By Cezary Podkul
NEW YORK, June 10 At a handful of gas stations
in eastern Kansas, the intensifying fight between major oil
refiners and the ethanol industry over the future of America's
fuel supply has found a new focus: the color of the gas hose.
Scott Zaremba, owner of Lawrence, Kansas-based Zarco 66,
says he is being forced by his main fuel supplier, Phillips 66
, to stop selling gasoline blended with 15 percent
ethanol, the maximum level currently allowed for use in normal
car engines but higher than the 10 percent norm.
Zaremba, the first retailer in the country to sell the
so-called E15 fuel, has found himself caught in a fierce
market-share battle between ethanol makers and oil companies
that is also being fought in the courts and in the U.S.
On April 1, Zaremba received a notice from Phillips 66, the
nation's third-largest refiner, that he could no longer sell the
E15 fuel from his regular black fuel hoses, as he had been
selling it since last July.
Instead, any gasoline with more than 10 percent ethanol has
to be served from a separate, yellow hose, according to a copy
of the Phillips 66 guidelines seen by Reuters. The aim is to
distinguish E15 from other Phillips 66-branded gasolines with 10
percent or less ethanol.
He has other options, but they aren't cheap - or very
feasible. For example, it would cost $100,000 to $250,000 to
install new stand-alone gas pumps for E15, Zaremba said. Or he
can always pay a $412,000 fee to Phillips 66 to break his
marketing contract - expensive options that have so far kept him
in compliance with the Phillips 66 guidelines, the only way he
said he could.
In April, Zaremba began phasing out E15 sales, leaving only
some two dozen stations in the country that sold the blend as of
the end of May, when the last of his eight stations gave up the
"They're just holding you to your 10 percent max," he said.
Asked about its new guidelines, Phillips 66 Spokesman Dennis
Nuss said in a statement that they were simply part of an
occasional update to its brand standards meant "to ensure a
positive and consistent customer experience at the pump."
The Environmental Protection Agency, which administers fuel
standards, declined to comment on Zaremba's situation.
The market-share fight is the result of the 2007 Renewable
Fuel Standards law, which mandated the blending of gasoline with
renewable fuels like ethanol.
Congress's goal was to make the U.S. less dependent on
foreign oil by putting more home-made renewables into gasoline -
from 9 billion gallons in 2008 to 36 billion by 2022.
The increasing annual targets were based on expected growth
in fuel demand that would allow more gallons of ethanol to be
blended without increasing its share of supply.
Instead, thanks to the 2007-2009 recession and rising fuel
efficiency, consumers are buying less gasoline than expected.
That has left oil companies actively trying to repeal those
blending requirements, while ethanol producers are fighting to
keep them in place.
In the country's heartland, ethanol proponents say refiners
are resorting to technical rule changes and brute market force
to keep E15 out of gas stations.
In nearby Iowa, eight retailers who want to sell E15 say
they can't even make it because oil companies won't sell them
the ingredients necessary to make the appropriate summer blend
of the fuel, according to a petition viewed by Reuters.
"They've essentially declared an all-out war (on E15)," said
Monte Shaw, Executive Director of the Iowa Renewable Fuels
Association, which represents ethanol producers.
Phillips 66's Nuss said the company has 945 marketing
customers like Zaremba covering more than 7,000 gas stations and
has received no other complaints about the guidelines.
"We strenuously deny any suggestion that our actions are
part of a larger effort to frustrate the adoption of the
Renewable Fuel Standard," Nuss said.
Oil producers say they are just doing the responsible thing
- holding firm to a 10 percent maximum blend of ethanol in
gasoline, or E10 - because anything more than that can cause
engine damage in many vehicles on the road today.
"We are not about to put something out there that we don't
think is safe or reliable for the consumer," said Charles
Drevna, president of American Fuel and Petrochemical
Manufacturers, which represents refiners like Phillips 66.
The EPA has approved E15 for cars made after the 2000 model
year. But automakers have not extended their warranties to cover
E15 use on pre-2013 models. That leaves only about 12 million of
240 million cars on the road, or about 5 percent, with
warranties to use E15, according to a November survey conducted
by the American Automobile Association.
"Every automaker with the exception of Porsche said that E15
could void your warranty unless it was a very new car," said AAA
spokesman Michael Green.
So far most gas stations have been either unable or
unwilling to carry E15.
The Renewable Fuels Association, which represents ethanol
producers nationally, estimates that with Zaremba's exit, only
about 25 gas stations nationwide sell the fuel - out of about
140,000. Sales of E15 over the last year have amounted to less
than one percent of one day's worth of daily U.S. gasoline use,
according to Reuters calculations.
The battle is being waged on multiple fronts. American Fuel
and Petrochemical Manufacturers recently filed a Supreme Court
challenge to E15 gasoline.
The refiners argue the EPA over-stepped its authority when
it approved the sale of E15 for only some cars, instead of
looking at the market as a whole. "The EPA can certify fuels for
engines - not for this engine or that engine," Drevna argues.
A who's-who of the refining industry - including oil majors
Exxon Mobil Corp, Chevron Corp, BP Plc,
Valero Energy Corp, Tesoro Corp and Phillips 66
- are represented by the group.
In case their legal challenge fails, Drevna says, the oil
companies are actively pursuing "legislative" solutions to the
issue in Congress.
"It is very, very heavy lobbying right now from all sides
and it's going to be at least for another year," said Dave
Juday, a commodity market analyst in the Washington area.
The ethanol lobby says oil companies are bluffing.
"What it comes down to is we're coming into their market
share," said Michael Frohlich, spokesman for Growth Energy, the
ethanol group that made E15 possible by petitioning the EPA to
approve its sale.
Profits - more than vehicle safety or performance - are the
main reason why refiners are "fighting tooth and nail" to get
rid of E15, Frohlich said. If they wanted to, they could easily
blend more ethanol into the gasoline supply, he said.
The lobby has one high-profile ally: NASCAR, which uses E15
fuel for "every driver, every lap, every series," said Michael
Lynch, managing director of green innovation at NASCAR in
Daytona Beach, Florida.
Growth Energy has a marketing arrangement with the car
racing group, though NASCAR denies money from the deal
influenced its decision to use the fuel.
NASCAR racers have traveled 4 million miles on E15 since the
group started using it in February 2011, Lynch said.
He says there's only one reason why the rest of America
isn't running on the same fuel.
"The fundamental difference is availability."