Wednesday, January 2, 2008

Ethanol: At What Cost?

A common piece of conversation surrounding ethanol isn't energy security, or the potential environmental benefits, but what ethanol will mean to the consumer. Questions like, at what price will filling up on E10 or E85 be more costly to me than purchasing regular unleaded gasoline? Although I think that looking only at ethanol's price to determine whether to fill up with it is to ignore the benefits that are unable to be calculated, such as a decrease in geo-political tensions due to the decrease in oil imports, or the decrease of greenhouse gases into the environment, but I also agree with these people that consumers will wait until retailers price ethanol correctly.

This discussion has become more interesting recently when oil prices rocketed up to nearly $100 per barrel, which saw a jump in gasoline prices. A similar jump in ethanol inventories allowed ethanol to be priced less than gasoline for the first time and retailers jumped at the opportunity to blend more ethanol into their gasoline. But now that prices in both sectors are beginning to stabilize, there has to be a way to track these prices to see whether it is worth it to fill up.

By following the link below, you will find an easy way to input the price of unleaded gasoline (with an 89 octane rating so as to match the E10 blended octane number), that will be responsive to local gasoline pricing.

I've found that many websites will calculate the prices for E10 and E85 based on the price of regular 87 octane gasoline, which is a different product all together and misleading since the price will be lower due to lower potential engine performance.

One interesting thing found when using the calculator above was that the current price of E10 is priced correctly (approximately 10 cents per gallon cheaper and in some cases 12 cents per gallon cheaper than gasoline). Again, this will depend on region, but assuming that regular gasoline is priced at $3.03 per gallon, E10 should be priced at least 8 cents per gallon cheaper or $2.95 per gallon to be an equivalent source of energy. E85 should be priced at least 69 cents per gallon cheaper, or $2.34 per gallon in order to be as cost effective as unleaded gasoline. Keep in mind that the current price of gasoline at $3.03 is regional and subject to change in different parts of the US.
While E10 is priced approximately 10 cents per gallon cheaper, it will remain a better purchase. E85, for the most part, has been sold for $2.45 per gallon (according to AAA's website at, and so it is not economical. This is the case for two reasons -- the demand is simply not there due to the lack of flex fuel vehicles and so it is still a "boutique fuel" that comes at a high infrastructure cost to the gas station. The second reason in simply that the retailer wants to make a profit on the fuel. Current E100 rack prices are at $2.21 per gallon and so anything priced above that will be profit for the retailer. Unfortunately, unless the gasoline prices take off towards much higher values, it is reasonable to say that ethanol and gasoline prices will probably trend together. In other words, the costs will stay consistently within the value recalculated for their energy density. As we saw above, E10 is currently the better buy but retailers should adjust their E85 prices so that consumers are more enticed to buy the fuel.

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