With retailers still unsure of what the future holds for fuels in the U.S., investing in new USTs is a risky proposition.
By John Lofstock, Editor.
It’s been nearly four years since then-President George W. Bush signed the Energy Independence and Security Act into law, requiring at least 36 billion gallons of renewable fuel be used by 2022. The convenience store and petroleum industry continues to wait for the EPA to announce just how that ambitious goal will be realized—and to hope it won’t require massive new expenditures for compatible tanks and lines.
The Energy Independence and Security Act requires advanced biofuels—fuels that cut greenhouse gas emissions by at least 50%—to provide about 60% of the total requirement. Such advanced biofuels could include ethanol derived from cellulosic biomass, such as wood waste, grasses and agricultural wastes, as well as biodiesel and butanol.
“If you’re going to increase your ethanol blend beyond 10%, you have to make sure your tank is officially certified as compatible with that fuel,” warned John Eichberger, vice president of government relations for NACS, the association for convenience retailing.
The EPA released guidelines for determining compatibility in early July, allowing operators to use a UL listing, an equipment manufacturer certification or to rely on API-recommended practices. The guidelines also give states authority to come up with a new way of determining compatibility.
“That’s all well and good,” Eichberger said, “but it doesn’t change the law. It helps, but it doesn’t solve all of our problems.”
Thus, NACS is hard at work trying to pass legislation to give the guidelines the legal authority to protect retailers from liability in compliance violations.
The need is quite real. For instance, when Massachusetts legislators heard about the guidelines they made it clear their own standards would continue to take precedence.
“When it comes down to underground storage tank systems, if your equipment—your tank, pipes and anything else that comes into contact with the fuel—is not approved officially for a fuel, you cannot use it lawfully, even if it’s technically safe,” Eichberger said. “It’s unlawful, and that’s the big thing people have to realize. They’re going to hear a lot of stuff, like a double-wall steel tank should be fine, and it probably is, but if it doesn’t have that seal of approval you’re screwed.”
Surprises All Around
Kenneth Doyle, executive vice president of the Society of Independent Gasoline Marketers of America (SIGMA), said that some of his members found some surprises in July when they met with legislators on Capitol Hill. After asking for legislative relief that would allow them to operate their equipment the best they could and provide the products that customers want, they found the legislators themselves disgruntled over the renewable fuels standard (RFS).
“A number of them were saying, ‘We just want to get rid of this,’” Doyle recalled. “There is a lot of negative feeling towards ethanol up there. We were walking in thinking, ‘Will you please provide us with some legislative relief that would allow us to use the tanks and equipment we know are compatible, but are not certified—and not be in violation of our insurance covenants, local ordinances, OSHA and all the other rules and regulations we try and comply with.’ It was hard to get them to help us when they really didn’t like what was done years ago.”
The biggest problem, as Doyle described it, is uncertainty over what a specific operator’s system will be able to handle. Beyond that, of course, is the possible financial hit.
“We’re concerned it will be an enormous investment to go in the direction that the EPA is pushing us to sell E-15,” said Doyle. “When they originally put in the renewable fuel standards the real thought behind it was that there would be 10% ethanol in most gasoline and all the rest of it would be E-85. But because of pricing considerations that has not happened. Congress does not seem to be enamored with ethanol right now, and I don’t think they’re going to end up changing anything.”
At presstime, however, it appeared as if legislators were seriously discussing getting rid of the ethanol tax subsidy, which would change the economics of ethanol—and not in the ethanol industry’s favor. “All of a sudden they’re going to be raising the price of a gallon of ethanol by 45 cents and that’s going to make it more difficult for ethanol to be competitive with gasoline,” Doyle said.
Congress set a target of 36 billion gallons annually, which Eichberger said cannot be accomplished without changes to either the physical infrastructure or the laws governing the infrastructure. “That is what we’re struggling with. You can’t get to 36 billion gallons with E-10 or E-85; you’re going to need E-25 and E-30,” he said. “Right now we’re struggling with E-15, so if you’re looking at E-20, E-25, E-30 there is no way we can grandfather in any of the existing equipment. It’s going to have to all be replaced, and I don’t see that happening.”
That’s because the process would be impossibly expensive for most. “We just replaced everything, pulled everything out of the ground 15 years ago,” Eichberger added. “We’re not doing that again. Florida just replaced all of its tanks with double-wall tanks. They’re not doing that again.”
In testimony he gave before Congress in the spring, Eichberger told legislators the following: “We are advocating legislation that will help us bring additional renewable fuels to market. Even though we’re trying to accommodate renewable fuels in the current definition, you’re not going to get there unless you provide the opportunities for these new ‘drop-in’ fuels to make their way to market. Because once a price-competitive fuel that is compatible with
infrastructure and vehicles is available, that’s the direction we need to go. Then we don’t have to change our tanks, we don’t have to worry about fueling, about lawnmowers, about boats. It just goes in the system, it’s just like gasoline, and boom, off we go. That’s the only direction I can actually see going to successfully get to 36 billion, with a breakthrough in that technology.”
There have been tax credits and grant programs available for operators, Eichberger said. “They’re usually about 30% of the cost of the upgrade. So if you have to replace your tank and dispenser for about $100,000 or $150,000, the government will give you a tax credit of 30%, usually up to $30,000.”
Different This Time
Eichberger repeatedly points out to regulators and legislators that every time the country has made a switch in its fuel supply there have been two key facts. One was that the new fuel could be used in every engine on the market, which is not the case with E-15. Second, the new fuel had to be used in new engines. That also is not the case with E-15. “It’s a completely different transition, and it’s all going to be driven by consumer acceptance and demand,” Eichberger said.
An educational campaign is required to drive consumer acceptance.
“If I pull up to a gas station and look at the product selectors and there is something new there I might give it a quick glance, but I’m going back to what I’m used to. I’m not going to switch unless I have been taught that I should consider that new fuel,” Eichberger said. “So I think that until the government gets something together in terms of some public service education program you’re not going to see a whole lot of growth in demand.”
The bottom line, as is so often the case, is dealing with an over-active federal bureaucracy. “The EPA hasn’t even approved E-15 for use, and once they do nobody has to sell it, nobody has to buy it,” Doyle concluded. “It’s going to be a competitive marketplace that determines where it’s sold, how many people sell it, whether people want to change their tanks and systems over to it.”
The biggest problem marketers face, Doyle added, is that the fuel producers have to put ethanol into the fuel. “That may mean that it’s forced down our throats. If we’re forced to buy it because that’s what the refiner we have a contract with is selling to us—and our systems don’t handle it—that’s going to be a problem. A very serious problem.”