Sunday, May 11, 2008

Numbers Behind Price Calculator

Here is a quick but thorough explanation on how I built the ethanol price calculator. The best way to debate the ethanol issue is to be as transparent as possible about what numbers people are using and where they came from, because they can alter the final product and lead to the wide variations and inaccurate reporting that we often see.
To calculate how much less ethanol blends should be, we must consider the energy density. This is the amount of energy in the fuel molecules that can be converted into mechanical energy for the car.
Energy density of Ethanol = 24.8MJ/L
Energy density of Gasoline = 34.3MJ/L

This comes out to approximately 28% decrease in energy for ethanol over gasoline. Once this value is known, then the next step is to figure out how much blend is going into the tank. For example, if only 10% of the fuel is ethanol, then only 10% is susceptible to the 28% decrease. In other words, 10% of 28 is 2.8%, which is the amount of mileage decrease you would see in a car filled with E10. The same goes for E85 blends, where you would take 85% times 28 and find that the decrease is 23.8% over filling your tank with 100% gasoline. I then took these values and multiplied the original price of regular unleaded by these percentages to find the amount of money to subtract off the original price of gasoline to get the amount that the ethanol blend should be sold for.

Here's an example:
-If regular unleaded costs $3.70 per gallon and you want to fill up with 10% ethanol, you would:

1) Take 28% times 10% to find that the decrease in mileage is 2.8% per gallon.

2) 2.8% times $3.70 per gallon gives us .1036. (So 10.36 cents per gallon should be taken off the original price).

3) Finally, subtract $3.70 by 10.36 cents to get $3.59 per gallon should be the price of E10.

I hope this helps those to figure out on their own whether ethanol blends are worth their money. If they are not, please write to the gas station owners or your local legislature to make sure that we aren't being taken advantage of by blenders who want to earn more money by decreasing the margin between regular gasoline and ethanol blends.

1 comment:

mus302 said...

Ethanol has a larger effect on the price gasoline than just the difference that can be seen at the pump. As we all know the oil companies have failed to expand refinery capacity at the same rate as demand has grown. At least part of the price of gasoline is related to this limited refinery capacity. Since ethanol adds to the fuel supply it limits the effects of the refinery crunch lowering gasoline prices.

Biofuels in general are also adding to the fuel supply and limiting the effects of oil production shortfalls. It is estimated that about 1/3 of the new global demand for fuels was met by increased production of biofuels. Without that new production, the decision by OPEC to hold supply steady would have pushed oil prices even higher than they are now.