Availability of midlevel ethanol blends increases in Kansas

By Erin Voegele | March 05, 2009
The market for midlevel ethanol blends in Kansas is poised for rapid expansion. In January, Kansas Secretary of Agriculture Adrian Polansky announced that the state's pilot program for ethanol blender pumps has been made permanent, effectively opening the opportunity for fuel suppliers around the state to offer midlevel ethanol blends to their flexible-fuel vehicle customers.

At the same time, NewGen Fuel, a joint venture established by ethanol design and engineering firm ICM Inc., ethanol producer Poet LLC and wholesales fuel distributor Crescent Oil Co., began installing ethanol blender pumps throughout the state.

The Kansas Department of Agriculture first implemented its ethanol blender pump pilot program in early 2008. The pilot program demonstrated that the blender pumps were highly accurate in dispensing both the correct quantity and percentage of midlevel ethanol blends. "We've had enough experience that we feel at this point we can move forward on a permanent basis," Polansky said.

Those supplying fuel dispensers to new retail locations are encouraged to communicate with the state Department of Agriculture prior to dispensing midlevel ethanol blends,
Polansky said. Although this notification is no longer a requirement of the program, the department intends to continue to work closely with those supplying the fuel dispensers to ensure that fuel is being accurately dispensed to customers.

The Department of Agriculture program requires ethanol blender pumps to meet certain guidelines for use within the state. All retail dispensers and storage tanks must be properly labeled. Midlevel blends aren't allowed to be labeled with an octane rating but are required to display an orange warning label alerting customers that the fuel is for use in flex-fuel vehicles only. The department also requires the use of a two-hose configuration.

While the department currently requires the use of E100 as a blend stock, Polansky said this could change in the future. "We're reviewing the possibility of utilizing E85," he said. E85 is currently not allowed to be used as a blend stock because its actual ethanol content can vary seasonally. The department's concern is that a varying blend stock would cause variations in the percentage of ethanol contained within the midlevel blends distributed to customers. "We need to find a way to be certain that [the blend stock] is always coming to the blender station with a specific percentage blend," Polansky said.

NewGen Fuel's business model involves working with independent operators of fuel retail stations. The company offers to install the blender pumps at the location, and helps the station owner understand all of the regulations and requirements involved with selling midlevel blends. In return, NewGen Fuel receives a portion of the fuel sales.

The actual percentage of installation costs covered by NewGen Fuel is determined on a station-by-station basis. "In some cases, it will make more sense for NewGen to cover the complete cost and participate on a higher level from a revenue-sharing perspective," said Alan Goodnight, president of NewGen Fuel. "In other cases, it will make more sense to share in the cost of the equipment, and then NewGen will participate in a smaller amount of the fuel sales revenue."

NewGen Fuel's goal is to adopt this unique fuel retail model at more than 1,000 locations nationwide. However, less than one month after Crescent Oil announced its participation in NewGen Fuel, the company filed for Chapter 11 bankruptcy. While the goals of NewGen Fuel haven't changed, Goodnight said the scope and timing of some of the company's projects may be affected.

"NewGen Fuel is its own business entity," he confirmed. "The unfortunate news from Crescent in no way impacts the viability of NewGen Fuel." However, the initial sites where NewGen Fuel intends to install the blender pumps are served exclusively by Crescent Oil. Goodnight said that NewGen Fuel has no plans to replace Crescent Oil. "However, if it became obvious that Crescent Oil could no longer supply the hydrocarbon fuel to NewGen, we would of course need to find another supplier," he said.