The People of America's Oil and Natural Gas Indusry

Retailers, Consumers and Higher Ethanol Blends

Mark Green

Mark Green
Posted August 20, 2014

Other voices continue to weigh in on the higher-ethanol blend fuels, E15 and E85. Three associations representing independent petroleum marketing companies and fuel retail outlets have written the White House, expressing concern for the fuels’ compatibility with the nation’s vehicular fleet and consumer acceptance.

In separate letters to John Podesta, White House counselor for energy and climate policy – the Petroleum Marketers Association of America (PMAA) in one and the Society of Independent Gasoline Marketers of America (SIGMA) and the National Association of Convenience Stores (NACS) in another – the associations caution that pushing more and more E15 and E85 into the fuel supply could cause problems for retailers and consumers.

PMAA represents 8,000 independent marketing companies that own 60,000 retail outlets including gas stations, convenience stores and truck stops. Member companies also supply fuels to 40,000 independently owned retail outlets. PMAA President and CEO Dan Gilligan:

While PMAA supports the use of ethanol in our nation’s fuel supply, we are concerned that the push for higher ethanol blends will not fulfill the RFS corn-based ethanol mandate due to existing underground storage tank (UST) infrastructure incompatibility, weak consumer demand for the product and motorist misfueling concerns.

Gilligan writes that his organization is not “Big Oil,” that 94 percent of U.S. gas stations are owned by independent retailers represented by PMAA. Gilligan notes that Underwriters Laboratories (UL) has yet to certify existing gas station dispensers, piping or underground storage tanks for E15, which is required under federal regulations. Additionally, many retailers may not be able to identify the type of adhesives, gaskets and connectors used in their underground storage tanks, which is necessary to determine whether they’re compatible with E15. Gilligan writes:

Fire codes require UL listed equipment and very little existing infrastructure is listed for E15. Finally, the cost to replace existing equipment with higher ethanol blend certified tanks and dispensing equipment (approximately $200,000) along with the expense associated with increased liability for potential releases and consumer lawsuits are far beyond the means of small business petroleum marketers.

PMAA is concerned that a number of automobile manufacturers won’t extend warranty coverage for E15-related damage to engines, fuel pumps and other components in vehicles that weren’t designed for E15 use. If the owner of a pre-2001 vehicle misfuels with E15, the association is concerned retailers could be held liable for such damage, Gilligan writes.

Additionally, Gilligan notes low consumer demand for E85 fuel and that consequently a number of member companies discontinued offering it:

Only 10.7 million FFVs (flex fuel vehicles) existed in the US in 2012, representing just 4.7 percent of the light duty vehicle market. These 10.7 million vehicles averaged fewer than 20 gallons of E85 per vehicle for the entire year.  In some cases, FFV motorists might not even know that their vehicle can run on E85. Additionally, E85 must be priced at least 30 percent lower than conventional gasoline for motorists to receive similar energy content at a competitive price given that ethanol has a lower BTU energy content compared to conventional gasoline.

SIGMA and NACS represent about 80 percent of retail motor fuel sales in the U.S., and the associations’ letter to Podesta amplifies concerns about E85. Their letter:

These retailers invested in E85 installations. Consumer demand, however, remains low. Retailers cannot control this. Supply responds to consumer demand; consumer demand is not created by the availability of supply. SIGMA and NACS do not advocate repeal of the Renewable Fuel Standard. In order for that program to achieve its objectives, however, policymakers must operate based on certain essential facts.

The facts include low demand and the economics of running a small business. SIGMA/NACS:

Some renewable fuel advocates make the fallacious argument that if retailers were to simply offer more E85 for sale, consumers would purchase more E85. Fundamental economic principles and real-world retailer experience dictate that this is simply not true. … Many fuel retailers across the country have invested substantial sums of money in E-85 infrastructure only to see the E85 dispenser under-utilized. Even when it is priced much lower than traditional gasoline, consumers have exhibited little proclivity for purchasing E85. In fact, SIGMA and NACS members have almost never derived more than three-to-four percent of their total fuel throughput from E85 sales on a consistent basis. … Without consumer demand for E85, there is no incentive for retailers to invest further in additional infrastructure to store and dispense E-85.

We’ve highlighted a number of these concerns in previous posts. These include automakers’ E15 warnings, linked to the potential for damage to engines and fuel systems and the incompatibility of E15 with outdoor power equipment and boat engines – underscored in this recent video featuring FOX Sports Outdoors’ Barry Stokes:

They also include unrealistic notions that ethanol “blend wall” problems brought on by the Renewable Fuel Standard (RFS) could be solved by getting retailers to sell more E85.

In fact, all are symptomatic of the flawed, energy policy central planning that runs through the RFS – that, basically, that the government can somehow legislate-regulate-mandate the marketplace and consumer behavior.  

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.