More bad news for the anti-ethanol crowd

Posted by Tim

July 22, 2008

USDA_DOE_biofuels_letter_61208.pdf (application/pdf Object).

The link above is the Dept. of Energy’s response to several questions concerning biofuels impact on food and energy prices. The questions are from Senator Jeff Bingaman, Chairman of the Senate Committee on Energy and Natural Resources. The 16 page report is in question-and-answer form and here are some selected quotes:

First, the effect of biofuels on U.S. food prices:

During the first 4 months of 2008, the all food CPI increased by 4.8 percent, with increased ethanol and biodiesel consumption accounting for only about 4-5 percent of the total increase while other factors accounted for 95-96 percent of the Increase.

That’s right: Biofuels account for 4-5% of the recent food price increases. Data for 2007 show a lesser effect.

Next, how much has U.S. biofuel production affected global food prices:

From April 2007 to April 2008, in the absence of any growth in biofuel production in the United States, we estimate that the International Monetary Fund (IMF) global food commodity price index would have risen by 40.6 to 42 percent as opposed to 45 percent.

In other words, biofuels account for 3-4% of the 45% increase of food commodities globally.

How has increased ethanol and biodiesel consumption affected gasoline and diesel prices?

Biodiesel use has had a negligible effect on diesel fuel prices since biodiesel fuel production is so small compared to total diesel fuel use.

We estimate that, if we had not been blending ethanol into gasoline, gasoline prices would be between 20 cents per gallon to 35 cents per gallon higher.

Remember, when diesel fuel cost less than gasoline? Remember when the U.S. did not produce 9 billion gallons of ethanol to blend into gasoline?

I know there are many readers who do not believe any reports that do not agree with their point of view, but they will believe the fear mongering of an anonymous website. Those types should not read the report. For those who like to read and make their own decisions, scan through the entire report.

Another piece of good news came from VeraSun Energy (VSE: 0.28 0.00 0.00%) today. They are now starting up their new North Dakota refinery, which they put on hold less than a month ago, due to improving market conditions. Maybe because corn has fallen from $8/bushel to $6 and nobody noticed. Press release here.

These news pieces reinforce my ongoing belief that corn ethanol is a integral, necessary and growing part of the U.S. fuel structure. Neither the politics, economics or technology (i.e: cellulosic ethanol) will change the equation anytime in the foreseeable future.

Note: I have a long position in VSE.