Non-ethanol gas price to rise

Source: Written by William Petroski, Des Moines Register • Posted: Monday, September 16, 2013

Lower-octane fuel, set for blending, to supplant plain regular

Iowa motorists who fill their gas tanks with “clear” gasoline without ethanol could soon be digging deeper into their wallets, say industry officials.

Pipeline companies transporting gasoline to Iowa terminals are just beginning a two-week conversion in which they are replacing non-ethanol regular gasoline with lower-octane fuel that must be mixed with ethanol or more expensive premium gasoline without ethanol.

The switch is driven by the federal Renewable Fuel Standard, which requires an increasing amount of renewable fuels to be blended into transportation fuels on an annual basis, industry officials said.

The bottom line for Iowa motorists: Regular gasoline without ethanol will probably cost more, perhaps as much as 30 to 52 cents per gallon, according to one industry study.

“I don’t believe it will be up by 50 cents, but don’t think there is any question that the cost is going to go up from what you and I currently know,” said Mike Thornbrugh, manager of public and government affairs for QuikTrip Corp., which operates 24 convenience stores in the Des Moines area.

However, the cost for ethanol-blended gasoline — now used by more than 80 percent of Iowa motorists — isn’t expected to be significantly affected by the changes, other than regular market price fluctuations, said Monte Shaw, executive director of the Iowa Renewable Fuels Association.

On Friday, the statewide average prices in Iowa were $3.62 for regular gasoline, $3.52 for midgrade gasoline and $3.85 for premium gasoline, according to AAA’s Daily Fuel Gauge Report.

The changes are linked to the fact that Magellan Midstream Partners, a Tulsa, Okla., company that is Iowa’s largest pipeline operator, has been asked by its customers to begin transporting sub-octane gasoline (84 octane) to its Iowa terminals, effective the middle of this month.

Those customers include refiners, petroleum traders and petroleum marketers, said Bruce Heine, Magellan’s director of government and media affairs. He notes his company doesn’t actually own the gasoline it transports or distributes.

NuStar Energy, a Texas-based pipeline that also serves Iowa, is making similar plans to transport lower-octane gasoline to Iowa, said NuStar spokeswoman Joanna Weidman. The conversion to sub-octane gasoline in NuStar’s system is being done in conjunction with the same product specifications and timing as Magellan, she added.

Heine told The Des Moines Register last week that Magellan’s pipeline system would continue to offer services for Iowa retailers to supply motorists with regular, midgrade and premium gasoline — with and without ethanol. But retailers will ultimately determine what products to offer to motorists.

The changes are linked to federal energy legislation enacted in recent years by Congress, Heine said. Because the federal legislation requires an increasing amount of renewable fuels, adding a 10 percent volume of ethanol is an effective way to increase octane and help comply with regulatory obligations, he said.

From an industry perspective, every gallon of clear gasoline sold at retail without ethanol is a “missed opportunity” to comply with the Renewable Fuel Standard, Heine added.

John McHugh, manager of corporate communications for the Kwik Star chain of convenience stores operating in northeast Iowa, said his company would offer two types of regular 87 octane gasoline: either with ethanol or without ethanol, along with premium gasoline. But Kwik Star will no longer offer a midgrade, ethanol-blended gasoline, he added.

“We don’t know yet what will happen with price. We are keeping our fingers crossed,” McHugh said.

Shaw, of the Iowa Renewable Fuels Association, said he suspected any price increases for regular gasoline without ethanol would probably happen gradually in Iowa.

“I don’t think we will go to bed one day and wake up the next day with prices 20 cents higher,” he said.

Shaw also believes the industry changes could create an opportunity for expanded retail sale of E15 gasoline — which includes a 15 percent ethanol blend that can be used only in passenger vehicles made in 2001 or later. His association is urging Iowa retailers to sell E15 gasoline — now available at only a handful of Iowa gas stations — as an alternative fuel that could be sold for about a nickel a gallon less than E10 gas.

Iowa is one of the last places in the country to make the switch to sub-octane gasoline.

In Minnesota, where the legislature has mandated the sale of ethanol-blended gasoline statewide, the petroleum industry has used sub-octane fuels for years.

In fact, it’s hard to find gas stations in Minnesota that sell clear gasoline without ethanol, which can be used only in collector cars, boat motors, motorcycles, snowmobiles and a few other exceptions, said Minnesota legislative analyst Colbey Sullivan.