Damn Lies And Statistics

The EPA has published the ethanol blending quotas for 2014, 2015 and 2016 as required by their consent decree. Apparently, their statistics are made up by the same elves that work in U.S. Department of Labor. They make about as much sense as our unemployment and inflation numbers. If you believe that the unemployment rate is about 5% and the CPI is less than 2%, stop reading this blog because the statistics herein will give you brain hemorrhoids.

Lets take a look at the just published EPA renewable fuels mandate for 2014: 16.8 billion gallons. Now remove the bio-diesel component, 2.67 billion gallons and you are left with about 14.65 billion gallons of “ethanol”, plus or minus a fraction since it is almost impossible to account for cellulosic and “advanced” biofuel which can be almost anything, including swamp gas.

Now look at the EIA production statistics. The US produces about 153 billion gallons of Finished Motor Gasoline / year. Production in 2014 was less than that, but it appears to be increasing slowly. You have probably heard that the U.S. is exporting finished gasoline lately. This is pretty obvious if you look at the annual sales of Motor Gasoline for 2014: about 126 billion gallons, which is down a little from 2013. The data seems to confirm the U.S. is exporting a lot of finished gasoline.

So, here’s the problem: 14+ billion gallons of ethanol was enough to make every single drop of gasoline consumed in the U.S. in 2014, E10, with a couple of billion gallons of ethanol left over. But that did not happen. I know that because I can still buy some E0 for my airplane here in Oregon and the number of stations pumping E0 rises every month on pure-gas.org. Since gasoline consumption is essentially flat, or declining, and it has been for years, there is nowhere to blend the almost 500 addition millions of gallons of ethanol outlined in the 2015 quota. Obviously another billion+ gallons of ethanol in 2016 is not going to be blended. Wonder where it will be stored. (Maybe there will be an ethanol cotango just like there is an oil cotango. I’ll leave it to the reader to figure that one out. Maybe you could make a buck.)

Luckily there is a loophole in the RFS that allows producers to push 20% of their quota into the next year. Otherwise, this whole fiasco would have imploded years ago. But it still will. As my favorite Vulcan would say, “This is not logical.” RIP Leonard Nimoy.

FLORIDA: Last In / First Out of Ethanol Madness But Nothing Will Change

While some may celebrate the repeal of the state mandatory E10 law in Florida, I see nothing to celebrate because absolutely nothing will change in Florida.  The Florida law was actually passed and invoked long after it was obvious that the federal RFS mandate in EISA 2007 was going to swamp every state with E10, which is happening.  The repeal was a grandstand symbolic gesture to give drivers a choice.  The Florida politicians are patting themselves on the back for winning the battle but they lost the war before the state mandatory E10 law took effect in 2010, two year after EISA 2007 went into effect.

While the legislators may believe that the residents of Florida will now see more E0 at their corner gas stations, absolutely nothing will change.  One only has to look at the blending quota table in EISA 2007 and the gasoline terminal stock reports to know that there is no E0 generally available for autos.  While there is some premium ethanol free gasoline at most of the terminals in Florida, it is obviously for marine and off road use.  The primary supplier is Marathon Oil with their 90 AKI “Sport Fuel” which is intended for the marine, off road and small engine user.  The 90 AKI fuel is not legal to sell as premium unleaded fuel at gas stations, although it could be sold as mid-grade, but most modern fuel stations have 3 button pumps with tanks for regular and premium and mix the two to provide mid-grade, so most stations don’t have a separate tank for mid-grade.  It isn’t likely that Marathon means for this fuel to be sold for normal auto use and in fact when looking at the availability of E0 in Florida at Pure-Gas.org, most of this fuel is being sold at marinas.  It would only make sense for Marathon to sell this gasoline to known non road uses so that it wouldn’t have to account for any of it in their fuel quota for ethanol blending.  Otherwise, as we hit the blending wall this year, it would be costly to sell gasoline without ethanol and the price of this fuel would rise dramatically.

