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EIA: ethanol production growth in US

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Hydrocarbon Engineering,

The US Energy Information Administration (ElA) has estimated that ethanol production margins at US corn ethanol plants averaged US¢22/gal. in 2017.

Last year was the fifth consecutive year that margins have averaged more than US¢20/gal., which has helped drive consistent ethanol production growth over that period.

Increases in ethanol supply outpaced increases in domestic demand last year, which has contributed to relatively low spot prices and margins that are about US¢20/gal. lower than the previous four-year average but still largely in line with levels in the previous two years.

Ethanol producer margins are estimated by EIA for a dry mill corn ethanol plant of average capacity located in the Midwest, a region that is home to more than 90% of domestic fuel ethanol production capacity. EIA estimates these margins by taking the sum of revenue generated from the sale of ethanol and co-products, such as distillers’ dried grains with solubles (DDGS) and corn oil, and subtracting variable and fixed costs. Variable costs include expenses such as the cost of corn and natural gas, along with a fixed operating cost of US¢35/gal.

The price of corn is the largest variable cost associated with a dry mill corn ethanol plant, and profits are generally highest when corn supply is plentiful and demand for ethanol gasoline blending is high. US corn production has been at record high levels in recent years, which has kept corn prices generally stable, ranging between US$3.40 and US$4.00 per bushel since 2015.

In the US, ethanol is primarily used as a blending component in the production of motor gasoline and mainly blended in volumes up to 10% ethanol, known as E10. Ethanol demand is highly dependent on motor gasoline consumption, and ethanol production has been driven higher in recent years because of the Renewable Fuel Standard (RFS), the programme administered by the US Environmental Protection Agency (EPA) that mandates the blending of biofuels into the nation’s fuel supply. Although demand for higher ethanol blends such as E15 and E85 remains limited, low ethanol prices and increasing RFS targets have created favourable blending conditions for these higher ethanol blends.

For most of 2017 and the first two months of 2018, ethanol production, net inputs, and inventory levels have been near or above average levels in the previous five years (2012 – 2016). During December 2017, fuel ethanol production set a four-week record high, averaging 1.09 million bpd, while ethanol blending into gasoline, measured by net inputs, was nearly unchanged from the previous year.

However, ethanol production exceeded consumption, which led to end-of-2017 inventories that were four million barrels higher than at the end of 2016.

In its latest ‘Short-Term Energy Outlook’, the EIA forecasts that continued growth in ethanol production and limited export growth through 2019 will lead to increases in domestic consumption of ethanol by way of limited higher-level ethanol blend growth beyond E10. US ethanol consumption, which increased by 1% in 2017, is expected to increase by an average of 1% through 2019, resulting in an estimated ethanol blend percentage of gasoline that increases from slightly more than 10.1% in 2017 to about 10.3% by 2019.

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