(H/T – Dad29)
It seems that Tom Reynolds did, and he found some interesting items:
- On February 10, 2006, the average retail price of gasoline in Wisconsin was $2.375 per gallon. On February 10, 2006, ethanol traded at $2.73 per gallon on the Chicago Board of Trade.
- The Oil Price Information Service explains that increase in a February 2, 2006 article – “This latest round of price increases for domestic ethanol is tied predominantly to new demand for the Northeast as well as from huge metro RFG markets in Virginia and Texas. There clearly is more ethanol buying interest at the moment than there are sellers willing to commit barrels or term product for distribution in the pivotal second and third calendar quarters…. As February began, spot ethanol in the New York Harbor vicinity was pegged at nearly $2.70/gallon. Six-month term deals for April through September delivery were discussed at between $2.70 and $2.80/gallon”
- The US Department of Energy’s Energy Information Administration predicted “a very tight ethanol market” through the first half of 2006, and noted that a complete phase-out of MTBE in favor of ethanol on the East Coast would increase ethanol consumption 90,000 barrels per day (or more than double what the East Coast uses now).
Does anyone remember what other “clean-burning” product the “it’s cheaper” claims were made by its proponent, and what happened to the price of that product once a modest shift to that product was made? I’ll give you a hint – its March 2006 futures closed Friday on NYMEX at $7.360 per million BTUs, roughly 22% higher than the March 2005 futures were at this point last year.
Revisions/extensions – The price differential is even worse than Sen. Reynolds says. At the trading level, where we compare the proverbial apples to apples, unleaded gasoline futures (March 2006) on the New York Mercantile Exchange closed at $1.4290 per gallon while ethanol futures (March 2006) closed at $2.730 per gallon on the Chicago Board of Trade. Rounding to the nearest penny, ethanol is $1.30 per gallon more expensive than unleaded gasoline.
I know what you ethanol-sniffers will say next; what about the taxes slapped on gasoline? They’re not reflected in the futures price. True. However, when ethanol is used as a fuel, it’s also slapped with those same taxes. Morever, even in WisTAXsin, that’s “only” $0.513 per gallon.
Hell, let’s do some math. There’s roughly an 12-cent/gallon profit margin for gasoline between the futures market and a Wisconsin terminal, then there’s the 51.3-cent/gallon taxes slapped on there, then a 3% markup mandated by the state at the terminal, and a 9.18% markup mandated by the state at the retail level. With good, E0 gas, that brings the pump price up to about $2.30/gallon, which is where things stand. Now, let’s take E10 bad-gas. 9/10ths of that is made up of unleaded gas, so the price of that portion of the gas is $1.286/0.9 gallon (I’ll round to the nearest tenth). Ethanol makes up the other tenth, so the price of that portion of the gas is $0.273/0.1 gallon. Add the two together to get the net “futures” price – $1.559/gallon. Add the 12-cent/gallon pre-terminal profit margin and the 51.3-cent/gallon taxes and you come up with a pre-state-mandated-profit price of $2.192/gallon. Add the 3% state-mandated margin at the terminal, and it leaves there at $2.258/gallon. Add the 9.18% state-mandated margin at the pump and you’re paying $2.465/gallon.
Last time I checked, $2.465 is $0.165 more than $2.30. If AB15 were law today, and we ignored the fact that the increased consumption of ethanol forced by AB15 would further increase the market price of ethanol, unleaded gasoline would be 7.2% more expensive than it is now. I’m not enough of an economist to forecast how much more expensive ethanol would be with AB15, but I do know that it would make ethanol more expensive than it is now.
