Black Hose vs. Yellow Hose
Caught up in battle between oil and ethanol, Zarco 66 stops selling E15
Published in CSP Daily News
NEW YORK -- At a handful of gas stations in eastern Kansas, the fight between major oil refiners and the ethanol industry over the future of America's fuel supply has found a new focus, said Reuters--the color of the gasoline hose.
Scott Zaremba, owner of Lawrence, Kansas-based Zarco 66, said he is being forced by his main fuel supplier, Phillips 66, to stop selling gasoline blended with 15% ethanol. The first retailer in the country to sell E15 fuel, he has found himself caught in battle between ethanol makers and oil companies.
On April 1, Zaremba received a notice from Phillips 66 that he could no longer sell E15 from his regular black fuel hoses, as he had been selling it since last July. Instead, any gasoline with more than 10% ethanol has to be served from a separate, yellow hose, according to a copy of the Phillips 66 guidelines obtained by Reuters. The aim is to distinguish E15 from other Phillips 66-branded gasolines.
It would cost $100,000 to $250,000 to install new standalone pumps for E15, Zaremba said. Or he could pay a $412,000 fee to Phillips 66 to break his marketing contract These expensive options have so far kept him in compliance with the Phillips 66 guidelines, he said.
In April, Zaremba began phasing out E15, leaving only two-dozen stations in the country that sold the blend as of the end of May, when the last of his eight stations gave up the fuel.
Asked about its new guidelines, Phillips 66 spokesperson Dennis Nuss said in a statement obtained by the news agency that they were part of an occasional update to its brand standards meant "to ensure a positive and consistent customer experience at the pump."
The fight is the result of the 2007 Renewable Fuel Standards (RFS) law, which mandated the blending of gasoline with renewable fuels. Congress's goal was to make the U.S. less dependent on foreign oil by putting more homemade renewables into gasoline--from 9 billion gallons in 2008 to 36 billion by 2022. The increasing annual targets were based on expected growth in fuel demand that would allow more gallons of ethanol to be blended without increasing its share of supply. Instead, thanks to the recession and rising fuel efficiency, consumers are buying less gasoline than expected. That has left oil companies actively trying to repeal those blending requirements, while ethanol producers are fighting to keep them in place.
Ethanol proponents say refiners are resorting to technical rule changes and market force to keep E15 out of gas stations.
In Iowa, eight retailers who want to sell E15 say they can't even make it because oil companies won't sell them the ingredients necessary to make the appropriate summer blend of the fuel, according to a petition obtained by Reuters.
"They've essentially declared an all-out war" on E15, said Monte Shaw, executive director of the Iowa Renewable Fuels Association, which represents ethanol producers.
Phillips 66's Nuss said the company has 945 marketing customers like Zaremba covering more than 7,000 stations and has received no other complaints about the guidelines.
"We strenuously deny any suggestion that our actions are part of a larger effort to frustrate the adoption of the [RFS]," Nuss said.
Oil producers say they are holding firm to a 10% maximum blend of ethanol in gasoline because anything more than that can cause engine damage in many vehicles.
"We are not about to put something out there that we don't think is safe or reliable for the consumer," said Charles Drevna, president of American Fuel & Petrochemical Manufacturers, which represents refiners like Phillips 66.
The EPA has approved E15 for cars made after the 2000 model year. But automakers have not extended their warranties to cover E15 use on pre-2013 models. That leaves only about 12 million of 240 million cars on the road, or about 5%, with warranties to use E15, according to a November survey conducted by the American Automobile Association.
"Every automaker with the exception of Porsche said that E15 could void your warranty unless it was a very new car," said AAA spokesperson Michael Green.
So far, most stations have been either unable or unwilling to carry E15.
The Renewable Fuels Association, which represents ethanol producers, estimates that with Zaremba's exit, only about 25 stations nationwide sell the fuel out of about 140,000. Sales of E15 over the last year have amounted to less than 1% of one day's worth of daily U.S. gasoline use, according to Reuters.
The American Fuel & Petrochemical Manufacturers recently filed a Supreme Court challenge to E15 gasoline. The refiners argue the EPA overstepped its authority when it approved the sale of E15 for only some cars, instead of looking at the market as a whole. "The EPA can certify fuels for engines--not for this engine or that engine," Drevna said.
The group represents a who's-who of the refining industry, including oil majors ExxonMobil, Chevron, BP, Valero, Tesoro and Phillips 66.
In case their legal challenge fails, Drevna said, the oil companies are actively pursuing "legislative" solutions to the issue in Congress.
The ethanol lobby said oil companies are bluffing. "What it comes down to is we're [cutting] into their market share," said Michael Frohlich, spokesperson for Growth Energy, the ethanol group that made E15 possible by petitioning the EPA to approve its sale.
Profits, more than vehicle safety or performance, are the main reason why refiners are "fighting tooth and nail" to get rid of E15, Frohlich claimed. If they wanted to, they could easily blend more ethanol into the gasoline supply, he said.