Fuel choice has always suffered from the age-old chicken and egg problem: Businesses don’t want to provide alternative fuels, and the vehicles that can run them, unless there’s a demonstrable demand. Meanwhile, consumers won’t (or can’t) show businesses there’s a demand for these vehicles and fuels until they’re readily available. Read more
If you were to build a gas station today, from the ground up, you’d scribble out a list of the types of fuel you’d want to offer your customers. At the top, of course, would be regular 87-octane unleaded gasoline, which contains 10 percent ethanol. But next on the list likely would be E85 ethanol blend.
That’s right: Cheaper, cleaner-burning E85 might just be a hot seller, if you did it right. Mike Lewis, co-founder of Pearson Fuels in San Diego, has been selling it for 12 years, and he knows there’s a customer base out there for it. Last month he sold more than 34,000 gallons of E85 at his flagship station, accounting for 20.7 percent of his overall fuel sales.
“The reality is that there are flex-fuel vehicles everywhere, all over California, roughly 5 percent of the vehicles,” Lewis said. “So if you have a gas station, and you’re selling a lot of gasoline, then you can sell a lot of E85.”
Pearson supplies about 60 fueling stations with E85 and is partnering with station-retailer G&M Oil to put the fuel in 13 new stations in Southern California over the next year. The expansion is part of a national trend: Since 2007 the number of stations selling E85 has more than doubled, to about 3,000 today, roughly 2 percent of the nation’s total stations. E15 ethanol blend also is spreading across the country: Georgia got its first pumps Friday, and retailer Kum & Go added the fuel at its station in Windsor Heights, Iowa, and plans to introduce it at 60-some more over the next two years.
There are ample vehicles on the road that are ready to take the fuel: more than 17 million flex-fuel vehicles that can run on ethanol blends up to E85, including 1 million in California. And more customers are taking advantage of the many benefits of ethanol, including lower emissions and the fact that it’s made in the U.S.
Price is still the main attribute for customers, however. At the Pearson location in San Diego, the first station on the West Coast to sell E85 when it opened in 2003, E85 was priced at $2.44 a gallon earlier this week, compared with $3.55 for 87 octane. At one point, two station employees walked out with a long pole to change the 87 price to $3.65. Digits were added to the other gasoline grades accordingly.
“E85 customers are typically interested in one of two things: higher octane, because these guys have race cars,” Lewis said. “But the great majority of the customers buy it because it’s cheaper. They’re not out, frankly, to save the planet, they’re out to save a buck.”
It can be difficult to price ethanol attractively if the price spikes or gasoline prices drop, narrowing the spread between the fuels. Unfortunately, both trends occurred late last year and early this year, as cold winter weather slowed the rail system that transports ethanol around the country, constricting supply. Meantime, the price of oil — and thus gasoline — dropped by 50 percent. It’s climbed again steadily this year.
Retailers often wipe out the normally sizable profit margin on ethanol by selling it for below wholesale. That’s what Lewis urged his retail clients to do as the least-bad option.
“But some of our retailers, if the price goes up and they happen to buy at the wrong time, they’ll say, ‘Tough, I’m making 25 cents [margin] a gallon, no matter how long it takes. So they’ll sit on that fuel for months. Whereas I would dump it [sell it for less], because if you dump it, you can go buy it for 50 cents a gallon less, and it’s just hard to get that through their heads sometimes. Some get it, and those do better.”
For retailers considering adding ethanol to their fuels menu, the equipment costs can be less than they’ve been led to believe, says Ron Lamberty, a gas-station owner who’s also a senior VP at the American Coalition for Ethanol in Sioux Falls, South Dakota. His answer is to take that tank full of unpopular fuel and put E85 or E15 in it. All steel tanks, and fiberglass tanks built since 1994, can take higher ethanol blends, he said.
“I’ve been in the business for 30 years, and I remember when [premium gas] came in, in the mid-’80s, and the oil companies were saying, ‘If you don’t carry premium, you can’t carry our brand. We’re gonna take your sign down, we’re gonna take whatever remedy we can against you with your contract, and you’re gonna have to put premium in. And so there was all that expense of adding a tank and all those other things, to sell a fuel that cars didn’t need, that cost them more.”
At the Pearson station in San Diego, just off Interstate 15, vehicles come and go all day. Customers fill up on gasoline, E85, diesel and biodiesel. There’s an electric-vehicle charging station. There are nearly as many choices as there featured in the candy racks and beverage coolers at the store a few feet away. Lewis figures an average of 77 customers fill up on E85 each day. Tim Farnum, 47, who owns Farnum Electric with his brother, fueled up his Chevy 2500HD flex-fuel pickup. A while back they switched to the FFV trucks to save money. He figures he saves about $35 a tankful. “I only wish there were more stations around,” he said.
