Distribution Infrastructure—a Hurdle to Overcome

By Donna Funk | January 16, 2013

There’s no mistaking the heightened volatility in the ethanol marketplace. Whether it regards the renewable fuels standard (RFS) or consumer confidence, the questions that surround distribution infrastructure do not have easy answers.

The current market for E15 is growing, which is an exciting statement. The industry is still facing issues associated with federal regulations restricting the sale of E15 and liability concerns from retailers associated with possible misfueling. Due to these hurdles, E15 is not widely available and the public is not well-informed about this fuel choice. In the future, these hurdles can be overcome with more consumer education, enhanced communication and education of auto mechanics.

More efficient distribution solutions are being developed as the ethanol industry matures. Just a few years ago, the industry was growing so rapidly that low-volume transload terminals, or direct railcar-to-truck facilities, were a common distribution alternative to markets outside the ethanol production areas in the Midwest. Unit train terminals were capable of receiving 80- to 100-car trains and as ethanol volumes increased, these terminals were built in many major demand areas. Recent examples include unit train facilities in Tampa, Fla., and San Antonio, Texas.

 Ethanol delivery by pipeline has emerged as a viable option in some markets. Kinder Morgan’s Central Florida Pipeline currently moves ethanol from Tampa to Orlando. Dedicated ethanol pipelines that move large volumes from production regions to demand regions have been proposed as well. And at the retail level, blender pumps are available now that are compatible with ethanol blends from E10 to E85.
Mark DeVries, director of business development at Poet Ethanol Products LLC, says the biofuels industry is working with federal agencies including the U.S. EPA and state agencies to resolve several regulatory hurdles, including vapor pressure restrictions, equipment compatibility and potential misfueling concerns.

 One example is in the distribution of E15. The EPA currently requires a minimum purchase of 4 gallons of gasoline from any dispenser hose that is used for both E10 and E15. Though the intent was to prevent misfueling of small engines with E15, this solution is impractical for most retailers and has actually hampered retail distribution of E15. The industry is also working to educate fuel retailers on the advantages of blender pumps, which can offer a range of ethanol blends including E10 to E85 from a single dispenser. This allows customers to choose the ethanol blend that best meets their needs.

 Consumer confidence in the ethanol marketplace is key. There are still gas pump debates on whether higher blends of ethanol fuel are safe for a car engine and about the mileage from using ethanol-blended fuel versus regular gasoline. At the retail level, pump infrastructure and regulatory acceptance are what need to be accomplished.

As we write this column in December, there are many unknowns regarding tax law and the growth of the economy. Accounting experts are hoping for clarification, but it remains to be seen. We can hope, though, for the allowance of more ethanol to be blended into gasoline—the industry’s biggest hurdle, and one we believe we can overcome with fewer federal restrictions and debugging misconceptions about misfueling. Working together is our best chance for a strong, positive future.

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Author: Donna Funk, CPA
Kennedy and Coe LLC
funk@kcoe.com
800-303-3241