The other reason that I know that this was only symbolic is because the ethanol lobby didn’t crush this repeal.  There were only five states with mandatory state E10 laws and none of them has any purpose now that all of our gasoline will be E10 anyway.  Actually repealing the mandatory state ethanol laws might be a blessing in disguise for the ethanol lobby because most state mandatory E10 laws limit the ethanol blending level to E10 for non flex-fuel vehicles, thus prohibiting the sale of E15 in those states.

Finally, the ethanol lobby has a much bigger problem to worry about.  We will hit … no, we will crash into the blending wall this year and after this year there will be a requirement to blend ever increasing billions of gallons of ethanol into auto fuel, with nowhere to put that ethanol except in storage tanks because Renewable Fuel as described in EISA 2007 is E85 for which there is no demand. Strange thing is, E10 is not Renewable Fuel as defined in the act, in fact it is never mentioned in the act.  So how is it we are going to meet the Renewable Fuel Standard in EISA 2007?  EPA?  Any congress critter that voted for EISA 2007?  Anyone care to explain how this is going to work?

CAN YOU SAY BLENDING WALL?

Apparently I’m not the only fool who can see that we are crashing into the blending wall.

This informative article in Platts arrives at the same conclusion.  (Platts is a leading global provider of energy, petrochemicals and metals information, …)

One slight problem in the article, the authors completely misunderstand the cause. Here is their excuse:

“When the volumetric blending levels were set for the RFS in 2007, lawmakers, as well as industry representatives, didn’t expect the level of ethanol produced to exceed 10% of the national gasoline supply until much later this decade. But steadily declining gasoline demand coupled with increased fuel efficiency mean that benchmark, called the “blend wall,” will hit this year and, for some refiners, may have already been reached.”

Are you kidding me? Clearly the four people attributed at the end of this article never read the RFS mandate in EISA 2007, or having read it, did not understand it. My guess it is the former.

Nowhere in the act is there any discussion of a 10% level of ethanol blending. E10 is NOT mentioned in the act and the act is not a mandatory E10 law.  Gasoline with 10% ethanol is NOT a Renewable Fuel as defined in the act. The entire act is obviously targeted towards increasing the production and distribution of E85 and the increased production of flex-fuel vehicles.  All of the corporate welfare granted by the act is for these three objectives. The only Renewable Fuel defined in the act is E85 in several places, and in one place it is defined as any blend of E11 and above. Since the blending quota table in the act continues to require ever increasing amounts of ethanol be blended out through 2022, the only possible way of ever meeting the blending quotas was to produce copious amounts of E85.

It is going to be absolutely hilarious in the next couple of years when the blending quotas, which are cast in stone in the law, completely swamp the gasoline pool, with no place to put billions of gallons of excess ethanol and there will finally be no way to strip RINS because every producer will have to purchase a quota of ethanol that will exceed 100% of the amount that they can put in their gasoline production.  All I can imagine is a tank farm boom to store the excess ethanol at our terminals and a steady increase in gasoline price to cover the ethanol that the producers will be forced to buy with nowhere to use it.  I guess they are hopeful they can sell it in the international market.

Of course the supreme irony is that the ethanol production increases demanded for every year from 2015 to 2022 must be met essentially by cellulosic ethanol production which nobody can make in economically viable commercial amounts.  So it isn’t just a blending wall we are finally crashing into, it is also a production wall.

I wonder when the EPA, the politicians, the media and the American people are going to finally figure what a ridiculous, unworkable  sham the RFS mandate in EISA 2007 really is.  I may be a fool, but I figured it out as soon as I actually read the act back in 2009.  If you would like to read the act, you can find it here.

2013 RFS QUOTAS PUBLISHED — ONLY 3 MONTHS LATE

The EPA is supposed to publish the proposed annual RFS quotas in November of each year, then there is a mandatory 45 day comment period and then the proposal is enacted.  I might add that it is enacted as proposed no matter what the comments are, as the request for waiver of the RFS by five states proved last year during the drought.  If the EPA followed their own rules that would mean that everyone would know the annual quotas on the first day of the year.

To see a full copy of the 2013 RFS NPRM click here.

