It's a Bargain

Demand for E85 is on the rise, thanks to high gas prices and areas of expanded infrastructure
By Kris Bevill | June 13, 2011

When gas prices began spiking during the first part of the year, it was suspected that the situation might drive up consumer demand for higher blends of ethanol. By May, the data was rolling in to prove it.

The Iowa Department of Revenue reported that first quarter E85 sales increased 27 percent over the previous quarter and 64 percent compared to the first three months of 2010. A total of 2.6 million gallons of E85 were sold by the state’s 142 E85 retail stations between January and March. Iowa Renewable Fuels Association Executive Director Monte Shaw says the increase can certainly be attributed to the price difference between E85 and conventional gasoline. “One way to increase sales is to get more E85 pumps out there,” he says. “That could explain it, except for the fact that in this particular time frame there were only about three new E85 pumps opened. So it wasn’t an access boost.”

To get a feel for what the effects of an access boost combined with a significant price spread would be like, one only has to look northwest of Iowa. North Dakota is in the midst of an aggressive expansion of its retail biofuels infrastructure that began in late 2009. Since then, more than 135 blender pumps have been installed throughout the state. That additional infrastructure, combined with rising gas prices, has provided what North Dakota Corn Council Executive Director Tom Lilja calls “stunning” results. In 2009, about 275,000 gallons of E85 were sold in the state. In 2010, that number grew by 141 percent to nearly 664,000 gallons. The impressive growth continued into the first three months of this year. In March, nearly 98,000 gallons of E85 were sold, compared to only about 30,000 gallons sold during the same month last year. Lilja says that while high gas prices probably played a role in the state’s ballooning E85 sales, the numbers most clearly demonstrate the need for ethanol infrastructure expansion. “It really is all about the infrastructure,” he says. “If you don’t have the pumps in the first place, you’re not going to get the results.”

Ron Lamberty, vice president of market development for the American Coalition for Ethanol, points out that blender pumps first started to receive increased interest on a large scale during the period of high gas prices in 2008. “Most of the increase we’re seeing in E85 sales, the increase of interest in blender pumps and E85 infrastructure, is all based on ethanol itself being much lower than gas,” he says, adding that ACE has noted an increase of E85 sales even in locations that typically overprice the fuel.

Alternative fuel retailer Propel Fuels Inc. CEO Matt Horton attributes consumer frustration over high gas prices to E85 demand increases on the West Coast. “Couple this with our brand awareness campaigns and increased access from our growing network of stations, and we’ve seen sales of E85 nearly triple across our California locations,” he says. “These prices are motivating drivers to move beyond the status quo and choose fuels that make progress towards reducing our nation’s dependence on petroleum.”

Shaw points out that lack of competition is a concern. It’s not uncommon for a retail station to be the only source of E85 in an entire county, so it prices as it pleases. In other areas, such as Des Moines, Iowa, E85 is more readily available so retailers must price it competitively. Shaw says there was a point earlier this year when E85 was more than $1 cheaper per gallon than conventional gasoline in Des Moines. “That gets motorists’ attention.”

It’s difficult to determine whether sales of flex-fuel vehicles (FFVs) are also on the rise, but that wouldn’t be expected to impact fuel sales unless the infrastructure is there to support the influx of vehicles, Shaw says. “Unfortunately in the car market, because there aren’t many pumps out there relative to the overall number of fueling stations I don’t think the normal consumer, even in Iowa, looks at whether the vehicle is an FFV or not when they purchase it,” he says.  —Kris Bevill