Getting from Here to There

EIA predicts ethanol pricing base to shift
By Holly Jessen | January 17, 2011

As gasoline prices continue to increase, the U.S. DOE’s Energy Information Administration predicts that consumers’ evaluation of E85 prices will shift from a volumetric basis to an energy-equivalent basis when comparing ethanol to gas. The EIA released its Annual Energy Outlook 2011 on Dec. 16, which contains its base energy forecasts for the next year. The full report, which will contain multiple scenarios based on differing assumptions such as high or low prices for oil, will be released in the spring, says Peter Gross, EIA analyst.

The shift in thinking will happen as E85 becomes more prevalent in the marketplace and consumers gain awareness about the fuel, Gross tells EPM. He envisions a day when consumers don’t pay as much attention to price per gallon of fuel, rather judging E85 by how many miles traveled for the price.

Gasoline prices are forecast to increase from $2.35 per gallon in 2009 to $3.69 by 2035. The number is lower than what was forecast by the EIA last year. By 2022, the retail price of gas is predicted to be $3.43 per gallon, compared to $2.68 for E85. Because gas has a higher energy content, the prices are actually comparable per mile traveled, the report said.

The EIA’s projections for cellulosic biofuel are different than what was projected last year, with forecasts for some biofuels up, such as cellulosic ethanol, and others down, Gross says. Although it’s difficult to know for certain, the EIA projects that there won’t be enough cellulosic biofuels to meet the renewable fuel standard targets by 2022. The report forecasts the 2022 target of 36 billion gallons will be modified to 25.7 billion gallons.

U.S. consumption of liquid fuels, both fossil and biofuels, is projected to increase from 18.8 million barrels per day in 2009 to 22 million barrels per day in 2035. As always, the transportation sector sucks up the lion’s share of liquid fuels, at 72 percent of total consumption in 2009 with a slight increase to 74 percent in 2035.

The forecast also calls for imports to meet a major but declining share of total U.S. energy demand. In 2005, U.S. dependence on imported liquid fuels reached 60 percent and by 2009 it had decreased to 52 percent. That percentage, which is measured as a share of total liquid fuel use, is expected to continue declining to 42 percent in 2035, the report says. This decrease is due to increased use of renewable fuels produced domestically, the adoption of efficiency standards, which reduces demand, and rising energy prices. “Rising fuel prices also spur domestic energy production across all fuels, which moderates growth in energy imports,” the report says. Production of U.S. crude oil was at 5.4 million barrels per day in 2009 and is projected to increase to 6.1 million barrels per day by 2019. It will decline slightly, however, from that level to 5.7 million barrels per day in 2035. “Production increases come from onshore enhanced oil recovery projects and shale oil plays,” the report says.