Here is the pertinent information as it applies to blending levels of ethanol into our total gasoline supply:

Advanced biofuel 1.60%
Renewable fuel     9.63%

If you add those two blending levels you will note that the total blending percentage is 11.23%, which means that every drop of gasoline sold in the U.S. will have to be E10 and there will be ethanol left over since the amount of E85 and E15 is totally insignificant and neither of them is growing.  The only reason we didn’t hit the blending wall hard last year was that there is a loophole in the law that allows gasoline producers to carry forward 20% of their RINS into the following year.

I wonder if one reason that the NPRM is three months late is because it is becoming glaringly obvious that the blending quotas are unsustainable and it will become embarrassingly obvious that the RFS is going to implode soon, as anyone with an ounce of math skills can figure out … DUH!

EPA DENIES RFS WAIVER

FULL SPEED AHEAD INTO THE BLENDING WALL!

On Friday, November 16, 2012, the EPA denied the waiver petition made by several states to drop mandatory ethanol blending as required by EISA 2007 for one year.  You can find the denial as quoted here, “Based on the entire record before it, EPA has determined that each of the petitions and requests should be denied.” in the EPA document.

This is what the waiver denial portends.  Even with the carry forward RINS, which are delaying the blending wall by maybe 20 billion gallons of E10 / year, by 2014, at the latest, the ethanol quota, cast in stone table, in EISA 2007 will swamp the gasoline pool and there will be nowhere to put the ever increasing ethanol quotas after that and the ludicrous E15 waiver will not delay this fact.

It was clear that the quota table in EISA 2007 was designed to produce Renewable Fuel, which is only defined as E85 in the act. OK, in one place in the act it is defined as E11 – E85, but it is NEVER defined as E10.  However, we produce a minuscule amount of E85 and that will not increase enough in the next few years to avoid the blending wall because of the massive infrastructure that would be demanded to distribute and sell it.  The fact that all of the gasoline in the U.S. is becoming E10 is an unintended consequence of EISA 2007 since E10 is NOT Renewable Fuel as defined by the act.

So here is a suggestion for the states that were denied the waiver.  Any state can prohibit the blending of ethanol in all of the gasoline in their state, except for those few mandatory oxygenate areas that are still left, which are a few big urban areas and most of Southern California.  There is no mandatory federal E10 law.  EISA 2007 certainly isn’t a mandatory E10 law, it is a Renewable Fuel law, and E10 is NOT Renewable Fuel as defined in the act.  So if a state can pass a mandatory E10 law, like my home state of Oregon did, useless as it is now, any state can clearly pass a law prohibiting E10 being sold in the state.  This would certainly accelerate hitting the blending wall thus exposing what a farce and sham the federal Renewable Fuel Standard really is.

Of course until such time as the congress critters repeal the federal RFS in EISA 2007, which they might do if they finally wake up and understand that it can’t possibly fulfill its intended purpose, the gasoline producers will have to deal with ever increasing quotas of ethanol with nowhere to blend it.  If the EPA is as obstinate as it is now with the cellulosic ethanol quotas that the gasoline producers must pay waiver penalties for a product they can’t buy, then the gasoline producers will have to do something with the ethanol they can’t blend.  I have a suggestion.  Start constructing large tank farms in Illinois, as near to ADM headquarters as possible, and the Iowa home of Senator Chuck Grassley, the champion of the RFS and the water boy for ADM.  Just store the billions of gallons of ethanol in their back yards, by 2022 you are going to have to be able to store about 15 billion gallons of the stuff every year that you can’t use.  You can just pass along the costs to us consumers just as you do with the millions of dollars in penalties for the cellulosic ethanol waiver credits.  I’m sure we won’t mind, because we certainly don’t mind that you must pay for a product you can’t even buy, and you are passing along the costs to us right now.

Oh, and by the way, the whole EPA waiver review was a complete farce.  Look on page 79 of the Notice, “The commenter failed to acknowledge that EPA is not required to issue a waiver when severe economic harm to a state, region or the United States is demonstrated. The statute provides that EPA “may” do so in that situation.”  Bazinga!  There was never the remotest chance in Hell that the EPA was going to grant the waiver.  I hope the states wake up and take matters into their own hands.  They have every opportunity to as outlined above, just ban E10 in your state.

