Common Ground

FROM THE JANUARY ISSUE: The future of liquid fuels, whether derived from renewable resources or not, might depend on a collaboration between ethanol and petroleum interests.
By Matt Thompson | December 19, 2019

While electric vehicles are gaining popularity, experts say a quick transition to a fully electric fleet isn’t likely, and liquid fuels for transportation will continue to be an important part of the energy equation. But that doesn’t mean the ethanol industry should take the future of its product for granted. And executives of trade groups from both ethanol and petroleum industries say collaboration might be necessary to ensure corn ethanol continues to be a part of the nation’s fuel supply.

In February 2019, the case was made at the National Ethanol Conference for the two industries to come together to agree on a national high-octane standard. “Our collective future is defined by both oil and ethanol working together in a more accelerated way to resolve open issues,” said Dan Nicholson, General Motors’ vice president of Global Propulsion Systems. “The auto and retail sectors are pressing to ensure greater levels of engagement between oil and ethanol,” Nicholson said as he advocated for a 95 research octane number (RON) standard to NEC attendees. Many in the ethanol industry advocate for a 98 RON or higher.

But, at the time, Geoff Cooper, RFA president and CEO, said there was a potential path forward with the petroleum industry. “It would be great if we could get to a point where we can sit down with the autos and oils and come to some agreement that works for everybody,” Cooper said.

He still maintains that optimism. In a November interview with Ethanol Producer Magazine, Cooper outlined the importance of petroleum and ethanol working together. “We do think it’s critical that as fellow liquid fuel producers, the ethanol industry and petroleum refiners get together on a way to make liquid fuels the best that they can be moving forward,” Cooper says.

And he’s not alone. Patrick Kelly, senior fuels policy advisor for the American Petroleum Institute, says, “We certainly have the opportunity to work with the ethanol industry and there are opportunities that we should be exploring, particularly in supporting liquid fuels, broadly. ... I think there are opportunities and we’d like to explore those opportunities more.”

Geoff Moody, vice president of government relations for the American Fuel and Petrochemical Manufacturers trade group, is on board, too. He says that while there have been disagreements on policy between the two industries, they shouldn’t be construed as opposition to ethanol in general.

“We’ve long said that ethanol’s a great fuel, and without the Renewable Fuel Standard, our companies would continue to use ethanol,” he says. “Long term, we see ways to make policies work better for all stakeholders and to help improve the efficiency of the internal combustion engine, which we think is important. So it’s a critical relationship.”

Critical Cooperation
While policy goals between the two groups might seem directly in opposition, Cooper says there are issues where they can have a meaningful collaboration. In his dealings with the petroleum industry, he says, it’s clear both industries are advocates for increasing the octane ratings available in U.S. gasoline. “We’ve always believed that in order to get to more efficient vehicles and less carbon intensive internal combustion engines, we have got to have higher octane,” Cooper says. “And I think the refining industry agrees with that.”

Kelly does. “We openly and fully acknowledge the benefits of ethanol as a low-cost provider of octane—adds to liquid fuel supply; domestically produced,” he says. “We fully expect ethanol to be part of the fuel supply for a very long time. For the long term, we see ethanol as playing a role.”

But, Cooper says, there are still areas where the two industries are at odds. “There is a gap, and that gap is created by a desire to protect market share,” he says. “We are competing with the petroleum industry for the American driver’s gas tank and so there is going to be that competition and that conflict. But I think we’re moving rapidly into an era where we’re going to have to work together to continue to improve the environmental profile, and at the same time maintain the cost competitiveness of liquid fuels and internal combustion engines, or other alternatives are going to gain a leg up on us.”

But ethanol and petroleum have successfully collaborated in the past. Kelly says he’s worked directly with Cooper and the RFA on technical issues, specifically the transfer of Renewable Identification Numbers. “That conversation, actually, was largely driven by our members,” Kelly says. “A large ethanol producer and a large refiner were having a market issue, and they asked their two trade groups to get involved. I think, in the end, it was resolved satisfactorily.”

