U.S. ethanol exports to Canada soar
Canada is expected to play a crucial role in offsetting the U.S. ethanol market’s challenges, driven by electric vehicle adoption and other factors. U.S. ethanol exports, especially to Canada, are forecast to reach 1.87 billion gallons in 2024, with Canada expected to import up to 800 million gallons annually due to new regulations. This will help mitigate the decline in domestic ethanol consumption.
SASKATOON — Canada could be the saviour of the corn market, says an analyst.
Scott Irwin, an agricultural economist at the University of Illinois, said the corn ethanol market in the United States is under duress from electric vehicles and other factors.
Fortunately, the shrinking domestic market for the biofuel is being offset by booming exports to Canada.
Total U.S. ethanol exports are forecast at a record 1.87 billion gallons in 2024.
“We’ve really been on a tear ever since the COVID recovery started in 2022,” he said during a recent Farmdoc webinar hosted by the university.
“Much of that is associated with our friends up north in Canada.”
Sales to Canada are forecast at 668 million gallons, which is more than double what they were a few years ago.
That is primarily due to Canada’s new Clean Fuel Regulations, which were implemented in July 2023.
It also has something to do with increasing provincial mandates. Ontario’s 10 per cent (E10) mandate is gradually climbing to 15 per cent (E15) by 2030.
Irwin believes the Canadian market is on its way to importing 700 to 800 million gallons of U.S. ethanol per year, or perhaps even more.
That is going to help offset declining domestic consumption of the fuel, which is eroding corn and other grain prices.
Domestic consumption is down for two reasons — remote work and electric vehicles.
The U.S. consumed 137 billion gallons of gasoline in 2023, down from the pre-COVID level of 143 billion gallons.
“We’ve seen a sharp recovery post-COVID, but not all the way back,” he said.
That “missing” six billion gallons of gasoline consumption amounts to about 600 million gallons of lost ethanol use.
Irwin said people started working at home during COVID and that reduced gasoline consumption due to the lack of commuting.
However, Amazon and other major employers are instituting return-to-office mandates, which should help restore some of that lost six billion gallons of fuel consumption.
“Probably a good chunk of that is going to be coming back in the next few years as people have to return to commuting and going to the office,” he said.
Electric vehicles are the other big threat to demand but not as much as once feared.
“Despite all of the headlines, internal combustion engine vehicles are still over 80 per cent of new car sales in the United States,” said Irwin.
Electric vehicles account for a “tiny sliver” of the 290 million light duty vehicles in the U.S.
“We’ve really had very small gasoline demand destruction to date from the sale of electric vehicles,” he said.
Battery electric vehicle (BEV) sales plateaued in 2024 due to mounting problems with range, repairs, charging times, costs and reliability.
Sales of hybrids have been much better, but they only result in a 40 per cent drop in fuel use compared to 100 percent for BEVs.
The continued adoption of electric vehicles will result in less gasoline consumption in the future.
That will in turn result in around one to 1.2 billion gallons of lost ethanol demand by 2030 compared to 2024 levels. That equates to between 326 and 419 million bushels of lost corn demand.
“This is probably a lot smaller than a lot of expectations that are out there,” he said.
Those false expectations were created by what he considers to be unrealistic government projections of electric vehicle adoption rates.
Rising ethanol exports to markets such as Canada will help offset waning domestic demand for the product.
Japan is another interesting prospect. The country recently announced its intention for gasoline to be blended with 10 per cent ethanol by 2030 and 20 per cent by 2040.
That E10 target would create a market for more than one billion gallons of ethanol. Japan produces very little of the fuel right now and is importing nothing from the U.S.
“This represents a potential major new market for ethanol,” said Irwin.
The recent election of Donald Trump as the next president of the United States poses a serious threat to the entire biofuel sector.
The good news for ethanol is that it “can stand on its own two legs” due to its value as an octane-enhancer.
Ethanol is priced at about US$1.71 per gallon compared to its main competitor, which is priced $3.21 per gallon.
“Ethanol is firmly ensconced in gasoline blending due to its cost competitiveness as a source of octane in gasoline blends,” he said.
The same can’t be said for sustainable aviation fuel (SAF), which relies entirely on government support.
The price gap between SAF and regular petroleum jet fuel is about $4.37 per gallon. The gap drops to $3.79 when factoring in SAF co-products such as renewable diesel.
The difference must be made up in the “policy stack” of federal and provincial tax credits.
In a market like California, the credits fall about $1 per gallon short of covering the gap, while in Illinois they can make up the entire difference.
The most important credit is the federal $1.30 per gallon 40B tax credit, which is supposed to be replaced by the 45Z credit in January 2025.
Biofuel producers are still anxiously awaiting details of the 45Z tax credit. Reuters recently reported that president Joe Biden’s administration will not finalize the guidelines before he leaves office in January.
However, the Treasury Department later reiterated its previous commitment to issue final guidance before Trump takes office Jan. 20.
It all could be a moot point because Irwin believes the 45Z tax credit will be on the chopping block under a Trump administration.
“That would be a major problem for SAF,” he said.
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Source : The Western Producer
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