Drought, Mythical Blending Wall, Gasoline Price / Demand

The drought affecting the Midwest is causing some strange soul searching over the federal RFS mandate in EISA 2007.  Numerous articles are appearing in the media that report widespread criticism of the ethanol mandate, here, here, here and here.  That last article reported on two state governor’s official petitions to waive the RFS mandate for the duration of the drought.  Since these are official petitions governed by the EPA’s statutes, they must be answered within 90 days by the EPA after a public comment period as discussed here.

What is ironic is that theoretically the U.S. will hit the ethanol “blending wall” next year … maybe, but then again maybe not.

In order to understand the ramifications of the “blending wall” one must understand the unintended consequences of the federal RFS mandate.  EISA 2007 was supposed to be a Renewable Fuel Standard.  If one were actually to read the act one would assume that “Renewable Fuel” would be defined.  It is sort of in a couple of places.  It is usually defined as E85 and in one place it is defined as any blend that exceeds 10%, i.e. E11 – E85.  Nowhere in the act is Renewable Fuel defined as E10, because E10 is actually gasoline with 10% ethanol in it, but it is still just plain gasoline, not Renewable Fuel as defined by the act.

E10 is never mentioned in EISA 2007 and there is a good reason for that. There is a cast in stone blending quota table in the act that requires ever increasing amounts of ethanol to be blended into our gasoline through 2022 when 36 billion gallons of ethanol and advanced bio-fuel of some type is supposed to be blended into gasoline.  Since the U.S. only uses about 135 – 140 billion gallons of gasoline / yr. one could see from the math that we would only need about 14 billion gallons of ethanol, at the most, to take every gallon of gasoline in the country E10.  It should be crystal clear that the table was designed around the production of Renewable Fuel as defined in the act, which is E85.   Of course it is not helping the RFS that the demand for gasoline in the U.S. is declining … precipitously as it turns out,  because a lot of people are buying much more efficient cars and the price of gasoline only rises thus driving down demand.  (So much for the law of supply and demand as it is supposed to affect pricing.)

Since the ethanol quota defined in the table in EISA 2007 is 13.8 billion gallons next year, we should be at the “blending wall” after which more and more ethanol will be required by the table, but there will be no place to put it.  But we actually aren’t at the blending wall, due to a gimmick in the law, which is alluded to here:

“… excess ethanol production over the past two years enabled obligated parties—refiners, blenders and importers—to save or bank enough tradable compliance credits, otherwise known as Renewable Identification Numbers or RINs.

About 20% of those RINs were carried forward to this year and can be used to meet RFS requirements this year and next year, Cooper said.”

So it appears we may be as much as 20% under the blending wall going into next year, or as much as 2.6 billion gallons of ethanol, enough to result in 26 billion gallons E10, or about 18% of all gasoline produced if we needed 140 billion gallons of gasoline next year, not a sure bet.  Clearly these shenanigans will delay the blending wall for at least another year and is one of the reasons that we still see a lot of E0 in rural areas where the cost of upgrading the terminal infrastructure for blending ethanol has been strung out as long as possible.  (As of last spring there were still 9 terminals in very rural parts of the U.S. that had no ethanol blending capability.)

So all of this has resulted in a bureaucratic dance that even you can participate in.  The governors of NC and AR have made their move and now you can add your comments to the discussion by using this link at the EPA. Please be mindful that you are commenting on the governor’s petitions, not on the validity of the RFS mandate per se. But remember that none of this charade will really resolve the built in catastrophic failure of the federal RFS mandate, which is that without massive Renewable Fuel (E85) production the quotas hard coded into the act can never be met.  So there is a good chance the EPA might even grant the one year waiver requested so it can get some breathing room before the looming train wreck that is inherent in the act. After all when doom looms, all good bureaucracies delay, delay, delay. (By any chance does that remind you of our Fed policy?)