Current Collaboration
While a point of contention between the two industries centers around policy issues, some companies are successfully involved with both petroleum and ethanol, such as The Andersons and Valero. In fact, Moody says the refining industry owns about 20 percent of U.S. ethanol capacity.

“When you look at the refining sector, and some of the major players in that sector, they do absolutely have ethanol production assets or relationships with ethanol producers,” Cooper says.
“The fact that those companies have chosen to be in both markets shows they found that there are synergies within their own internal company,” Kelly says. “I think more broadly, even when it’s two different companies, I think there’s a lot of just opportunities to work together.”

And recent news from The Andersons shows that structure can be beneficial. In October, The Andersons Inc. and Marathon Petroleum Corp. announced the formation of The Andersons Marathon Holdings LLC, an entity formed by merging four of the companies’ ethanol plants. “We have enjoyed and benefited from our partnership with Marathon Petroleum in the ethanol business since 2006,” said Jim Pirolli, president of The Andersons Ethanol Group, in a statement. “In addition to other benefits, TAMH will provide an excellent platform for future growth.”

During the company’s 2019 third-quarter earnings call, Brian Valentine, The Andersons’ senior vice president and chief financial officer, said, “This will allow our commercial teams to trade corn, ethanol and distillers dried grains freely among the four facilities to achieve optimal profitability, and our procurement team to leverage the resulting larger purchase power.”

Coming to a Consensus
“I think for us, the future and the best-case scenario is a low-carbon, high-octane fuel program,” Cooper says, acknowledging that coming to a consensus won’t be easy. “It’s going to take a lot of work to get there and it’s going to take some compromise and some work with the refiners to get to that place, but we think, ultimately, that’s the best place for all of us who are in the liquid fuel sector.”

Kelly says his organization’s ideal outcome is broader. “I think just generally supporting liquid fuels in the marketplace and liquid fuels in export markets, as well,” he says. “We certainly agree with the ethanol industry on a lot of trade issues, but domestically, I think there are opportunities where we could work together to push back against some of the market-distorting effects of subsidies for electric vehicles or other things that are intended to hurt the industries.”

Moody says both strategies are important for the industries, adding they must work together in opposition to policies that seek to phase out the liquid fuels industry. “Electric vehicles don’t run on ethanol, they don’t run on petroleum, and so we have concerns with policies that are seeking to end our industry through mandates and subsidies,” he says, adding AFPM is not against electric vehicles as a product, but it does oppose some of the polices that help that industry.

Moody also says trade is a topic of interest for both ethanol and petroleum. “We support free trade and opening markets for all products,” he says. “When you get into tariffs and trade, we certainly have an interest in keeping market access open.” He also agrees with Cooper that collaboration will take some effort. “We’re going to be spending time getting the message out that we do think [a 95 RON octane standard] is better and why. It doesn’t happen overnight,” Moody says. But in his conversations with ethanol groups, he sees a willingness to collaborate, he says. “I’d broadly characterize it as saying there’s a lot of interest in talking.”

In addition to advocating for an octane standard, Kelly says both industries can support the environmental benefits ethanol offers. “Millions of people across the country are benefiting from our improved air quality and so I think when you consider that in the context of these electric vehicle subsidies, you really need to consider that there are emissions benefits from newer vehicles that are being realized every day,” Kelly says.

Cooper says collaboration will be critical for the future of liquid fuels. “I think we’re headed into an era where things are going to have to change,” he says. “I think there is growing recognition of that, and I think there is growing recognition that we need to be working together and doing more to ensure that liquid fuels remain economically competitive and continue to improve in terms of their environmental footprint. Otherwise, there are other emerging options out there.”

Moody agrees. “From my perspective,” he says, “we’re going to have significant disagreement on some of the RFS issues near-term, which shouldn’t take away from the need to work together on issues of common interest, long-term,” he says. “If we don’t find a way to work together, find a better path forward, this is going to be everybody’s reality. More and more fighting, which we don’t view as productive, and I don’t know that anybody does.”

Author: Matt Thompson
Associate Editor, Ethanol Producer Magazine