Petroleum marketers support state laws to protect ethanol blending opportunities

By Ryan C. Christiansen | April 14, 2009
Web exclusive updated April 24, 2009, at 2:14 p.m. CST

Petroleum marketers in the Southeastern U.S. are supporting efforts in state legislatures there to force oil refiners to supply marketers with unblended gasoline—which does not include ethanol—so that the marketers can choose to blend ethanol into the gasoline themselves. According to petroleum marketing groups, their inability to obtain unblended gasoline from refiners is a growing problem.

"It's being clamped down," said Sherri Cabrera, vice president of the Petroleum Marketers Association of America, a federation of 47 state and regional trade associations representing approximately 8,000 independent petroleum marketers nationwide. "We're seeing just more and more refiners offering [unblended gasoline] less and less."

The problem so far appears to be most prevalent in the Southeastern U.S., where North Carolina, South Carolina, Tennessee, and Georgia have all either pursued legislation or passed laws to address the issue. "Certainly when you start looking at the states on a map, it might be a reasonable conclusion to draw that it might be a Southeast issue," said Brandon Wright, manager of communications for the PMAA. "I don't know if that's just coincidence or not at this point."

According to a map published by the National Association of Convenience Stores titled "U.S. Gasoline Supply Network - By Region", the Southeastern U.S. has a very small refining capacity and obtains its gasoline supply mainly from refiners on the Gulf Coast, either by pipeline or by barge. Some gasoline is also imported to Southeastern U.S. ports from foreign countries.

With most of its refining operations concentrated on the Gulf Coast, North America's largest independent petroleum refiner and marketer is Valero Energy Corp.. The Texas-based company is completing its purchase of eight former VeraSun Energy Corp. ethanol properties this month. Valero is a member of the National Petrochemical & Refiners Association, a lobbying group that is suing the state of North Carolina for passing a law that requires refiners to sell unblended gasoline to marketers so that a marketer can be a "blender of record" and obtain federal tax credits for blending ethanol into gasoline. Bill Day, director of media relations for Valero, said the company would not comment on the issue. In its lawsuit, the NPRA says that North Carolina's law "conflicts with federal law by preventing entities with a federal obligation to blend renewable fuels from doing so, and by requiring them to sell unblended fuel to entities that are not obliged by federal or state law to use renewable fuels."

"Petroleum marketers definitely want to participate in the [Renewable Fuels Standard] requirement and benefit from [renewable identification numbers], because they have a lot of investment in tanks and infrastructure to do the blending," Cabrera said, "and so what's happening is that, essentially, refiners have tried to lock their business partners—petroleum marketers—out of that option to do that. And so some states have come in to say to refiners that we're going to make you do the right thing and work with your marketer business partners."

"Marketers are losing the option to purchase the gasoline unblended and then purchase the ethanol to blend on their own," Wright said. He said the PMAA has not yet pursued lobbying for national legislation to address the issue.

The Society of Independent Gasoline Marketers of America, a national trade association representing independent chain retailers and marketers of motor fuel, both branded and unbranded, has also come out in favor of state-level legislation to force refiners to provide unblended gasoline to marketers.

"For over 25 years, marketers have used ethanol to enhance their competitive position in the market, thus lowering prices and benefiting the consumer," SIGMA said in a statement. "Because all of the components to make a gasoline/ethanol blends are stored in the terminal in separate, segregated tanks, legislation requiring a supplier to provide "clear" gasoline, RBOB (Reformulated Blendstocks for Oxygenate Blending) or CBOB (Conventional Blendstocks for Oxygenate Blending) to its independent customers creates no legitimate burden on the refiner suppliers.

"There are distinct economic benefits associated with blending ethanol with gasoline, RBOB, and CBOB," SIGMA continued. "By refusing to sell clear gas to marketers, suppliers deny marketers the ability to accrue the value of the RINs and any tax or other cost benefit available to ethanol blenders, and to retain those economic benefits for themselves.

"Marketers historically benefited from being able to blend ethanol with clear gasoline and used those benefits to compete aggressively at retail," SIGMA continued. "Due to the highly competitive nature of the retail business, marketers are much more likely to pass the benefits associated with this activity on to the consumers than are their wholesale suppliers."

The PMAA agrees. "Certainly, we want the marketers to be able to participate in the RINs program and be able to continue to engage in being partners with the major oil companies," Wright said, "and we were supportive of legislative efforts that allow our members to participate as a partner with the majors."

The ethanol industry is also supportive of petroleum marketers and their efforts to secure ethanol blending opportunities. "From the ethanol producer standpoint, being a part of the supply chain to marketers, we would want that marketplace to have the greatest amount of flexibility," said Greg Krissek, a board member of Growth Energy, an ethanol industry group made up of producers and other supportive organizations. "It's very difficult to have a one-size-fits-all pattern for (petroleum marketing) in different regions, even different states.

"In the history of ethanol, there have always been a number of petroleum marketers that want to do their own splash blending," Krissek continued. "Where this is an issue for petroleum marketers, we would be supportive of them wanting to have the clear, unblended streams."

Krissek said ultimately, retail fueling stations should be given the opportunity to blend ethanol at the pump. "Where we would encourage things to go, eventually," he said, "would be things like blender pumps, which gives—all the way down to the consumer level—even more levels of choice; and that effort will also change this landscape in terms of the distribution systems because with blender pumps, in many situations, you're going to have the ethanol delivered right to the retail station."

Krissek said the ethanol industry can be a partner in the effort to ensure marketers continue to have ethanol blending opportunities. "In a number of states, you have plants that have good relationships with the petroleum marketing organizations," he said, "and this is an area where we can probably work together."