Ethanol blend wall approaches

Feb 8, 2013

—Oil company official wants RFS amended.

For years the U.S. ethanol industry has lamented the approach of the so-called “blend wall” where total production exceeds the market saturation point for gasoline with 10 percent ethanol blends.

A group of experts speaking at the National Ethanol Conference on Wednesday, Feb. 6, said the rubber is about to meet the road in the next two years—when corn ethanol’s 15-billion-gallon cap set in the Renewable Fuel Standard (RFS) becomes a reality.

It is at that point where advanced biofuels and cellulosic ethanol are expected to carry forward beyond the 15-billion-gallon mark on the way to 36 billion gallons by 2022.

As the ethanol industry begins a fight for the very life of the RFS in 2013, there are varying opinions on what exactly happens to corn ethanol come 2015. In Washington, just last week groups were beginning to ramp up efforts to attack the biofuels industry.

Though the oil industry as a whole is making a push to eliminate the RFS, a representative from Shell told the audience that his company supports the RFS but that it needs to be fixed to account for the blend wall before it is too late.

“We believe the mandates must be changed to account for infrastructure,” said John Reese, downstream policy and advocacy manager for Shell Oil Products U.S.

“We think it is a big problem that has to be addressed before it affects consumers.”

The blend wall would limit the supply of gas and diesel for U.S. consumption, Reese said.

E15 market

U.S. ethanol has put a lot of stock in the growth of a 15 percent blend, or E15, market as a way to overcome the blend wall. However, Reese said not enough progress has been made in expanding the U.S. vehicle fleet of flexible-fuel vehicles, the number of blender pumps and other infrastructure, to get past the blend wall before it becomes a problem.

“E10 would likely continue even if there was a mandate or not,” he said. “E15 and E85 have been slow to expand. Shell believes EPA was premature in implementing E15. Our view is it is only compatible with vehicles designed to use it.”

The American Petroleum Institute has launched a campaign to outright repeal the RFS and has openly opposed the expansion of E15.

Reese was questioned about Shell’s disconnect from the petroleum institute’s stance, although Shell is a paying member of the group.

“The trade association works by consensus and not everyone agrees with the association,” he said, adding that Shell’s position was a “minority position” within the group.

Brooke Coleman, executive director of the Advanced Ethanol Council, said the U.S. ethanol industry has to fight to maintain the RFS in its current format.

“We have to go out and tell the truth about the market,” he said. “Don’t be fooled. An RFS amendment right now is suicide. Our adversaries split us. If they divide us, I don’t think we have as good a chance on this.”

Investor fears

Mark McMinimy, director of Guggenheim Securities LLC, a company that works with institutional investors including those active in biofuels, said he receives mixed signals from large investors about the state of the RFS and the future of advanced biofuels.

“In a sense, there is no uncertainty within the RFS,” he said. “Yet many investors continue to feel uncomfortable with the RFS because of groups attacking the RFS.

“For investors, Washington is the poster child of uncertainty. Is it any wonder that when an RFS bill is introduced my phone rings?” McMinimy said investors want to see a “clear pathway” through the blend wall.

“I’m beginning to hear some investors assert that the corn ethanol industry could make its way without the RFS,” he said.

Rick Tolman, chief executive officer of the National Corn Growers Association, said corn growers believe the 15-billion-gallon cap was set “arbitrarily.”

In polling corn growers, Tolman said the numberone issue is the preservation of the RFS.

“Job number one is to get back to producing a crop,” he said.

Tolman said recent drought maps have shown an improvement in the Eastern Corn Belt and further deterioration in the Western Corn Belt. Last year’s drought dropped the national average for corn yields by about 23 percent, he said.

Still, recent projections forecast a record number of acres planted to corn in 2013.

“The reality is with normal weather, we can outproduce the market,” Tolman said. — Todd Neeley, DTN