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Global Bioenergy Industry News

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Wednesday, May 16, 2012
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Ethanol Reduced Gas Prices Per Gallon in 2011

US - America’s growing use of domestically-produced ethanol reduced wholesale gasoline prices by an average of $1.09 per gallon in 2011, according to updated research conducted by economics professors at the University of Wisconsin and Iowa State University.

The 2011 results, which show a $0.20 per gallon greater price reduction than the $0.89 per gallon impact in 2010, were released by the Center for Agricultural and Rural Development (CARD).

“Growth in US ethanol production has added significantly to the volume of fuel available in the US,” said report co-author Professor Hayes. “It is as if the US oil refining industry had found a way to extract 10 per cent more gasoline from a barrel of oil. This additional fuel supply has alleviated periodic gasoline shortages that had been caused by limited refinery capacity. It has also changed the relative prices of gasoline and diesel and allowed the US to switch from being a net importer of gasoline to a net exporter. As a result of these changes, US gasoline prices are measurably lower than would otherwise have been the case. This gasoline price impact has been documented in a peer reviewed academic journal and the price dampening effect has increased as ethanol production has grown.”

Three primary factors are responsible for ethanol’s more robust price benefit at the pump in 2011: higher oil and gasoline prices, higher ethanol inclusion, and ethanol being priced at a larger-than-normal discount to gasoline.

As the economists noted, “Average crude oil price increased from about $80/barrel in 2010 to about $95/barrel in 2011. Correspondingly, average U.S. wholesale gasoline prices have risen 30 per cent from 2010-2011. A wider than normal price differential between ethanol and gasoline prices provides further economic incentives for ethanol production and consumption”

Based on government data, U.S. households consumed an average of 1,124 gallons in 2011. That means ethanol reduced the average American household’s spending on gasoline by more than $1,200 in 2011. Since 2000, the $0.29-per-gallon price dampening impact of greater domestic ethanol use has saved the American economy an average of nearly $40 billion per year. As a result, ethanol has helped the average American household reduce its spending on gasoline by an average of more than $340 per year since 2000.

“While it’s hard to imagine that gas prices could be even higher than they are now, this study clearly underscores that the current pain at the pump would be far worse without ethanol,” said Bob Dinneen, President and CEO of the Renewable Fuels Association, which helped fund the research. “Because ethanol makes up 10 per cent of our gasoline pool today, it significantly reduces demand for oil and puts downward pressure on gasoline prices. Across the country, ethanol is helping save consumers money. In these times of high unemployment and sky-high gas prices, ethanol is one American-made solution that is providing some relief for battered American families trying to make ends meet.”

Further Reading

- You can view the full report by clicking here.

May 2012

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