Ethanol continues to be one of the top industry dilemmas in 2019, with the current 15 billion gallon mandate at odds with declining fuel demand that renders the ethanol target virtually impossible for refiners to achieve.
This has prompted a greater push for E15 to meet the mandate, which will in turn exacerbate RIN value volatility, while rendering most underground storage tank (UST) E10 certified systems vulnerable to failure. UST components such as piping, joints, connectors, gaskets and dispensers are not warrantied or designed to properly function with ethanol blends above 10%. Currently, there is no indemnification provision to shield marketers from liability as a result of these expected system leaks.
Upgrading current UST equipment to meet an E15 or higher ethanol blend requires replacement of the entire system past the tanks, making this an impractical option for most retail sites. Unless the mandate volume is adjusted to better reflect current fuel demand, marketers will be forced to shoulder the financial burden of replacing equipment, estimated to be at least a couple of hundred thousand dollars or rationalize the closure of stores that do not economically warrant this unplanned investment. To add insult to injury, RIN volatility further places a majority of marketers on an uneven playing field with their larger unbranded competitors enabling lower gasoline street pricing, as a result of their ability to blend their own ethanol and sell the resultant RINs.
The Petroleum Marketers Association of America (PMAA) legislative conference in Washington, D.C. saw differing marketer views on the E15 subject with many Midwesterners contending that year round E15 was a fait accompli and others believing that it was not. In fact, it was revealed that several large unbranded retail operators have been featuring a midgrade product entitled “Unleaded 88” at a price advantage over E10 Regular 87, achieving this higher octane rating by using an E15 blend and passing on the resultant RIN value to the street price of the product.
In many markets, this situation has led to claims of deceptive advertising, whereby motorists were lured in with a low price only to discover after the fact that they were buying E15, if they even happened to notice the pump sticker. An unintended consequence of this situation is a significant misfueling risk, as a tremendous number of vehicles are not warrantied for fuel blends beyond E10. The headaches from probable E15 misfuelings are another situation that has yet to be fully measured.
95 RON Fuel
Besides these issues and the upcoming EMV upgrade deadline, marketers should also expect to be dealing with the new 95 RON fuel formulation, as vehicle original equipment manufacturers and oil companies work out the final details. In a nutshell, 95 RON fuel is being designed for new model vehicles to meet higher miles-per-gallon fuel standards. Adoption of this new fuel will require a different type of nozzle configuration to prevent misfueling into older vehicles and require retrofitting of existing dispensers to feature two nozzle types. To add further insult to injury, the higher octane in 95 RON may be less expensively achieved by using ethanol. Thus small to mid-sized marketers may face the prospect of another operational headache to add to their ever-mounting fuel related challenges.
Mark Radosevich is a strong industry advocate and 39-year petroleum professional. He is president of PetroActive Real Estate Services, LLC, offering confidential mergers & acquisition advisory, representation and financing services exclusively to petroleum wholesalers. Contact him at [email protected], (423) 442-1327 or visit www.petroactive.net.