Record first quarter exports raise debate

By Luke Geiver | July 15, 2010
Ethanol exports compared to 2009 are up in 2010, way up. At 124.3 million gallons already this year, exports have surpassed 2009's overall total of 113.3 million gallons. In the first quarter, Netherlands imported roughly 25 million gallons of ethanol, more than double the country's first quarter numbers in 2009. Canada imported nearly 20 million gallons of ethanol in the first quarter compared to only approximately 1 million in 2009. In the first quarter of 2009, the Dominican Republic, Jamaica, South Korea, Australia and Taiwan did not import any ethanol, but this year, each country began importing it.
The debate on the positive or negative impact of the increased export activity on the U.S. ethanol industry has already started. There's no question ethanol production and use has reached an all-time high, but how long will our domestically produced ethanol be sent outside our borders or shipped overseas? Part of the answer might come from major consuming countries such as Netherlands or Canada, but the best place to start is right here at home.

Bob Dinneen, president of the Renewable Fuels Association, speaking at a biofuels conference in Spain, said "Despite claims from other ethanol producers, America is the world's low-cost producer of ethanol today. The emergence of U.S. exports of ethanol to markets once dominated by Brazil demonstrates that a true global market for ethanol is developing." Dinneen pointed out that technology advancements and the unprecedented productivity of American farmers makes the U.S. both the most effective and lowest cost producer.

Although Dinneen's speech reaffirmed the nation's ability to produce, America's production capabilities are only part of the reason for our record export numbers continuing into the future. "American ethanol producers continue to be forced to look for overseas markets for their product as domestic markets for ethanol remain saturated due to the regulatory cap on blending levels," said RFA vice president of research Geoff Cooper. Like Dinneen, Cooper attributes the country's ability to improve efficiencies as a large reason the U.S. can make the cheapest product. "However, it also underscores the domestic opportunities lost due to the arbitrary cap on ethanol blending."

As Cooper indicates, the leading piece of evidence to the answer of record breaking export numbers may very well reside in the nation's blending cap, and a decision by the U.S. EPA to delay the implementation of E15 hasn't helped alleviate concerns about the looming "blend wall." Illinois Rep. Bill Foster and Nebraska's Sen. Ben Nelson expressed their disappointment in the delay. "While the EPA sits on its hands, ethanol producers will soon hit the E10 cap or blend wall,' producing more ethanol than can be used under current restrictions," Nelson said.

The EPA stated it will now rule on E15 this fall, and all indications are that U.S. exports will not slow until then. But even when a decision is made, the fact remains, as Dinneen and Cooper have pointed out, no other country can produce more ethanol at a lower price than the U.S. Because of this, there is a fundamental debate associated with the presence of ethanol exports. In a report on increased ethanol exports titled "The Paradox of Rising U.S. Ethanol Exports: Increased Market Opportunities at the Expense of Enhanced National Energy Security," the RFA released the following statement: "While the emergence of strong export demand for U.S. ethanol has been a welcome development for the industry, it is somewhat bittersweet. One on hand, strong export demand is creating new market opportunities for U.S. ethanol producers and supporting prices; on the other hand, exports are increasing primarily because existing U.S. regulations prevent the use of more ethanol domestically."

Alluding to the report, Cooper said, "As a matter of national energy security, America should first seek to maximize its use of domestic renewable fuels before it turns to overseas markets." Until the EPA raises the blend limit, a decision that will help de-saturate the domestic ethanol market, it appears that export numbers may continue.