GM seeks to help retailers sell ethanol-rich fuel

A motorist fills his car's tank with unleaded fuel at a service station in Washington January 2, 2008. General Motors Corp said Monday it was accelerating efforts to coax U.S. gasoline filling stations to add pumps that sell ethanol-rich fuel.

NEW YORK (Reuters) - General Motors Corp (GM.N) said Monday it was accelerating efforts to coax U.S. gasoline filling stations to add pumps that sell ethanol-rich fuel after it bought a stake in a start-up company to make ethanol from sources like crop waste and old tires.

Mary Beth Stanek, GM's energy and environment director, said the company hoped over the next two or three years to help push 10,000 U.S. gasoline stations to add pumps that sell E85, a fuel mixture of 85 percent ethanol.

"We're getting pretty sophisticated on how this is done ... we have great relationships with ethanol producers, fuel retailers, and the state agencies who want this to happen," Stanek told the Reuters Global Agriculture and Biofuels Summit in a telephone interview.

GM annually produces about 1 million "flex fuel" vehicles that run on either gasoline or ethanol fuel mixes like E85 as part of its alternative fueled vehicles program.

Stanek said GM helps service stations add the pumps by finding grant money to ease conversion costs. When new ethanol pumps go up, GM also contacts their flex fuel customers, letting them know new fuel options have opened near them.

In Miami, for instance, GM helped open ethanol pumps at U-Gas stations and sent postcards to its 5,000 flex fuel clients near the station.

E85 stations have been slow to develop as the percentage of U.S. cars that can use the fuel is still under 10 percent.

The stations are mainly concentrated in Minnesota and other Midwestern states where most U.S. ethanol is currently made from corn. The stations are beginning to spread to states like Texas that can easily receive shipments from the Midwest.

Stanek said E85 stations would grow geographically and numerically as the cost of ethanol declines and as the price of oil clings near $100 a barrel.

She said the U.S. energy law signed by President George W. Bush last month, which mandates a five-fold increase in ethanol blending by 2022, would help ease transportation bottlenecks, which could help make ethanol cheaper.

"Things that have been put on hold will get fixed and that means light rail, some shorter pipelines and blending terminal upgrades," she said. "We are confident those issues will be resolved. Now what we have to do is get consumers engaged."

CUTTING COSTS

On Sunday, GM said it had invested in start-up biofuel company Coskata Inc, which has developed a commercially viable process to bring ethanol made from sources other than corn to market by 2011.

Coskata said it can make the new fuel from many carbon-rich sources -- including old tires -- for less than $1 a gallon. That would be about half the cost of making gasoline, and much cheaper than other next-generation biofuels.

At the moment, however, U.S. ethanol is more expensive than regular gasoline. Retail prices for E85 averaged about $3.33 a gallon on Monday, after being adjusted for energy content, according to travel group AAA. That compares with $3.07 for average regular gasoline and $3.38 for premium.

But customers can be fickle.

"I don't know if this is an 'If you build it they will come scenario,' said Jeff Leonard, a spokesman for the National Association of Convenience Stores, which sell gasoline. First and foremost, he said, drivers seek the cheapest fuel prices they can find.

Stanek said Coskata can help drive down fuel costs. Coskata's plans to make fuel from a wide variety of abundant feedstocks, like municipal garbage, could help cut the fertilizer, harvesting and transportation costs that push up the price of ethanol made from corn, she said.

(Editing by Walter Bagley)