Food Price and Ethanol

Ethanol Brings Gas Prices Down
What! Pay another 50¢ per gallon of gas!

That’s what multiple studies say you’d probably pay at the pump if ethanol wasn’t around. Contrary to the talk around the water cooler, ethanol has actually kept the price of gasoline down by stretching out a very tight oil supply.

Without the expansion of biofuel production and use in the US, Brazil and elsewhere, world oil demand would increase and so would the price. Merrill Lynch analyst Francisco Blanch told the Wall Street Journal that world oil prices would be 15% higher. At today’s record prices, that would equate to $132 per barrel of oil. But that’s not all:

In 2008, worldwide ethanol production is expected to reach more than 16.2 billion gallons which is equivalent to 1 million barrels of oil per day.

According to one estimate, as of April 4, the U.S. consumed over 1.9 billion gallons of ethanol, the equivalent of nearly 46 million barrels of oil. Without ethanol, the oil industry would have had to draw down gasoline inventories and import those barrels.

Without ethanol in America’s gasoline supply, gasoline prices could be more than 25% higher than they are today. Diesel prices, already higher than gasoline, would be another 16% higher.

The addition of ethanol to U.S. gasoline supplies not only helps keep gasoline prices down, but also helps keep the price of crude oil lower than it otherwise would be which prevents the cost of food from increasing even more.

Huh, ethanol isn’t the problem after all. It’s the solution!

Useful Links
Merrill Lynch
Renewable Fuels Association