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Earth to Big Oil: U.S. Ethanol Demand Reaches Record Levels in 2014

May 28, 2015


The American Petroleum Institute (API) and American Fuel and Petrochemical Manufacturers (AFPM) were up to their old tricks last week, using manipulated data and half-truths to suggest that Renewable Fuel Standard (RFS) blending requirements should not be allowed to exceed the so-called E10 "blend wall." In a call with reporters and in a meeting with the White House, the groups audaciously claimed that consumer demand for ethanol—even in low-level blends like E10—is "falling," and thus the 2015 and 2016 RFS levels should be reduced from the statutorily-required volumes. As "evidence" of the consumer demand claim, API provided only a simple line graph purporting to show that ethanol-free gasoline's (E0) share of the total gasoline supply is growing. According to the graph, the source is "EIA [Energy Information Administration] data with API analysis." But a closer look at EIA data on gasoline consumption and ethanol blending shows that the "API analysis" just doesn't hold water. Indeed, data from EIA show the following:

  • Ethanol blending by U.S. gasoline refiners and blenders hit an all-time record high of 13.32 billion gallons in 2014, up 2.1% from 2013 and up 11% over the past five years.
  • The calculated ethanol inclusion level in gasoline supplied to the U.S. market also hit a record in 2014. The U.S. consumed 136.78 billion gallons of finished gasoline last year, meaning the average ethanol inclusion rate was 9.74% (see top graph below). That's up from 9.62% in 2013, 8.71% five years ago, and just 2.52% a decade ago.
  • As 2015 got underway, EIA data show the calculated ethanol inclusion level in U.S. gasoline continued to increase. The 10.17 billion gallons of finished motor gasoline supplied to the U.S. market in February 2015 (latest data) contained 9.95% ethanol on average—the highest monthly rate ever (see bottom graph).
  • Moreover, a new all-time weekly record for ethanol blending by refiners and blenders was set just last week (week ending May 15). EIA data show 906,000 barrels of ethanol per day were blended with gasoline (13.9 billion gallons on an annual basis).
These data from EIA hardly support the notion that consumer demand for ethanol is waning. Incidentally, API claims that the RFS requirements should not exceed 9.7% of projected gasoline demand because that is supposedly the ceiling for consumer demand. Never mind that the 9.7% average was exceeded for all of 2014, and was far exceeded in the most recent month for which data is available. What's more, the number of stations selling E15 virtually doubled in 2014, and a recent report by the Fuels Institute shows stations offering E85 also hit a record high. Beyond the fact ethanol today remains the lowest cost octane source on the planet and thus a bargain for marketer and consumer alike, it is worth noting that one of the reasons E15 and E85 sales are on the rise is that the price of entry is not nearly what Big Oil's lobbyists say that it is. A just-released report from the National Renewable Energy Laboratory found that most of the existing fuel dispensing infrastructure — including underground storage tanks — is compatible with E15. Bear in mind that these market developments occurred without enforcement of specific 2014 RFS blending requirements, and against the backdrop of a relentless anti-ethanol public relations campaign by the oil industry. So, how on earth could API use EIA data to argue that demand for ethanol-blended gasoline is falling? Good old accounting tricks, of course. It appears that API's figure for "total gasoline supplied" includes gasoline exports. Because exported gasoline does not typically contain ethanol, the surge in gasoline exports witnessed over the past few years give the appearance that more ethanol-free gasoline is being delivered to the market. If API based its ethanol blend calculations solely on gasoline supplied to the U.S. market, the chart would look much different (and more like the charts above). This is typical of the data gimmicks and slight-of-hand that API frequently employs to support indefensible arguments. There's also some hypocritical irony found in API's latest claims of "failing consumer demand" for ethanol. On one hand, API and its surrogates (see, for example, National Marine Manufacturers Association) like to claim that the RFS will force retailers to shun pricey E0 and only offer lower-cost E10 and E15; but on the other hand, API now claims that E0 demand and availability is supposedly increasing as consumers purportedly reject ethanol. So, Big Oil, which is it?