Suppliers on the coasts of the country are worried about ethanol availability in the next three weeks.
Marketers who have watched tragic floods impact Midwestern states including Nebraska, Iowa, and Kansas might think those drenching rains are a local issue.
However, a canvas of OPIS sources suggests that the deluges have dramatically crimped the ability to get ethanol to distant markets, particularly those in the Southwest and on the West Coast.
Worries are most palpable in Rocky Mountain and Pacific Northwestern states, although some companies will switch to posting just E0 prices in portions of Texas as early as this week. To be clear, there is no shortage of ethanol in producing states, but railing barrels has been complicated by flooded tracks, terminals, and switching stations that are necessary to move unit trains to states that don't manufacture their own renewable component.
Prices in the spot Chicago market barely hint at the problem. Cash ethanol has quietly rallied to about 20cts gal above winter lows, as compared with a 40-65cts gal increase for hydrocarbon blendstocks (CBOB & RBOB). Thanks to its octane value, and despite minimal prices for renewable credits or RINs, manufacturing an E10 or 10% alcohol reformulated gasoline barrel has a strong economic foundation.
But there are concerns that unit trains to destination markets could be delayed or disrupted for several weeks.
One supplier compared the issue to an embolism that has yet to make its way to internal organs or a kink in a fire hose. Getting ethanol out of Midwestern markets is a challenge that might prove insurmountable for at least a few weeks, some worry.
Beyond the issue of availability, there are regulatory issues. Even if say Rocky Mountain or West Coast refiners could make an 87-octane regular gas that is all-hydrocarbon, state and federal regulators would have to act swiftly to enable the fuel to be legal. In California, a lack of ethanol might be the ultimate nightmare since it would require unprecedented cooperation between state and federal authorities.
The good news, according to OPIS sources, is that no major damage has been incurred by major ethanol plants in the flooded Midwestern states. So, any spike in finished motor fuel blends, or in coastal ethanol prices should be relatively brief.
Some bagged pumps in Arizona got media attention this week, and ethanol delays were blamed along with pipeline issues and the switch from winter-to-summer blends of gasoline.
OPIS' vast database shows a number of states where suppliers post prices for pure hydrocarbon gasoline (E0). But that database also demonstrates that ethanol-free regular gasoline typically sells for 20-40cts gal more than E10 even when there are no special circumstances. A lack of incoming supply would unquestionably represent a special circumstance.
Meanwhile, there's not a lot of price transparency in spot ethanol values in places like the Pacific Northwest or California since most suppliers lock in ethanol supply on a term basis, rather than purchase it incrementally. But already, OPIS has seen some rack postings for ethanol soar to $2.25 gal in the Pacific Northwest, or about 80cts gal above Midwestern FOB quotes.
The gap between in-tank prices in destination markets and Chicago could widen further, sources suggest to OPIS.
Despite criticisms, rail supply of ethanol to various points from the farm belt has been surprisingly smooth the last five years.
The major exception to that statement came almost exactly five years ago, when heavy snow storms wreaked havoc on Midwestern states as well as rail traffic in between Chicago and the Southeast. Few remember that on March 24, 2014, the price of ethanol in tank in Florida soared to $4.14/gal. There were no bagged pumps, but it was very much touch-and-go because of train delays and rail cars stuck in FOB markets.
Ironically, that 2014 spike corresponded with a gathering of attendees for the American Fuel and Petrochemical Manufacturers meeting in Orlando, Fla. There was the real fear that refinery personnel might not be able to find easy transport to that meeting when they deplaned from all over the country.
A much overdue spring thaw solved the problem five years ago. U.S. suppliers and marketers hope that some drier weather in the Midcontinent averts a crisis in 2019.
--OPIS Staff Report
Copyright, Oil Price Information Service
