Fuel ethanol "out of favor" impact of corn supply and demand patterns fluctuate significantly
2023/6/9
In 1993, the U.S. ethanol consumption was only 11.63 million tons of corn, accounting for about 6% of the total U.S. corn demand. With the rapid development of the U.S. fuel ethanol industry, by 2022 the U.S. ethanol consumption of corn will be as high as 136 million tons, accounting for about 36% of total U.S. corn demand. Changes in the development of the U.S. fuel ethanol industry have a large impact on corn supply and demand patterns. Since 2020 the U.S. electric vehicle ownership has increased significantly, although the proportion of the total U.S. car ownership is low, but the growth rate of electric vehicle sales can not be ignored. With the rapid development of the U.S. electric vehicle industry, we believe that the demand for automotive fuel ethanol will change dramatically, which will indirectly affect the supply and demand pattern of U.S. corn, or cause significant fluctuations in U.S. corn prices. In this paper, we have reviewed the development history of the U.S. fuel ethanol industry, the development pattern of the corn-based ethanol industry and the impact of reduced demand for automotive fuel ethanol on U.S. corn prices.
History of the U.S. Fuel Ethanol Industry
Ethanol is a renewable fuel, and ethanol gasoline has been developed in the United States for more than 40 years. The promotion and use of ethanol gasoline has helped the U.S. improve air quality, reduce carbon emissions and vehicle emissions, increase energy independence, and help reduce the cost of energy use for consumers.
Since the 1960s, the U.S. has been gradually promoting the use of ethanol gasoline. During this period, the U.S. has enacted and amended fuel ethanol-related laws and fuel ethanol and ethanol gasoline development plans and industry standards more than a dozen times. Among them, the Biofuels Safety Act, the American Energy Independence and Security Act, the Renewable Fuel Standard, the Clean Air Act, and other regulations and systems have laid a solid foundation for the full promotion of ethanol gasoline in the United States. Most importantly, the Energy Tax Act enacted in 1978 for the first time in the United States made clear provisions for blending ethanol with gasoline for vehicles, i.e., adding at least 10% of ethanol to gasoline for vehicles.
Corn-based ethanol industry development status
Currently, there are two main methods of making ethanol from corn in the U.S.: the wet method and the dry method. The wet method, which generally involves soaking the corn first, like corn for starch production, first crushes and removes the hulls, separates the germ, and the protein to obtain a crude starch slurry before producing alcohol. The advantage of the wet process is that the deepest processing depth is the best benefit, but the disadvantage is that the initial investment is large, the threshold is high, the process is complex, and the water consumption is large. In the dry process, corn is generally moistened, then crushed and sieved to obtain a low-fat corn starch and then alcohol is produced. The dry process uses less water and requires less water for distillation, which has the advantage of significantly reducing investment costs. According to the American Renewable Energy Association, more than 90% of the current U.S. fuel ethanol production process comes from dry process ethanol and 10% from wet process ethanol.
In terms of ethanol production, referring to the data of the American Renewable Energy Association, the U.S. fuel ethanol industry has been developing gradually since 1993, when the U.S. fuel ethanol production exceeded 1 billion gallons for the first time. With the enactment of the Biofuels Safety Act in 2007, the U.S. fuel ethanol industry entered into a rapid development path. 2007 U.S. fuel ethanol production reached 6.52 billion gallons, a 33% increase in production year-over-year. Based on data since 1993, U.S. fuel ethanol production has expanded from 1.154 billion gallons previously to 15.365 billion gallons by 2022, with a compound annual growth rate of approximately 9% over the 30-year period.
By region, U.S. ethanol plants are highly overlapping with major corn-producing regions. Referring to the data from the American Renewable Energy Association, as of 2022, the U.S. ethanol production capacity is about 17 billion gallons per year, and there are about 192 ethanol plants. Among them, Iowa ethanol capacity is about 4.69 billion gallons/year, with a capacity of about 27%; Nebraska ethanol capacity is about 2.24 billion gallons/year, with a capacity of about 12.9%; Illinois ethanol capacity is about 1.74 billion gallons/year, with a capacity of about 10%; South Dakota ethanol capacity is about 1.44 billion gallons/year, with a capacity of about 8.3%.
