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Ethanol in Brazil: Price Fluctuations

with Mario R. Duran

By

Brazilian ethanol and gasoline fuel pump

A typical Brazilian fueling pump with dual capacity for dispensing ethanol (A for alcohol) and gasoline (G). Drivers are literally free to choose any amount they wish for each fuel. Petrobras service station at São Paulo city, Brazil.

© Mario R. Duran
Fuel prices--they've been fluctuating a lot in the past year. And that naturally had us wondering if similar scenarios are at play in Brazil, noted as the world's first sustainable biofuels economy. Thanks to Mario R. Duran, transportation planner currently working in Brazil, M.Sc., U.C. Berkeley and M.P.A., Harvard University, who graciously agreed to answer some of our questions regarding the use of ethanol as a fuel in Brazil. Here is the second of four questions along with Mario’s article-answers, after the first one shed light on the food vs. fuel debate as it relates to ethanol.

Scott & Christine: What are the current prices for E25, E100 and CNG? Do prices tend to fluctuate in Brazil, or stay fairly stable?

Mario: During the last week of October 2008, the national average retail price for E25 was US$ 4.40/gallon (R$ 2.51/liter), for hydrous E100 was US$ 2.65 (R$ 1.51/liter), and for CNG was US$ 2.91/m3 (R$ 1.66 per cubic meter). This means that the national average E100 price was 40% lower than E25, making the use of pure ethanol attractive with at least a 10% to 15% savings when discounting ethanol’s lower fuel efficiency. However, retail prices vary significantly between regions of the country, and the price of E100 also fluctuates depending on the season of the year. During the harvest season retail prices tend to be lower, and between harvests the price usually increases, as tank storage capacity is very limited, though nowadays ethanol plants are producing nine straight months a year.

However, the most important consumer price fluctuation is regional. Ethanol producing states, such as São Paulo and Matto Grosso, enjoy lower E100 prices, with variations during the year between US$ 2.19/gallon (R$ 1.25/lt) to US$ 2.54/gallon (R$1.45/lt), so allowing a favorable spread between 40 to 50% as compared to gasoline, and more than enough to offset the 25 to 30% lower fuel economy of ethanol. On the other hand, non-producing regions or cities far away in the interior, such the capital Brasilia, and most cities in the Amazon region, have higher prices. For example, at Brasilia, one of the most expensive cities in the country, during the last week of October the price for gasoline was US$ 4.54/gallon (R$2.59/lt) while the price for ethanol was US$ 3.29/gallon (R$1.88/lt), resulting in just a 27.5% difference, so just barely covering ethanol’s lower fuel economy. In the far away northern states of Amapá and Roraima, the price spread drops to just 10 and 20% correspondingly, thus making gasoline more attractive than ethanol. Hopefully, most of the Brazilian population and car fleet are concentrated in cities located in the coastal regions, where ethanol prices are more competitive.

Just as a reference, for the last week of October the price paid to producers of anhydrous ethanol was around US$ 1.58/gallon (R$ 0.90/lt), for hydrous ethanol was around US$ 1.37/gallon (R$ 0.78/lt), and for pure gasoline before converting to E25 was to US$ 1.92/gallon (R$1.10/lt). Notice that when comparing average retail prices, E25 costs 2.29 times the price of pure gasoline, while E100 costs 1.93 times the producer price. Leaving distribution costs and sale profits aside, this high increase in retail prices is in part due to Brazil’s heavy federal and state taxation, which is particularly high for gasoline (E25) that pays 54% in taxes. Therefore, even though Brazilian ethanol is no longer subsidized, heavy taxation also contributes to keep ethanol competitive. It is also worth noticing that there is a 14% price difference between anhydrous and hydrous ethanol, reflecting the additional processing required to convert hydrous ethanol into the anhydrous one. This price difference, though small, also contributes to the competitiveness of E100 used by Brazilian flex vehicles.

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