Price and market trends: Costs and low demand hinder US fuel ethanol use

17 July 2014 18:13 Source:ICIS Chemical Business

The biggest hurdle for retail stations is the cost of installing, and difficulty in verifying equipment to handle higher blends

Retail gasoline stations have found it difficult to offer higher ethanol fuel blends because of the cost of upgrading infrastructure, the confusion about which cars can use the blends and a lack of consumer knowledge about them, the president of the Petroleum Marketers Association of America (PMAA) said on 10 July.

 

 Some sell blends higher than the standard 10% variety

Copyright: Rex Features

Through state and regional trade associations, the PMAA represents about 8,000 independent liquid fuel distributors and retailers across the US, PMAA president Dan Gilligan in an interview with ICIS. Some sell blends higher than the standard 10% variety such as E15, which is 15% ethanol, or E85, which is 85% ethanol.

“We have some members that would like to do E15, but when they do the math, they just can’t see how it pays off,” Gilligan said.

A report from the Renewable Fuels Association (RFA) analysed franchise and branding agreements from large oil companies that the group said discourage the inclusion of higher ethanol blends at branded retail gasoline stations. The report noted a higher inclusion rate at independent stations of between 2.3% and 3.5% compared with 0.6% for the branded stations.

INSTALLATION HURDLE
But that report does not tell the whole story, Gilligan said. The biggest hurdle for retail stations is the cost of installing, and difficulty in verifying equipment needed to handle the higher ethanol blends, which could be more corrosive, he said.

When installing new equipment, the cost of higher ethanol-compatible components is greater, he said, referencing that a new dispenser might cost $20,000 if approved for higher ethanol blends rather than $15,000 if not. Gilligan said that he had heard only about half of new stations have installed equipment approved for higher ethanol blends.

Having existing equipment approved for use with E15 involves contacting the manufacturer of each piece, which can be more than 10 components for underground equipment. Some gas stations no longer have records of which manufacturer made each component, while some manufacturers simply prefer to avoid the liability of clearing their components for higher ethanol blend, Gilligan said.

Conversely, almost all stations offer higher octane and premium blends of gasoline even though few cars on the road require it. Including the premium blends is made easier since the fuel can use the same infrastructure as regular gasoline.

While a station may be able to sell more ethanol than premium gasoline, it may not be enough to cover the infrastructure costs associated with it, Gilligan said. Low demand for higher ethanol blends also has been an issue.

“The return on investment simply is not there for the retailers,” Gilligan said.

CONSUMER KNOWLEDGE GAP
Some consumers prefer gasoline because a vehicle does not go as far on the same amount of ethanol. But a lack of knowledge also has dampened demand, Gilligan said.

“I just don’t think people think about it that much,” he said. “A lot of people have flex-fuel vehicles and don’t even know that they have them.”

Flex-fuel vehicles are made specifically for blends up to E85. Automobiles manufactured today should be able to use E15, but drivers have conflicting information about vehicles made in previous years.

US regulators had approved E15 for use in vehicles made after 2001, while some auto manufacturers have said not to use it in cars made before 2012. Fuel retailers do not know which is correct, “but they do know that if there is doubt in the mind of the consumer they don’t want to get in the middle of that,” Gilligan said.

However, Gilligan does see higher ethanol blends becoming more prevalent in the retail fuel industry. As regulations push fuel efficiencies higher, engines will need higher octane. Ethanol is a high octane fuel.

“Over time there is going to be a need for higher octane fuels in the marketplace. Retailers are going to need to make the upgrades,” Gilligan said.

Higher ethanol blend inclusion rates have been helped by some state or federal programmes that give grants or tax credits on ethanol infrastructure. More programmes could help, but the growth of products like E15 and E85 will take time, Gilligan said.

He estimates there are about 700,000 gasoline dispensers in the US and at most about 500 each year are upgraded or approved for higher ethanol blends.

“It’s going to take a very long time for all those 700,000 dispensers to be replaced,” he said.

By Jesse Waldheim