The People of America's Oil and Natural Gas Indusry

Paying for Ethanol’s Infrastructure

Bob Greco

Bob Greco
Posted March 22, 2013

Ethanol supporters have a blog post up suggesting that if the oil and natural gas industry simply invested in the “modern fuel distribution infrastructure needed to dispense greater than E10 blends,” industry’sissues with unworkable ethanol mandates under the Renewable Fuel Standard would vanish.

Maybe in some alternate universe – one that’s disconnected from economic reality, real costs and operating margins. Don’t take our word for it. Take a look at this letter to the Wall Street Journal from Dan Gilligan, president of the Petroleum Marketers Association of America, the folks who own the gasoline stations, convenience stores, heating oil businesses, truck stops and other companies that invest in and market petroleum products.

Gilligan writes that most of the fueling infrastructure in this country isn’t designed to handle “greater than E10 blends” – such as E15 (up to 15 percent ethanol) – and that making it so would be more impactful than ethanol backers acknowledge:

There are 700,000 gasoline dispensers in use in the U.S. and probably fewer than 5,000 have been certified for E15. There are over 3,000 miles of underground piping systems that have not been certified as safe for E15 as well. Who is going to pay to replace the dispensers and underground piping, which will cost some retailers hundreds of thousands of dollars? Over 94% of the gas stations in the U.S. are owned by independent businesses, and the major oil companies cannot order those retailers to replace dispensers and piping. The retail gasoline business is brutally competitive and the average retail outlet has an annual net profit of $40,000.

Let’s bring it to a fine point: The fueling system infrastructure costs so easily dismissed by ethanol’s supporters wouldn't fall on major oil companies, which own less than 3 percent of the country’s service stations, but on a lot of independent businesses which, as Gilligan notes, don’t enjoy huge profit margins.

We’re talking about costs ranging from thousands of dollars to potentially hundreds of thousands of dollars, per station. The country has more than 156,000 service stations. Do the math: The upper end of the price tag could be more than $15 billion. Then the question becomes whether to invest potentially tens of thousands of dollars to sell something like E15, which research has shown could damage vehicleengines and fuel systems. Real-world business decisions … the kind ethanol backers should acknowledge.