INSIGHT: New US ethanol mandate could close refineries

18 March 2010 17:07  [Source: ICIS news]

By Joe Kamalick

US ethanol makers desperate for higher blend mandateWASHINGTON (ICIS news)--A looming federal mandate for higher US consumption of ethanol in transportation fuels may trigger refinery shutdowns, higher gasoline prices for consumers and feedstock issues for petrochemical producers, an industry leader contends.

Charlie Drevna, president of the National Petrochemical & Refiners Association (NPRA), said that if the Environmental Protection Agency (EPA) grants the US ethanol industry’s petition for a higher ethanol blend mandate in automotive fuels, that action will take away additional market share from conventional refined fuels.

The agency has indicated it will decide by the end of the second quarter this year on whether to grant the ethanol industry’s request for a higher ethanol fuel mix.

At present, virtually all US gasoline blends must contain 10% ethanol, known as E-10. The ethanol industry petition wants EPA to boost the mandate to a 15% requirement for an E-15 ethanol-gasoline fuel, also known as a mid-level blend.

The US ethanol industry, which is wholly corn-based, argues that the higher ethanol blend mandate is necessary for survival of the nation’s bio-based fuels sector.

The corn ethanol sector has been troubled by low prices and bankruptcies, and in its March 2009 appeal to EPA for an E-15 mandate, ethanol producers argued that the current E-10 requirement does not create enough demand to absorb existing domestic ethanol production.

The agency was to have ruled on the ethanol E-15 petition by the end of last year but in December announced that it would delay its decision to mid-2010.

When the ethanol industry first sought the E-15 mandate, a broad coalition of US energy and refining industries, foods producers, livestock operators, automotive and engine manufacturers, environmental and science groups voiced vehement opposition.

That group of 40-some industry, agricultural, environmental and manufacturing interests this week has appealed anew to EPA, asking that the federal agency postpone yet again any decision on E-15, arguing that much more scientific research is needed to inform a final ruling.

In a letter to EPA administrator Lisa Jackson, the coalition - which includes manufacturers of gasoline engines widely used in non-transportation roles - wants EPA to complete all necessary testing and evaluation of E-15 and its impact on fuels distribution and engine performance in automobiles, construction equipment and recreational engines.

Those opposing the E-15 petition also want EPA to open a new period for public comment on the matter.

Drevna said the opportunity for additional public comment and a further delay in an EPA ruling on the matter are necessary because NPRA and its coalition partners believe that the agency is not doing nearly enough research to make a scientifically sound decision by the middle of this year.

“To date, we understand that EPA has tested E-15 in about 19 automotive engines out of a total of some 400 automobile engines now in use,” he said. 

“That does not include motorcycle or off-road vehicle engines, marine and hand-held power equipment,” Drevna said. “Those 400 are just automobile engines.”

Such a small sampling of vehicle engines that might be put at risk with E-15 fuels “doesn’t give us a lot of statistical confidence” in the EPA’s pending decision, he said.

But ethanol producers say they cannot sustain an additional public comment period, which could delay an EPA ruling to the end of this year or into 2011.

The Renewable Fuels Association (RFA), a leading ethanol trade group, contends that “it’s critical that the federal government revisit the existing limit on ethanol blending”.

“Prompt approval of the use of higher level blends of ethanol is critical in the near term to stabilize today’s [ethanol] industry,” RFA said. 

Refiners, the upstream US oil and gas production sector and others argue that E-15 fuels might damage a wide range of automotive engines and catalytic converters, posing safety and performance risks.

Environmental groups in the coalition challenging the proposed E-15 mandate cite US Department of Energy (DOE) tests that indicate higher pollution output when some conventional vehicles use mid-level ethanol blends.

US producers of foods and livestock industries dependent on corn contend that an E-15 mandate will drive corn prices higher, raise their material costs and reduce food supplies globally.

“Putting food in fuel tanks will not help feed a growing global population,” Drevna said.

“Right now there is no alternative for corn ethanol,” he said, noting that while technologies are available to produce ethanol from non-food cellulosic feedstocks such as wood chips and switch grass, they are not operating on a cost-effective and commercial scale.

Drevna said the existing E-10 ethanol mandate effectively took 10% of the transportation fuels market away from conventional gasoline producers, and that an E-15 mandate would take additional market share from refiners.

“This will mean less and less refining capacity in this nation,” he argues, because amid continuing high crude prices and mandate-induced market share losses, some operators will shutter marginal refineries.

“The price of crude will remain high because India and China and other developing economies continue to grow, keeping oil consumption and prices high,” he said.

He said that as the US economy continues to recover and fuel demand rises, that growth could come in the face of reduced gasoline refining capacity - if an E-15 mandate is ordered - and trigger demand-driven increases in fuel prices.

The coalition also warns that even if sound scientific testing shows that newer automobile engines can handle mid-level ethanol blends, an E-15 mandate will put older vehicles at risk because of consumer confusion.

“It would be a supply and logistical nightmare for people to actually dispense E-15,” Drevna said.  “There are a lot of potential ramifications for mis-fueling.”

In addition, Drevna said a federal order mandating a nation-wide E-15 blend ultimately could impact petrochemical producers.

Unlike refining, petrochemical production would see no immediate impact of an E-15 mandate, but there might be an effect on petrochemical feedstock supply in time.

Drevna contends that if E-15 is imposed and refiners are necessarily required to make a proportional cut in conventional gasoline production, demand for domestic oil production will be affected.

Petrochemical producers rely on oil and natural gas as principal feedstocks, and NPRA worries that petchem manufacturers dependent on petroleum might be facing reduced domestic availability.

“We’ll have to make that up from foreign sources,” Drevna said.

The EPA did not immediately respond to a request for comment on the coalition’s request for an extended public comment period for the E-15 petition.

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By: Joe Kamalick
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