Choice at the Pump
Scott Zaremba, owner of Zarco 66 convenience stores, didn’t just open the first E15 retail pump in the nation. Not long after offering 15 percent ethanol at the first station in Lawrence, Kan., he expanded to six more locations—the only seven E15 pumps in Kansas to date and the highest number of E15 pumps owned by one company.
Zaremba is the second generation in his family to work in the transportation energy business, he tells Ethanol Producer Magazine. In his lifetime he’s witnessed the 1973 oil embargo, the 1991 Gulf War and crude oil price increases. Although it didn’t ultimately work out, his family considered purchasing an ethanol plant in the 1980s. He recognizes that ethanol is cleaner, renewable and can be produced locally, reducing the need for foreign oil. He first started blending ethanol and biodiesel back in 2007. “It just makes sense to me,” he says, adding that he doesn’t think it’s right to utilize U.S. military forces to protect U.S. oil interests overseas. “Whatever it takes for us to be energy independent is what we need to do,” he says.
The fact that ethanol is a renewable fuel is one of its key selling points for Zaremba. This year’s drought and the resulting higher corn prices represent a temporary situation that will eventually resolve itself with adequate moisture, if not with the next crop, the crop after that, he says. Still, current economic conditions have had an impact on his business. On Oct. 1, the Garnet, Kan., ethanol plant Zaremba was sourcing ethanol from idled temporarily, meaning he’s had to travel further to get ethanol. “From a retailer perspective, it’s a little more difficult for me now, because there’s not the cost advantage that there was for me before,” he says, adding that the situation has simply required flexibility. “We’re still within a 100 or so miles within our locations.”
When Zarco 66 stations first started offering E15, it was priced less than E10, a factor that helped the fuel quickly account for 20 percent of total sales. In early December, when EPM talked to Zaremba, the two fuels were priced virtually the same. Value can instead be seen in the fact that E10 is an 87 octane product while E15 is 90 octane. “You’re getting almost a premium product, for the same as unleaded,” he says. “As we move forward, the customers are seeing that.”
Although the fuel has cleared the necessary federal hurdles for commercial sale for use in 2001 and newer vehicles, it’s a different story in each individual state, says Robert White, director of market development for the Renewable Fuels Association. Kansas, Iowa and Nebraska were the first states to officially announce E15 was available to consumers. The fuel is also available at one station in South Dakota and although Illinois doesn’t yet have any E15 pumps, everything is in place and there are several retailers going through the process to offer it. “What we’ve done is try to get the low-hanging fruit, which we could consider these five,” he tells EPM. “Now we are going out and looking at the other states.”
Depending on the rules and regulation of each state, it can be a difficult task. In some cases, it will require legislative action at the state level. One example is Missouri, a state with an E10 mandate and an agriculture department that is generally friendly to ethanol, White said. But, because the law specifically mentions E10, it will require a change to allow the sale of E15. “It was probably something we did to ourselves, not thinking that level would ultimately be raised,” he says.
There’s a lot of variability in the rules and regulations from state-to-state, agrees Mike O’Brien, vice president of market development for Growth Energy. The organization is actively working to recruit retailers to introduce E15 in high-volume markets in 2013. The plan of attack is to first find interested retailers and then assist them with the needed federal registration to sell E15, followed by lobbying the state to allow the sale of E15. The approach should help the states understand the commercial need for E15 as well as the practical needs of retailers who will sell the fuel. “Like all new products, most traction is gained with innovative people willing to introduce new ideas and technology,” he says. “The challenge is with finding those people then helping them with getting the new product launched.”
A two-headed approach is definitely needed, White says. Getting state-level approvals is important, yes, but those efforts will be wasted if retailers aren’t convinced E15 is a good product to offer consumers. Unfortunately, E15’s critics have been very successful in spreading misinformation about the fuel, so that’s a constant battle. One way the group is reaching out to retailers is through the Blend Your Own program, a joint effort of RFA and the American Coalition for Ethanol.
Reid Vapor Pressure is another challenging matter facing the fuel blend. “Most believe that’s going to be an issue that’s not going to go away anytime soon,” White says. The U.S. EPA allows E10 to exceed the 9.0 pounds per-square-inch RVP requirement by 1 pound from June 1 to Sept. 15 but did not give E15 the same waiver. In order to offer E15 in the summer months, low-volatility blendstock can be pulled from markets that require reformulated gasoline. The catch, White says, is the cost of transporting reformulated gas into new markets, which adds to the price of the fuel.
