Drought to hit ethanol exports, not gas prices: EIA

Reuters News
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Posted: Aug 08, 2012 5:00 PM
Drought to hit ethanol exports, not gas prices: EIA

WASHINGTON (Reuters) - Exports of corn-based ethanol may suffer from the country's worst drought in more than 50 years, but prices for gasoline blended with the domestic fuel should not rise significantly, the government said on Wednesday.

The drought has shriveled crops and boosted prices for corn to record levels late last month. The higher corn prices have also boosted prices for ethanol and helped push some distilleries to close until market conditions improve.

The Energy Department's statistics wing, the Energy Information Administration, forecasted this week that U.S. ethanol output should fall by 70,000 barrels per day to 830,000 bpd for the second half of the year.

But gasoline prices should be spared despite the loss of ethanol output, the EIA said on Wednesday. "The impact of the forecasted decline in domestic ethanol production should be primarily reflected in reduced ethanol exports," the EIA said.

The United States transitioned from being a net importer of ethanol to a net exporter in 2010 and in 2011 it was the world's top producer of ethanol, ahead of Brazil. The EIA did not indicate how much imports should fall.

Flexibilities in the U.S. mandate for blending increasing volumes of ethanol into gasoline should help control gasoline prices, the EIA said.

The mandate allows fuel blenders to draw down stockpiles of ethanol and to apply banked credits representing produced ethanol known as Renewable Identification Numbers, or RINs, to achieve minimum blending levels.

The EIA said there are about 2.5 billion gallons of banked RIN credits available for compliance this year due to production beyond the mandated level in previous years.

Ethanol is mainly blended into gasoline at modest levels, which also buffers the impact on motor fuel prices. Most U.S. gasoline that contains ethanol only has 10 percent of the renewable fuel.

(Reporting by Timothy Gardner in Washington; Editing by Leslie Gevirtz)