Study says ethanol cut gasoline by $1.09 a gallon in 2011
Ethanol is saving Americans a chunk of change, according to reseach conducted by economics professors at the University of Wisconsin and Iowa State University.
"The surge in ethanol production in recent years has essentially added 10 percent to the volume of fuel
available for gasoline powered cars and in so doing it has allowed the U.S. to switch from being a
major importer of finished gasoline to a major exporter of both gasoline and ethanol," researchers Xiaodong Du and Dermot J. Hayes explain.
In 2011, they estimated, the average effect across the country was a savings of $1.09 per gallon. The regional impact ranged from 73 cents a gallon in the Gulf Coast to $1.69 a gallon in the Midwest.
The latest data update findings reported previously in 2009 and 2011 by Du and Hayes. Altogether, from January 2000 to December 2011, the growth in ethanol production reduced wholesale gasoline prices by 29 cents a gallon on average across all regions,the researchers said. The larger impact in 2011 was attributed to increasing ethanol production and higher crude oil prices.
Du and Hayes also explored the question of how the ethanol savings might be affected by a drop in mileage per gallon:
According to EPA, “the theoretically expected decrease in fuel energy as a result of oxygenate
use is in the 2% to 3% range when compared to gasoline. This corresponds to 0.5 to 0.8 miles per
gallon for a car that averages 27 miles per gallon.”1 This means a driver using ethanol-blended
gasoline would have to fill up his car slightly more often in order to travel the same distance as
he would if he were using unblended gasoline. Using a gasoline price of $3.50 per gallon, a 2.5%
reduction in energy value would equate to $0.087 per gallon. In theory, this means a gallon of
gasoline blended with 10% ethanol would need to be priced at $3.41 per gallon to provide the
same cost per mile as a gallon of unblended gasoline priced at $3.50 per gallon. However,
ethanol is blended with gasoline primarily for its additive properties, such as boosting octane and
oxygen content, not strictly as a source of energy for combustion. Regardless, the impact of
ethanol’s lower energy content on gas prices is much smaller than the price impacts we have
measured and does not change the overall conclusions of our analysis.
Du and Hayes also provided a summary of how U.S. regions vary in terms of how they consume gasoline. The Drovers Cattle Network provided this summary of the research:
- The East Coast has the highest demand for refined products in the country, but it has very limited refinery capacity. Its regional demand is largely satisfied by the Gulf Coast and by foreign imports.
- The Midwest is distinct in its coexistence of a highly industrialized section and a rural agricultural section. Much of the crude oil used in the Midwest is piped in from the Gulf Coast and Canada.
- The Gulf Coast region, including Texas, Louisiana, New Mexico, Arkansas, Alabama, and Mississippi, produces over 50 percent of the nation’s crude oil and 47 percent of its final refined products. This region also serves as a national hub for crude oil and is the center of the pipeline system. It also exports gasoline.
- The Rocky Mountain region has the smallest and fastest-growing oil market in the U.S. With only 3 percent of national petroleum product consumption, it has the lowest ethanol penetration.
- The West Coast region is independent of other regions since it is geographically separated by the Rocky Mountains. In addition, the refinery market of this region is highly concentrated.