Oil Industry Declares War on Ethanol
Financial Sense, 12 June 2013
I just finished reading a story that made my blood boil. It was about how the oil industry is using dirty tricks to keep the ethanol industry in check. I need to sit down, take a deep breath, and make sure everyone knows of the atrocity that has happened in Kansas.
The problem started when the ethanol lobby requested — and subsequently received — a waiver from the Environmental Protection Agency (EPA) that would allow up to 15% ethanol in gasoline blends. The current limit is 10%, which is a problem for the ethanol industry because the mandate in the Renewable Fuel Standard already has the country at the 10% limit. It would be a huge boost to the ethanol industry if that limit was moved up to 15%, because that would increase the potential size of their US market by 50%.
Since the EPA allowed 15% — but didn’t mandate it — and because some automobile manufacturers have stated that use of E15 would void car warranties, I predicted that E15 sales would be essentially nonexistent.
And that is exactly what has happened. E15 has failed to win over consumers. Few stations offer it. Head ethanol lobbyist Bob Dinneen says that it is the oil industry’s fault that E15 isn’t being sold. Now comes evidence from Kansas that Dinneen may be onto something.
In Ethanol lobby sees red over a yellow gas hose in Kansas, Reuters brings us the story of Scott Zaremba, who owns Kansas-based Zarco 66. Zaremba says Phillips 66 (NYSE: PSX), his main fuel supplier, is telling him to stop selling gasoline blended with 15 percent ethanol. Well sort of. Actually, not really. Here is what the story claims:
On April 1, Zaremba received a notice from Phillips 66, the nation’s third-largest refiner, that he could no longer sell the E15 fuel from his regular black fuel hoses, as he had been selling it since last July.
Instead, any gasoline with more than 10 percent ethanol has to be served from a separate, yellow hose, according to a copy of the Phillips 66 guidelines seen by Reuters. The aim is to distinguish E15 from other Phillips 66-branded gasolines with 10 percent or less ethanol.
So they aren’t quite forcing him not to sell E15, but they are asking the impossible: For E15 — which many car makers have not approved — to be easily distinguished from E10 by dispensing it from a yellow hose. Now come on! A yellow hose? Do those even exist? Probably not. So in effect, they did force him to stop. The story goes on to explain that Zaremba has quite a dilemma:
He has other options, but they aren’t cheap – or very feasible. For example, it would cost $100,000 to $250,000 to install new stand-alone gas pumps for E15, Zaremba said. Or he can always pay a $412,000 fee to Phillips 66 to break his marketing contract – expensive options that have so far kept him in compliance with the Phillips 66 guidelines, the only way he said he could.
So, his choices were:
- Get a yellow hose
- Pay up to $250,000 for a new stand-alone E15 pump
- Pay $412,000 to Phillips 66 to break his contract
- Stop selling E15 and blame Phillips 66
Zaremba opted to stop selling E15. After all, what other choice did he have? Even if yellow hoses do exist, who wants to pump their gasoline from a yellow hose? Typical dirty oil company tricks. Monte Shaw, Executive Director of the Iowa Renewable Fuels Association couldn’t have said it any better: “They’ve essentially declared an all-out war (on E15).” I can only imagine the reaction of people who have experienced the horrors of war pulling up and seeing a yellow hose on a gas pump. I am sure it gives them flashbacks.
The oil companies already make it difficult for me to pump diesel into my gasoline-powered car. Now they want to make sure I am “aware” if I am putting in E15 just because it might void my warranty and I might blame them. It’s a sad day for Kansas, and a sad day for America. Yellow hoses indeed.