E85: Can it break through as an alternative fuel?

Harry_S._TrumanPresident Harry S. Truman once said, “A pessimist is one who makes difficulties of his opportunities and an optimist is one who makes opportunities of his difficulties.” Over the past few weeks, my colleagues at Fuel Freedom Foundation and I have spoken with and read about several optimistic owners of E85 fuel stations.

Our selection wasn’t random. We focused on chains or fuel stations that apparently overcame literature-defined problems in marketing E85 and, according to their owners or senior managers, were on their way to success in securing profitable market penetration. Frankly, we wanted to find sufficient cases that testify to the fact that E85 can compete successfully with gasoline. Succinctly, we wanted to respond to a question that’s frequently asked of us, which goes something like this: “Assuming no major policy and feedstock changes (at least in the near term), can E85, in light of the current price of gasoline, provide consumers and the nation with a real competitive choice of alternative fuels that are safer, environmentally better and cheaper than gasoline?”

Future articles will provide mini case studies of some of E85 retailers. But for the present, based on many phone calls and Google descriptions, we found at least four or five stations (relatively quickly) with prices ranging from 60 cents to just over a $1 below the price of gasoline, despite the current, relatively low gas prices. The lowest price described was below $1.50 a gallon. All stations seemed committed to the continued sale of E85, and each one expressed conviction that they have sufficient price flexibility to build a vehicular fuel market able to meet cash flow and profit expectations. Their optimism was based on their present sales and future forecasts of sales.

Clearly, we need to know more. But what we heard deflated (at least partially) conventional wisdom suggesting that while a large pool of newer FFVs s and older vehicles that can be converted to FFV status exists, increased sales of E85 is unlikely because of the decline in the price of gasoline.

The E85 retailers we talked to and reviewed online appear to be using some of the following strategies to take on gasoline successfully in the market place. They are paraphrased and summarized from direct quotes for brevity:

Loosen Ties with Brand Names: Loosening ties with major brand-name franchisers provides the ability to sell E85 and permits more flexibility to set prices based on market perceptions.

Share Value of RINs: RINs are tradable and are valuable, particularly when their value is high. The ability to secure RINs from members of the supply chain is an incentive. Producers and blenders have a stake in retailer success; retailers have a stake in feedstock. The RINs help make the price right at the pump.

Amend Supply Chain: By incorporating blending as a function, retailers are able to manage costs and, indeed, lower costs. By avoiding the need to contract for transferring E85 from terminal to station and doing it themselves, retailers are able to also better manage costs.

Intuitive Marketing: Choosing an easily accessible location within which there is a high density of FFVs, along with recognition that price matters, are threshold needs to penetrate the fuel market. Smaller fuel stations often make their locational decision, in part, based on intuition and not on expensive market studies. Some might do a study…but those who did appeared to keep the costs low. They saw the possibilities in diverse locations by talking to the market and marketing folks and checking available data concerning FFVs in the area, as well as watching traffic patterns. They also had a feel for the area.

Anecdotes and small samples should not generate formulaic or prescriptive “one size fits all” market or marketing strategies. Maybe we were lucky in our calls! Maybe we were fortunate to quickly find the right articles or presentations. One of my colleagues fortuitously drove by a fuel station on his way to the airport and saw a sign touting a very low E85 cost per gallon. Clearly, economic, social, environmental, political and cultural variables are different in different areas of the country, and could very well negatively affect predictability of retail success, particularly concerning location, price and consumer acceptance. Just as clearly, supply-chain differences between and among retailers in different parts of the nation could well impede or facilitate success. What is important at this stage is to recognize that there are individuals and groups out there who own or manage fuel stations, and whose early market achievements should generate a positive bet concerning their intermediate and long-term success. Borrowing from Harry Truman, they appear, at least at first glance, to be making opportunities out of what others perceive as difficulties. If they succeed and generate copycats or variations on a theme, it will be good for the nation, its communities and consumers.

‘If they raise gas prices, they should be raising the salaries’

Last week we shared stories from people whose quality of life has been affected by the unpredictable ebb and flow of gasoline prices. Visit our Facebook page and read the great discussion riffing on our last post, about Troy Harper in Missouri, to get an idea of how hot-button an issue this has become.

Today we’re passing along sentiments about the work Americans do and how the cost of fuel makes that tougher.

Some workers get paid by the hour, others are salaried, and still others are in business for themselves. Gas prices take a bite every time.

