If you have the stones: the Ethanol blend wall, revisited

January 18, 2013 |

kennedyImpossible to cross? Or merely inconvenient to incumbents?

In today’s Digest, we look at what the oil industry has termed the “ethanol blend wall” to find the stones with which it is constructed and the windows that might provide access to wonders on the other side.

It was the last speech that John F. Kennedy ever gave — in Texas, on November 21, 1963.

“Frank O’Connor, the Irish writer, tells in one of his books how, as a boy, he and his friends would make their way across the countryside, and when they came to an orchard wall that seemed too high and too doubtful to try and too difficult to permit their voyage to continue, they took off their hats and tossed them over the wall–and then they had no choice but to follow them.

“This Nation has tossed its cap over the wall of space, and we have no choice but to follow it. Whatever the difficulties, they will be overcome. Whatever the hazards, they must be guarded against…with the help and support of all Americans, we will climb this wall with safety and with speed-and we shall then explore the wonders on the other side.”

Ah, that was a time when leaders had the stones to set difficult targets and stick to them, preferring to bet on American know-how than organize the sounding of the retreat.

We choose to go to the moon in this decade and do the other things,said Kennedy a year prior to that, “not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too.

Now, as they say, let us turn to the challenges of the US ethanol blend wall. You’ll forgive us, if here in Digestville we rate the challenge as “lower on the difficulty scale” than the race for the Moon.

But, then as now, there are the nay-sayers. We can’t afford it. It’s too hard. We have other priorities. We don’t need it. The end zone is too far. The goalposts move. The other guys are too big. Yada yada yada.

What exactly is the blend wall?

In the United States, passenger cars with 2001 or later model years are approved for 15 percent ethanol blends, while older cars are approved for 10 percent blends.

With US gasoline consumption (for 2011, according to the Energy Information Administration) reaching 134 billion gallons — it means that the US can blend about 20.1 billion gallons of ethanol into the gasoline supply before the ethanol toleration limit is reached.

That’s because the average vehicle age in the US is 11.1 years, meaning that only half of US vehicles can utilize E15 blends (today – as older vehicles are retired, that number will change)

That, today, is what is known as the “blend wall”. But is it a wall, or a hurdle?

Capacity and demand

Today, there are roughly 14 billion gallons of ethanol production capacity in the US (and roughly 2 billion gallons of biodiesel production capacity — and around 500 million gallons in next-gen capacity, online today or some time in 2013).

And, the mandate for renewable fuel usage in the US (in 2012) was 15.2 billion gallons, including 2 billion gallons of “advanced biofuels” and 13.2 billion gallons of first-generation ethanol.

Put it all together, you have a robust pool of supply to meet mandates that are expected to rise for 2013 – and plenty of “room in the tank”.

The API media blitz

So – you may be asking, why exactly is the American Petroleum Institute launching a high-profile television and multi-media advertising blitz, calling for repeal of US Renewable Fuel Standard, calling it “unworkable” and in particular focusing on the ethanol blend wall?

The DuPont view

“The oil industry wants us turn our back on these new investments,” said Jan Koninckx, global business director for biofuels at DuPont, “because they want to retain a privileged position and keep us dependent on an old 20th century technology. There may be innovations in how they do it, but freeing up carbon from the ground to burn as fuel is a 20th century idea.”

“DuPont is a 200 year old company which has brought forward innumerable new technologies to the market,” Koninickx added. “We’ve seen the [opposition's] strategy before. We have heard these short-sighted arguments for old technologies in the past. The arguments are indicative of short-sighted thinking, aimed at preservation not innovation. Most of all, they are aimed at keeping the US dependent on a single source of transportation fuel, with all the price volatility that comes from that dependence.”

The BIO view

“The US Energy Information Administration is predicting a US energy renaissance,” noted BIO executive vice-president Brent Erickson, “in which the US can become self-sufficient in transportation fuels by 2017. But the EIA outlook relies on continued growth not only in fossil fuel production, but in renewable fuels. We are going to need all the energy we can. We can’t drill our way out of this one.”

