Straight Talk on the RFS, Ethanol Mandates
Posted February 24, 2014
In recent years we’ve regularly disagreed with the Renewable Fuels Association (RFA) on the Renewable Fuel Standard (RFS) because its ethanol mandates could harm consumers and the broader economy. The conversation with Big Ethanol has been, well, spirited. That said, hats off to RFA for including an oil and natural gas industry executive as one of the keynote speakers at the recent National Ethanol Conference (NEC).
Marathon Petroleum’s David Whikehart, director of product supply and optimization, was invited, said RFA’s Bob Dinneen, because “it is critical that we be open to the message of our customer.” A constructive view for sure.
The oil and natural gas industry supports ethanol and other renewable fuels. We are the ethanol industry’s biggest customer. Yet, the ethanol mandates in the RFS potentially could result in damaged vehicle engines as well as damage to power and marine equipment and already have played a part in higher food costs and other consumer impacts recently. All of the above threaten to erode critical public support for renewable fuels, which is why the RFS should be repealed.
At the NEC, Whikehart outlined problems with the RFS and higher-ethanol blend fuels. He knows the subject well. Marathon refineries handle nearly 1.7 million barrels of crude oil a day. Marathon also operates almost 1,500 company-owned and operated retail gasoline and convenience stores in the U.S. under its Speedway brand. In addition, Marathon-brand fuel is available through about 5,200 independently owned and operated retail outlets. Key points from his NEC presentation:
- Ethanol mandates under the RFS distort the fuel market and has brought on the ethanol “blend wall” – the point where, to satisfy the RFS, refiners have to blend fuel with higher ethanol content than millions of vehicles are designed to use, such as E15 and E85.
- To comply with the RFS once the E10 blend wall has been reached, refiners’ options include increasing the ethanol content in fuel and reducing domestic transportation fuel sales.
- E85 is sold at about 10 percent of the company’s convenience stores but hasn’t been embraced by consumers despite significant investments in specialized infrastructure. Blending more E15 isn’t an option because research has shown it will damage engines that weren’t designed to use it.
“Speedway has offered E-85 for years but has experienced relatively poor customer acceptance resulting in limited sales volumes. To date, these infrastructure investments have not produced the desired returns. In this context, it makes sense that the entrepreneurs and small businesses that own 95% of the retail fuel station fleet might be reluctant to risk their capital on infrastructure that does not offer a return. … Based on our extensive real world experience of going to market with this fuel, E-85 sales have limited growth potential and will not be the silver bullet that provides a workable RFS compliance option for refiners.”
Minnesota offers a snapshot of what Whikehart is talking about. The chart below shows the very small consumption of E85 relative to total motor gasoline consumption from January 2009 through November 2013. During 2013 monthly motor gasoline consumption averaged 191 million gallons compared to 1.54 million gallons of E85. From January 2009 to November 2013, E85 averaged 0.76 percent of total consumption.
Meanwhile, E15 poses potential liability issues. Whikehart:
“The introduction of E-15 is a non-starter for obligated parties due primarily to liability issues. Additionally, E-15 has the same distribution system and retail infrastructure issues as E-85. Keep in mind that there is extensive research that shows E-15 causes engine and fuel system damage in a significant portion of the light duty vehicle fleet. This research would likely be used against refiners and retailers. The ethanol industry is also at risk here as consumer confidence in ethanol blended fuels might be compromised.”
Finally, Whikehart addressed the claim that the oil and natural gas industry is preventing ethanol from gaining market share:
“… only about 5% of the retail store fleet is owned by obligated parties and can hardly be considered a constraint to accessing the fuel consumer. However, if ethanol producers think that current market participants have misread the market risks and potential consumer demand, it may be an opportunity to invest in, or partner with, other segments of the transportation fuels supply chain. If ethanol producers want to grow ethanol demand, they need to do it by putting their capital at risk, entering new market segments, and building a base of customers that demand your product.”
Again, dialogue is good, and RFA is to be commended for fostering some candid discussion during the NEC – perhaps uncomfortable discussion for the audience – highlighting a number of important points.
Starting with: Ethanol mandates under the RFS have brought on the blend wall and its associated problems. The blend wall is real, as EPA acknowledges. Also real is the potential that the RFS could lead to fuel rationing and supply shortages that by 2015, according to a NERA study, could drive up gasoline costs 30 percent and the cost of diesel by 300 percent. The risks higher ethanol blend fuels post to consumer products, from cars and light-duty trucks to outdoor equipment, are real as well. All argue for repeal of the RFS.
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. Previously, Mark was a reporter, copy editor and sports editor at an assortment of newspapers. 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 have two grown children and six grandchildren.
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