Here are a few of the responses we’ve received:

 

“I have to work one and half days just to fill my car, just to get to my job. That’s what I spend a week. If they raise gas prices, they should be raising the salaries.”
— Jose G., Streamwood, Illinois

“My wife and I both work at different times of the day, so we can’t carpool, and driving two cars every day gets too costly, at $3 to $4 a gallon. Not only us, but everybody that has to work has to give up something in order to make ends meet.”
— James

“As a business owner (lawn maintenance), even a few cents per gallon makes a big difference in my profit margin. My company uses approximately 100 to 130 gallons per week, sometimes more. So the cost of fuel has a large bearing on our workload. Lower prices would really help our bottom line.”
— Keith M., Boca Raton, Florida

“Gas prices affect me and my job, where most of my profits go toward fuel prices, [since] I’m on the road most of my time. Please lower the gas prices so we can get more out of our earnings, to spend more on family needs. There is no reason to have such high gas prices.”
— Frank C., Rancho Cucamonga, California

“I am a self-employed courier. I work only part-time now, but the price of fuel for my car has a big impact on my business. You just don’t make as much. With high fuel, prices everything goes up in America. Were are an economy on wheels, as you can tell with all the over-the-road trucks out there today. Fuel affects almost everything and makes it much more difficult to earn a living.”
— Flip P., York, Pennsylvania

 

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Iran riches coveted by Big Oil after decades of conflict

As Iran and the U.S. enter 11th-hour negotiations to reach a nuclear deal and ease sanctions, the Middle Eastern country is re-emerging as a potential prize for Western oil companies such as BP, Royal Dutch Shell Plc, Eni SpA and Total SA. The Chinese can also be expected to enter the race, while U.S. companies, more burdened by sanctions and legacy, will be further down the pack.

Missouri dad perfectly sums up the frustration of volatile gas prices

Recently we started asking Americans to share their stories about the true cost of unpredictable gas prices. We got an earful.

But out of all the dozens of submissions we received — some only a sentence, others full-on essays — perhaps no one expressed that collective frustration better than Troy Harper of Independence, Missouri.

Here’s what he wrote:

“I used to have a pickup truck [a green 1981 Ford F-series Explorer] with dual tanks. I could usually fill it up for about 30 bucks. That was back when I was in my early 20s, somewhere in 1993 or ‘94. I can remember complaining about the gas prices then. Oh, if only could only go back and warn myself about what was gonna take place in my future, I’d sink every penny I had into crude oil. Because from there on, fuel prices continually increased! Before long it was 3 bucks a gallon and beyond that. It never hit $4 a gallon for regular, but if you wanted mid-grade or super-clean, you were basically paying in blood.

“I got married and had a family, 1996-’97. We had two kids about four years apart. I worked a full-time job had to get a car in order to get around and get back and forth to work. We went on vacations and went to see our families and camped out and went fishing and to the drive-in theater all the time, when we could. But as fuel prices got higher and higher, those trips became fewer and fewer. With the price of fuel rising, the price of everything else rises: food, clothing, household necessities, everything.

“I drove a truck for a produce company [Original DeFeo Produce], locally … I delivered fruits and vegetables to grocery stores and restaurants. Diesel prices were ridiculous. The prices of our products were forever increasing, a fuel surcharge was eventually imposed on our customers, just to cover fuel prices. At almost 5 bucks a gallon it was becoming a huge problem. Our customers’ businesses were seeing less and less business, yet the prices kept increasing. I watched several of these businesses eventually close their doors for good. Even the company I was working for went out of business in March of 2013. It had been in business in downtown Kansas City, Missouri, for over a hundred years. It was family owned and had thrived for a long time, but with the economy bottoming out and our customers closing, it was inevitable. I like to believe that fuel prices played a major role in that factor. As it did in all our lives.

“Currently, the prices have been relatively cheaper. As of today, at a Shell station I saw it for $2.20 a gallon in Independence, Missouri. That’s much better, but I don’t know how long those prices will last.”

To learn what you can do about volatile gasoline prices, check out our Take Action page. Among the list of choices, watch the movie PUMP on DVD, instantly on iTunes or Amazon, or coming to a college

Larry’s Story

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Help us grow the fuel choice movement. Share your story.

Share your story about how fuel prices affect you, and how saving at the pump could help you and your family.


