Ethanol gets pricier but could plummet next year

Ethanol prices are hitting record levels this week, adding to the cost of gasoline as the nation heads into the peak vacation driving season.

A gallon of ethanol was going for as much as $5.75 on East Coast spot markets, more than double the $2.54 that it fetched as recently as three months ago, says Tom Kloza, analyst for the Oil Price Information Service.

Ethanol, grain alcohol usually distilled from corn in the USA, is added to gasoline to create a more environmentally friendly fuel required during the summer in many major cities. Ethanol has gradually replaced MTBE, a petroleum-based additive thought to cause cancer, as the lower-polluting alternative. And demand has outstripped supply.

With ethanol prices so high, the 10% of ethanol in reformulated gasoline, as the blend is called, could add about 30 cents a gallon to the cost of gas, Kloza says.

USA Today