EIA: E85 fuel becoming price-competitive with gasoline in US Midwest

E85 motor fuel—gasoline blended with as much as 85% ethanol and commonly used by flexible-fuel vehicles (FFV) in the US and Europe—is becoming increasingly price-competitive with gasoline in several Midwestern states on an energy-content basis, according to the US Energy Information Administration.

“The lowest E85 pump prices have generally been in the Midwest, where most US ethanol is produced and which, consequently, has relatively low wholesale ethanol prices,” EIA said, adding that nationwide, about 2,350 retail outlets, or 2%, offer E85 motor fuel, with the overwhelming majority in the Midwest.

Because E85 is less energy dense than standard E10 gasoline and less widespread, consumers using E85 will need to fuel more often and travel father to reach a station that offers E85. “For these reasons, some consumers may not be willing to switch from E10 to E85 until the latter is discounted below its energy parity price,” EIA noted, adding, “Important questions include how many consumers would not consider switching without such a discount and the size of the discount that may be required.”

The relative price of E85 to gasoline depends on both ethanol production costs, which are primarily driven by the price of ethanol feedstock (mainly corn), and the price of crude oil. Also, the existing federal Renewable Fuel Standard program requires producers and importers of gasoline to acquire renewable fuel credits, known as Renewable Identification Numbers (RIN), which are generated during the production of renewable fuel.

“Since February, the rise in the market price of ethanol RINs has tended to reduce the price of E85 relative to E10 because production of E85 generates more RINs than production of the standard E10 blend. As the extra RIN value to E85 producers is passed along through the distribution chain in the form of a price discount, E85 becomes more competitive with regular gasoline.” EIA said.

Comparing fuel prices on an energy basis is difficult for customers accustomed to comparing gasoline prices on a price-per-gallon basis. “E85, which can have up to 25% less energy per gallon than regular E10 gasoline depending on seasonal variation in fuel specifications, needs to be discounted a comparable amount for consumers to achieve the same mileage per dollar,” EIA suggested.

Contact Conglin Xu at [email protected].