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Petroleum industry

Ethanol Gains Price Advantage Over MTBE, Refiners in Midwest Prepare to Switch

Strategic Insights

— 1 min read

Ethanol is gaining ground as a preferred alternative to methyl tertiary butyl ether (MTBE) in reformulated gasoline in the Midwest, driven by a significant price advantage. The federal government's 54 cents/gallon tax break on ethanol, combined with lower production costs, is making it an attractive option for refiners. As a result, major players such as Amoco Corp, Shell Oil Co, and Mobil Corp are expected to switch to ethanol soon, with smaller companies likely to follow suit. This shift is expected to have significant implications for the oxygenate market, with MTBE demand likely to decline.

Key Takeaways:

  • Ethanol has gained a price advantage of 7-8 cents per gallon over MTBE in the Midwest, making it a more attractive option for refiners.
  • Amoco Corp, Shell Oil Co, and Mobil Corp are expected to switch to ethanol soon, with smaller companies likely to follow.
  • The federal government's 54 cents/gallon tax break on ethanol is a major factor in its growing popularity.
  • MTBE demand is expected to decline due to the switch to ethanol and reduced demand in Pennsylvania, which has taken 28 counties out of the reformulation program.
  • Marathon Oil Co will produce ethyl tertiary butyl ether (ETBE) at its Robinson, Ill, refinery, while Ashland Oil Inc and Koch Industries Inc may follow Marathon's lead and produce ETBE.
  • Several U.S. companies are considering closing MTBE units due to feedstock methanol prices not moving down with MTBE prices.

Statistics:

  • Ethanol costs $1.30-$1.40/gallon, with a 54 cents/gallon tax break from the federal government.
  • MTBE contract costs $1.50-$1.55/gallon, with prices slipping to 94-95 cents per gallon in the spot market.
  • MTBE's price has dropped low enough to trigger cutbacks in output at some U.S. plants.
  • Pennsylvania's decision to take 28 counties out of the reformulation program will wipe out about 17,000 b/d of MTBE demand.
  • Methanol contract prices are at $1.50-$1.55/gallon, with some producers considering closing MTBE units.

Sources:

  • DeWitt & Co. Inc. (Bill Ludlow)
  • Amoco Corp
  • Shell Oil Co
  • Mobil Corp
  • Marathon Oil Co
  • Ashland Oil Inc
  • Koch Industries Inc
  • Phillips Petroleum Co
  • Citgo Petroleum Corp
  • Uno-Ven Co
  • Industry observers and analysts

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