Big oil's big effort

2013-04-03T12:40:00Z Big oil's big effortBy Loretta Sorensen, Midwest Producer Midwest Producer
April 03, 2013 12:40 pm  • 

The best way farmers and consumers can weaken the grip of giant oil companies and further reduce U.S. dependence on foreign oil is to start asking their fuel retailer to sell E15. Oil companies are not happy with the combination of declining U.S. fuel sales and increas-ed ethanol usage. They're putting more effort than ever into maintaining their market monopoly. Their attempts to derail sales of E15 are coming in many forms.

Among the opposition tactics is the introduction of legislation in February by U.S. Sens. Roger Rickers (R-Miss.) and David Vitter (R-La.) to block sale of E15 to retailers. In bringing the bill to Congress, the two senators commented that the U.S. Environmental Protection Agency (EPA) had acted irresponsibly in approving E15. They also noted that E15 sales would negatively impact families and businesses.

Robert White, director of market development at Renewable Fuels Association in Washington said oil companies are using some of their record profits to significantly impede competition from ethanol.

"Oil companies are very profitable," White said. "They're using some of those profits to attack E15. When gas prices spiked to $4 and $5 a gallon a couple years ago, consumers began changing consumption habits, which is partly responsible for the decline in fuel demand. People now make fewer trips to buy groceries and run errands. On top of that, new vehicles being sold today get better gas mileage and reduce gasoline demand even further. To put it mildly, oil companies are concerned about shrinking demand for their product."

Oil refiners don't make the same profit in handling E15 as when they make gasoline. They don't produce ethanol, so they're reluctant to see that market increase.

"There are about 30 U.S. stations right now that sell E15," White said. "We'd like to see that number grow and there are retailers considering offering the blend."

Fuel retailers may qualify for a federal tax credit, grants and other state-specific incentives to offer E15. RFA provides assistance in identifying retailers' options for using existing equipment, upgrading or purchasing new equipment.

Oil companies have been known to adjust existing franchise agreements so fuel retailers cannot sell E15. One option is to require carrying premium gasoline, which is a very low volume option and profit center for fuel retailers.

"We know of one retailer with 35 percent of his business coming from ethanol blends above E10, like E15 and E85," White said. "If the franchise requires them to carry the premium gasoline and there's no terminal that handles E15 in area, the franchise has essentially taken away 32 percent of that retailer's profits. Fuel retailers are struggling the way it is."

In recent years, oil companies have divested ownership of gasoline stations, and Big Oil now owns less than 3 percent of all gas stations. Typically, gas stations are small businesses. Today, 60 percent of all gas stations are owned by single station owners. The ownership change strengthens the oil companies' argument that they have no viable means of delivering ethanol-blended fuels and that the Renewable Fuels Standard is unworkable.

"Those small business owners want volume and margin and E15 can do that for them," White said. "Big Oil just needs to get out of the way."

White noted that current gasoline quality is lower than it has ever been. For decades the gasoline standard has been 87 octane. However, 84 octane, suboctane, is often blended with ethanol, which increases the octane level.

"Ethanol, again, is helping oil companies bring an inferior product to market to increase their profits," White said.

The practice of using lower quality gasoline in ethanol blends could explain consumer perception that they see lower mileage with ethanol blends, when the majority of that product is actually lower quality gasoline. Engine design also impacts mileage performance. Every engine certified today is still designed for gasoline without ethanol, something that needs to change.

"Optimum mileage from higher octane fuel is only possible with higher compression and technology like turbo chargers that capitalize on the higher octane," White said. "Auto makers are working to design engines for the new CAFE (Corporate Average Fuel Economy) standards of 54.5 mpg. When engines are designed for ethanol and not fossil fuel, mileage improves."

Brazil drivers can purchase 100 percent ethanol and E25. The country has also increased offshore drilling to boost fossil fuel product and decrease oil imports.

"The number one export in America has been gasoline," White said. "I don't understand the logic of higher gas prices while exporting so much gasoline. If we had a bigger supply here, wouldn't that help keep prices down? The reality is that it is all about money. That's why the fight against ethanol is so strong.

"We don't predict future fuel prices," White said. "I'm told that, if the projected corn crop is planted and harvested, ethanol will remain a large discount to gasoline, which will continue to help reduce gas prices. But, more ethanol could help. We're taking every opportunity to educate people about the situation. Consumer demand for a product usually means retailers will get that product. Ask your gas station for a renewable, domestic, cleaner-burning product. Ask for E15."

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