Is Ethanol Cheaper Than Gasoline?

No doubt feeling the heat from record corn prices, defenders of the ethanol mandate are now claiming that ethanol is actually something that the market would embrace, without government intervention. If this were true, it would simply prove that the mandate is unnecessary. But of course it’s not true. In particular, claims that ethanol is currently “cheaper than gas” are very misleading because they ignore differences in energy content.
To give an example of what we mean, consider this recent article from Bloomberg:

Ethanol, the best-performing energy commodity this year, is cheaper than gasoline, encouraging refiners to use the biofuel even if President Barack Obama’s administration ends a requirement to do so.
A 49 cent-per-gallon discount to gasoline provides…an opportunity to profit by blending the corn-based additive into fuel, while easing prices at the pump for consumers. Marketers may use ethanol as they look for the cheapest way to boost engine performance and reduce pollution.
The most severe U.S. drought in 56 years has prompted lawmakers from both parties to ask the Obama administration to suspend the mandate because of the potential impact on food costs. Ethanol will consume 42 percent of this year’s corn crop, according to government estimates, up from 41 percent last year. The biofuel has been blended into more gasoline than ever this year, Energy Department data show.
“It’s just ingrained in the supply and distribution and it’s having a moderating effect on pump prices,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “As long as they were still allowed to use it, most would. The lower price and just the logistics of taking it out, most would still use it.” [Bold added.]

Read more: http://www.productsandpower.org/2012/08/30/is-ethanol-cheaper-than-gasoline/