America’s growing use of ethanol reduced wholesale gasoline prices by an average of $1.09 a gallon in 2011, according to updated research conducted by economics professors at the University of Wisconsin and Iowa State University and released by the Center for Agricultural and Rural Development.
Before you start salivating over that number, however, keep in mind that the research was partially funded by the Renewable Fuels Association, which has an enormous stake in promoting biofuel production. More on that in a moment.
The analysis, an update to a 2009 report published in Energy Policy was authored by Dermot Hayes, professor of economics and of finance at Iowa StateUniversity, and Xiaodong Du, assistant professor in the Department of Agricultural and Applied Economics at the University of Wisconsin. Their analysis determined that gasoline prices have been reduced by an average of 29 cents a gallon, or 17%, from 2000 to 2011 due to the addition of ethanol to motor fuel.
“Ethanol production has added significantly to the volume of fuel available in the U.S.,” said Hayes. “It is as if the U.S. oil refining industry had found a way to extract 10% more gasoline from a barrel of oil.”
The added supply, according to Hayes and Du, helped alleviate periodic gasoline shortages caused by limited refinery capacity. It has also changed the relative prices of gasoline and diesel and allowed U.S. oil companies to become net exporters of gasoline.
That last part is true. For the first time since 1949, the United States exported more gasoline, heating oil and diesel fuel last year than it imported, according to an Energy Department report. To offset soft domestic demand for fuel, U.S. refiners exported 439,000 barrels a day more than were imported the year before. Meanwhile, imports of crude oil and related products fell 11% last year, reaching a level not seen since 1995.
It would be great if those statistics reflected greater U.S. petroleum production, such that oil companies had a surplus to export. If you know anything about the global oil market, though, you know it doesn’t operate on strict supply-and-demand metrics.
Here’s how the Wall Street Journal sized it up: “To boost margins at Gulf Coast refineries, Valero and the other [refineries] are exporting more refined products, both gasoline and higher-priced diesel fuel. The secret to making a profit in refining these days is for refiners to source crude oil domestically [at lower prices] and then sell the refined products to U.S. consumers at [higher] prices based on imported oil.”