Market Movers

by Lisa Gibson (Ethanol Producer Magazine) Projections for E15 have been inconsistent since the May 31 Reid vapor pressure waiver. Ethanol Producer Magazine explores some of the factors that will influence the blend's trajectory in the coming years.

Before the waiver, retailers selling E15 had already planned to increase the number of sites offering it from about 1,800 to 3,600 in the next few years, O’Brien (Mike O’Brien, vice president of market development for Growth Energy) says. At the current sales rate, with the planned increases from the 17 chains selling E15 now, sales could increase incrementally by 1.2 billion to 1.4 billion gallons in the next five years, he adds. But at least six new chains are exploring their options through Growth Energy’s Prime the Pump branding and expansion initiative, with the potential to double that growth, O’Brien says. “We are seeing some other players start to warm up their interest in E15 because of the RVP waiver being gone,” he says, adding retailers are excited and are developing more aggressive plans for that market. “That’s the attitude we’ve encountered among all the retailers.”

Ron Lamberty, senior vice president of the American Coalition for Ethanol, points to contact from service companies as an indication that more retailers want to offer E15. “I’ve gotten calls from several different service companies—pump and equipment companies—that have asked what they need to do. That’s a good sign because that’s who stations call when they really want to make a move.”

Negative Market Factors: Slow to Sell
Among the largest factors with the potential to slow E15 market growth are small refinery exemptions. “The incentive both to expand E15 volumes just to meet the Renewable Fuels Standard, and the incentive that’s provided by D6 RIN prices, are being eroded a little bit,” Richman says.

Through SREs granted from 2013 to 2018, the U.S. EPA has exempted a combined 45.66 billion gallons of gasoline and diesel from meeting RFS blending obligations, representing 4.73 billion RINs. That’s roughly 4 billion gallons of ethanol and biodiesel waived.

RIN prices should reflect the cost of “not obeying the law,” Lamberty says. “It’s not supposed to be easy because you’re supposed to use ethanol.” D6 RIN prices have hovered between 10 and 25 cents in 2019, down significantly from the highs of near 90 cents at the end of 2016, according to the Energy Information Administration.

That price point can be a compelling argument to retailers considering selling E15. “It was much easier to talk to people about E15 and E85 two years ago, when gas was over $1 higher, with the RIN price,” Lamberty says. “The margins were in the larger range, 12 to 15 (percent). You’re talking a pretty significant percentage of their margin.”

While ethanol industry margins have swiftly declined, leaving plants idled and even closed this year, retailers have had a tremendous past two years. Locations not already selling E15 might not see a need to explore it right away, even with the RVP waiver. The EIA reports that only 2 percent of retail fueling stations nationwide sell E15, which represents a small push currently for new ones to enter that market. Convenience stores move slowly with fuel changes, Lamberty says, traditionally evaluating new options during spring and winter months, and implementing any changes around May of the following year. The process for a station to start offering E15 can be lengthy, as well, including registration with EPA, a survey and infrastructure changes. “It might not cost a lot, but it does cost,” Lamberty says.

RFS renewable volume obligation (RVO) levels in the coming years will play a part, also, Richman says, as well as gas consumption trends.

Some predictions of near-term reductions in gasoline consumption may have been overdone, but we do realize that, over time, with improving fuel efficiency, we’re going to need to go to higher-level blends in order to be able to maintain ethanol consumption at the levels that are envisioned.”

“I expect gas demand to remain fairly steady,” Lamberty says. “Gas demand seems to be more dependent on cost of gasoline and I think people drive a lot when gas is cheap, and they don’t drive as much when it’s expensive.”

The ethanol industry has applauded the proposed (Safer Affordable Fuel-Efficient (SAFE) Vehicle) rule for addressing the potential of high-octane fuels.

E15’s discount of 3 to 10 cents per gallon over gasoline is particularly significant in a declining gasoline market. “There’ll be a fight for gallons and E15 is going to be right in the middle of that fight, so that could actually accelerate E15 adoption,” O’Brien says. As branded and other retailers lose that share in the market, they’ll want to get back in the game by offering the product that’s taking their share, he adds.

It only hastens further with more terminals offering E15 as interest among retailers grows. “Having a preblended E15 is a much quicker addition for a retailer to put that product in versus trying to rebuild equipment,” O’Brien says. Five terminals started offering E15 in 2017, but that number grew to 175 by mid-2019. “That’s a big function around the E15 Prime the Pump retailers coming into the marketplace,” he says. Retailers blending their own fuels is lost market share for terminals, incentivizing the preblended offerings. READ MORE