"cazzyodo" (cazzyodo)
04/23/2014 at 12:27 • Filed to: The more you know!
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"cazzyodo" (cazzyodo)
04/23/2014 at 12:27 • Filed to: The more you know! | 7
| 19 |
Today's "Morning Shift" included some hate towards corn. I love corn because it makes me think of summer. But the topic was corn being used to make ethanol for blending with gas...a touchy subject depending upon where you live. Departing from my usual know-nothing-about-cars-but-let's-post-a-gif-to-remain-relevant style, !!!error: Indecipherable SUB-paragraph formatting!!!
A couple responses later and I realized that I had a little insight that I could share with you guys and maybe expand some understanding, including my own.
Quick overview of my qualifications here: I love cars and engines but have no idea (translation, enthusiast) and would love to get into the auto industry. I currently work in supply chain management for fuel (trading, shipping, hedging, etc.) to a handful of companies around the country that have fuel stations. It's a small team with a handful of customers but I've learned a helluva lot in my short time in this role.
This is a quick chart of ethanol values (per gallon) trading on the Chicago Index. Why Chicago? I honestly don't know but that is the index of choice for much of the country. There's also NY Harbor but that market is even more insane. But back to Chicago...
You could but a gallon of ethanol out of Chicago in January for under $2.00 (low of $1.78) and then in March that same gallon was $3.76. On blended gallons, that's roughly 20 cents tacked onto the price of gas. Gas prices go up during this time of year already, courtesy of the RVP change for summer gas, but the reason you haven't seen crazy high prices at the pump is that there hasn't been a run this year on gas...market is acting strange everywhere (but that's a whole different story).
What caused this dramatic price run and fluctuations (yesterday's Chicago ethanol was $2.45 so it's settling back to normal levels)? The issue was apparently a rail car shortage.
Yes. Rail cars.
Believe it or not, much of the ethanol in the country is railed into terminals. This makes sense as a convoy of rail cars can carry exponentially more than a single truck. If you Google "Rail Car Shortage" you will get all sorts of hits across multiple markets but bottom line is this winter really messed things up with rail cars...other factors exist but I don't know them nor do I care enough to speculate. Bottom line is, ethanol skyrocketed because you just couldn't get any.
Commenter Gabest !!!error: Indecipherable SUB-paragraph formatting!!! regarding location in the country in regards to ethanol cost. Why is Iowa paying a Chicago price if you basically get corn produced ethanol from Iowa? Why does Georgia get that Chicago price? Why is it uniform? (these questions were mine here for the sake of asking, he was much focused on Iowa)
It is a good question and a great topic for discussion!
The Chicago Ethanol Index is used as a base for contracts and deals. Where parts of the country may be tougher to get ethanol to other parts are relatively easy. What we see then is the Chicago Ethanol Index plus or minus a differential (cents per gallon). It all depends upon where the ethanol plants are, where they are sending ethanol to, what their costs are, how the market is sitting and how badly they need to get rid of product. So some areas like the Southeast US may have ethanol deals made at Chicago Ethanol plus .20 to .50. Then, in Iowa, the deals look like Chicago Ethanol MINUS .05 to .10! That is a .25 to .60 swing per gallon of ethanol which equates to roughly a 2.5 to 6 cent difference in your blended gallon price at the pump.
A wild card in the ethanol game is something called a RIN, or r !!!error: Indecipherable SUB-paragraph formatting!!! . Basically, for every gallon of ethanol produced there is a number associated with that gallon. The number is attached to that gallon up until it is blended with gas to form an e10 blend. At that point, the number is released and whoever blended it gets to keep it. Why is this important? Because the ethanol producers are required to send the EPA a RIN for every gallon of ethanol they produced. There is a mandate that states how many gallons of ethanol need to be blended each year and when ethanol is not being blended at a rate high enough to cover the mandate, there is a shortage of RINs on the market. This has ethanol producers scrambling to buy up RINs from anyone with excess, making RINs valuable.
RINs used to be worthless (highs of $.06). Last year...they were trading, in July, at $1.46 each. It threw the market out of whack because nobody knew how to take the RIN value into consideration when selling a blended gallon of gas. One gallon of ethanol had an additional value now! Basically, if I get a RIN worth $.45 and you don't but we have the same cost into the market I can price my gas cheaper than you by up to 4.5 cents. The market has since adjusted but RINs still play a part in market prices i until the EPA mandate makes sense.
This picture is just funny.
Many people do not like e10 blends and preach the benefits of conventional gas...no blending. Some people don't have an argument while others point out that ethanol's higher octane gives you 3-5% less fuel efficiency when comparing an e10 gallon to a conventional gallon. Does it all make sense? I don't know. Is my rambling helpful? If you piece it together, maybe. I hope some of this makes sense and starts some more discussion. I've learned a lot from OPPO and will do my best to answer any questions you may have.
THE MORE YOU KNOW!
StoneCold
> cazzyodo
04/23/2014 at 12:40 |
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"Basically, for every gallon of ethanol produced there is a number associated with that gallon. The number is attached to that gallon up until it is blended with gas to form an e10 blend. At that point, the number is released and whoever blended it gets to keep it."
