Gasoline lobbyists go to battle to slow ethanol’s rise

Source: By James Osborne, Houston Chronicle • Posted: Tuesday, June 27, 2017

WASHINGTON – In the 12 years since Congress passed legislation requiring the blending of ethanol into the nation’s fuel supply, oil companies and refineries have watched with dismay as ethanol steadily took larger and larger shares of the market.

Now, with legislation before the Senate to lift a longtime summer ban on gasoline with a higher concentrations of ethanol, refineries along the Gulf Coast could face stiffer competition to get their fuel into motorists tanks at a time when gasoline demand is already slipping.

With the oil industry lobbying vigorously in opposition, the future of the bill, introduced by a bipartisan coalition of Midwestern lawmakers, remains in question. But the proposal, nonetheless, represents the ascendance of an increasingly influential ethanol industry trying to grab market share from petroleum companies.

“This is a battle that’s going to be out there for a while, or at least until electric cars get a major piece of traction,” said Tom Kloza, global head of energy analysis at the research firm Oil Price Information Service. “If this legislation passes, it would be a nightmare for refiners.”

The issue has divided the Senate, with oil patch versus corn belt geography trumping party ties, and pitted two of President Donald Trump’s key constituencies against each other — the fossil fuel sector against rural counties where ethanol is fast becoming an important economic engine. On the Environment and Public Works Committee, where the bill remains under review, senators from oil rich states, including the committee chairman, Sen. John Barrasso, R-Wyoming, and Sen. James Inhofe, R-Okla., are fighting to stop any further ceding of the U.S. fuel market to Midwestern corn growers.


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The vast majority of gas stations in the United States only sell gasoline with a 10 percent concentration of ethanol – called E10 — and any increases in that concentration means less gasoline for refiners to produce and, consequently, less crude oil for drillers to supply. Most retailers have hesitated to sell 15 percent concentrations, called E15, in part over automaker warnings that using fuels with more than 10 percent ethanol could void factory warranties on all but the latest models. But even retailers selling E15 are required to shut those pumps during the peak summer driving season, under a federal law designed to reduce levels of asthma-causing ozone.

Considering E15 sells for between 5 and 10 cents a gallon less than standard gasoline, ethanol manufacturers lining corn fields in the Midwest believe lifting the summer ban could translate to dramatic sales increases for their product.

“It would be a seismic shift,” said Robert Walther, vice president of federal affairs at the South Dakota biofuel company POET. “The retailers don’t want to sell a product they can’t sell year round. Brown bagging pumps in the summer costs them money.”

But the legislation has considerable political hurdles to clear before it gets onto the Senate floor for a vote.

Using E15 in small engines, like those used in motorcycles and lawn mowers, or in older automobiles could damage engine parts, according to the American Automobile Association. Although stations selling the fuel post warning signs, lobbyists representing the oil and refining industries maintain that selling E15 presents a danger through misfueling.

“Some of the newer cars are being warrantied to handle E15, but about 90 percent of vehicles on the road have warranties that prohibit E15,” said Chet Thompson, president of the American Fuel & Petrochemical Manufacturers. “We take all these measures very seriously, and we’re going to do our best over the next few weeks to make sure the Senate understands our position.”

E15 is sold at around 800 stations around the country, according to an estimate by POET. For chains that sell it, including QuikTrip, RaceTrac and Murphy’s, the fuel offers a lower-cost option for customers whom they trust to determine whether it’s safe for their car. These retailers say it’s no different than customers avoiding diesel pumps if their car engines were not designed for it.

“We have not had a single customer complaint,” Mike Lorentz, executive vice president of the gas station chain Sheetz, testified before the Senate recently. “Even though we have done little to market the product, customers are finding it. They are finding it because it is 3 to 10 cents cheaper than regular gasoline.”

The oil industry, however, remains hugely influential among lawmakers in Washington, and a number of senators on the environmental and public works committee have indicated they do not intend to move the legislation to the Senate floor for a vote.

Even with the rising influence of companies like POET, which donated close to $500,000 across all federal races during the 2016 election cycle, it is modest compared to companies like Exxon Mobil and Chevron, which together donated more than $7 million, according to the Center for Responsive Politics, a nonprofit, nonpartisan group that tracks money in politics.

Were E15 to become the standard, as E10 has, that would represent a 5 percent decline in gasoline consumption under current market conditions. With automobiles steadily becoming more fuel-efficient, the spread of E-15 would make an already tough outlook for gasoline demand in the United States even tougher, said Kloza, the analyst at the Oil Price Information Service.

Gasoline demand has been surprisingly weak, particularly with the peak summer driving season underway. Compared to the same period a year ago, gasoline consumption has declined in 9 of the past 10 weeks, including falling nearly 2 percent last week, according to the Energy Department.

“The ability to get better mileage is going to increase,” Kloza said. “You have not had a major oil company or a refiner rolled out E15 at their stations and the reason is they’re interested in selling hydrocarbons.”