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Ethanol business needs E15 to survive -- experts

05/29/2012 @ 10:57am

Last year was a big one for the ethanol business. U.S. producers refined just shy of 14 billion gallons of the biofuel and exports grew sharply, capping off a 2-year trend moving from a net importer to a next exporter.

But, despite the boom, there's a figurative wall between today's ethanol business and future growth: The 'blend wall relegating ethanol to either a 10% or 85% blend with gasoline. And, without further expansion of ethanol blending, it could mean an unwinding of the last 2 years' "boom time," experts say.

"The blend wall has important implications for ethanol production and consumption after 2012. In particular, the maximum levels of ethanol blending under current 10 percent blend restrictions may soon be less than the (Renewable Fuels Standard) blending requirements. The requirements for renewable biofuel blending was at 12.6 billion gallons in 2011; is at 13.2 billion gallons this year; and increases to 13.8 billion in 2013, 14.4 billion in 2014 and 15 billion in 2015," say University of Illinois Extension ag economists Scott Irwin and Darrel Good in a university report. "It seems highly likely that the blend wall will be binding in 2013 and this will constrain domestic ethanol consumption to be less than the RFS mandate of 13.8 billion gallons."

This essentially means corn use for ethanol has "reached a plateau" that won't return to a climb until another ethanol blend becomes part of the U.S. automotive complex. This could come in the inclusion of a 15% blend. Without doing so, or taking a similar action, corn demand for domestic ethanol production will likely not go anywhere from its current level.

"Unless the blend wall is expanded much sooner than currently envisioned and/or ethanol exports are larger than anticipated, ethanol production is expected to stabilize near current levels. Usage of corn for ethanol production has therefore also reached a plateau," Irwin and Good say. "Implementation of E15 is crucial to expanding the blend wall and corn consumption in the future. Reaching the blend wall also has important implications for the future of the RFS. The increasing blending requirements for renewable biofuels cannot be met without expanding the blend wall."