Fuels Institute Hosts Capitol Hill Discussion - Assessing E85 in the Marketplace

WASHINGTON February 24, 2015; NACSOnline reported that yesterday on Capitol Hill, the Fuels Institute hosted a diverse panel of industry stakeholders who laid out the current implications of E85 in the market and its future. One panelist, John Eichberger, Fuels Institute executive director, walked congressional staff through the “E85: A Market Performance Analysis and Forecast” report, released in November 2014, calling out the opportunities for the fuel’s growth in the market — but only if E85 prices remain significantly below those of regular grade gasoline and the automobile industry continues to produce flex-fuel vehicles (FFVs).

Eichberger explained that the goal of the study was not to determine if E85 should be in the market, but to assess how retailers selling E85 could best sell the fuel. The study evaluated the performance of more than 200 stores that sell E85 and developed forecasts, taking into account a variety of factors that could ultimately affect future sales. Factoring in past retail sales data, consumer trends, vehicle sales and a variety of possible scenarios, the Fuels Institute projects that E85 sales will increase from 196 million gallons in 2013 to between 400 million and 4.4 billion gallons in 2023.

Further E85 growth could be possible if the automobile industry continues to increase FFV production at current rates, thereby generating increased demand. Eichberger noted that FFVs currently represent 6% of all light duty vehicles in the United States (16 to 17 million). FFV production growth was aided by credits for auto manufacturers; however, under Corporate Average Fuel Economy (CAFE) regulations, this credit is set to expire and it’s unclear if the auto industry will continue producing FFVs at the current rate without this credit.

Bob Greco, group director, downstream and industry operations at the American Petroleum Institute (API), offered the refiners’ perspective on E85. While the group believes that E85 is “a perfectly good product,” API strongly believes that the Renewable Fuel Standard (RFS), which mandates 36 billion gallons of renewable fuels in the nation’s fuel supply by 2022, is broken and should be revised. “Our concern is that unrealistic standards are forcing a fuel into the market that the consumer isn’t asking for,” he said, noting that market demand should come from consumers, not policies in Washington. He also added that the number of FFVs produced by automakers is showing signs of decline.

Representing the ethanol industry, Chris Bliley, director of regulatory affairs at Growth Energy, said his group believes the RFS is very successful, noting that the ethanol industry contributed $53 billion to the GDP and is helping the United States gain oil independence. “We think there is room for growth,” he said, adding that the vast majority of retailers are not offering E85.

PMAA President Dan Gilligan relayed the costs associated with upgrading retail locations to sell E85. Infrastructure for underground equipment can run about $125,000 per location. “What’s the incentive?” he questioned, noting that out of 140,000 gas stations, less than 10,000 can accommodate anything higher than E10. Although PMAA is fuel agnostic, Gilligan said that the group believes there is a barrier between investing in E85 and actual ROI.

Representing the retailers who sell more than 80% of motor fuels in the United States, Paige Anderson, NACS government relations director, commented that the association and its members believe in free market principles, where the consumer drives demand for new fuels at the pump. Convenience and fuel retailers are responding to growth in alternative fuels in markets that are demanding availability, she said. However, in some markets where retailers have made an investment in E85, “for whatever reason the consumer with an FFV still goes to regular gasoline. “Build it and they will come,” doesn’t always work in this marketplace.”

Anderson commented that most new stores (built after 2005) and pumps installed after 2010 can accommodate E85, but many older stores cannot easily make that transition without adequate resources. At the end of the day, NACS consumer research shows that price matters, and any new fuels have to compete with other fueling options at the pump.

Dr. William Chernicoff, manager of energy and environmental research at Toyota Motors, said that the automaker isn’t hearing an overwhelming amount of demand from consumers for more FFVs in the company’s product line. He noted that technologies required to meet Tier 3 emissions standards and fuel efficiency requirements are not always compatible with the FFV technology.

For more about the Fuels Institute, go to http://www.fuelsinstitute.org/?_ga=1.200225833.665265030.1424790892.