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The physically-delivered New York Harbor Ethanol Futures contract, code QE, is an important risk management tool that allows for hedging, trading, and delivery of denatured fuel ethanol. The U.S. ethanol market is growing rapidly, particularly due to the government mandate for renewable fuels. The New York Harbor has become a key hub for the import, storage and distribution of ethanol on the East Coast. Delivery shall be made F.O.B. seller's terminal facility in New York Harbor. RINs (Renewable Identification Numbers) as defined under the federal regulations governing the Renewable Fuel Standard (RFS) Program, as set forth in 40 CFR Part 80, will be required for all deliveries of ethanol.
With the U.S. East Coast and certain large metropolitan areas consuming ethanol as a 10% blend with gasoline, and with an 85% blend available to motorists in the Midwest, NYMEX has introduced a physically-delivered ethanol futures contract to help market participants manage risk.
The primary factor driving ethanol demand is the phase-out of the gasoline additive methyl tertiary butyl ether (MTBE), long-used as an octane enhancer and source of supplemental oxygen in gasoline formulations. MTBE is blamed for contamination of groundwater where it has leaked from tanks and pipelines, and many states have banned further use of the chemical. In addition, the 2005 Energy Policy Act requires that 7.5 billion gallons of ethanol and biodiesel fuel be blended into the national motor fuel supply by 2012. Ethanol is a versatile product, also known as ethyl alcohol or grain alcohol, and is also used in solvents and other industrial products. Ethanol has excellent anti-knock properties with an octane rating of 113, although it contains less energy than gasoline, resulting in a fuel economy penalty. It is relatively clean burning.
Ethanol is largely produced through fermenting starch or sugar-based feedstocks. In the United States, corn is the principal raw material; in Brazil, the world's leading ethanol producer, sugar cane is widely used. Ethanol can also be derived from the petrochemical ethylene. Like the prices of other agricultural and energy commodities, the price of ethanol is influenced by factors that are beyond the control of the grower, producer, or blender. Therefore, the use the futures markets can be important for managing price risk.
NYMEX lists a physically-delivered ethanol futures contract (QE) and two financially settled ethanol swap futures contracts: the Chicago ethanol swap (CU), based on loading terminal quotations, and the New York ethanol swap (EZ), based on barge lots in New York Harbor. |
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