Viewpoint: SAF, E15 may lift US ethanol demand in 2024

Ethanol demand may get a boost next year as theUS paves a path for ethanol-derived sustainable aviation fuel (SAF) and the potential for permanent year-round sales of 15pc ethanol gasoline (E15) in the US midcontinent.

US ethanol blending averaged 890,000 b/d in 2023, according to Energy Information Administration data. Demand could strengthen in the midcontinent, where blending averaged 230,000 b/d, if lobbying requests from states to allow year-round sales of E15 gasoline are granted.

Eight midcontinent states — Illinois, Iowa, Minnesota, Missouri, Nebraska, Ohio, South Dakota and Wisconsin — are jousting with the oil industry to sell E15 gasoline during the summer months, which is not currently allowed under the Clean Air Act, because of concerns over smog created by the fuel under warmer temperatures.

Since 2021, the Clean Air Act has offered Reid Vapor Pressure (RVP) waivers exclusively for E10 gasoline, but if the petition from the states to eliminate these waivers is approved, demand for E15, whichcontains 50pcmore ethanol, could reach the same level as E10 in the petitioning states. This could strengthen ethanol demand in the country's largest producing region, lifting prices with it.

E15 has been available during the last two summers as the EPA has granted emergency RVP waivers for the fuel stemming from supply limits from the war in Ukraine.

EPA initially proposed approving the states' request this spring, which would have gone into effect in April 2024, but an official ruling has yet to be made. Iowa and Nebraska filed a lawsuit in August seeking a deadline for a decision, while the oil industry along with Arkansas and Oklahoma seek to delay the switch to E15, claiming it could limit gasoline supply and raise fuel costs.

US SAF production next year is expected to jump 17-fold to 94,300 b/d,according to Argus data. US renewable diesel production surged in 2023 by 64pc to 234,833 b/d, and expectations are for SAF to follow a similar path in 2024 as markets become more liquid. As biomass-based diesel D4 RINs enter the year oversupplied and are expected to exceed generation figures from 2023, speculation over SAF's effect on RIN markets has become a focus.

President Joe Biden's administration on 15 December opened the door for ethanol-based SAF to qualify for tax credits under the US Inflation Reduction Act (IRA), providing a track for the biofuel to expand. Ethanol had previously not qualified as a SAF feedstock due to its emissions rating falling beneath the IRA's threshold of 50pc reduction from traditional jet fuel under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) emissions measuring model.

But the Biden administration will deem the Greenhouse Gases, Regulated Emissions and Energy Use in Technologies (GREET) emissions model valid after it is updated by March 2024. SAF used or sold from 2023 through 2024 could qualify for up to $1.75¢/USG in federal tax credits, once modifications to the model are made, which will include emissions technologies like carbon capture and sequestration (CCS), renewable natural gas and land-based agricultural emissions.

The ethanol and airline industries lobbied for adoption of the GREET model on the grounds that it satisfies the IRA's requirements for life cycle emissions analysis. Bipartisan support from both houses of Congress also see GREET's adoption to support domestic agriculture and renewable fuels production.

The immediate timeline for implementation is unclear, but public and private sector support for GREET and, therefore, ethanol as an SAF feedstock will continue to gain attention in 2024.

The ethanol market response could be delayed until later in 2024 after the GREET modifications are installed and testing begins, according to participants.

By Matthew Cope and Payne Williams