Ethanol Expansion and Crude Oil Prices

Ethanol Expansion and Crude Oil Prices
Page content

Ethanol is an alcohol derived from the processing of plants, with the most popular feedstocks being sugar beet and corn.

The US processes the ethanol almost exclusively from yellow corn, with Brazil using sugar beet, and between them these two countries produce over 90% of the world’s ethanol. The ethanol is used as an additive to gasoline, with the fuel being given grades such as E10, a 10% mix of ethanol in the petroleum.

Processing Ethanol from Corn – an Overview

We shall look at a wet grinding process where at the processing plant, the corn kernels are separated and soaked in sulfuric acid before undergoing further treatment to separate into their four major components: starch, oil, gluten and fiber.

There is a new method developed that still requires soaking the kernels, but here protease enzymes are mixed with the water and these hydrolyze (break down) the peptic bonds of proteins, resulting in a more efficient and environmentally friendly method than using a sulfuric acid and water soak.

Anyway, this slurry is fed into grinders to remove the corn oil, which is extracted and sold as a by-product; the remaining components are separated using filters and centrifuges. The gluten and fiber are dried and sold off as livestock feed, leaving the starch, which is fermented into ethanol.

Reference Web: newenergyand fuel - Processing corn to ethanol using wet grind method

Expanded Production of Ethanol – The Effects

A global increase in the production of ethanol from corn could have positive and negative effects in the following categories:

1. Environmental Effect – Positive and Negative.

2. Human Effect – Food Shortages and Higher Prices.

3. Effect on Prices - Corn, Petroleum, and Crude.

4. Economical Effect - Positive and Negative.

1. Environmental Effects


  • Using an E10 grade of petroleum produces fewer greenhouse gases upon combustion.
  • Numerous valuable byproducts are produced during the process, such as corn oil and agricultural fertilizers.


  • Excessive use of water (500 gallons of water to produce 1 gal of ethanol) with resultant waste to dispose of.
  • Air pollution from use of chemicals and acids in processing.
  • Pollution of land by over-fertilization of soil.

2. Human Effects

There has been a lot of controversy recently in food vs. fuel, regarding the use of first generation crops to produce bio-fuels.

An example of using first generation crops can be seen in the USA where white corn is grown in USA primarily for cattle feed and export, with yellow corn being grown for ethanol production. As the demand for ethanol increased, the price per bushel for yellow corn went up along with it, encouraging many grain farmers to change over to growing yellow corn for bigger profit margins.

However, over the border in Mexico, white corn is used as a main ingredient of tortillas and as the production dropped the price increased, putting white corn out of many of the poorer people’s reach.

This scenario can occur anywhere in the world where crops are being grown for fuel rather than food, and can only be exacerbated by expanded ethanol production.

3. Effects on Petroleum and Crude

Prices - USA

I have produced a graph which represents the effects of expanded production of ethanol for these categories for the USA.

This shows that a rise in the cost of a barrel of crude will promote a rise in the price of petroleum along with a rise in the cost of corn feedstock. This was to be expected; but surprisingly it also shows a reduction in the price per gallon of ethanol. (This may be due to government subsidies.)

Production Worldwide

I have also produced a graph on world production of ethanol, crude, and petroleum. This shows that an increase in production of ethanol will have the following effects on the prices of these commodities:

a) Effect on Crude - There does not appear to be any effect on crude production due to the increase in ethanol production. However as new oil fields are being discovered frequently, and Far East production is controlled by OPEC, these could be the reasons.

b) Effect on Petroleum - Petroleum production shows a marked reduction as ethanol production increases, especially since 2007.

I have shown the graphs and related tables in the Images Section at the end of the article.

4. Economic Effects

Positive Effects - Construction and operation of additional ethanol plants will bring:

  • Increased employment.
  • Increase in farming revenue.
  • Rural development.
  • Increase in local real estate prices.

Negative Effects

  • Increase in corn prices.
  • Increase in prices of corn-related food.
  • Government subsidies for growing corn and producing ethanol are thought to be impeding the research and development into uses of other feedstock such as grasses and plant residues.

Reference Webs:

  1. gvismarketforces – prices of corn.
  2. energyacrossamerica - economic benefits of increased ethanol production in USA.
  3. brdisolutions - effects on land usage due to world expansion of ethanol production.
  4. theglobalist - global effects of expansion of ethanol production fuel vs. hunger.

Tables and Graph Showing Relationships Between Corn, Ethanol, Crude and Petroleum

World’s Top Five Producers of Ethanol

Table of Comparisons

Graph Showing Comparison of Prices

Worlds Production of Ethanol, Crude and Petroleum

World’s Production of Ethanol, Crude and Petroleum