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Page added on November 29, 2008

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Fuel Ethanol Margins: Boom and Bust Cycles- peak oil

Short-term profit margins for dry mill ethanol producers have been consistently low by historic standards since the last quarter of 2007, even as the prices of crude oil and gasoline rose through mid-July and have since fallen dramatically. Profit margins during the first half of 2008, when oil and gasoline prices were rising, were held down by high input costs and a substantial growth in production capacity in the wake of the 2006 boom in ethanol markets. The bottom line: In spite of being the recipient of government subsidies and mandates, ethanol has not avoided the boom and bust cycles seen in other commodities, though it has followed a different tempo. In fact, ethanol was already in a bust period when the current financial crisis, which has now added to the industry

For decades, fuel ethanol has been a blendstock for gasoline, serving at various times as a volume enhancer, an oxygenate, an octane booster, and, more recently, as an alternative to methyl tertiary butyl ether (MTBE) for blending into reformulated gasoline (RFG) as discussed in the This Week in Petroleum (TWIP) article entitled Oxygenates: Btu over a Barrel. Demand for ethanol has grown rapidly since about 2003 in response to State bans on MTBE, federal mandates to blend more fuel ethanol into motor gasoline, and, especially in recent years, attractive prices relative to gasoline. Producers have built new, more efficient plants to meet this growing demand. Yet in spite of increases in demand and far more efficient production overall, profitability has varied widely, especially in one portion of the industry



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