Rising Projections

EIA Report: Ethanol could displace 12 percent of gasoline demand by 2035
By Holly Jessen | June 13, 2011

A report prepared by the U.S. Energy Information Administration suggests that, as long as the renewable fuels standard (RFS) is upheld, rising oil prices will result in increased biofuels production. Specifically, ethanol production could increase by more than 800,000 barrels per day from 2009 to 2035. On an energy equivalent basis, ethanol is projected to displace about 12 percent of gasoline demand in 2035. In the early years, EIA expects most ethanol to be blended with ethanol in the form of E10 or E15. “By 2035, however, ethanol [could be] consumed in roughly equal shares as E10, E15, and E85,” the report says.

The Annual Energy Outlook 2011, which was released in April, is not meant to be a statement of what will happen, but what might happen. It contains multiple projections given various assumptions and methodologies, including the reference case, or a “business-as-usual trend estimate, given known technology and technological and demographic trends.”

The report also projects that oil imports would meet a major but declining share of total U.S. energy demand. With oil prices at $125 per barrel in 2035, the need for imports is offset by the increased use of biofuels, much of which is produced domestically, the report says. The report projects an increase in renewable fuel production between 2009 and 2022 due to the RFS. However, that production won’t likely meet the RFS requirement of 36 billion gallons in 2022 due to the hurdles facing cellulosic and other advanced biofuel projects. “The reference case assumes that the EPA will continue to set RFS targets after 2022, leading to more capacity builds than would have occurred otherwise,” the report says. “The mandate for 36 billion gallons of biofuel is met by 2030, and total biofuel production increases to 37.2 billion ethanol-equivalent gallons in 2035.”

On the E15 side, the report looks at two scenarios for how quickly E15 blending is adopted. In the high-E15 case, ethanol use for gas blending increases to 18.1 billion gallons in 2015, compared to only 15.8 billion gallons in the reference case. With the low-E15 case total ethanol supply is nearly 2 billion gallons less by 2020 than the reference case. On the other hand, E85 consumption is projected to increase more rapidly, meaning the low-E15 case and the reference case reach similar ethanol levels after 2020. “Rapid increases in E85 consumption in the Reference, High E15, and Low E15 cases indicate the importance for ethanol producers of E85 availability after the motor gasoline blending pool has been saturated, even with an increase to a 15 percent limit for ethanol blends,” the report says.

Whether E15 is accepted quickly or more slowly is expected to have an effect on gas pricing. When E15 penetrates the market quickly and well, gas prices are lower because more ethanol is used, the report says. If E15 has a low, slow market penetration, gas prices are projected to be higher because less ethanol is available for blending and more cost recovery is need for E85 marketing and infrastructure.
—Holly Jessen