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Ethanol Blending Pressures Already Shrinking Refiner Margins

Federally mandated ethanol blending is adding extra pressure to the faltering profits of U.S. refiners.

The worst crude oil downturn in a generation, which at first helped refiners’ profits, has now passed through to the fuel prices. Now, gasoline is cheaper than the ethanol that refiners have no choice but to use.

Ethanol averaged 30 cents above gasoline in Chicago during the first quarter, costing HollyFrontier Corp. $36 million. Chicago ethanol now runs at about a 2-cent premium to gasoline, while Los Angeles prices are 24 cents higher, David Hackett, president of energy consultancy Stillwater Associates said by phone. Ethanol futures on the Chicago Board of Trade averaged 21.5 cents above gasoline contracts on the New York Mercantile Exchange in the quarter, compared with an average 48-cent discount in the same period during the previous five years.

The Renewable Fuel Standard program, introduced in 2005 under the Energy Policy Act by the Bush administration, mandates...


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