Since the early 1980s, the US has imposed a tariff on imported ethanol, but recent dynamics may call into question the need to maintain one at all. Brazilian imports to the US have dried up in recent months.
For March, total US imports of fuel ethanol were 78,000 barrels, following 51,000 barrels in February, according the latest available Energy Information Administration data on the topic. To be clear, those figures are monthly totals, not barrel/day stats. So, in a grand scheme with a US Renewable Fuel Standard calling for 11.1 billion gallons of renewable transportation fuels in the mix this year, Brazilian imports have fallen to nearly zilch.
The last time monthly ethanol imports were below 100,000 barrels was the 61,000 barrels brought in September 2005, and that was before the US phased out use of the oxygenate MTBE in favor of ethanol for gasoline blending. Last year's high was the 2.466 million barrels imported in September.
Pending legislation would tweak the existing tariffs to realign them mathematically with a domestic production-oriented subsidy so to maintain a parity that has been aimed at preventing non-US producers from reaping the incentive enjoyed by gasoline blenders for using ethanol. Still, that means the price of most imports would be pushed up by at least 45 cents/gal rather than at least 54 cents/gal today.
While Brazil -- second in the world to the US in ethanol production and the largest exporter -- has long voiced opposition to the US ethanol import tariffs, its sugar-to-ethanol balance has shifted as producers export more sugar to meet a recent drop in Indian sugar production. Also, there is intense demand from Europe for ethanol in gasoline blending. Then, of course, there is Brazilian domestic demand. Add to that a possibility Japan could ramp up ethanol blending for its gasoline pool in the coming years as envisioned by its environment ministry.
The US has had sufficient corn-based ethanol to meet demand and its Renewable Fuel Standard mandate levels. The RFS calls for ever increasing amounts of renewable fuels in the transportation fuel pool, new heights aspired to by domestic producers including Poet. The company avers that the US needs to raise the limit on ethanol in gasoline blending above 10% for an emerging class of commercial cellulosic ethanol to hit its RFS targets. Those targets are 100 million gal/year of cellulosic biofuels starting in 2010 followed by 250 million gal/year in 2011.
Overall, RFS calls for 11.1 billion gallons of renewable fuel use in the US this year, up from 9 billion last year, 12.95 billion next year and 13.95 billion in 2011. For now, that is primarily met by US corn-based ethanol. Looking at monthly EIA stats through March, the pace around 19 million barrels/month would only result in about 9.6 billion gallons this year. Yet, some capacity had been held back by poor margins could come back online. For instance, Valero has been restarting some plants it bought from bankrupt VeraSun.
Given the drubbing that domestic corn-based ethanol took when high corn prices caused negative margins, why hold back imports that could fill in supply gaps and provide blenders with more flexibility?
After a steady rise, US ethanol blending in gasoline has remained somewhat flat in recent weeks. Reformulated gasoline blended with ethanol in the US remained around 2.9 million b/d for the past four weeks ending June 19, according to EIA data released Wednesday. But, the growth prospects for adding more ethanol into the transportation mix lays with conventional gasoline. Conventional gasoline barrels blended with ethanol rose to 3.8 million b/d for the week ending June 19, up from 3.4 million b/d for the week ending May 29. The record amount of conventional gasoline blended with ethanol in the US was 4.175 million b/d for the week ending April 3 this year.
Granted, the overall production and demand picture will remain a fluid situation, but public policy calls for more ethanol use in the US while, at the same time, dissuading most imports.
Currently, the US has a primary ethanol import tariff of 2.5% of the transaction price and a secondary tariff of 54 cents/gal. Previously, the tax credit for blending ethanol into gasoline stood of 51 cents/gal, but was cut to 45 cents/gal. A bill pending in the Senate would drop the secondary import tariff to 45 cents/gal.
Even so, the tariff would appear to keep the overall cost of Brazilian ethanol in the US uncompetitive. Chicago spot prices were assessed June 24 by Platts at $1.76-1.7650/gal, compared to $1.51-$1.52/gal for Brazil FOB cargoes. The nominal 25-cent discount would be wiped out by the 54-cent/gal secondary tariff, or even a 45-cent/gal tariff, and other costs. If the US falls short at times of its RFS usage goals, is it worth it?
Leave a comment