July 3, 2009 in Business

Ethanol demand declines sharply

Mcclatchy
 

Fuel prices

On Wednesday, the national average cost of regular gas was $2.63 a gallon and E85 was $2.14, according to AAA’s Fuel Gauge Report.

MINNEAPOLIS – Minnesota has been an unofficial testing ground for using ethanol to fuel vehicles, but after years of steady increases, interest appears to be waning.

Despite a push from the governor and an increase in the number of so-called flexible-fuel vehicles on the road – which can run on either gasoline or a mostly ethanol blend – sales of E85 have dipped in recent months, beyond the normal decline in winter months.

In February, sales of E85, a cleaner-burning fuel consisting of 85 percent ethanol and 15 percent gasoline, hit their lowest mark since 2006, according to a new report by the Minnesota Department of Commerce. Sales, which bottomed out around 1 million gallons per month, started to rebound this spring but are still lagging last year’s numbers.

In May, about 1.5 million gallons of E85 were sold – almost 1 million gallons less than in May 2008.

Minnesota has more E85 gas stations than any other state, and domestic automakers – the biggest makers of flex-fuel vehicles – would sometimes target promotions on flex-fuel vehicles here. But the domestic auto industry is in shambles, and much of the recent auto industry push to greener vehicles has focused on plug-in hybrids and high-mileage smaller cars.

The ethanol industry has also been reeling from high corn prices last year and the credit crunch. Some of the largest ethanol makers are in bankruptcy and being forced to sell plants, some of which they built but never opened.

Even the number of E85 pumps has declined slightly in recent months, from 360 in February to 351 in May. It is one of the first noticeable dips in the number of E85 stations since before the state offered up $1.75 million in subsidies in 2007 for station operators to install E85 pumps.

In 2006, Minnesota Gov. Tim Pawlenty had high hopes of installing 1,800 E85 pumps around the state by 2010, a number now beyond reach.

Ethanol proponents blame at least some of the recent sales decline on the recession. The American Automobile Association has predicted there will be a 2.6 percent decrease in road trippers this Fourth of July weekend compared with last year.

Another reason, proponents say, is the decline in gasoline prices from a year ago. Since E85 fuel gets fewer miles per gallon than regular gasoline, many drivers will not buy the ethanol blend unless it’s 40 to 60 cents per gallon cheaper than regular fuel – the point at which it is generally cheaper to drive with E85.

Consequently, when regular gas prices are high, people are more likely to fill up with E85, and when regular gas prices drop, E85 takes a back seat, said Ralph Groschen, a marketing specialist and ethanol expert for the Minnesota Department of Agriculture.

But even as gas prices start to climb this summer and E85 sales make their seasonal jump, officials are hesitant to predict another heyday for E85 like the one seen in 2008, when regular gas prices hit records and more than 22 million gallons of E85 were sold in the state.

“It really depends on what the price of gasoline is going to do,” Groschen said. “I don’t have that glow in my crystal ball.”

On Wednesday, the national average cost of regular gas was $2.63 a gallon and E85 was $2.14, according to AAA’s Fuel Gauge Report.

E85 is generally less expensive than regular gasoline because of subsidies from the federal government. The subsidy given to ethanol blenders was cut this year from 51 cents per gallon to 45 cents, a figure based on pure ethanol.


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