When the Going Gets Tough… the Tough Go to Mexico?

Ron Lamberty, ACE Senior Vice President, highlights efforts ACE and others have been making to grow the use of ethanol in the U.S. and in Mexico.

Ethanol sales in the United States officially broke the mythical 10 percent “blend wall” for the first time in 2017. Years of helping retailers “do the math” of ethanol and RINs, along with grants and loans for retailers installing new higher ethanol blend infrastructure, led to the highest-ever ethanol “inclusion rate.” Wholesale ethanol prices, with RIN discounts, put the net cost of ethanol blends much lower gasoline at the pump, while still providing exceptional margins for retailers.

EPA and politicians spent 2018 brutalizing RINs and the ethanol industry, but ethanol continues to be an opportunity for better retailer profits, and higher ethanol blends remain a bargain for drivers. Unfortunately, rather than prices being lowered using proceeds from refiners’ RIN purchases, ethanol blends are cheaper because ethanol is woefully undervalued in the fuel marketplace. The discounts making ethanol a bargain today, are coming directly out of ethanol producers’ pockets.

Ethanol prices dropped dramatically after EPA created an immediate artificial ethanol glut of over 2 billion gallons of Small Refinery Exemptions (SREs). Oil refiners performed as expected – initially buying the minimum required by the RFS, and only using more ethanol when prices were pummeled well below market values.

The hint of a silver lining around the dark cloud described above is the fact retailers are as interested in higher ethanol blends as they’ve ever been. Through August of 2018, U.S. gasoline sales were up two-tenths of a percent over 2017. Ethanol sales grew at more than twice that rate. Much like 2008, when ethanol prices a dollar below gasoline convinced marketers in the Southeast U.S. and New England to offer E10 for the first time, current ethanol prices are leading to greater availability of E15 and flex fuels.

As more station owners and operators consider offering these new fuel blends, ACE’s market development efforts have expanded to provide better, more targeted E15 and flex fuel information on Realizing the messenger is as important as the message, ACE created a few years ago to showcase the stories of petroleum marketers who have successfully and profitably added E15 and higher blends at their stations. Surveys consistently show people trust advice from “a person like myself,” over other “experts,” and is a place c-store owners and operators could interact with other fuel retailers 24/7.

Station owners don’t care about political details and how discounts are paid for, but they appreciate controlling discounts at the store level, and the freedom to use that margin to increase profits and draw more customers to their lot. And the more margin retailers control, the better they like it, and the harder THEY work to sell OUR product.

An interactive “ethanol profit potential calculator,” and several short films were recently added to, and retailers featured on the website have accompanied ACE to petroleum industry tradeshows and workshops throughout the year. ACE makes station owners aware of the site by advertising in c-store industry publications, on industry websites, and on multiple digital media platforms. visits grew to 10 times its 2016 numbers, and average time spent on the site doubled. The site is currently being updated, and additional retailer videos, covering topics of interest chosen by current E15 and flex fuel retailers, will be added in early 2019.

ACE continues to work with automakers on high-octane fuels as one of the founding members of the Ag Auto Ethanol (AAE) alliance. ACE helped the AAE infrastructure and communications team create an “unbranded” retailer handout, patterned after The handout will be available by the end of the year. And as our opponents attack more frequently through regulatory and “standards” organizations, we’re working with the AAE rules and regulations group to make sure future fuels aren’t unfairly boxed in.

Finally, ACE assisted the U.S. Grains Council (USGC) with six ethanol workshops for retailers and fuel equipment installers in Mexico this year. The Mexican market is a potential 1.2 billion gallons of ethanol, but MTBE has a strong foothold and infrastructure is a huge challenge. However, at the final Mexican Association of Petroleum Equipment Suppliers (AMPES) workshop in Mexico City in November, President of the Mexican Energy Commission (COMENER) Juan Acra López said ethanol should be “music for the ears of the next government, since it would reduce the cost of fuel,” and AMPES President Isaias Romero Escalona, said, “The interests of some politicians are the main obstacle to the incorporation of ethanol into the gasoline market.”

Sound familiar? ACE’s experience could come in handy in Mexico over the next few years.

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