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Ethanol Ascendant?



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Detroit — Is this ethanol’s moment?

 

With gas prices eclipsing $4 a gallon and large vehicle sales in free-fall, many in the auto industry think we’ve reached that elusive “tipping point” where fuel has become a priority in customers’ car-purchasing decisions. That includes which fuel they buy. Vested interests like the ethanol industry and General Motors (the largest producer of so-called “flex-fuel” vehicles, which can run on gas or alcohol fuels) are seizing the marketing opportunity. GM, for example, used Memorial Day weekend’s ethanol-fueled Indy 500 to advertize E85 across its ubiquitous Corvette pace car.

Corn ethanol may be getting beat up on the cover of Time magazine for contributing to global hunger, but it’s getting a second look from drivers hungry for a deal on fuel. When drivers cruise by the Sunoco station on Telegraph Road outside Detroit, for example, and see ethanol for $3.39 a gallon next to $4.09 for regular gas, they take notice.

Owner Steve Shamon has carried the stuff since the station opened a year ago, and he says sales are brisk. He is selling as much E85 as gas despite the fact that gas terminals outnumber E85 terminals, 6 to 1. Shamon says his customers buy the fuel to be green (a testament more to E85 marketing than science) – but primarily because it is 70 cents cheaper.

 

Granted, Detroit is America’s auto capital, where customers are marinated in E85 marketing and where stations are closer to Midwest ethanol distributors (Detroit’s larger metro area has 53 E85 stations — compared to Washington, D.C., for instance, which has just 11).

 

Nationally, says Phil Lampert of the National Ethanol Vehicle Coalition (NEVC), E85 is still less than one percent of fuel sales. E85 pump prices average $3.12 vs. $3.76 for gas, and since E85 is energy intensive to produce, its price also rises with the price of oil.

 

But stations from Chicago to Detroit to Albany (Mobil station price: $2.95 for E85 vs. $4.05 for gas) are experiencing strong sales as customers respond to its lower price. Mike Lockrum, a spokesman for VeraSun, one of the nation’s largest ethanol suppliers, says the company just experienced a record quarter, with sales up 20 percent since January.

 

The NEVC’s Lampert differs from his ethanol-industry brethren who believe that Washington should buttress E85’s momentum by mandating that all gas stations carry E85, and he has testified before Congress to that effect. “E85 has to be market driven,” he says (though he concedes that corn ethanol’s 45-cent-a-gallon government subsidy and a 30 percent tax credit for stations that carry E85 certainly help). And, in contrast to anecdotal station sales, Lampert notes that the growth rate of new E85 stations declined to 35 percent in 2007 from 90 percent in the three years prior.

Like the hybrid Toyota Prius five years ago, in other words, E85 seems to be more trendy than practical.

For E85 to really get market traction, its price will have to be consistently 25 percent lower than regular gas, given that a gallon of E85 travels only 75 percent as far. That is, no higher than the Albany station at $2.95.

 

Steve Shamon’s Detroit customers, by contrast, are getting only 17 percent discount (about the national average) with E85. And as they travel 225 miles on a tank of E85 – instead of the 300 on gas they are accustomed to — how long will it be before they start doing the math?

 

Further, Lampert laments Congress’ cut of corn ethanol’s subsidy to 45 cents from 51 cents in the new farm bill which will ultimately be felt in E85’s pump price. The move is part reaction to corn ethanol fuel’s effects on world food prices and part political shift towards cellulosic ethanol. Cellulosic, for example, will now get a $1.01 subsidy from American taxpayers, though Lampert dryly points out that “that technology is not here yet.” 



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