Retailers such as OnCue Express and Kum & Go are cultivating business opportunities by offering consumers more options at the pump.
By David Bennett, Senior Editor
After much hand wringing on various fronts, the U.S. Environmental Protection Agency (EPA) recently issued its final rule, establishing renewable volume obligations for 2014, 2015 and 2016.
The EPA did use its waiver authority to set the numbers lower than those called for by Congress in the most recent revisions to the Renewable Fuel Standard (RFS). For ethanol, the new 2016 standard calls for 14.5 billion gallons to be blended into the fuel supply next year, 500,000 gallons more than the agency had initially proposed. However, that number is also 500,000 gallons less than the target of 15 billion gallons required by law.
Even if the targeted ethanol volume came in less than projected, many stakeholders who sell fuel for a living agree that alternative options such as ethanol and compressed natural gas (CNG) are not only viable solutions in reducing the amount of greenhouse-gas emissions, but enticing options for a growing segment of U.S. motorists.
In the end, the decision to sell alternative and renewable fuels is as much a business calculation as it is a public relations one.
Of course, some business calculations involving alternative fuels are bolder than others. Take for example, OnCue Marketing LLC, headquartered in Stillwater, Okla. Steve Minton, OnCue’s CNG market development manager, will tell you that the sizable investment that the company is making in CNG at its new OnCue Express stores is an important business calculation that not only impacts the convenience retailer’s current business plan, but its corporate future as well.
Beginning six years ago with one location that provided CNG to a single corporate fleet, OnCue now has 20 locations that provide CNG to commercial and light-weight vehicles.
The company’s two newest, multi-million dollar locations comprise the OnCue Express Truck Stop on I-35 in Billings, Okla. and an OnCue Express c-store at Sooner Road in Oklahoma City, which boasts twin 250-horsepower dispensers with four CNG hoses in addition to its gasoline and diesel pumps.
OnCue, which also offers a mix of E15 and E85 ethanol-blended fuels at 55 Oklahoma locations, expects to open at least five more CNG fueling outlets in 2016—mostly at new OnCue convenience stores. The Oklahoma retailer is constantly evaluating consumer trends in its area of operation to determine what fuel project is the best capital investment, as well as where the “camps” reside.
“We start to see different camps of people and different beliefs. One of those camps is ‘I want an American fuel,’ and that’s where we would agree with the Renewable Fuel Group in saying let’s start making it in America rather than pulling it in from overseas,” Minton said. “Then there’s the ‘buy cleaner’ group. Then you have the group that cares about price more than anything, and I think that’s where the typical, average consumer is today.”
However, patrons of OnCue that are investing in CNG-operated vehicles are enough to justify future plans, not to mention the extreme stability of the price of CNG, which has remained the same at OnCue for the last few years.
“Our goal is to put CNG at every one of our new locations as we build them, and we’re building 5-8 locations per year,” Minton said. The cost associated with a location CNG is available is $1.2 million—some of that cost is defrayed by state energy incentives available in Oklahoma.
CALL FOR ETHANOL
According to the federal RFS passed in 2007, the Federal government requires certain volumes of ethanol to be blended into the U.S. transportation fuel supply. Ethanol production was expected to continue to grow over the next several years, since the Energy Independence and Security Act of 2007 required 36 billion U.S. gallons of renewable fuel use by 2022.
Because convenience stores sell approximately 80% of all fuels sold in the U.S., a growing number of chains are addressing the incremental for different ethanol blends—known in the industry as “the blend wall.”
The base of the blend wall comprises the normal mandated U.S. average ethanol blend of almost 10% in the nation’s gasoline supply. It represents a temporary ethanol market saturation and stems from the maximum 10% ethanol blend that has been approved for use in all gasoline-powered cars and light trucks.
However, states have discretion as to how much ethanol goes into fuels sold within their borders. In a number of states, convenience stores are capitalizing on an expanding customer base for various ethanol-blended fuels. Growth of higher ethanol blends that comprise the blend wall are providing consumers more choices at the pump, including the options of E15 and E85.
According to Growth Energy, a nonprofit that promotes the ethanol industry, nearly 3,000 gas stations sell E85 nationwide. A blend of 85% ethanol and 15% gasoline, E85 is suitable only for flex-fuel vehicles.
At the end of 2015, there were 179 stations in 22 states selling E15, which is a blend of 15% ethanol and 85% gasoline for 2001 and newer vehicles. That figure is expected to more than triple a year from now.
“Today, Sheetz, Kum & Go, Cenex, MAPCO, Minnoco, Protec and Murphy USA have all announced E15 initiatives,” said Mike O’Brien, vice president of market development for Growth Energy. “We anticipate more than 700 sites selling E15 by the end of 2016.”
Growth Energy has been tracking sales numbers for E15 since November 2014. E15 has consistently been totaling about 13-15% of total gallons sold by retailers the group has partnered with, according to O’Brien. “We’ve had retail sites selling E15 for about 2-3 years now and E15 accounts for as much as about 50% of their volume.”
Working with Growth Energy, convenience store chain Kum & Go, this past December, introduced E15 fuel to the Arkansas market. Between Dec. 16-17, Kum & Go offered E15 fuel to Little Rock residents for $1.15 per gallon for the first time, with favorable results.
Operating 430 stores in 11 states, Kum & Go, based in West Des Moines, Iowa, has been offering E85 fuel for nearly 20 years. Kum & Go is the largest E85 retailer in the state of Iowa and one of the largest in the country, offering E85 in Colorado, Iowa, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.
Because the c-store operator believes in the benefits of ethanol for both Kum & Go and its customers, efforts to expand the program will continue.
“Renewable fuel blends offer great value and performance, in addition to reduced environmental impact and support of local economies,” said Jim Pirolli, vice president-fuels for Kum & Go. “These factors also align with our corporate initiatives of sustainability and supporting the communities in which we operate.”
In Little Rock, Kum & Go customers were able to fuel up with E15 for only $1.15 per gallon, as well as learn more about the benefits of this alternative fuel so they know where to go for future fill-ups, Pirolli said.