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Should Premium Fuel Still Warrant a Tank?

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All: Thought I would share my latest blog post. While it does discuss E15 a great deal, remember that at least for now, E85 comes with E15 at each station. 

 

Robert

 

 

By Robert White, RFA's Vice President of Industry Relations — RFA talks with thousands of fuel retailers at petroleum marketer meetings, conferences, webinars, and one-on-one meetings. Over the course of these meetings it quickly becomes clear that every decision made by fuel retailers is based on return on investment (ROI) and the outcome of every decision is compounded exponentially for the 60% that are single station owners. Today, nearly all of these stations offer premium fuel, but should they?

 

Until this year, the business case for E15 hinged on what vehicles the EPA had approved: 2001 & newer light duty cars, trucks and SUVs. These vehicles tally over 203 million, or 83% of the U.S. fleet. That is more than enough to justify the infrastructure to support them. But that has not happened and we must ask why not. The reason most often given is that while the Environmental Protection Agency (EPA) has approved the use of E15 in these vehicles, the auto manufacturers have not.

 

So what do the facts say? RFA recently found that 70% of MY15 vehicles are explicitly warranted for E15 — a trend that has been moving upward since MY12. So, just how many vehicles are now explicitly warranted for E15? More than 41 million! Add to that the 18 million FFVs that are also approved for E15, and there are 59 million E15 warranted cars on the road today. For comparison, there are just 15 million cars requiring premium gas today. But, no high performance automobile owner has trouble finding premium fuel!

 

Here is the breakdown:

  • ~244,000,000 light duty vehicles on the road today
  • ~15,000,000 require premium fuel
  • ~203,000,000 are 2001 & newer and approved by EPA to use E15
  • ~41,000,000 are explicitly warranted for E15
  • ~18,000,000 are FFVs (also warranted for E15)
  • ~41,000,000 vehicles are 2000 & older

 

The fact that there are four times as many vehicles fully warranted for the use of E15 than those requiring premium gas today should be a compelling consideration for retailers considering the switch to E15 and E85. Many retailers are shocked to find that they are dedicating an entire fuel tank to premium fuel, which allows them to service fewer vehicles than if they sold E15 and E85. If retailers would consider converting their premium tank to E85 and installing a blender pump to allow for E15, they would gain both segments from one existing underground storage tank. The potential consumer fleet would jump from just 15 million vehicles to 59 million vehicles. Moreover, premium sales have been dropping. Most retailers will concede that premium sales are between 1–4% of their total volume, while stations making the conversion to E85 — and adding E15 — have demonstrated that they can turn that 1–4% into 20–30%.

 

The business case for higher blends of ethanol is actually quite simple. If retailers want to differentiate themselves, lower their consumer price at the pump, increase their overall fuel volumes, boost their in store sales, and ultimately increase their profits … premium might not be the wisest fuel choice. Success will come in the form of higher-level ethanol blends.

 

- See more at: http://www.ethanolrfa.org/exchange/entry/should-premium-fuel-still-warrant-a-tank/#sthash.XOCpltxY.dpuf

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Robert, I was hoping you might make a comment on my post. Do you think it has any merit?  Seems to me if more of what I just suggested doesn't happen, what this post is about isn't either.

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  Is it time to bring E98 into the conversation?    Anywhere there is a blender pump installed , E98  can be part of the equation.

 

 If the RFS is to be re-written anyway,  why not include ethanol at full strength   ?   Might be time to introduce carbon credits, too

 

  It would also mean another visit to  UL labs , but the groundwork has already been laid... 

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E98 is used in a three states that I know of underground, but it is a different animal. Some food for thought:

 

  • It will require a waiver from the state regulators and the fire marshal. Today, no dispensers carry a warranty or UL listing for anything above E85. Once E98 flows into it, the listing disappears and liability will fall on the station owner, even if the equipment is brand new. Some states will simply not allow this, UL listing is required.
  • The equipment manufacturers are not willing to go back to UL for another listing, we have asked. They spent millions on E85 certification, and it has not yet netted a dime of profit.
  • The fuel underground is not sellable. It is the same argument with putting suboctane unleaded in the regular unleaded tank and using the E98 (or E85) to raise the blend to E10. If the equipment should fail, the station owner doesn't have a fuel he/she can sell.
  • The station owner would now be responsible for state and federal motor fuel taxes, along with managing the RINs. Most are not interested in this process, or the risk associated with RINs and their market variability. Think when they went from $.003/gal to $1.48/gal in just a few months. I was surprised more stations/marketers didn't go bankrupt over it. Also, keep in mind that 63% of all stations today are single station owners. Most don't have the manpower or legal power to protect themselves.
  • If you are referring to selling it at E98, obviously we have no vehicles that are designed for that today and in my opinion would need waivers to the Clean Air Act to accomplish. We cannot even blend E85 in some parts of the country anymore, we are not dipping below 70% for drivability concerns.
  • API is strongly against this and has already reached out to state regulators in an attempt to stop it as an option. Their fear is the vapors in the head gap space of the underground storage tank. RFA believes that if this concern is real, it could be mitigated with flame arrestors, but again, not something every station owner is going to find pleasing.
  • The obligated parties (refiners and importers of gasoline) of the RFS are also not in favor, as each gallon of E98 stored at retail is one less RIN they can capture. Good for retailers potentially, not good for obligated parties.

