Ever since 2011, when the Environmental Protection Agency (EPA) gave its qualified blessing to E15, it has been a tough, upward slog for the ethanol blend to make headway in the nation’s fueling infrastructure.
Since that time, more than 100 fueling stations in 16 states have begun selling the 15% ethanol/85% gasoline blend (out of more than 150,000 U.S. gas stations). At first, many of these sites were small retailers with a business case for biofuels.
But in the past year, several large retail chains have signed on to sell E15:
- Murphy USA, which first began selling E15 in Arkansas in 2013, has since expanded to Iowa and recently announced plans to introduce the fuel to Chicago and Houston in 2015.
- Mapco Express plans to include E15 in each new build and Mapco Express site, with a goal of 100 chainwide.
- CHS offers its 1,400 Cenex-branded retailers funding toward E15 storage infrastructure.
- Sheetz revealed plans to begin offering E15 in 2015 in North Carolina, with a goal of 60 locations by spring 2016.
Traction seems to be building for E15, despite opposition from a range of anti-ethanol industry groups; the threat of a downsized blending mandate in the Renewable Fuel Standard (RFS); and lingering liability concerns among retailers and trade groups.
So what happened in the past few years? Nothing—and that’s the point, say proponents of E15, who describe it as “the most tested” motor fuel in the United States. And now that some of the industry’s largest and most respected retailers have entered the E15 business, there is nowhere to go but up.
In 2014, the Minnesota Service Station & Convenience Store Association (MSSA), Little Canada, Minn., introduced the Minnoco fuel brand. The goal of the product’s creation, says executive director Lance Klatt, was independence from the perceived burdens of a major-oil branded contract: long terms, imaging constraints and a lack of community among dealers.
“It’s for retailers looking to still have their own brand and be able to control it and do things as a community—basically have independence,” he says.
Part of that independence means being able to sell higher ethanol blends such as E15. By June, Minnoco plans to have 24 branded sites, 20 of which will sell E15.
What’s preventing even faster growth? First, says Klatt, is retailers not understanding the basics of the E15 offer—specifically, it must be blended on site—and second, the cost of installing the infrastructure. Putting in a blender pump with underground piping can range from $150,000 to $180,000, although many states and biofuel groups offer grants to help trim this cost.
Klatt does not see consumer acceptance as a limiting factor. The EPA has approved E15 for use in vehicle model years 2001 and newer—approximately 60% of the U.S. vehicle fleet, or 130 million light-duty cars and trucks, according the U.S. Department of Energy. Older vehicles and small-engine, gasoline-powered vehicles—motorcycles, lawnmowers, boat engines—cannot use the fuel, which has stoked misfueling fears among some retailers and industry groups.
Customer education is key to selling E15; Klatt encourages retailers to chat with customers at the pump and provide information explaining the fuel’s restrictions and opportunity—i.e., the lower price. Minnoco
retailers have been selling E15 at a 5- to 10-cents-per-gallon (CPG) spread vs. E10 while still protecting their margin, he says.
Beyond the idea that it gives retailers another fuel option, proponents say E15 is a way for the country to avoid hitting the “blend wall”—the highest percentage of ethanol that the nation’s gasoline supply can absorb, recognizing both slacking demand and higher blends’ ability to safely fuel the vehicle fleet.
Within the first 15 weeks that Minnoco-branded retailers offered the fuel, E15 came to represent 20% of total gasoline sales, says Klatt. He urges policymakers, specifically those hoping to lower or abolish biofuel blending levels in the Renewable Fuel Standard for 2014 and beyond, to give the infrastructure time to roll out E15.
“When you look at volume being 20% E15, that’s good movement on the scale,” he says. “Imagine if ... everyone put this infrastructure in. That’s 20% of overall fuel in the country is E15. [If] you move that needle 5%, what does that do to the overall RFS?”
While infrastructure for ethanol blends has traditionally sprouted at the source—near ethanol refineries
in corn-belt states such as Minnesota, Iowa, South Dakota and Nebraska—one supplier is pushing for its expansion in one of the most vibrant U.S. markets: the Southeast.
Protec Fuel Management LLC, Boca Raton, Fla., is a provider of turnkey ethanol infrastructure services that established itself nearly a decade ago in the E85 business. Today it supplies 275 locations throughout the South and Southeast. More recently, it turned its sights to E15, with a goal of opening 28 sites in partnership with retailers in major markets by the end of first-quarter 2015. These include Atlanta, Houston, San Antonio and Dallas, and the states of Florida and Virginia. As of press time, it had opened five.
On its face, this is not an easy endeavor, considering supply constraints for the Southeast. There is only one refinery in the region (in Georgia). In most states, ethanol must be delivered by rail. For Protec, jump-starting the E15 infrastructure meant returning to many of its first E85 customers to gauge interest. Since then, it has opened the opportunity to any Southeast retailer.
“As we started to make more announcements of stations opening, that had definitely driven interest at the end of the fourth quarter on E15,” says Garner. “Now more people are calling us, asking what they have to do, and can they do it?”
The “how” is an important piece of E15; this is because it cannot be blended at the terminal but instead must be blended on-site with a mix of E85 and E10. Thus, any retailer that sells E15 must also have E85 available.
