Raymond James Answers the 10 Most Common Ethanol Questions
Thursday March 15, 10:36 am ET
William Trent submits: Raymond James issued a very interesting report on Ethanol recently. In it they provide their answers to the ten questions they most frequently receive on the topic. The report is well worth the read, but we summarize their points below:
1. Will there be an oversupply of ethanol in the U.S. market? Not for the next three to five years, as all cars can run on a 10% ethanol mixture but ethanol accounts for just 4% of total fuel consumption.
2. Is the U.S. running out of corn? No, only 17% of corn is used for ethanol.
3. What about “food vs. fuel?” if anything, farmers in other countries should have a better opportunity to compete against U.S. corn.
4. Is ethanol inherently worse than gasoline as a fuel? It is higher octane (good) but has lower energy content (bad). In general refined product markets price ethanol similarly to gasoline, suggesting they are interchangeable overall.
5. Does ethanol production use more energy than it creates? No, the USDA pegs the energy ratio at 1.67 (67% more energy produced than destroyed.)
6. Will the government end the ethanol tax credit? Unlikely.
7. Is the ethanol tariff in jeopardy due to pressure from Brazil? Nobody in Congress is pushing for it.
8. Is ethanol environmentally damaging? All energy sources have an environmental impact.
9. Is cellulosic ethanol a threat to corn-based ethanol? Not with today’s technology, and judging from Congressional interest in ethanol both will be needed in the long term.
10. Do logistical problems complicate the ethanol buildout? No more so than any rapidly growing industry.
The report is a good one, though of course there can be some pushback. For example, can the USDA, whose interest lies in promoting agriculture, be trusted as an unbiased source for energy efficiency information? Despite the general bullishness of the report, however, it serves as a good starting point for investors interested in alternative energy investments.
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