PAROLE, Md. -- High oil prices and subsidies that Congress passed last year are generating new interest in ethanol, reported Knight Ridder.
But Wan Kang's Quik-Mart CITGO, near Annapolis, Md., sells 20 gallons of ethanol on a good day versus 1,500 gallons of gasoline. He sells ethanol through a U.S. Department of Agriculture program designed to promote ethanol use, and the weak sales suggest that ethanol has a ways to go before it replaces gasoline.
It's not that there are not vehicles that can run on ethanol, said the report. [image-nocss] More than five million of them are on American roads today. They can run on E85, a mix of 85% ethanol and 15% gasoline. The problem is that most owners still run their flex-fuel vehicles on gasoline alone.
When gasoline prices rose to record highs last summer, Kang sold 300 gallons of ethanol a day, the report said. But at $2.99 a gallon, his ethanol is now 67 cents higher than the national average for unleaded gasoline, so the customer is not interested right now, Kang told the newspaper.
The story's different in the corn-growing Midwest, where ethanol production is centered, it said. There, a gallon of ethanol can sell for almost 50 cents below the price of unleaded gasoline, now $2.32 per gallon on average nationally.
Therein lies the ethanol industry's dilemma: How can it replicate its Midwest success far from its production centers?
Ethanol is an alcohol-based fuel made by fermenting and distilling crops that have been turned into simple sugars. U.S. ethanol producers make it from starch crops such as corn and sorghum. Ethanol production consumed 11% of all the corn grown in the United States in 2004, a figure projected to grow sharply in coming years, according to the report.
Flex-fuel vehicles are almost identical to gasoline-run cars except for a slightly modified engine that requires a sensor in the fuel line to control fuel injection. More than 30 makes of flex-fuel vehicles are sold today in the United States. Ford Motor Co. this year began offering a flex-fuel version of its F-150 pickup, and it reportedly will produce 250,000 flex-fuel vehicles at U.S. plants in 2006.
Despite that, Kang's is one of only about 635 stations nationwide that sell ethanol. Most are in the Midwest. Compare that with 167,000 filling stations and convenience stores that sell gasoline.
Click here and here for lists of ethanol stations.
That will change soon in New York, where Governor George Pataki has proposed waiving state gasoline taxes on ethanol. He also promised ethanol pumps at New York's 27 highway travel plazas, special HOV lane privileges for flex-fuel vehicles and a $2,000 income tax credit to owners of vehicles that run on ethanol, said Knight Ridder. Iowa is also considering a tax break for E-85 (see related story in this issue of CSP Daily News).
Rising production is also raising ethanol's prospects, the report said. Five years ago, ethanol makers struggled to produce 1 billion gallons. In 2006, they will make more than five billion gallons. More than 30 ethanol plants are under construction today, and 150 more projects are in the works.
I think everybody is realizing that [the era of] cheap oil is done, Bob Dinneen, the president of the Renewable Fuels Association, told the paper.
The industry got a big boost from U.S. lawmakers last summer, when sweeping energy legislation required petroleum refiners to nearly double their use of ethanol as an additive in gasoline production to reduce greenhouse gas emissions. Refiners were effectively ordered to incorporate four billion gallons of ethanol into their production this year and 7.5 billion gallons by 2012, the report said.
Virtually any car can run on a gasoline mix that contains up to 10% ethanol. Minnesota requires that. Montana and Hawaii have less-stringent requirements, and Wisconsin's legislature is debating ethanol mandates.
Ethanol producers got another vote of confidence last March, when the Chicago Board of Trade began offering contracts for trading in ethanol futures. It signaled that ethanol had grown up. Futures contracts allow buyers of ethanol to hedge against future price volatility in the same way that oil buyers do.
This is something that's going to grow up with the [ethanol] industry, Brenda Tucker, a senior economist and manager at the Chicago exchange, told the paper. She predicted that the current low volume of trading in ethanol contracts will grow as ethanol becomes more widely used.
But research conducted by VeraSun Energy Corp., a large ethanol maker in South Dakota, underscores the consumer challenge. It found that 70% of drivers of flex-fuel vehicles did not even know they could use ethanol instead of gasoline.
Environmental groups say carmakers deliberately under-promote flex-fuel vehicles, and that a loophole in federal law provides federal fuel-economy credits for makers of flex-fuel vehicles. The result, they allege, is that carmakers manufacture a small number of flex-fuel vehicles so they can make more gas-guzzlers.
Carmakers counter that flex-fuel vehicles are not promoted nationally because ethanol is not available nationally. We're doing our part, but the infrastructure needs to catch up, Christine Morrisroe, a Ford spokesperson, told the paper.
Late last year, Ford and VeraSun announced that they would jointly try to convert an unspecified number of fuel pumps in the Midwest to ethanol.
Ethanol producers see oil companies, not carmakers, as their obstacle, the report said.
They just don't want to lose any volume, period, even if it isn't coming from our domestic [oil] production, James Glancey, the president of Wyoming Ethanol, Boise, Idaho, told the paper. He expects to more than double production capacity to 12 million gallons by summer.
Oil companies should start viewing themselves as transportation-fuel providers, not simply sellers of gasoline, said Phillip Lambert, the executive director of the National Ethanol Vehicle Coalition. To break this paradigm of the oil industry, we have to break this hydrocarbon concept, he told the paper, adding that it is a tough road for us to go up, because we're dealing with 100 years of oil companies, a high-profit industry that's risk averse.
Red Cavaney, the president of the American Petroleum Institute (API), complained that oil companies are being asked to subsidize a competitor. At some point, ethanol needs to stand on its own merits. If they can operate and sustain themselves in a free market, then we ought to look at how we can get them to the point where they are relatively self-sufficient, he told Knight Ridder. The subsidy that Cavaney complains about is 51 cents paid by the federal government to oil refiners for every gallon of ethanol they blend with gasoline.
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