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Ethanol blending provides proxy for gasoline demand

Hydrocarbon Engineering,

According to the US Energy Information Administration (EIA), measuring US gasoline demand can be a difficult task. There are over 160 000 retail gasoline stations and more than 250 million vehicles in the country to be taken into account.

Traditionally, the EIA has used average daily product supplied as one estimate of daily gasoline consumption over a given week. This is calculated from weekly and monthly data on refinery operations and changes in product inventories at refineries and terminals.

However, issues surrounding timing and availability of data, in particular the lack of weekly product export data, can sometimes skew the product supplied calculation.

Another proxy for gasoline consumption is the amount of gasoline blended with ethanol each week. This measure is based on only one factor and represents nearly all gasoline consumed over a given time period.

In 2010, approximately 85% of gasoline in the US contained ethanol (almost all in a 10% blend known as E10). The share of gasoline that contains ethanol has continued to rise since.

The EIA has highlighted that the rising share of ethanol blended fuel reflects retailers desire to sell gasoline to consumers at the lowest possible volumetric price.

Rising mandates have under the Renewable Fuel Standard (RFS) program have also supported increased use of ethanol and other renewable fuels. Higher prices for the Renewable Identification Numbers (RINs) that are used by the Environmental Protection Agency to track compliance with the RFS program since early 2013 have additionally increased the incentive to blend ethanol into gasoline.

Hence, under present market conditions, where nearly all gasoline sold is E10, the volume of ethanol blended into gasoline has become a stronger indicatior of overall US gasoline demand.

The EIA outlines, in its 7th October ‘Today in Energy’ report, that ethanol blending is typically a final step in the gasoline production process. The fuel is then taken directly to market for consumption within days. As nearly all gasoline consumed today is E10, it is reasonable to assume that the amount of ethanol blending reported to EIA each week is representative of nearly the full amount of gasoline consumed each week.

Importantly, this calculation is unaffected by the issues surrounding the timing and quality of import, export, refinery operation, and inventory data, that negatively impact the accuracy of traditional gasoline product supplied calculations.

It must be noted, however, that future changes in the share of gasoline blended with ethanol or increasing variation in the proportion of ethanol used in blends would reduce the value of using total ethanol blending as a proxy for gasoline use.

Adapted from a press release by Emma McAleavey.

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