Gas stations challenge oil industry orthodoxy on ethanol

Source: By James Osborne, Houston Chronicle • Posted: Tuesday, September 13, 2016


  • Ramon Contreras pumps E85 fuel into his Chevrolet Silverado at Murphy USA Sunday, Sept. 11, 2016, in Houston. ( Yi-Chin Lee / Houston Chronicle ) Photo: Yi-Chin Lee, Staff / © 2015 Houston Chronicle

Photo: Yi-Chin Lee, Staff. Ramon Contreras pumps E85 fuel into his Chevrolet Silverado at Murphy USA Sunday, Sept. 11, 2016, in Houston. ( Yi-Chin Lee / Houston Chronicle )

WASHINGTON – For years, oil companies have warned that mixing too much ethanol into gasoline could damage car engines, causing them to wear down much faster than expected.

But a number of national gas station chains, including RaceTrac, Murphy USA and Sheetz, are casting aside such warnings and preparing to sell fuel with higher amounts of ethanol for general use. Known as E15 for the percentage of ethanol contained in the fuel, the move is a direct affront to the widely held dogma of a “blend wall” – the point at which ethanol concentrations have detrimental effects on conventional engines, long believed to be anything beyond 10 percent.

“Everybody can do their studies, but as far as we’re concerned there’s no issue,” said Lance Klatt, executive director of the Minnesota retail chain Minnoco, which began selling E15 three years ago. “From the millions of gallons we’ve sold, we haven’t had one issue (with damaged engines). The proof is in the pudding.”

If what Klatt and the national chains believe holds true, it could mean more trouble for the oil companies and refiners that dot the Gulf Coast, already reeling from low prices, stubborn supply gluts, and increasing fuel efficiency of vehicles. Transportation accounts for more than 70 percent of U.S. oil sales, and every gallon of ethanol that gets blended in means less need for gasoline.

The debate over E15 pits two of the nation’s most powerful industry lobbies, oil and agriculture, against each other. Ethanol, made from corn, is a $20 billion a year industry, driving up demand and prices for the raw material produced by Midwestern farms. As ethanol slices into sales of gasoline, the two industries are frequently at odds over federal rules forcing ethanol into the fuel stream.

The federal government began mandating that fuel suppliers blend ethanol with gasoline a decade ago in the hope of reducing the country’s dependence on foreign oil. The amount blended steadily increased over the years, to the point that most gasoline is now 10 percent ethanol. Earlier this year the Environmental Protection Agency said it was raising ethanol mandates higher, following a 2011 study the U.S. Department of Energy declaring it was safe to use gasoline mixed with up to 15 percent ethanol on cars manufactured in 2001 or later.

‘Liability concerns’

The findings were in line with the conclusions of many engineers. Margaret Wooldridge, a mechanical engineering professor at the University of Michigan who studies fuel performance, said while high concentrations of ethanol might damage engine parts, 15 percent was simply not enough to cause unusual wear.

“There’s so many other things that could happen to an engine,” she said “The (automotive engineering) community said there’s no blend wall.”

In 2012, the year after the federal study, the Coordinating Research Council, a nonprofit funded by the American Petroleum Institute and a number of car manufacturers, released a competing study saying E15 or E20 would harm engine performance and durability on all but a select group of newer engines. The Energy Department promptly denounced the study as flawed and in violation of basic research principles, but the message still stuck.

Lawmakers from oil-rich states like Texas cite the blend wall in their opposition to raising ethanol mandates. The American Automobile Association, which counts more than 56 million members in the United States and Canada, continues to warn motorists against E15. And while car manufacturers certify their latest models for E15, they remain silent on whether the blend is safe for older models.

“We don’t think (the Department of Energy) answered the question, not fully,” said Geoff Moody, senior director of government relations at the refinery trade group American Fuel & Petrochemical Manufacturers. “There’s serious liability concerns for the retailers and the fuel manufacturers like us and the auto makers.”

But fuel retailers, the majority of which operate independently of oil companies and refiners, have begun to see there is money in E15. Not only is ethanol cheaper than gasoline, it also boosts the fuel’s octane, allowing a gas station to sell higher octane fuel at a lower price than competitors pumping the standard 10 percent blend.

E15 is sold at around 300 locations nationwide – a fraction of the approximately 150,000 filling stations around the country. Stations that sell it post brightly colored signs warning that E15 is only for cars built after 2001 and advising customers with concerns to check with their car manufacturer.

Too enticing to pass up 

For many station owners, however, the competing points of view on the blend wall and engine wear, and the possibility they could be held responsible for damaged engines, present too great a risk.

“I don’t want the liability,” said Bill Douglass, who owns gas stations in Texas and is chairman of the Small Retailer Association, a trade group for independent gas stations. “There must be a million plaintiffs’ attorneys out there figuring out a way to see who’s not following regulations.”

On the other hand, the potential profit in selling fuel for five or more cents a gallon less than the competition is too enticing for some retailers to pass up. RaceTrac, which is based in Atlanta and operates more than 400 stations, plans to start selling E15 at 100 of its locations in Georgia, Florida, Louisiana and Texas over the next three years. A spokesman for the company described it as a test run, “before determining long term plans for future availability.”

Retailers like RaceTrac and Arkansas-based Murphy USA, which also blend ethanol into gasoline, have another incentive to market E15. They earn renewable fuel credits from the federal government for making the blends, which can be sold to refiners to help them meet ethanol mandates. Financial analysts expect the value of those credits to climb as EPA requires higher ethanol concentrations in fuels.

The Obama administration has pushed the expansion of ethanol and other biofuels in hopes of not only growing a domestic energy source, but also developing advanced, cleaner-burning fuels that have less of an impact on climate change than fossil fuels. An Energy Department spokesman said the expansion of E15 has been “slower than expected,” but the agency is watching the moves of the larger gas station chains’ to sell the fuel.

“We expect this growth to continue,” the spokesman said.