18 February 2014 20:34 [Source: ICIS news]
ORLANDO, FLORIDA (ICIS)--The US Renewable Fuel Standard (RFS) has distorted the transportation fuel market and resulted in the E10 blendwall, as well as other unintended consequences, US refiner Marathon Petroleum said on Tuesday.
The RFS is a government mandate that requires a fixed amount of renewable fuel, mostly corn-based ethanol, be blended into gasoline.
“Simply put, Marathon Petroleum supports corn ethanol and opposes mandates,” said Dave Whikehart, director of product supply and optimisation for Marathon. “Mandates distort markets and result in unintended consequences. This was clearly demonstrated by the RIN price blowout that we experienced in 2013.”
Whikehart was the keynote speaker for the National Ethanol Conference in Orlando, Florida.
RINs, or Renewable Identification Numbers, are credits generated by the production of renewable fuel, such as ethanol. Refiners must purchase RINs if they do not meet the RFS.
The blendwall is the point at which many refiners say that they can blend ethanol safely into gasoline, which is 10%.
In order to get past the blendwall, the ethanol industry has touted the widespread adoption of E15 or E85, which are fuel blends that include 15% and 85% ethanol, respectively.
“Changes in transportation fuel manufacturing, distribution and consumption require simultaneous development through very different but connected industries - transportation fuel production, automobile manufacturing and transportation fuel distribution and retail marketing,” Whikehart said.
Each industry faces unique issues.
For example, fuel producers must first develop the new fuel, like E15 or E85, and make investments to manufacture it at a commercial scale, while at the same time maintaining the ability to manufacture and distribute the legacy fuel, Whikehart said.
Furthermore, automobile manufacturers must develop and test new engine technology and then introduce it to the consumer.
Whikehart said that once the new fuel is accepted, it takes 15 to 17 years to turnover the vehicle fleet.
“The endorsement of engine manufacturers is critical to the new fuel formulation,” he added.
Then the distributors and retail marketers must modify distribution systems, including terminals, pipelines and retail stores, to safely handle and market the new fuel, in addition to the legacy fuel, while the vehicle fleet turnover continues.
Whikehart said that this is a 20-year investment cycle at the retail store level, based on Marathon’s experience with its own retail brand, Speedway.
“These are all massive industries, and it takes decades to effect the transformation contemplated by the RFS,” he said. “Artificial mechanisms, like the RFS ethanol mandate, intended to dramatically accelerate this timeline will likely result in a market distortion and an escalation of costs. This is the reality of the E10 blendwall.”
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