EIA: E85 increasingly price-competitive with gasoline on energy content basis in parts of the Midwest; mileage per dollar
19 September 2013
The retail price of E85 motor fuel (a gasoline blend with up to 85% ethanol), has fallen in recent months, notes the US Energy Information Administration (EIA). While ethanol has been less expensive than regular gasoline on a per-gallon basis for several years, ethanol’s lower energy content often meant that consumers paid more per mile when using higher ethanol blends such as E85. However, recent declines in E85 prices at stations offering that fuel in several Midwestern states have brought E85 close to price parity with regular gasoline on an energy content basis.
Price parity on an energy content basis means that drivers with one of the more than 8 million flex fuel vehicles (FFVs) in the country (approximately 3% of vehicles) capable of running on fuels with higher ethanol content can achieve the same mileage per dollar with E85 as with E10 (gasoline with up to 10% blended ethanol).
The lowest E85 pump prices have generally been in the Midwest, where most US ethanol is produced and which, consequently, has relatively low wholesale ethanol prices. Nationwide, approximately 2,350 service stations—2% of all retail stations—offer E85 motor fuel, with the overwhelming majority located in the Midwest.
The pricing of E85 relative to gasoline depends on both ethanol production costs, which are primarily driven by the price of ethanol feedstock (mainly corn), and the price of crude oil, which is the main driver of gasoline prices, EIA explains.
Also, under the existing federal Renewable Fuel Standard program, producers and importers of gasoline are obligated to acquire renewable fuel credits, known as Renewable Identification Numbers (RINs), which are generated during the production of renewable fuel.
Since February, the rise in the market price of ethanol RINs has tended to reduce the price of E85 relative to E10 because production of E85 generates more RINs than production of the standard E10 blend. As the extra RIN value to E85 producers is passed along through the distribution chain in the form of a price discount, E85 becomes more competitive with regular gasoline.
E85, which can have up to 25% less energy per gallon than regular E10 gasoline depending on seasonal variation in fuel specifications, needs to be discounted a comparable amount for consumers to achieve the same mileage per dollar.
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