Petroleum marketers, refiners battle over ethanol in Southeast

By Ryan C. Christiansen | June 03, 2009
Petroleum marketers in the southeastern U.S. are supporting efforts to force oil refiners to supply them with unblended gasoline 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 issue 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.

In South Carolina, legislators passed a law in June 2008 which required oil refiners to supply marketers with unblended gasoline. The law was bundled with provisions for sales tax exemptions for energy efficient products and for a sales tax holiday for firearms. The American Petroleum Institute and BP Products North America Inc. sued, claiming the law violated the "one subject" provision in the state constitution which states that "every act or resolution having the force of law shall relate to but one subject, and that shall be expressed in the title." The state's Supreme Court agreed. In May 2009, the court repealed the law.

Meanwhile, legislators in Tennessee pursued similar legislation this spring. Petroleum refiner and marketer Valero Energy Corp. reacted by threatening to shut down its Memphis, Tenn., refinery, claiming the company would need to spend up to $150 million over two years for new equipment to comply with the proposed law.

In North Carolina, the National Petrochemical & Refiners Association, a lobbying group of which Valero is a also a member, sued the state for passing a law that requires refiners to sell unblended gasoline to marketers, allowing marketers to be "blenders of record" and obtain federal tax credits for blending ethanol into gasoline. The NPRA said 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."

Cabrera said petroleum marketers have a lot invested in tanks and infrastructure for blending ethanol with gasoline. "Refiners have tried to lock their business partners—petroleum marketers—out of the option to do that," she said. "So some states have come in to say to refiners, ‘we're going to make you do the right thing and work with your marketer business partners.'"

The ethanol industry is supportive of petroleum marketers and their efforts to secure ethanol blending opportunities. "In the history of ethanol, there have always been a number of petroleum marketers that want to do their own splash blending," said Greg Krissek, board member of industry group Growth Energy. "Where this is an issue for petroleum marketers, we would be supportive of them wanting to have the clear, unblended streams."

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."