Abstract
The extent to which biomass ethanol will penetrate the transportation fuels market depends on the interaction of supply and demand in that market. This chapter examines these market forces with respect to the use of ethanol in the transportation fuels market. On the demand side, the chapter describes the interaction between the price (or value) of, and demand for, ethanol in two distinctsubmarkets - one for gasoline blending components and one for neat fuels for internal combustion engines in passenger vehicles. The value of ethanol in the blend submarket will generally be higher than in the neat submarket because ethanol's blend market competitors are the gasoline components that raise octane number or provide oxygen, or both. The blend submarket competitors have higher valuesthan the entire gasoline product, although they represent only a fraction of the entire gasoline pool. As a result of the higher value, the blend submarket represents a better opportunity for ethanol to enter the transportation fuel market than does the neat submarket. Hower, the lower value neat submarket must be penetrated if ethanol is to command a large share of the total transportation fuelmarket. A linear programming model of the national refining system was used to perform the complex analysis needed to define the value, or market price, of ethanol in the blend submarket as a function of the demand level. The analysis required that numerous assumptions be made, and sensitivity studies were done to assess the impact on the results of variations in key assumptions. The results arepresented in the form of tables and graphs that define the price of ethanol as a function demand level. Gasoline prices defined in the blend submarket analysis were used along with estimates of relative engine efficiencies to perform a much simpler analysis of the market price of ethanol in the neat submarket. On the supply side, biomass ethanol production costs are dissected, emphasizing theeffect of feedstock supply costs. The cost of ethanol as a function of feedstock price is presented. Government incentives could be used to overcome any gap between excessive ethanol supply costs and ethanol market price. Strategies for government intervention in the marketplace are presented, along with external benefits of biomass ethanol deployment that could justify such intervention.
Original language | American English |
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Title of host publication | Handbook on Bioethanol: Production and Utilization |
Editors | C. E. Wyman |
Pages | 61-88 |
State | Published - 1996 |
NREL Publication Number
- NREL/CH-421-7580