U.S. Ethanol Production Near Capacity, Constraints Limit Growth
The number of ethanol plants in the U.S. has quadrupled since 1999. A USDA report says the growth in the number of ethanol plants has been driven by the Renewable Fuels Standard, which was first enacted in 2005.
The initial increase in plant numbers after 2005 led to some plants not producing at their full potential because supply grew faster than demand. However, since 2011, the number of plants has remained steady, allowing production numbers to increase as plants utilize their maximum production capacity.
As of last year, the USDA report says plants have been operating at 97 percent capacity. That translates into more than 15 billion gallons of ethanol production. Such a high number would normally mean demand for more new plants. However, the limitation on the amount of ethanol that can be blended with gasoline in existing vehicles is basically 10 percent.
When you add in lower gasoline consumption because of greater vehicle efficiency and fewer miles driven, domestic demand for ethanol is further limited in expansion ability. Thanks to these limitations, additional domestic production is intended for export markets.