March floods that punished the Midwest have trapped barrels of ethanol in the country’s interior, causing shortages of the biofuel and pushing up gas prices in the western United States.
The historic floods, particularly in Iowa and Nebraska, have dealt a series of blows to large swaths of an ethanol industry that already was struggling with high inventories and sluggish domestic demand.
The ethanol shortages are one factor boosting gasoline prices in Southern California, including Los Angeles, to the highest in the country. They could top $4 a gallon for the first time since 2014, according to tracking firm GasBuddy.
The benchmark price for ethanol used in most supply contracts initially jumped on news of the floods, but since has been hobbled by the rising waters around a Chicago hub that have halted barges and sales.
That stands in contrast to ethanol prices on the coasts, which rose dramatically — drawing in heavy imports from competitor Brazil.
The floods inflicted billions of dollars in damage in the Midwest and knocked out 13 percent of U.S. ethanol capacity.
Ethanol is made from corn and required by the government to be blended into the fuel supply to reduce emissions.
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While some plants were flooded, the primary effect of the rising waters was to shut rail lines that serve as the main arteries for corn and ethanol deliveries.
Ethanol prices on the coasts spiked due to shortages, but Midwest producers have been unable to take advantage because of washed-out rail lines, market sources told Reuters.
While prices in the Midwest have faltered, the surges on the coast have helped suppliers like Pacific Ethanol and White Energy in California and Texas to take advantage of higher prices.
Ethanol delivered into Los Angeles typically trades at 20 cents a gallon higher than in Chicago, but that premium rose to as high as 50 cents a gallon, traders said. The price in New York Harbor was at roughly double normal levels, traders said.
The tight ethanol supplies, along with refinery outages, boosted retail gasoline prices and led to some gas station shutdowns in the West as fuel blenders there lacked the ethanol needed to mix with gasoline.
Gas prices in California were at $3.80 a gallon, well above the national average of $2.74 a gallon.
“Ultimately, Los Angeles could get close to seeing that average at $4 a gallon,” Patrick DeHaan, head of petroleum analysis at tracking firm GasBuddy, said.