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E15 taking baby steps forward

This month marks one year since Linn Co-op Oil Company first sold E15 at its Marion, Iowa, station, becoming the first in that state to offer it. The new 15% ethanol blend makes up 5% of the farmer cooperative’s sales.

“Our customers who are using it have not seen any difference in mileage. There have not been any differences in performance,” the co-op’s car care center manager, Jim Becthold, told other gasoline retailers at a meeting this summer.

The experience of rural Linn County hasn’t prevailed elsewhere. Only about 24 stations nationwide sell E15. The blend faces technical barriers and fierce resistance from the oil industry. Most gasoline sold in the U.S. is E10 (10% ethanol). That market is saturated, without room for all 13.8 billion gallons of ethanol mandated for blending in 2013. E85, sold only to modified flex-fuel vehicles (FFVs), will siphon off just 600 million gallons. So some oil companies pay more than $1.70 a gallon for credits that they substitute for ethanol blending (called renewable identification numbers, or RINs).

We’ve hit the so-called blend wall for ethanol – and it may get worse. By 2015, the energy law’s Renewable Fuel Standard (RFS) ramps up to 15 billion gallons of grain ethanol use. Commercial production of cellulosic ethanol is starting, mixing in 100 million gallons more. EPA will find room first for cellulosic, says University of Illinois economist Scott Irwin. “While this is a small volume, it is not a good outcome for corn-based ethanol,” he says.

In early 2011, when EPA approved E15 for use by 2001 and newer vehicles, ethanol supporters hoped a higher blend would make room for all ethanol.

Irwin is skeptical. He sees four formidable obstacles.

  • Automaker warranties. GM approved E15 for 2012 models, Ford approved it for 2013 models, and Volkswagen will approve it for 2014 models. Many others, including Japanese companies, have not. Even Ford and GM discourage use in older makes. “The trickle-down effect that has with consumers, I think, is a real issue,” Irwin says.

  • State laws and rules. Many limit ethanol in gas to 10%.

  • Dealer liability. Many fear that if customers with older cars misfuel by using E15, they could be sued for engine damage. Iowa is the only state with a law exempting dealers from that risk.

  • Vapor pressure. In summer months, EPA won’t allow gas with more than 9 pounds of Reid Vapor Pressure to be sold, in order to fight smog. Ethanol has lower pressure, but when added to gas in small amounts, the combination is more volatile. So E10 has a waiver for 10 pounds of pressure. E15 does not, meaning that only FFVs can burn it in the summer.

“You put all those together and, I think, the headwinds are too stiff to make much progress,” says Irwin.

Battling headwinds

Dave Nelson, a Belmond, Iowa, farmer and Green Plains Renewable Energy shareholder, sees a huge barrier; namely, the big oil companies.

“We’ve had more testing done with E15 than any gasoline product today,” he says. “It’s really sad that we don’t have it for the public to use. If it’s good enough for NASCAR, it’s good enough for us.”

Oil company resistance is pervasive. The industry sued to block EPA’s E15 approval and lost when the Supreme Court rejected the case in June. It’s running anti E15 TV ads. In July, William Kleese, CEO of Valero Energy Corporation, the world’s largest independent gasoline refiner, talked to a Senate committee and said, “Experts have repeatedly noted that the E15 blend is not warranted for use by 95% of cars on the road today.” (EPA’s approval covers more than 70% of vehicles.) Valero, which bought part of failed VeraSun Energy, is also an ethanol producer.

Ron Lamberty, head of market development for the American Coalition for Ethanol in Sioux Falls, South Dakota, says a study for the American Petroleum Institute showing mechanical problems after using E15 is biased. The fuel it used wasn’t a normal gasoline-ethanol blend. Cars and trucks tested had histories of breakdowns. “The only thing they can say is that somebody who did a flawed study has concerns about it,” Lamberty says.

Meanwhile, the Renewable Fuels Association (RFA) chips away at E15 barriers. Its Omaha-based market developer, Robert White, says RFA is coordinating an army of consultants working to broaden state-level approvals. “We’re basically working in every state east of the Rockies right now,” he says.

Warranty worries are overblown. “When E10 debuted, it took six years before it was in any owner’s manual as accepted,” he says. The rapid acceptance by Ford and GM is a good sign, he says.

Most retailers are independent. Some tell White they want to offer E15. Gasoline suppliers aren’t helping. In a well-publicized case, Phillips 66 reportedly stopped the nation’s first E15 seller, Zarco 66 in Kansas, with contract restrictions.

Suppliers typically require retailers to sell two or three types of their fuels. Right now, E15 isn’t one of them.

Even Cenex retailers wanting to sell E15 have found it difficult. One privately says he has to sell two fuels, 87 octane E10 and either premium or 89 octane gasoline. For small stations with just two underground tanks and pumps with two hoses, E15 is out.

Cenex is the energy brand of farmer-owned CHS, where Neil Hoff, manager of product marketing, says any perception of anti-ethanol bias is wrong.

“We’re extremely supportive of the renewable fuels industry,” he says. “Our CHS renewable fuels marketing team sells well over a half billion gallons of ethanol a year to our stakeholders.”

CHS also owns all or part of two petroleum refineries in Montana and Kansas.

“Most major retail brands require three grades of gasoline. We only require two,” Hoff says.

At this time, E15 isn’t considered a standard grade, he says, “because it is not approved by the EPA for use in all vehicles in the marketplace. If retailers meet the two-grade requirement, we support fully their addition of E15 at their retail stores.”

An optimist persists

Becthold’s Marion, Iowa, station sells Cenex fuels. Before offering E15, the co-op spent $150,000 for five blender pumps. They mix from an E85 (85% ethanol) tank and a gas tank to make several blends.

To Becthold, the worst obstacle is not being able to sell E15 except to FFVs in the summer. He thinks EPA can find a way to grant a vapor pressure waiver for E15.

“I believe that 18 months from now things will be a lot different,” he says. “I’m an optimist.”

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