ETHANOL SET TO RAISE THE COST OF GASOLINE

When the ethanol lobby testified for the mandatory E10 law here in Oregon, they told the legislators that we had to have a mandatory statute because ethanol would improve air quality and “… reduce the price of gasoline.”  After Oregon passed its mandatory E10 law, the federal government passed EISA 2007 with an RFS quota table embedded in stone in the act, which requires gasoline producers to put more ethanol in gasoline every year through 2022. The law was supposed to spur the production and consumption of E85 and flex-fuel vehicles.  That never happened and now the gasoline producers meet their ethanol quotas by making E10.

However, there is a limit to how much ethanol you can use making E10 before you have turned every drop of gasoline in the country into E10.  We are hitting that “blending wall” this year and next year the ethanol quotas will rise for the gasoline producers, yet they will have nowhere to put the ethanol.

The EPA is solely mandated with overseeing the RFS in EISA 2007. Part of the RFS includes an ever increasing blending quota for advanced bio-fuels, which means primarily cellulosic ethanol.  In fact corn ethanol quotas are capped in 2015 and all of the huge increases in ethanol blending quotas must be made up of an ever increasing production of cellulosic ethanol through 2022. There is one big problem though, nobody makes commercial quantities of cellulosic ethanol, despite your tax dollars being thrown at the problem for the past three decades. Even though there are about 30 companies trying to make cellulosic ethanol today, they can’t even produce 6 million gallons of the stuff this year, when the gasoline producers are supposed to be blending about 500 million gallons of the stuff into gasoline. What is ironic is that the EPA gave the ethanol industry a waiver on the production, but did NOT give the gasoline producers a waiver on consumption, they must pay a penalty to the EPA for not blending cellulosic ethanol in our gasoline, http://www.dtnprogressivefarmer.com/dtnag/common/link.do?symbolicName=/free/news/template1&product=/ag/news/renewablefuels/news&vendorReference=0702BAC7&paneContentId=35&paneParentId=0

So this should be the clue about how future ethanol quotas will be handled by the EPA.  Every year the quota will rise and gasoline producers will have to pay ever increasing penalties for not being able to blend the ethanol into our gasoline supply.  Gasoline producers will simply pass along the costs to the consumer, just as they are now passing along the $7.5 million costs of the phantom cellulosic ethanol that they can’t get.

ETHANOL INDUSTRY ADMITS E15 WILL CAUSE DAMAGE

You have to love the irony.  Congressman John Shimkus (R-Collinsville, IL) has introduced legislation “…  to prevent lawsuits related to problems with E15 …”.

Hmmmmm, isn’t the headquarters of ADM in Illinois?  Ah yes, Corporate Headquarters. Archer Daniels Midland Company 4666 Faries Parkway Decatur, IL 62526.  Now it all makes sense.

OK, perhaps it is a bit more complicated.  It is true that ADM has donated to congressman Shimkus, but what is more interesting is who congressman Shimkus’ major donors are, the oil and gas industries.  Keep in mind that the gasoline producers have stated publicly that they will not produce E15 unless they are immune from damage lawsuits, but they are required to blend more and more ethanol every year until 2022 so it would behoove them to produce E15 to meet their ever increasing quotas.  Thus this new legislation will benefit both ADM and big oil.  Of course the consumer will continue to get screwed by both big ethanol and big oil.

Luckily you don’t have to buy any E15.  The whole silly project is voluntary from start to finish.  So why would you buy a product that will decrease your mileage, void your warranty and damage your car?  Really makes you wonder what they are smoking over at the ethanol lobby and the EPA.

E15 IS LEGAL, LET THE PRODUCTION BEGIN … OR NOT

On April 2, 2012 the EPA finally announced approval of the first applications for registration of ethanol for use in producing E15 and the ethanol lobby jumped on the announcement to trumpet the arrival of E15 at your local service station.  Announcement here includes positive statements from ethanol lobbyists.  But the announcement here points out a few of the hurdles remaining:

1.  There is still a lawsuit in federal court against the EPA about legality of the bifurcated waiver.

2.  Many states have statutes that limit ethanol blending to 10% for non flex-fuel cars, like California the largest gasoline market in the U.S.