Lewis, like many of his customers, isn’t an environmentalist. He’s in business. And he’s selling ethanol because it makes money. E85, in fact, helped keep the station afloat before sales began to turn around about five years ago.
“I’m not out there protesting on the street, and tying myself to trees,” he said. “But I think that if you can make a business model that saves the consumer money, then you can make huge impacts by doing that. I mean, look at Tesla and what they’ve done for electric cars, look at what Toyota has done with hybrid cars. That’s what we’re doing with E85 and flex-fuel in California, and I think that you can make a massive difference if you make a business model work.”
The effort to substitute compressed natural gas for foreign oil in our gas tanks is moving ahead on all fronts across the country, in scores of municipal departments that are converting their fleets, in new gas stations that are opening and with entrepreneurs who are looking for ways to speed up the conversion.
Leading the pack is Clean Energy Fuels, T. Boone Pickens’ effort to put the nation’s natural gas resources to work in the transport sector. Clean Energy Fuels has targeted long-distance, heavy-duty trucks, which tend to stay on the Interstate Highway System and can be services at massive truck stops. In Pennsylvania, for instance, Clean Energy Fuels is building stations in Pittston and Pottsville that will serve trucks on heavily the traveled I-81 and I-476. They are scheduled to open later this year.
But much of Clean Energy Fuels’ real success is coming from the fleet conversion for major shipping firms that rely heavily on truck transportation. The company has had particular success with UPS. Fueling depots were recently opened in Oklahoma City and Amarillo, Texas. The carrier E.J. Madison, LLC has deployed a fleet of 20 long-haul LNG trucks that will utilize a CEF network of stations that stretches from Los Angeles to Jacksonville, Florida. Jacksonville is emerging as a hub of CEF activity as the company has opened a liquid natural gas (LNG) terminal there as well. LNG is more difficult to handle than compressed natural gas but has much greater energy density.
Rapidly expanding in Florida, CEF has just announced a grand opening of a CNG filling station that will service the Hillsborough Area Regional Transit Authority (HART), which provides public transportation throughout the Tampa metropolitan area. The opening kicks off a plan to convert HART’s entire fleet of public services buses and vans to compressed gas.
Just last week Clean Energy Fuels CEO Andrew Littlefair was in the news telling The Motley Fool that Tesla’s electric cars will not be in competition with CEF’s efforts. “Tesla and electric vehicles are really great for certain applications,” he told interviewer Josh Hall. “But hauling 80,000 pounds of cargo, natural gas is really well suited for that.”
However, even if Clean Energy Fuels doesn’t think CNG can compete with electric at the passenger-car level, others do. Last week the Wawa convenience store chain announced it will partner with South Jersey Gas to open CNG fueling stations in southern New Jersey. “Compressed natural gas gives us an opportunity to increase the convenience we offer our customers and positions us for the future as well,” Brian Schaller, vice president of fuel for Wawa told the press. “We’re excited about the growth potential.” With 600 stores on the East Coast from New Jersey to Florida, Wawa has plenty of room to grow.
Pennsylvania is becoming a hotbed of compressed gas progress as the state seeks to take advantage of the Marcellus Shale. The state has adopted a funding program to help businesses convert. One of the first to take advantage is Houston-based Waste Management, which received an $806,000 grant from the State Department of Community & Economic Development to switch 25 of its waste and recycling collection vehicles to CNG. Pennsylvania-American Water Company has also announced plans to convert its fleet with a $315,000 state grant. American Water, the largest water utility in the state, operates out of Scranton.
Nebraska is a long way from any natural gas drilling but the Uribe Refuse Services company of Lincoln has announced it will convert its entire fleet of 17 trucks to natural gas over the next few years. The first trucks were displayed in the city last week on Earth Day.
Oklahoma is a big oil-and-gas producing state and is making a major effort to convert state vehicles to natural gas. In 2011 Gov. Mary Fallin joined 15 other states in a multi-state memorandum of understanding committing them to purchase NGVs for the state fleet. The state now has 400 CNG vehicles and is pushing the federal government to convert its fleet in the state as well. Oklahoma is building CNG gas stations to match and now stands third in the nation behind California and New York.
