November 15, 2016
The Federal Renewable Fuel Standard (RFS) requires increasingly high levels of renewable fuels to be blended into transportation fuel. Ethanol provides the largest share of the renewable fuel pool so that nearly all of the gasoline sold in the U.S. is 10% ethanol. With this volume it would be easy to assume that there is no ethanol-free gasoline on the market. Recently however, the question of how much E0, or ethanol-free gasoline, is out there has been on our minds. As part of Stillwater’s Energy Policy practice, we have been studying the issue of E0 market volume. It’s not as small as you might think.
While most gasoline in the U.S. is blended with 10% ethanol, there are also minor volumes of E85, and a very small volume of E15 on the market. All along E0 has been available for sale to consumers, but it is difficult to tell how much. The EPA estimates about 200 million gallons per year (mgy) of E0 is available, which is about the same as their E85 volume estimate. The EIA estimates about 5.3 billion gallons per year (bgy) of E0 is available. It should be noted however, that EIA’s estimate is based on the difference between ethanol supplied and the total ethanol used in the fuel pool and not by surveying the market.
So who is buying E0? Unfortunately, EIA is not able to quantify the volume of E0 sold by market segment or location, but we do have some clues. Small or specialty engine users (i.e. marine engines and chain saws) seem to be making up a large segment of the market. EIA estimates that in 2015 recreational boats used about 2 billion gallons of gasoline, which in most cases was E0. This estimate is 10 times larger than EPA’s E0 estimate. E0 also seems to be popular with a growing population of on-road users who choose E0 for the price as ethanol is more expensive than gasoline. We have found strong critics of ethanol use in some markets around the country like Oklahoma, and surprisingly, Iowa.
Terminal companies and marketers are making room for E0 in their businesses. Magellan Pipeline commented on the latest revision to the RFS and said two of their terminals in one state are selling almost as much E0 as EPA says is sold nationwide. Anecdotally, we hear that jobbers in markets in Idaho and Washington are putting in tanks for E0. E0 is advertised for retail sale in Louisiana and Arkansas. According to pure-gas.org, there are 11,000 stations selling “ethanol-free gasoline” around the country.
Without the ethanol, where’s the octane coming from? Marketers seem to be blending regular and premium CBOB together to make the desired octane of the product they offer for sale. A 50/50 blend of 84 octane regular CBOB + 90 octane premium CBOB (East of the Rockies) should create an 87 octane gasoline. (Caution the BOBs are not always at the octane rating assumed in the previous statement because of local or regional BOB blending practices). We hear that the over-the-road sales are priced up to about 20 cents per gallon (cpg) over E10.
We at Stillwater would appreciate any feedback that marketers would like to offer about product line. Please contact Dave Hackett with any comments or feedback.