Oil Refiners Benefit From Cheap Ethanol
Tuesday October 2, 6:31 pm ET
By Lauren Tara Lacapra, AP Business Writer
Cheap Ethanol Is a Point of Contention Between Oil Refiners and Ethanol Producers
NEW YORK (AP) -- Ethanol prices were a point of contention between oil refiners and ethanol producers at a conference Tuesday, with both sides noting that refiners are the main beneficiaries of weak pricing.
"I'd pay a hell of a lot more for ethanol than I am right now," Tesoro Corp.'s chief economist Lynn Westfall told investors at a Citi conference on Tuesday. "I'm getting a windfall because it's priced so much less than its value to me."
The ethanol industry has come under pressure because excessive ethanol production lowered ethanol prices, but raised prices of its key feedstock, corn. That's partly because refiners' addition of processing capacity has not kept pace with production expansion.
Westfall was unapologetic about ethanol's recent pricing decline. Refiners will blend more ethanol if the law requires it, he said. If there is no mandate, they will blend as much as is economically sensible.
Ajay Sabherwal, chief financial officer of ethanol producer Aventine Renewable Energy Holdings Inc., heaped blame on refiners earlier in the day at Tuesday's biofuels conference. He noted that in addition to weak ethanol pricing, refiners receive a 51-cent federal tax credit for every gallon of ethanol they blend into gasoline.
"We don't have $65 or $70 oil, we have $80 oil, yet we have a price of ethanol of $1.50," he said.
Westfall acknowledged that the bargaining leverage is in the hands of the refiners, but said they will not need significantly more ethanol in the near term. Ethanol makers will have to be strategic about assuring contracts for 2008 to avoid being left behind, he said.
He also downplayed speculation that ethanol will ruin refiner margins or steal significant market share from gasoline.
"This is not something that keeps me awake at night," he said. "Ethanol will not take the place of gasoline; it will take some of the growth away from gasoline...It is not the death of our business, (and) as I said earlier, we really don't fear it."
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