I tried reading the RIN article, but the closet fiscal conservative in me just broke. How can this possibly be a long term manageable idea?
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cazzyodo
> StoneCold
04/23/2014 at 12:45 |
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I didn't even really read the RIN article haha. I attached it so people could look into it further on their own accord.
And it has barely been a manageable short term idea! The requirements last year were absurd...there was a shortage of some hundred million RINs, causing the value run up. But the EPA doesn't adjust. In my limited experience, and ignorance of politics in general, I don't think anyone knows where this is headed or how it will evolve. Ethanol and biofuels in general are a relatively new issue. The mid-continent just recently started shipping suboctane gasoline as their primary fuel over conventional last September. That market needs to be figured out as well, now.
It will be interesting to see how everything develops.
BigBlock440
> cazzyodo
04/23/2014 at 12:47 |
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A pipeline's even better than rail, but we can't have that (thanks Obama!) so a ton of oil is being shipped by train right now. So much so that other goods/materials normally shipped by train are either not being shipped or are being moved by truck. Ran into this problem at work a few months ago.
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cazzyodo
> BigBlock440
04/23/2014 at 13:00 |
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Yup, it's been a chain reaction of price increases.
I deal with 5 major pipeline systems and every single one is packed full of product...they're actually on allocation and it's very difficult to get in as a new shipper.
FJ80WaitinForaLSV8
> StoneCold
04/23/2014 at 16:02 |
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There's also been tons of fraud in the RIN program and lots of congressional investigations.
gmporschenut also a fan of hondas
> cazzyodo
04/23/2014 at 22:58 |
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I just wish a 0% was offered for classic car owners.
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gmporschenut also a fan of hondas
> BigBlock440
04/23/2014 at 23:12 |
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Except most of the oil from the Keystone would go to the Gulf to be exported.
http://www.csmonitor.com/USA/Politics/2…
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BigBlock440
> gmporschenut also a fan of hondas
04/24/2014 at 08:01 |
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You think it's not now? It's just being shipped by train instead.
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cazzyodo
> gmporschenut also a fan of hondas
04/24/2014 at 09:11 |
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Straight conventional is harder to find now but it is out there still!
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gmporschenut also a fan of hondas
> BigBlock440
04/25/2014 at 00:22 |
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I was tired and misinterpreted the direction you were going. I couldn't get past your first sentence without bringing up PTSD. I sat next idiot who was convinced the pipeline would lead to $1.00 gas in the midwest, and that its all a giant conspiracy on both sides to both implement and stop it.
Me; why would they sell it for a $1.00?
Guy: Uh its simple think how much they would sell. People would come from all over.
Howie
> gmporschenut also a fan of hondas
04/30/2014 at 00:19 |
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In lieu of that you might want to try something like this;
http://www.lucasoil.com/products/displ… = - Safeguard™ Ethanol Fuel Conditioner with Stabilizers
Collin
> cazzyodo
04/30/2014 at 01:15 |
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But isn't sugar cane ethanol more efficient?
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gmporschenut also a fan of hondas
> Howie
04/30/2014 at 07:14 |
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Thank you. I was not aware that existed and will be picking some up.
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cazzyodo
> Collin
04/30/2014 at 09:13 |
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In what regards? Processing or fuel efficiency?
In either case, ethanol for blending purposes with suboctane gas isn't special...it's all traded and blended the same.
TomMetcalf
> gmporschenut also a fan of hondas
04/30/2014 at 09:26 |
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I get is from the local Reservation. THey advertise that they have non-ethanol. The non-ethanol is 91 octane there but its still pretty cheap compared to regular in Western NY.
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Howie
> gmporschenut also a fan of hondas
04/30/2014 at 10:12 |
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No surprise there as we've become a net exporter. Ever since oil was exempted as a strategic reserve and made a commodity cheap fuel is a thing of the past.
To bad as well, back in the late 80's and early 90's we had a glut of oil because people still mostly used cars which had become fairly fuel efficient and oil companies were setting on the proverbial "metric shit tonne" of the stuff.
Then SUVs because of cheap oil and then congress allows commodity trading with oil and it all goes to hell when the rest of the world tries to join the 21st century plus a few disasters and a coupla wars along the way (damn this would all make a helluva conspiracy movie plot). The upshot of course being renewed interest in fuel efficient vehicles which due to our status as a net exporter wont do squat for the price of fuel.
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Howie
> cazzyodo
04/30/2014 at 10:18 |
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Processing yes but I don't think sugar cane does much for the energy density of ethanol.
Vehicles could do better with ethanol but it requires a substantial reworking of the entire engine and its associated systems. Higher compression and a downsized cooling system for the most part which would essentially make an ethanol optimized engine incompatible with gasoline.
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cazzyodo
> Howie
04/30/2014 at 10:22 |
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Newer cars vs older cars, basically.
My comment above was in regards to the purchase and blending of ethanol...you may not know the origin of that gallon you are blending. It could be corn, sugar cane or what-have-you.
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Howie
> cazzyodo
04/30/2014 at 10:26 |
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Gotcha