Ethanol Analysis a Mixed Bag for E15 Future, Small Refinery Exemptions

Source: By Todd Neeley, DTN/Progressive Farmer • Posted: Friday, August 17, 2018

MINNEAPOLIS (DTN) — Marty Ruikka might have been the most unpopular person in the room at the American Coalition for Ethanol’s conference on Thursday, when he told an audience of producers the data isn’t supporting the notion of massive demand destruction from small refinery exemptions to the Renewable Fuel Standard.

Further, the president of the ProExporter Network, a commodities research firm based in Michigan, said if the EPA allowed year-round E15 sales, the benefits to the industry would be limited.

EPA announced in its latest Renewable Fuel Standard volumes proposal that more than 40 companies received small refinery waivers in 2016 and 2017, totaling about 2.25 billion gallons of ethanol.

“When it comes to weekly and monthly data (Energy Information Administration) my analysts can see some impact on blending,” Ruikka said.

Based on that data, however, he said the ethanol industry is losing 100 million to 300 million gallons annually as a result of waivers. “Monthly data doesn’t show — we see zero impact on blending,” Ruikka said.

What’s happening, he said, is refiners still need to splash blend ethanol in order to sell gasoline that comes from the factory as an 84 octane blend. Ruikka said splash-blending volumes are not tracked. Splash blending essentially is adding 10% ethanol to every gallon of gasoline.

While ethanol blending appears to remain strong, Ruikka said the flood of renewable identification numbers, or RINs, into the market has caused RINs prices to fall and the “impact has been devastating.”

When it comes to E15, Ruikka said the industry has quite a gap to close for the fuel to become widely available.

“The number of stations offering higher blends is still relatively small,” he said.

E15 currently provides an extra 259 million gallons of ethanol annually blended nationally. EPA Acting Administrator Andrew Wheeler has indicated in recent weeks E15 relief would have to come as part of an overall deal that also benefits refining interests. Ruikka said an E15 waiver would free the market immediately for just another 54 million gallons of ethanol annually.

In relaxing the vapor requirements, gasoline blenders are allowed to produce fuel that complies with EPA regulations using any available gasoline blendstock on the market, including E15.

The U.S. ethanol industry has been pushing EPA to issue a waiver on E15 for some time, holding out hope the agency would be able to take action that would allow for year-round sales. Federal law forbids the sale of E15 from June 1 to Sept. 15.

Currently, E15 sales are restricted in nearly two-thirds of the country during the summer months because of ozone concerns. The EPA waiver issued on Aug. 26, 2017, allowed gasoline with less than 9% ethanol by volume to qualify for special provisions for alcohol blends requirement. That waiver, however, did not allow for blends up to E15.

In addition, Ruikka said there continues to be a number of market barriers for E15.

E15 is not allowed by state laws in Arizona, California, Delaware, Montana, Nevada and New York. Ruikka said between 55% and 60% of all stations are restricted from offering E15, as part of their branding agreements with petroleum companies. What’s more, he said just 27% of all stations across the United States have the ability to offer blends above E10.

“We’re very limited on increasing ethanol use domestically and that requires more effort,” Ruikka said.

On the positive side, Ruikka said corn ethanol continues to make inroads into the California market as the industry has consistently improved its carbon intensity through production efficiency gains. In addition, the U.S. Department of Energy expects gasoline use to increase in 2019.

John Eichberger, executive director of the Fuels Institute, said the importance of fuel sales for fuel retailers has diminished. In 2013, 75% of all sales were fuel. In 2017, he said, fuel accounted for just 27% of sales.

However, Eichberger said news headlines touting the demise of liquid fuel-powered vehicles and the rise of electric vehicles as a market disrupter, is greatly exaggerated.

“I don’t see that,” Eichberger said. “It does not deliver an immediate, tangible value to consumers. What is happening in the market isn’t changing consumer’s lives.”

About 94% of vehicles on the road in the United States in 2017, Eichberger said, were gasoline-powered. The ethanol industry has kept a close watch on the potential for electric vehicles to diminish demand for liquid fuels, and as a result, ethanol.

The electric-vehicle industry is seeing growth, he said. At its current rate of growth electric cars still will make up just about 10% of all vehicles on the road by 2035.

“Automakers know EVs (electric vehicles) are way down the road,” Eichberger said. “Currently they are selling them at a loss.”

That’s why the big three Detroit automakers and refiners are “passionate” about getting high octane standards approved, as long as the RFS is repealed. Eichberger said such a deal faces an uphill battle, as ethanol interests are not all that interested in entertaining RFS repeal.

For farmers, bringing high-octane fuels from E25 to E40 could create more markets for corn and a wide variety of feedstocks, including those used for producing cellulosic ethanol. That would be welcome news to rural America where lower commodity prices, RFS concerns and trade disputes have led to higher uncertainty in 2018.

“The lift they have ahead on this is enormous,” Eichberger said. “It is a major project.” The EPA has to be able to show a broader societal benefit to creating high-octane standards, he said, with the estimated costs to make it happen ranging from $100 billion to $150 billion.