The People of America's Oil and Natural Gas Indusry

"The Mortar is Nearly Set"

Bob Greco

Bob Greco
Posted July 30, 2013

The Energy Policy Research Foundation, Inc. (EPRINC) released a study last week highlighting the consequences of exceeding the blendwall:

“The current regulatory regime, if not reformed in some substantial manner, will likely spike gasoline prices in 2014, as federal mandates take the U.S. gasoline pool significantly above 10 percent ethanol by volume.”

The risk mentioned here isn’t coming as a surprise. We’ve described the potential consequences of the RFS and highlighted the real costs of the program here, here, and here. EPRINC’s study brings all of these problems into focus, underscoring the immediate consequences that could face consumers in 2014.

A few highlights from the study:

  • “EPRINC estimates that given market conditions and constraints in cost effective opportunities to blend larger volumes of renewable fuels into the U.S. gasoline pool, E10 prices will likely rise by a minimum of 20 cents per gallon in 2014…a more likely outcome is a price spike considerably higher than 20 cents a gallon, perhaps as high as 50 cents to $1.00 per gallon.”
  • “A price increase of ‘only’ $0.19 per gallon of gasoline in 2014 would raise consumer expenditures on gasoline by $25 billion.”
  • “…with RINs approaching $1.50 and many obligated parties, particularly those without widespread blending facilities, already experiencing large deficits and large RIN purchase costs, a reduction in domestic supply may be the most economic choice for some obligated parties.”

EPRINC also takes on the problems with increased E85 and E15 use:

  • “The required sales volume of 2.94 billion gallons of E85 to bring obligated parties into compliance would represent consumption growth of nearly 3,000% over recent years…In order to sell 2.94 gallons in a year, each of the 2,400 retail station that offer E85 would have to sell 140 gallons per hour, 24 hours per day, for 365 days. The average US gasoline station sells 100 gallons of gasoline per hour across all of their pumps.”
  • “E85 must be substantially discounted to compete with gasoline…In April [2013], E85 would have had to be discounted by $1.07 to compete with gasoline.”
  • “Short of exporting and other obligation reduction options, the only practical way to generate these needed RINs is through additional sales of E85. However, the combination of large discounts to encourage the sale of E85 and purchasing high-cost RINs will increase the cost of producing transportation fuels. The energy discount and other discounts to require make up for E85’s poor logistics and availability will significantly raise the marginal cost of supplying gasoline and diesel into the US market.”
  • “Going into 2014, E15 will have a negligible impact on RFS compliance.”

So, according to EPRINC, E85 only makes sense if the average retailer can sell 40% more E85 than all other grades of gasoline combined.  Oh, and the heavily discounted E85 would raise the cost for the other products, so all consumers bear the cost to force this E85 into the market, according to EPRINC.  Sounds like yet another unintended consequence of a fatally flawed RFS.

The economic issues that EPRINC outlines here add to the broad array of concerns from scientists, poultry producers, automakers, drivers, restaurant owners, environmentalists, and many others. As Scott Faber, VP of Government Affairs for the Environmental Working Group, said last week:

“If you eat food, drive a car, care about the climate or mow your lawn, then the RFS has been an utter disaster.”

With all of the evidence pointing to even more problems in 2014, it’s time to repeal the RFS.

ABOUT THE AUTHOR

Bob Greco is group director of downstream and industry operations at the American Petroleum Institute. With 21 years of experience, Bob directs activities related to refining, pipeline, marketing, and fuels issues. He has managed exploration and production activities, policy analysis, climate change issues, marine transportation, refining, gasoline and jet fuel production issues and Clean Air Act implementation efforts. Before coming to API, Bob was an environmental engineer with the U.S. Environmental Protection Agency, with expertise in automotive emission control technologies. He has a M.S. degree in environmental engineering from Cornell University and a B.A. in biology from Colgate University.