What's Up With Gas Prices

What’s Up With Gas Prices. I’m Greg Martin with today’s Line On Agriculture.

The ag industry is slowly waking up after the winter months and along with that comes higher gas prices. Up some 40+ cents in the last month. Dozens of House and Senate Democrats are blaming speculative trading in energy futures as being a major factor behind the run-up in gasoline prices and they have sent a letter asking for limits on speculative trading in energy futures markets. But Renewable Fuels Association Vice President of Research and Analysis Geoff Cooper says it would be worse if not for ethanol.

COOPER: It seems crazy that gas prices could be even higher than they are right now but that would in fact be the case if we weren't blending 13 and a half, 14 billion gallons of ethanol into our gasoline supply. Today ethanol is about 10% of the nation’s gasoline supply and it’s really the only source available, the only source available on the market today that can meaningfully keep gas prices down.

Cooper says there are several ways ethanol helps keep a lid on prices at the pump.

COOPER: Ethanol is selling for about a dollar a gallon less than gasoline so for a typical E-10 blend. You’re talking about that gallon being 10 cents less expensive than a gallon of gasoline that doesn’t contain ethanol. And that’s just straight blend economics. But the larger effect that ethanol has on gas prices is simply by virtue of extending the gasoline supply. By using more ethanol we use less oil. We have less demand for oil and that exerts downward pressure on oil prices and gasoline prices by extension.

In addition, Cooper says ethanol provides a cost-effective source of octane for gasoline.

COOPER: Ethanol is far and away the least expensive source of octane on the market today and if it wasn’t available refiners would be using very expensive octane sources that often have very detrimental health effects and are toxic in nature.

While there is lots of talk surrounding higher gas prices, Cooper says it’s easy to see how ethanol helps.

COOPER: This is a very politically sensitive issue and it’s not always easy to cut through the rhetoric and understand what factors are really driving gasoline prices. However I think there’s no dispute, there’s no disagreement that ethanol is in fact one of the best tools and in fact is probably the only tool we have available broadly today to help keep gas prices in check and keep these high gas prices lower than they would be otherwise.

That’s today’s Line On Agriculture. I’m Greg Martin on the Ag Information Network.