The natural gas industry is putting its shoulder to the wheel on this effort. The American Gas Association and America’s Natural Gas Alliance (ANGA) have teamed up to sponsor “Add Natural Gas (+NG),” an effort that is encouraging entrepreneurs and mechanics to convert ordinary passenger cars already on the road to CNG. “Fleets across the country are already using natural gas vehicles to save money and reduce emissions,” says the group’s website. “However, natural gas can be used to fuel any vehicle. To demonstrate this, we worked with automotive engineers to add natural gas as a fueling option for some of the most popular vehicles on the market today.”
Performance CNG LLC is a Michigan startup that has been inspired to take up the initiative. The company recently had a hybridized 2012 Ford Mustang GT demonstrated as part of +NG’s campaign and is currently trying to raise $55,000 in capital on Indiegogo, an international crowd funding site. More than half the money would go to EPA emissions testing.
Not everyone is convinced that CNG is the way to go. Clean Energy Fuel’s stock has done poorly since January, based on investor skepticism that its market is not that big and that some liquid natural-gas based fuel – methanol of butanol – will prove easier to handl
There is probably a reason that ethicists rarely sit at the public policy table with respect to transportation fuel. Let’s think about it for a few minutes in the context of a diverse group of econo-ethicists. Let’s match the ethics of presently monopolistic gasoline markets, the huge oil subsidies granted to oil companies and, yes (for environmental folks), the gift of HOV lanes and tax subsidies for those with the “right” cars, with:
- John Rawls’ ethical guideline that we should respond to the least among us as we would want to be responded to ourselves,
- Jeremy Bentham’s ground rule that we should seek the greatest good for the greatest number),
- Karl Hayek’s admonition that the least government is, generally, the best government,
- Michael Douglas’ statement in “Wall Street” that “greed is good.”
Currently, oil company policy and behavior with respect to gas stations they own, franchise or influence is very restrictive. Even when they allow alternative fuels to be sold in gas stations, companies play the role of Cinderella’s ugly stepmother. Alternative fuel pumps, often, are placed apart from the gas pumps, sometimes out of sight. If they were human, the alternative fuel pumps, legitimately, would have a discrimination case, need psychiatrists and would probably cry a lot because of loneliness. Lacking choices, consumers must pay an extra tariff for gasoline. Prices for gas reflecting little or no competition are arbitrarily high.
Congress supports the oil monopoly at the pump. It has failed to allow methanol as a transportation fuel and has not passed open fuels legislation.
Certainly, an ethical judgment of the current fuel market and those who establish its limited boundaries should be easy to make. You would get an “A” from both Rawls and Bentham as well as from Hayek if you said, “It is rough on the poor who pay upwards of 15-17% of their income for gasoline and it forces extra costs for all of us at the pump.” Finally, it illustrates Hayek’s warning that too much government restrictions limit freedom. Gosh, who ever thought I would agree with Hayek, even in a limited way? Perhaps, however, Mike Douglas wins this one. Greed has been good for the oil companies.
Douglas also wins big on tax subsidies to oil companies. Yet, despite diverse ethical principles, everyone scores well on the granting of tax subsidies to the oil industry. Both liberal and conservative groups, as well as the Congressional Research Service (CRS) agree that many of the tax subsidies are not needed to secure production and distribution. Why, then, does the industry benefit from such beneficence? History granted them favored status; politics and money give them influence at budget-making time.
I was in favor of (and probably deep down still tilt toward) HOV lanes. But, I do have some real doubts about tax subsidies, particularly subsidies not tied to income.
I am worried about the ethics of both. Most of the benefits of HOV lanes and tax subsidies to secure buyers of cars that use them go to relatively affluent income folks. Both are paid for by general taxpayers, including income-deprived tax payers.
Further, most low and moderate-income households face severe budget constraints if they try to buy new so called clean vehicles that are now allowed in the HOV lanes and secure tax benefits. No preference is granted to other alternative fuels like ethanol, and the federal government does not readily allow the relatively inexpensive conversion of existing cars to alternative fuels — methanol, ethanol. States generally do not permit the small number of converted cars in HOV lanes. Lastly, in terms of debits, HOV lanes do increase congestion, when they are not utilized to the fullest, increasing driving costs for every one of us who are not so lucky to own the “right” vehicles.
So HOV lanes and tax subsidies for favored cars do raise ethical questions. They don’t treat the least among us fairly, they are not good yet for the greatest number of us, and they reflect government behavior that reflects a bit of shooting from the hip before tough analysis concerning efficiency, and effectiveness. Let me see, Rawls, Bentham and Hayek would at least be sensitive to the involved ethical issues.
Alright, are you happy, indifferent or sad that ethicists are not at the policy table? Let me know.