President Obama, DOE boost alternate fuels

President Obama burnished his legacy as an environmentalist last week by mandating a huge cut in greenhouse gas emissions among federal vehicles. The aim is to cut emissions for 40 percent by the year 2025.

The executive order will increase the percentage of the government’s 636,000 vehicles that run on alternative fuels. Improved gas mileage on new internal combustion engines can account for only a small fraction of the required reduction, so the only alternative will be to increase the number of non-gasoline engines in the fleet. Among the frontrunners will be cars running on compressed natural gas, electric vehicles, propane-powered cars, vehicles running on gasoline-ethanol combinations, hydrogen vehicles, and all manner of hybrid combinations of any of the above Obama’s order built on a previous executive action in 2009 that has helped reduce greenhouse-gas emissions by 17 percent. The 40 percent reduction will be measured against levels in 2008, right before Obama took office.

As of 2013, more than 200,000 of the federal fleet of 635,748 vehicles were alternative-fuel vehicles. The most common of these were the 180,000 cars running on an ethanol-gasoline mix. But the new cars are expected to be of the more experimental variety. It is anticipated that, by 2025, half the federal vehicles will be some kind of plug-in hybrid.

The White House pointed to the efforts of large private companies such as IBM, GE, Honeywell and Walmart in meeting the same standards of switching to alternative vehicles in their fleet. The president’s spokespeople said the combined effort would be “the equivalent of taking nearly 5.5 million cars off the road.”

The president’s order was not the only effort by the federal government to increase its fleet of alternative vehicles. The Department of Energy announced a $6 million program to accelerate the alternative vehicle market. DOE said the purpose of the grants will be to get people accustomed to the idea of driving alternative vehicles. Eleven projects will be funded around the country. They will include:

  • Clean Fuels Ohio will sponsor the Midwest DRIVES initiative to make alternative fuel vehicles available to select company fleets on a short-term lease basis. The program will used data collected from these experiments to encourage other companies to lease AFVs as well.
  • Penske Truck Leasing of Reading, Pennsylvania, will make compressed natural gas heavy-duty trucks available to cross-country truck fleets on a 1-to-3-month basis. The object will be to test consumer satisfaction.
  • The Florida Office of Consumer Services, Office of Energy, will make available plug-in hybrid vehicles to car rental companies in the Orlando area. With Disney World at its doorstep, Orlando is the nation’s largest car-rental market. The idea will be to accustom renters to the advantages of plug-in hybrids.
  • The Triangle Council of Governments around Research Triangle Park will supply vehicles powered by CNG, electricity, propane, E85 and biodiesel over a three-state area that will include North Carolina, South Carolina and Tennessee. The object will be to encourage fleet purchases.
  • The Plug-In Hybrid Electric Vehicle Demonstration Program, run by ASG Renaissance of Dearborn, Michigan, will attempt to stimulate consumer awareness and demand for PHEVs by placing them in the hands of media influencers. It is hoped that a social media campaign through Facebook and Twitter will bring positive coverage.
  • The West Virginia University Research Corporation will develop a curriculum for training promoters and repair specialists for alternative vehicles. The National Alternatives Fuels Training Consortium will provide marketing and outreach for the new curriculum.
  • The National Fire Protection Association of Quincy, Massachusetts, will develop curricula for the use of alternative vehicles in fire protection, emergency services and first responders to auto accidents.
  • The North Central Texas Council of Governments will develop a curriculum for use of propane, electric and natural gas vehicles for fire marshals, code officials, mechanics and technicians, and first responders. The program will be offered in four states of the Southwest.
  • The University of Central Florida will establish a training program for the use of CNG, electric and propane vehicles by first responders, college instructors, tow-truck operators and salvage/recycling vehicles. Hands-on training will be supported by vehicles supplied the National Association of Fleet Managers.
  • The Metropolitan Energy Center of Kansas City will collaborate with State Fire & Rescue Training institutes in Kansas and Missouri to adapt existing alternative fuel safety curricula to their existing training structures.
  • The National Association of State Energy Officials will work with its network of State Energy Offices, the National Governors Association, and the International Emergency Managers Association to help incorporate alternative fuel and advanced vehicles into multiple emergency preparedness plans.

So there’s plenty going on in the advance of alternative vehicles. It will take more than a drop in the price of oil to discourage these programs.

(Photo: POET LLC)

Steven’s Story

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Help us grow the fuel choice movement. Share your story.

Share your story about how fuel prices affect you, and how saving at the pump could help you and your family.