Ethanol consumption, the U.S. fuel ethanol consumption from 1.15 billion gallons / year in 1993 to 13.98 billion gallons / year in 2022, fuel ethanol consumption compound annual growth rate of about 8.7%. The main consumption route of fuel ethanol in the United States is blended gasoline, but with reference to the American Renewable Energy Association data found that U.S. gasoline consumption since 1993 has not increased as fast as ethanol production, mainly since the 1990s U.S. car ownership has been at a high level. In 1993, U.S. finished gasoline consumption was about 113.4 billion gallons, and in 2022, U.S. finished gasoline consumption will be about 120 billion gallons. Although the total consumption of finished gasoline in the U.S. has not increased significantly, the proportion of ethanol blended in gasoline is increasing rapidly. As the statistics show, the percentage of ethanol added to gasoline consumption in the U.S. was only 0.98% in 1993, while the percentage of fuel ethanol added to gasoline consumption in the U.S. increases to 10.21% in 2022. Of course, ethanol gasoline also has some disadvantages, such as ethanol gasoline has strong water absorption, easy to mix with water and does not separate after absorbing water. If there is too much water in the fuel, it will reduce the power of the engine, increase fuel consumption, intensify the wear and tear of the engine cylinder, and lead to the lack of engine power. Because of the above disadvantages, there is a limit to the percentage of ethanol added to gasoline. Referring to the Renewable Energy Association data, the percentage of ethanol added to gasoline in the United States has been maintained at about 10% since 2019, failing to continue to increase significantly on this basis.
Ethanol exports, as the U.S. fuel ethanol production continues to increase, the United States has also begun to export fuel ethanol one after another. Since 1993, the U.S. fuel ethanol exports have increased rapidly from 0.4 billion gallons/year to 1.35 billion gallons/year by 2022. According to the estimation, the average annual compound growth rate of U.S. fuel ethanol during 1993-2022 is about 12%. By country, the main exporters of U.S. fuel ethanol are: Canada, South Korea, the Netherlands, Mexico, India, and Brazil. Among them, it should be noted that there is a large change in Brazil's imports of fuel ethanol from the U.S. Brazil's annual fuel ethanol imports from the U.S. from 2011-2019 amounted to $5-10 billion, accounting for 30%-40% of the U.S. ethanol export market share. However, since 2019, Brazil's fuel ethanol imports from the U.S. have declined significantly, with Brazil's annual fuel ethanol imports from the U.S. amounting to $1.5 billion to $2 billion in 2020-2022. The main reason for this is that Brazil has increased tariffs on fuel ethanol imports into the U.S. in order to protect the development of its fuel ethanol industry. As the amount of fuel ethanol exported to Brazil declined sharply, the U.S. began looking for new export destinations. In 2009, South Korea imported about $0.5 billion of U.S. fuel ethanol, and in 2022, South Korea will import about $4.2 billion of U.S. fuel ethanol, accounting for about 12% of the U.S. fuel ethanol export market share. As Brazil restricts fuel ethanol imports and the increasing popularity of electric vehicles in the above countries, Canada and South Korea may reduce the amount of U.S. fuel ethanol imports, indirectly leading to higher pressure on U.S. fuel ethanol supply.
Looking ahead, as the popularity of electric vehicles in the U.S. increases year by year, U.S. automotive gasoline may show a declining trend, which in turn will lead to a decline in U.S. fuel ethanol demand. According to the "Global Electric Vehicle Outlook 2023" report published by the International Energy Agency, the number of electric vehicles in the U.S. was about 8.88 million by the end of 2022, accounting for 3.9% of U.S. vehicle ownership. According to the Global Electric Vehicle Outlook 2023 report, there will be 21.2 million electric vehicles in the U.S. by 2025, accounting for 10% of U.S. vehicle ownership, and 78.2 million electric vehicles in the U.S. by 2030, accounting for 32% of U.S. vehicle ownership. Based on the above report, it can be projected that the average U.S. vehicle ownership from 2016-2022 is about 230 million vehicles. Therefore, assuming no significant growth in U.S. car ownership in 2030, it can be further estimated that U.S. fuel-fired car ownership will be about 152 million at the end of 2030. In addition, assuming that the percentage of ethanol added to U.S. motor gasoline is about 10% by the end of 2030, we can linearly estimate the U.S. fuel ethanol demand to be about 9.36 billion gallons by the end of 2030. Using the 2022 U.S. ethanol demand of 13.4 billion gallons as a base, the U.S. fuel ethanol demand will grow at a compound annual growth rate of about -3.9% from 2022 to 2030.
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