“If someone already has E85, it’s a very simple process to convert over and blend,” he says. “If you don’t, it’s back to our original turnkey model of now you’re going to have two products to sell: E85, and then blend up to E15.”
Of the retailers that have already installed E15, about half already were selling E85. However, most of Protec’s new E15 sites in Atlanta were brand new, meaning they did not already offer E85.
CONTINUED: The Desire to Differentiate
Garner says differentiation drives many retailers to install the ethanol blend. Most of Protec’s first E15 clients have been small operators, a move that is partly strategic, allowing the company to perfect its conversion process.
“When you go to a much larger retailer, you can’t afford to have any glitches,” says Garner, citing that Protec first approached several large Southeast chains about installing E15. “They were definitely interested but wanted to see what direction it would take.”
Since Sheetz announced plans to install E15 in North Carolina, other large chains have called Protec back, wanting to restart the conversation. “They want to see someone bigger go first,” Garner says.
For a large chain, sizing the E15 introduction is important. “There’s a lot that goes into it,” he says. That research includes determining the desired launch city and homing in on the highest-volume sites that offer the most cost-efficient installation. Other factors: area demographics, the makeup of the local automotive fleet and even the competition—and the likelihood they would try to replicate the offer.
From there, it is a matter of winning acceptance. Consumers have two main questions, says Garner: Will E15 hurt their car, and what is the price? “Most people who live in the area know E15 is coming to a location. Some people repeat what they hear on the news—that E15 damages your car—but you just need to be able to go through that process with everybody,” says Garner.
As for the price, the goal is to keep E15 at least 5 cents per gallon (CPG) below E10. Protec manages the price risk for its clients; in E15 sites opened so far, the retailer’s margin can be 1 to 2 CPG greater than E10, depending on how the operator sources its gasoline. Some of the retailers Protec works with have seen E15 rise to 30% of their fuel volume.
Indeed, perhaps a tougher party to convince would be the retailer’s major oil brand.
“It’s night and day between branded and unbranded,” says Garner of the approval process, pointing out that while Protec has “a good number” of branded E15 sites, getting to “yes” is not “an easy hill to climb.”
That’s because to sell E15, a retailer must blend its own E85 on site with the major oil’s E10. Protec sometimes can blend the fuels and supply it direct to the retailer. But in most cases, the retailer needs to do the blending.
“Some [brands] are definitely fighting it. They have some concerns,” says Garner. “ ‘It’s under my canopy, it’s got my branded name on it; am I liable for that? What happens if someone misfuels?’ ”
He and other supporters of E15 largely dismiss misfueling concerns, saying that there has not yet been a reported incident. Eventually, even major-oil brands will come around to embracing the ethanol blend, he believes.
“In the next couple of months, there will be few holdouts,” says Garner. “For the majority, it won’t be an issue. I don’t know how they can stop it and say no—because it’s going to happen, it’s going to come.”
Biofuels: It Takes a Coalition
In late 2014, what is said to be the United States’ longest biofuels corridor took its final shape. More than 40 fueling sites now offer E85 and/or B20—a 20% biodiesel blend—across the 1,786-mile stretch of I-75, which connects Sault Ste. Marie, Mich., to Miami. The Clean Fuels Corridor’s goal: to allow flex-fuel vehicles (FFV), which can fuel up on E85 or regular gas, the ability to travel from Michigan to Florida on the 85% ethanol blend.
Jonathan Overly, executive director of the East Tennessee Clean Fuels Coalition, Knoxville, Tenn., says while the project has met its goal, it was by no means an easy task. One of the biggest challenges? Finding retailers willing to install E85 and/or B20, despite the fact that the project organizers offered a 50/50 match on infrastructure costs.
The team learned the best way to connect with retailers was through local Clean Fuels coalitions and state biofuels organizations. The size of the retailer mattered in scaling up quickly.
“You were better off knowing a chain than you are a few station owners in the area,” says Overly. “The bigger they are, the easier it is to get multiple stations in an agreement than it is to get one.” Small retailers can be intimidated by the contracts they must sign to receive the funding for installing the biofuels, he says, whereas large chains were familiar with the process.
Even after first agreeing to participate, a few retailers backed out. Pilot Travel Centers, for example, found itself in the middle of finalizing its acquisition of Flying J. Another retailer greatly underestimated the cost of concrete work required to install E85.
“I’m surprised we got so many different reasons for ‘We can’t just do this right now,’ ” says Overly. However, “I never got an anti-biofuel reason.”
And in at least one case, issues with a retailer’s brand stood in the way. One operator in Michigan had almost finished installing B20 when he called his major-oil brand for permission to put the biofuel on his leaderboard. Unfortunately, the oil company required that its branded retailers sell traditional diesel before adding B20; this particular operator did not. Overly advises any retailer branded by a major oil to understand its contractual requirements for selling alternative fuels before embarking on the process.
Ultimately, the Clean Fuels Corridor installed E85 at 31 sites and B20 at nine, from small retailers to big chains such as Thorntons, Mapco and Speedway.
Clean Fuels Corridor Volume
From 2010 through the fırst few months of 2014, retailers sold 2.6 million gallons of E85 and B20 on the Clean Fuels Corridor, displacing 1.8 million gallons of petroleum per year.
|Year||Gallons of biofuels sold|
* January and February only
Source: Clean Fuels Corridor