Why OPEC Wants The U.S. To Make More Ethanol

When listing advocates of the U.S. ethanol industry, those who normally spring to mind include farmers, processing facilities, environmentalists – and not an organization like OPEC.

But that may be what’s unfolding now, according to Reuters, with the Organization of the Petroleum Exporting Countries (OPEC) becoming an “unlikely ally” for the Obama administration and its efforts to increase the nation’s production of ethanol.

At first glance, it appears as though raising the proportion of biofuels in the U.S. gasoline supply would lead to a lower reliance on foreign oil sources. The U.S. Energy Information Administration (EIA), which tracks the production, exporting and importing of energy sources, linked an upswing in domestic oil and biofuel production directly to a decrease in imported oil.

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“The growth in domestic crude oil and other liquids production [including ethanol] has contributed to a significant decline in imports,” said the EIA most recent forecast. “The share of total U.S. liquid fuels consumption met by net imports fell from 60 percent in 2005 to an estimated 26 percent in 2014. EIA expects the net import share to decline to 21 percent in 2016, which would be the lowest level since 1969.”

However, the EIA noted that gasoline demand is expected to rise this year, pushing import levels back in the other direction.

“A stronger dollar and lower demand from slower-growing economies are expected to reduce export growth and raise import growth,” the EIA predicted for 2015.

A study from the University of California-Berkeley looked further into how biofuels effect the global crude oil market, including OPEC. They determined that ethanol lowers gasoline prices, but raises the amount of crude oil used worldwide.

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“We show that the introduction of biofuel reduces international fuel prices by between 1.07 and 1.10 percent, as well as reduces the quantity of fossil fuel (i.e., gasoline and diesel) consumed by oil-importing countries by between 0.3 percent and 0.7 percent,” said the research team.

“The global amount of fuel consumed (gasoline, diesel, and biofuels), however, increases by 1.5-1.6 percent.

“This outcome suggests that although the introduction of biofuels changes the composition of the fuel consumed … it also increases global fuel consumption.”