So, what are the technical issues?

E15 and E10 pumps.

If all the US has are E10 blends – such as available today — then, indeed, there are problems distributing more than 13 billion gallons of ethanol into the fuel supply.

Note: Drop-in advanced biofuels (such as renewable diesel) do not have blend wall issues. Also note that the problems are not yet acute with biodiesel — because that sector’s output is less than 4 percent of overall diesel demand and all diesel vehicles can tolerate B5 and many manufacturers are in the process of approving B10, B20 blends.

Widespread distribution of E15 pumps is one solution — expensive for distributors to install, and cuts into the oil refiner’s share of the overall product revenue. Most industry experts point to the natural replacement cycle for pumps as being the right way to implement higher blends of ethanol – but there continues to be resistance, as was seen in an earlier age when lead was banned in gasoline and unleaded pumps had to be added.

Availability of higher-blends and vehicles.

Beyond E15, there are more than 10 million vehicles that are “flex-fuel” and can use blends of up to 85 percent ethanol. E85 itself has not proven to be a popular product — per-pump sales rarely justify the hassle and expense of installation. However, “blender pumps” that allow the customer to select their preferred blend of ethanol and gasoline are used, successfully, in Brazil, and have started to make an appearance in the US.

The issues are cost, availability of vehicles and consumer education. Long ways to go on those fronts. In addition, while GM continues to make large numbers of flex-fuel vehicles, there are concerns that the vehicles will become less important in the overall thinking of auto makers, if CAFE (corporate averaged fuel economy) standards do not offer carmakers a credit against their CAFE obligations for each flex-fuel vehicle they manufacture.

Impact of biobutanol

As we have noted before in the Digest, biobutanol blends effectively (in engine testing) at levels up to 60 percent with gasoline – and on an emissions level has been approved at blends of up to 16 percent. But there’s more to that story. You see, biobutanol has a higher energy density than ethanol — not quite as dense as gasoline but only a few percentage points of difference. You get about 30 percent more energy from a gallon of biobutanol than ethanol.

Keep in mind that the Renewable Fuel Standard targets are expressed in ethanol-equivalent gallons. To parse that out, you could blend 36 billion gallons of ethanol in 2022 to meet the proposed renewable fuel target. Or, you could blend 27.7 billion gallons of biobutanol. Or 24 billion gallons of biodiesel. Or 21 billion gallons of renewable diesel.

Now, keep in mind that, at 16 percent, you can blend 21.4 billion gallons of biobutanol into the fuel supply (based on 134 billion gallons of demand), and every car in America could run on that blend — and biobutanol is compatible with today’s fuel infrastructure.

These are significant factors because both Gevo and Butamax are in the process of introducing technology which would convert current corn ethanol production to biobutanol. Gevo is deploying technology right now — Butamax is commercializing its technology in 2014.

The bottom line

21.4 billion gallons of biobutanol
4 billion gallons of biodiesel
1.5 billion gallons of renewable diesel

If companies built that kind of supply by 2022, that would meet the overall RFS2 target and all of it would be blendable using today’s vehicles and infrastructure.

That’s not to say that this particular outcome is the one that will occur. The market will dictate, in the end, now we “serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too.”

But the question on the table for today is – Blend Wall or Blend Hurdle? Based on the data, it’s a blend hurdle – or certainly a wall filled with windows that can be opened to climb on through into “broad, sunlit uplands.” The blend wall is a formulation not derived from real limitations; derived rather, by incumbents protecting a preferred position. In the grand tradition of castle walls and moats designed to protect, from conquest, that which is held by right of conquest.Assigning technical attributes to it is, well, nonsense.

We take no issue with incumbents defending their incumbencies — in the grand tradition of stoutly defending lands grabbed from the Indians —  but dismantling all the ladders in the kingdom is not quite the same thing as having an insurmountable wall.

It’s a wall, the ethanol blend wall, but one with sliding windows. Though, to go through a window you have to have the eyes to see it, and the faith to accept what your eyes tell you, and the gumption to tackle, unknowing, the question of just exactly what wonders are on the other side.

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