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Retailing higher blends of ethanol

As the country debates the pros and cons of raising the Ethanol blend level to 15% from the current 10% level, the issue that has gained center-stage attention is whether the higher ethanol blend level is detrimental to engines- especially small engines and marine vehicle engines. Not too many people have looked into whether there is existing infrastructure within the distribution networks to carry a higher ethanol blend.

Magellan and POET recently announced construction of a 1,800-mile pipeline to transport ethanol from the Midwest to New Jersey. In the biofuel universe this level of infrastructure building is similar to the construction of the transcontinental railroad in the 19th century. Existing pipelines just cannot carry pure ethanol due to its corrosive properties and it affinity to moisture. An entirely new logistics infrastructure is needed to facilitate efficient transportation, storage and retailing of higher ethanol blends across the country.

Assuming that there is a cost-effective way to get the ethanol to the retailing station, it is doubtful that retailers will immediately shift to a higher blend. There will most likely be a gradual shift to higher blend with some retailers preferring to sell both E10 and E15 side by side. Many risk averse car owners are going to be reluctant to put a higher blend into their tanks after listening to manufacturers talk about voiding warranties during the discussion around the law-making. Most likely, any higher blend retailed will come with strict warnings and a cut-off age for vehicles which can safely use any higher blend. Others are going to calculate the loss of mileage as a result of the higher blend and the see if there are any real savings per mile driven.

If and when a higher blend becomes legally available, owners of older cars and risk-averse car owners will have the option of filling up with either reformulated gasoline or a lower blend like E10 depending on what is available at their neighborhood gas pump. And what is available at the pump will depend on the retailer's economic motivation to retail various blends. Any change in the current retailing mixture could require capital costs in the form of new tanks, pumps, hoses, etc.

One way to retail E10 and E15 side by side is the blender pump, a device currently promoted by the American Coalition for Ethanol. It allows for gasoline and ethanol to be blended at the pump and consumers get to choose how much of each they want. This would work except Underwriters Laboratories still have not approved the device and none of the retailers are in a hurry to put them in the ground till that happens. Retailers who currently have these devices installed or have plans for installing them have done so with the help of state and federal infrastructure grants that pay upwards of 50% of the costs.

However, blender pumps work on the assumption that the reformulated gasoline that is being mixed with ethanol to produce the E15 blend is the same as that used to produce the E10 blend. If this assumption proves false, a blender pump is of no use in preventing additional retailing infrastructure. An E15 blend will require the retailer to install an additional tank to store the two different kinds of reformulated gasoline. Without the blender pumps, retailers who want to offer E-15 blends along with E-10, will have other capital costs - in tanks and pumps and hoses that will allow retailing two different blends side by side. The feasibility of such an expansion in infrastructure will depend on availability of funds and availability of land with the appropriate permitting. The road ahead for higher blends looks rocky at best, but there is a quiet certainty among producers of biofuels that it will happen.


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