RFA’s position on RVP is that E10 and E15 should be treated the same. Both fuels should have the RVP waiver or neither fuel should, White says. If the E10 waiver is removed, refiners will continue to blend ethanol due to the renewable fuel standard, possibly even making E15 more attractive as a fuel. Extending the waiver to both fuels would work too. “We just need you to go one way or another,” he says about EPA’s decision on the matter. In the meantime, retailers really only have three options, the first of which is to blend with reformulated gasoline in the summer months. They could also stop offering E15 during the summer months or simply sell it only to flex-fuel vehicle owners. “The options for summer months are limited and that’s really too bad,” he says.
It’s true RVP is a challenge, O’Brien says. However, not all markets are subject to RVP seasonality. In fact, Growth Energy sees areas requiring reformulated gas as ideal starting points for E15. Reformulated gasoline is required in cities with high smog levels, such as in St. Louis, and Fort Worth—in other words, large population centers. About 30 percent of the gas sold in the U.S. is reformulated and is currently required in parts of 17 states, according to the EPA.
Minimum Purchase Rule
One of the hiccups in final federal approval for commercial sale of E15 was over pumps with a single hose dispensing multiple fuels. The EPA was concerned, White says, that a consumer purchasing E10 would get a higher percentage of ethanol due to the residual fuel left over in the hose. A lot of noise was made by the American Motorcycle Association as well as other small engine groups representing lawnmowers, chainsaws and more. RFA argued that in order for a consumer to get a higher than desired blend, a driver seeking E10 would have to fill at a single hose pump immediately after a customer that purchased E15. In addition, the E10 consumer would have to purchase only one gallon of fuel. “The odds of this happing are similar to someone winning the massive Powerball,” White said, adding that not all gas pumps have single hose configurations. “But EPA was not going to budge.”
So, the 4-gallon minimum purchase rule was added to the RFA’s E15 retailer handbook. Basically any retailer selling E10 and E15 from a single hose was required to add an additional sticker telling consumers that if a minimum transaction wasn’t adhered to it may violate federal law. On the one hand, the agreement allowed the EPA to move forward with the first misfueling mitigation plans in June—opening the way for the commercial sale of E15. But it wasn’t a perfect fix. Next the AMA started complaining that it would soon become difficult for consumers with small engines to purchase E10. “Which is again, nearly ludicrous, because every station would have to sell E15,” he says. Another question White has is, why would consumers with small engines have to have access to E10 at every station? Diesel is an example of a fuel that consumers aren’t able to purchase at every fueling station.
In the meantime, retailers who have been ready and willing to sell E15 haven’t able to because the EPA doesn’t feel this issue has been fully resolved, White says. That explains why there were several announcements of new E15 stations in the beginning, followed by silence in late fall and early winter. As of early January a compromise was being worked out. If approved, retailers that sell E15 from the same hose as E10 and/or straight gas, must do two things. First, each station must offer consumers at least one fueling position for which E15 is not an option. “This would allow anyone to purchase whatever volume they would like without fear the blend would be above 10 percent ethanol and squelch the concerns from the anti-E15 community,” White says. In addition, the dispensers must be labeled, alerting consumers to the non-E15 fueling option.
Slowly But Surely
E15 will be successful for the same reason E10 was successful, White says. He’s confident that consumers, when given a choice, will purchase the fuel for its lower price and higher octane. But it’s going to take time to get the fuel in pumps across the U.S. so drivers can take advantage of it. “It took essentially 30 years to get E10 in 95 percent of the fuel sold in our country,” he says. “To think E15 is going to have overnight success is a little short sighted. It will be successful, but it will take some time. Progress is happening but it is going to be slow.”
Todd Sneller, administrator of the Nebraska Ethanol Board, agrees. The state has the second highest ethanol production capacity in the U.S. and was the third in line to officially offer E15 to consumers. There’s still more work to do to bring additional retail locations on board, however. “At this point, it’s a novelty item,” he says. “There’s literally one location [in Nebraska] at which to purchase the fuel.”
Sneller was involved in the process of bringing E10 to the marketplace, which began in the 1970s, so he’s been feeling a sense of déjà vu lately. Opposition from the petroleum industry and the constant battle against misinformation were issues back then too. “We’ve been down this path before and it’s a challenging process,” he says. “But nonetheless we saw success with E10 and we hope that we will see some more success with E15 and higher blends.”
Automakers were key to E10’s acceptance. Sneller recalled in the late 1970s, when General Motors first announced its 1979 model and newer vehicles were compatible with E10. Over time, as more automakers got on board and as the fleet started turning over, E10 gained ground. “We saw, in about a decade, going from a novelty fuel in the Midwest, to a fuel that was used across the country,” he says.
The process has begun to repeat itself already. In October, General Motors announced that E15 can be used in model year 2012 and newer vehicles, while Ford Motor Co. approved E15 for use in 2013 models and newer. Automakers’ acceptance of E15 is critically important to consumer and retailer confidence moving forward, he says.
Author: Holly Jessen
Features Editor, Ethanol Producer Magazine