An ethanol surprise
This will surprise some people. In answering Jason Gabelman’s question in an April 28, 2026 quarterly earnings conference call:
“How have massive dislocations in the market changed how you think about investment opportunities and how you run the business in the medium term?” — Jason Gabelman, TD Cowen Research
part of the response was:
“As the hydrocarbon prices have increased, so has the value of octane and ethanol being an octane component, has now become the cheapest form of octane in the world.” — Lane Riggs, CEO, President and Chairman, Valero Energy
And to a follow-up question from Matthew Blair:
“The ethanol results seem pretty good, better than our expectations. Was that just a function of improving values on the coproducts?”– Matthew Blair, Tudor, Pickering, Holt & Co. Securities, LLC, Research
part of the response was:
“Everyone sees that ethanol as a cheaper form of liquid fuel. So you’re seeing demand in ethanol.” –Eric Fisher, Senior Vice President of Product Supply, Trading & Wholesale, Valero Energy
Even aside from the current dislocations, ethanol is cheaper than refinery-produced gasoline
- on a per-gallon basis,
- on a per-mile travelled basis,
- and on a per-octane-gallon basis.
How much cheaper? On a per-octane-gallon basis (that’s the right unit of measure for answering this question), ethanol is 4.5 times cheaper than incremental refinery octane.
On a per-octane-barrel basis (that’s the right unit of measure for answering this question), ethanol is 4.5 times cheaper than incremental refinery octane.
George Hoekstra, in “The Octane value of ethanol”, June 24, 2025
This should make Valero happy for more reasons than one.
George Hoekstra, george.hoekstra@hoekstratrading.com, +1 630 330-8159