I personally hope that the RFS is not going to be re-written. If it is adjusted, repealed or rewritten, I don't think we will be discussing E85, E98, FFVs and many other things. Automakers will quickly move to another option, and think those considering higher blends of ethanol will do the same.

 

My two cents. It won't even get you a piece of gum anymore... Discuss away!

 

Robert

 

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Imagine:  ALL ethanol plants able to deliver product directly to local filling stations, rather than a thousand miles away.

 

Imagine: Station owners and ethanol plants splitting the bounty of RINs credits among themselves, and forwarding to customers in lower Eblend prices

 

Imagine:  Citizens moving the discussion of future  fuel technology forward , rather than waiting for government to provide ...

 

Imagine : Blender pumps at ALL stations that now sell e85.

 

Imagine:  "Interested parties" forced to sit on the sidelines , for a change.

 

 

  If our infrastructure already includes E85 compatible components,  what are the chances those components also tolerate E98?

 

 No more daydreaming.  We've been driving this for almost 20 years. Time to change gears.

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Independent gas station owners whom work to maximize business income should take a hard look at replacing premium and mid level fuels with ethanol blends. Complicating the matter, each state and controlling jurisdiction have regulation hurdles as well as the station's access to RBOB base stock. Pass that primary benefit to the business, blender pump install. How to maximize benefit of such a pump? If regulations and law permit, very attractive to enter into the fuel blending business and harvest credits. This would take one layer of overhead away and make the business more competitive albeit at higher risk and more requirements. This is not a good development for fuel supply market as they have historically claimed this business, both ethanol and petrol. Petrol loves to be the responsible party per the income and control of markets. Ethanol producers whom wisely convert facilities to blend E85 have similar benefits of control and lower cost of product to retail. Carbon Green just north of me is one such ethanol plant that has much success with their yellow hose marketing. They truck their E85 product directly to retail gas stations. Since Michigan has oil well production the Carbon Green can utilize natural gasoline that is low cost by product of crude oil harvest. The natural product doesn't work well within supply chain of crude oil and as the fuel not up to fuel quality standards alone, a bit of a problem for petrol. E85 blending is a perfect match for such fuel. If ethanol plants accomplish such blending they can harvest ethanol credits as well. My guess the majority of gas station owners won't be interested in the blending business per Robert's post, but most of the concerns do fall away if blender pump operations stick blend stock in one tank (sub par) and E85 in the other tank. This arrangement would empower the ethanol side of supply chain and keep the infrastructure in hands of those whom future it depends. This is the best arrangement if RFS regulation modified to dissuade automotive to produce FFVs and petrol to blend. Independent gas stations with ethanol fuel can make progress despite the lack of legislative incentives by offering lower cost fuel that is better for environment and local economy. My guess the local distribution and sales of mid level blends would become the battle ground to continue competitiveness of ethanol. Magnifying the local benefit would precipitate proponents and success experience that will always flow outward. Forcing expensive ethanol on complainers through out country, just sets up battle lines. Better for them to peer over the neighbors fence and read of lower cost premium fuel that helps local economy and environment.  

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Here's some more of my thoughts. My cousin just visited with a guy( cousin considers him a son) that was an exchange student years ago. He works for Petrobras in TX and says it is very hard to be ethical in the oil business. Getting back to my idea about the Yorktown VA area, the distributor/retailer I talked to said he had to buy high priced E85 from somebody else to resell. Robert might be right that he didn't tell the truth. Anyway, since we are imagining---- the train from NW Iowa goes to the same place that the crude train transloads onto barges and ocean going ships can dock. The distributor sends his semi over to the big tank that has E98 stored and the semi has whatever amount of sub-octane( around 1000 to 1500 gallons) and splash blends with the E98 to make E85. Off to the retail station with blender pumps it goes to be blended with more suboctane from one of the two tanks(E85 in the other) the station has. How perfect is that in theory? Mean while, Europe calls up the midwest ethanol plant that still owns the E98 in the big tank at Yorktown and says we need some and the ship will be docking soon. There are gov't vehicles everywhere in this area but instead of saying they had to put E85 in the tank, I'd say use E30 so that fuel mileage is good and the air quality is as good as can be. Sounds good to me but as most say "won't happen". Makes me think that basically the American business plan is based on "organized crime" principles.

Edited by cessna

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More dreaming

 

We have a challenge in the RFS as it is currently structured:  bring total renewable fuel supply in the country to 36 billion gallons per year , by 2022.

 

 2022 is 7 years away.   The E85 use by ALL existing  FFVs  and anything manufactured in the future will barely touch a figure this big.

 

 Using the Premium UST ( underground storage ) to bump up available blends at stations  without any E85 now, will go a long way to bring other

 

eBlends to the public ( at lower cost , per mentioned RINs trading scheme) with the addition of a blender pump . . 

 

 --then-- 

 

 Bump up proposed E15 blending choice to  E20.  Minnesota did testing on this a few years ago and found no significant issues.

 

This would draw all vehicles 2001 and newer into the higher blend ethanol marketplace. 

 

  Also --  Allow E0 , for cry-babies who don't know how to drain a tank....

 

 One possible addition:   Require IM-240 type emmission testing in EPA non-attainment areas ...As long as you pass this test, you are free to

 

 use whatever blend you want.

 

 

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