical properties, such as volatility, increasing ethanol use requires
making substantial changes in the feedstocks with which the ethanol is
blended. These feedstock changes diminish supply.

"On the other side of the ledger, removing MTBE takes away a clean source
of octane and sacrifices significant volume and octane," Slaughter said.
"These factors and the impact of the new ethanol mandate combine to create a
bull market for ethanol, the price of which in New York Harbor has increased
from the $1.45 range this time last year to $2.00 in December and $2.77
currently."

The rapid increase in ethanol prices means refiners must buy high-priced
ethanol for use in reformulated gasoline as well as record-priced crude oil,
he said. "Other complications with the use of ethanol, such as the inability
to use pipelines, place further stress on gasoline price and supply."

The federal reformulated oxygenate mandate is repealed as of May 5.
Refiners are free to use MTBE or ethanol in RFG, or can produce RFG without
using an oxygenate, providing it meets mandated emission standards. The
ethanol mandate Slaughter refers to is the requirement in energy legislation
enacted last year that refiners blend a renewable fuel into gasoline supplies.

Ethanol producers contended Tuesday that rising spot market prices for
ethanol are having little effect on gasoline prices because 85% of ethanol is
sold at fixed prices under long-term contracts.

--Gerald Karey, gerry_karey@platts.com

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