Lack of Stations Limits E85 Consumption

STREATOR, Ill. (DTN) -- A lack of fueling stations across the United States limits consumption of E85, the 85% ethanol biofuel blended with 15% gasoline, according to a study issued June 5 by the University of Illinois.

Of the 160,000 gas stations in the U.S., just 2,544 can dispense E85 fuel, according to the Energy Information Administration. EIA estimates there are 11 million vehicles of the total 223 million light duty vehicles in 2012 that can use E85, known as flex-fuel vehicles.

"This represents a potentially large base of E85 usage," said Scott Irwin and Darrel Good of the Department of Agricultural and Consumer Economics at the University of Illinois in their report, "What Price of Corn is Required to Make E85 Competitive?" Corn is the primary feedstock for ethanol in the U.S.

"Even with favorable pricing, the size of the E85 market would likely be limited in the short term due to the limited number and lack of concentration of refueling stations," they wrote.

Because of these limitations on current E85 refueling infrastructure, EIA estimates E85 consumption capacity is likely constrained to no more than about 600 million gallons annually.

"A market of that size could provide room for up to an additional 215 million bushels of corn processed into ethanol," said the authors.

"However, a market of that size would not expand the blend wall enough to meet the implied mandate for conventional biofuels in 2014," they continued. "It appears that increasing E85 consumption above 600 million gallons will require additional infrastructure investments."

The blend wall is defined as the maximum amount of ethanol that can be consumed in the domestic motor fuel market if ethanol blending is limited to 10% of total motor fuel consumption.

The blend wall becomes an issue when the Renewable Fuel Standard mandated requirement for renewable fuel consumption exceeds the size of the blend wall.

As for E85, infrastructure investments will take time and likely limit the size of E85 use through at least 2014, the authors believe.

"At current retail gasoline prices, spot cash corn prices, around $7, are well above the breakeven price for E85," the study said.

However, bids for corn delivered during the upcoming 2013 harvest, near $5.25, are right at that breakeven corn price.

Depending on the outcome of the 2013 harvest, it is feasible that corn prices could decline below the breakeven price for E85 if retail gasoline prices remain near current levels.

"If so, expanding E85 consumption could help expand the ethanol blend wall and add to the demand for corn to be processed into ethanol during the 2013-14 corn marketing year," the wrote.

To stimulate larger domestic corn consumption, however, the crop would have to be large enough to prevent corn prices from moving back above the breakeven price due to increased consumption.

"It is also worth noting the sensitivity of the analysis to the retail price of gasoline," they wrote.

If pump prices drop to $3.50 gallon, then corn prices would have to drop to $4.24 in order to maintain breakeven E85 prices, the authors said.

(BM/AG)

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