3.  The waiver is voluntary and the gasoline producers have stated publicly they will not make E15 unless they are granted immunity from damage claims.

4.  Many gasoline station chains have made it clear they will not pump E15 unless they are given immunity from damage claims, especially from misfueling.  In fact there is a lawsuit over the mandatory E15 pump label which warns about misfueling.

5.  There are no cars with E15 warranties and the car manufacturers have pretty much said they are not going to warrant their vehicles for a voluntary product.  Why would they considering the costs associated with testing that will have to be passed on to the consumer.

6.  It appears that the only way to make E15 economically viable is to create legislation that just prohibits any damage liability which is exactly what a congress critter from IL has just done.  This appears to be an admission that E15 is going to cause damage.

ETHANOL QUOTA UP – GASOLINE USAGE DOWN – TRAIN WRECK COMING

DOES ANYONE UNDERSTAND THE RFS MANDATE IN EISA 2007?

The federal RFS mandate in EISA 2007 is NOT A MANDATORY E10 LAW. E10 is never mentioned in the Act because E10 is NOT Renewable Fuel. E10 is gasoline with 10% ethanol in it, but it is still gasoline made to ASTM D4814. Is there anyone in the federal government or the EPA that understands this? If so then they should understand that there is a huge problem that will manifest itself this year.

There is a hard coded table in the RFS section of EISA 2007.  It is right there in Section 202.(a).(2) on page 31.  That table sets out the amount of ethanol that is supposed to be blended to make Renewable Fuel in each year through 2022. Renewable Fuel as implied in EISA 2007 is E85. It is actually defined as Renewable Fuel in a couple of places in the Act while E10 is never mentioned. Look at the ever increasing number of gallons of ethanol that are required to be blended in the table, year after year. Those numbers can only be satisfied by making E85 which is the whole point of the Act.  All of the corporate welfare created in the Act is for E85, nothing for E10.

So how much Renewable Fuel (E85) is produced in the country?  Not easy to find out, but according to this table, less than 1% of the ethanol blended in gasoline went to make E85 in 2009 and that has been pretty much the case since stats were kept back to 2000.  So 99% of the ethanol quota demanded by the EISA 2007 table is blended into gasoline to make E10.

Here’s the problem nobody is paying any attention to.  The table is hard coded.  The quota demand rises every year until 2022.  The table was predicated on the spread of E85, but that is not happening.  You can only blend so much ethanol at the 10% level until every drop of gasoline sold in the country is E10. When EISA 2007 was passed everyone believed that demand for gasoline would always increase absorbing the ethanol at the 10% blending level until E85 took over.  Only problem is E85 didn’t take off and now gasoline demand is declining … big time.

Look at this gasoline usage table from eia.  Note that the decline in usage between July 2011 and November 2011 is about 27% and that overall gasoline usage today is less now than in 1985.  No, not 2005, 1985, more than 20 years ago.

Big problem, gasoline demand is dropping like a rock.  Can you say “Blending Wall”?  Well it will be here this year.  So what are the gasoline producers going to do with all of the ethanol that can’t be blended into Renewable Fuel (E85) now? After all, essentially nobody has made Renewable Fuel (E85) at any time since the Renewable Fuel Standard was passed in 2008.  All the gasoline producers make is E10, which is NOT Renewable Fuel in the sense of EISA 2007. Are they going to eat the RINS like they are doing for the cellulosic ethanol that they can’t buy because nobody produces it?

This will have grave unintended consequences in the public safety arena, marine and aviation industry, for antique and classic cars and off road recreational vehicles like ATVs and snowmobiles and jet skis. There is no federal or state laws that require that some ethanol free gasoline be provided for these users.  In large sections of the country, especially along the seaboards, this is already the case. This will cause serious economic consequences including the possible loss of life if equipment in public safety does not work or fails because of E10. At least one state sees the handwriting on the wall. A state senator in Mississippi has introduced legislation to require every gas station sell ethanol free premium unleaded gasoline in the state.