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Big Oil to Ethanol: Build Your Own Dang Distribution, If You Think E85 Has Blend-Wall Busting Potential

Submitted by on February 20, 2014 – 11:31 amNo Comment

by Jim Lane (Biofuels Digest)  Reform, repeal or compete: the options laid out for ethanol by Big Oil by Marathon’s Product Supply & Optimization Director in a frank keynote at the National Ethanol Conference.   The RFA’s Geoff Cooper and ISU’s Bruce Babcock respond.

In his keynote at the National Ethanol Conference this week in Orlando, David Whikehart, Product Supply & Optimization Director at Marathon began with a reminder to the delegates that “Bob Dinneen said that we should be open to the message of our customer. I also hope you see Marathon as a credible voice on RFS issues.”

That’s one way of asking a crowd to refrain from throwing tomatoes.

The message wasn’t a popular one — and was twofold. It has been elsewhere promoted by the American Petroleum Institute and the refiners’ association (AFPM). Not all oil giants agree (notably Shell and BP demur), but a broad group is clear on two points: One, the E10 blend wall is real, E15 and E85 are not credible workarounds – only RFS repeal or reform is possible. Two, for those who disagree, there’s the time-honored tradition of putting your own capital to work and building your own distribution.

“For a number of years Marathon exceeded mandated ethanol volumes,” Whikehart said, “because it was profitable — and 10 percent of our distribution outlets are configured for E85.

RFA’s Geoff Cooper responds.

…“We said it at the 2013 NEC, 2013 would be the first year that the RFS required fundamental change in the behavior of obligated parties.

What did we see? … A NERA study predicting doom. Lawsuits, advetrtising, PR — all leading to a waiver request that has prompted an unexpected U-turn on federal policy by the Administration. In which they have dropped the advanced biofuels proposed RVO from 3.75 billion gallons to 2.2 billion, and from 14.4 billion gallons to to 13 in terms of corn ethanol.

“We’ve seen tortured logic at EPA as they have attempted to redefine their waiver authority from being based on inadequate supply of renewable fuels to inadequate distribution built by obligated parties and their partners to sell renewable fuels.

… “What we’ve seen in the marketplace is, in fact, the RFS is working as intended. When RIN prices rose, there is ample evidence that E85 sales soared when RIN prices rose, because it allowed retailers to discount the E85 price. When RIN prices fell, E85 sales fell.”

Iowa State’s Bruce Babcock responds.

…Is E85 a failed fuel? No. It has a failed pricing strategy. We can see that in the data, where E85 has been consistently priced above the consumer parity line.

In Brazil, we have seen that 40 percent of the market will choose ethanol when the prices are at parity.

Now, one of the problems we have is that, although we have 14.6 million flex fuel vehicles they are most widely distributed in Texas, California, and Florida — wheras the vast majority of E85 ethanol is distributed in the Midwest.

RIN prices increase the cost of producing gasoline, and incentivize producers to reduce the supply of gasoline. That makes sense in terms of how markets operate.

But does that translate to a retail impact at the pump? We do see an 8 cent rise in the wholesale cost of gasoline for every dollar of RIN cost.

But remember, consumers don’t buy gasoline, they buy E10. And so that $1 RIN translates into a $.10 discount in the 10 percent of ethanol content in what the consumer buys. That’s more than offsetting the increased cost of gasoline. In fact, a $1 RIN price produces a 2.8 cent cut in the cost of fuel at the pump, according to our model. Essentially, as the RIN price goes up the retail price stays level.   READ MORE and MORE (; includes audio) and MORE (; includes audio) and MORE (; includes Marathon audio) and MORE (; includes audio of retail infrastructure panel)

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