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    The Rise of E15

    More than 90 U.S. gas stations currently offer the fuel, with massive growth expected soon

    By Brian Berk, Convenience Store News
    E15 is now being sold at Murphy USA locations in Arkansas and Iowa.

    It took some time for E15 to make its presence felt following the U.S. Environmental Protection Agency?s (EPA) June 2012 approval of the fuel blend for 2001 and newer cars. But the alternative fuel is now sold in 91 gas stations (as of Sept. 1), with this number expected to rise exponentially in the near future.

    Scott Zaremba, president of Zarco USA, jumped on board right away, becoming the first U.S. retailer to sell E15 at his Lawrence, Kan., location in July 2012, just one month after the EPA?s approval. He currently sells E15 at two Zarco USA stores.

    ?I fundamentally think we have to make changes [as convenience store retailers],? Zaremba told Convenience Store News regarding why he offered E15 so quickly. ?If you stay the same, you will go on the same path and something catastrophic will happen. I?m in a competitive marketplace and have to be different.?

    Few retailers followed Zaremba?s lead immediately, primarily due to controversy surrounding the 15-percent ethanol, 85-percent gasoline blend. Both the American Petroleum Institute (API) and AAA claimed the use of E15, which carries an 88 octane, could potentially cause engine damage, something auto manufacturers allegedly would not cover under warranties.

    Following EPA approval, some convenience store retailers were also hesitant to offer E15 at the pump due to their worry about litigation risks if consumers misfueled their older vehicles with the new alternative fuel blend.

    ?EPA approved E15 before vehicle testing was complete, and we now know the fuel may cause significant mechanical problems in millions of cars on the road today,? stated Harry Ng, vice president and general counsel for API.

    Despite this testimony, though, the U.S. Supreme Court on June 23, 2013 rejected the API?s challenge to block the sale of E15, essentially ending all attempts to block the ethanol blend from entering the U.S. motor fuel marketplace.

    Since the highest court in the land blocked the API challenge, retailer concerns have subsided. E15 is now sold in 14 states, and the alternative fuel is eligible to be sold in 44 states, with the exceptions being Arizona, California, Delaware, Hawaii, Nevada and New York, according to ethanol advocacy group Growth Energy.

    Among the states that do allow E15, some require special labeling at the pump that, in part, addresses which vehicles can fuel up with E15. Ethanol groups such as Growth Energy work with c-store retailers to obtain proper labeling and meet all state requirements.

    As for stations that already offer E15, feedback has been overwhelmingly positive thus far, noted Mike O?Brien, Growth Energy?s vice president of market development.

    ?We surveyed 40 locations in November 2013 that had at least six months of experience offering E15,? he told CSNews. ?There were zero complaints with E15 and that still [is true]. In fact, consumer reaction to E15 has been extremely positive. Consumers love saving money with E15 and have reported their cars perform the same, if not a little better. One retailer even told us he had a consumer walk in the store and announce, ?I saved so much with E15, I?m going to buy a six-pack with my extra money.??

    The growth of E15 is crucial for the future of fuel sales, according to O?Brien. E10, the current standard fuel offered at most pumps, carries low margins for the retailer.

    On the consumer side, the price of gasoline has been high in recent months, causing fewer trips to c-stores. In fact, this summer was worse than others as nationwide gas prices averaged $3.68 per regular gallon during the July Fourth holiday weekend, 20 cents more than in 2013, and the highest price seen for this time period since 2008, AAA reported. Political unrest in Iraq was the main culprit behind the inflated prices.

    E15 can provide some relief, noted O?Brien. ?E15/88 octane provides retailers with a 5- to 10-cent price advantage vs. 87 regular,? he said. ?So consumers save money, get more octane and the retailer benefits because they typically get a little better margin, plus additional traffic to their stores.?

    WHAT?S AHEAD

    From a biological standpoint, E15 is not tremendously different from the E10 blend, O?Brien explained. So, why all of the controversy around E15? ?All of the fights against E15 are really about [Big Oil] fighting to keep their market share,? he said.

    Looking ahead, with many of the legal battles regarding E15 in the rear-view mirror, more c-store retailers plan to offer the alternative fuel. For example, Murphy USA Inc. recently added E15 at the pump in both Arkansas and Iowa.

    According to Growth Energy, approximately 75 stations are expected to add E15 in the next six to eight months. All told, nearly 200 gas stations could offer E15 by next summer. This charge is expected to be led in part by MAPCO Express Inc.

    ?We have an expectation of [offering E15 at] 11 sites by the end of this year, with a total of 16 by [early] 2015,? Law Johnson, MAPCO?s senior director of retail fuel, told CSNews. ?Our goal is to be able to build stores with the ability to offer the ?fuel of the future.? By adding the additional tanks and flexible piping and dispensers at our store locations, we will position ourselves to be able to offer E15 and potentially other blended fuels in the future. We will be able to determine what the market demands and also be able to have a flexible product offering that can ebb and flow as we see commodity markets rise and fall.?

    The ante could be raised even higher now that CHS Inc. has also entered the E15 game. In late August, the energy, grains and food company, which is also a top farmer-owned cooperative, introduced its Cenex Tank Program, an effort to meet consumer demand for E15. The program will pay for a significant portion of the cost to install an additional storage tank for the purpose of selling E15 at any of the 1,400 Cenex-branded convenience stores that desire to do so.

    ?We value our partnership with Cenex retailers and will continue to assist them in their efforts to meet consumer demand for ethanol blends,? said Doug Dorfman, vice president of refined fuels for St. Paul, Minn.-based CHS, the parent company of Cenex. ?Supporting ethanol demand also adds value to CHS member owners and farmers.?

    LAND OF 1,000 E15 STATIONS?

    CHS is not the only retailer in Minnesota to support E15. The state is enjoying excellent growth in terms of E15 stations, led in large part by the Minnesota Service Station & Convenience Store Association (MSSA) and its executive director Lance Klatt. Currently, nine gas stations offer E15 in the Land of 1,000 Lakes, with many more expected in the coming months.

    MSSA created its own fuel brand called Minnoco (Minnesota Independent Oil Co.) three years ago. Klatt stressed that his organization has no intention of ?picking on? major oil companies, but MSSA supports the opportunity for retailers to sell whatever fuel they wish.

    ?We?re hoping within the next five years to have 100 Minnoco locations,? he said. ?And we are not afraid to venture outside the state of Minnesota. We?ve had inquiries from retailers in Wisconsin already.?

    Six Minnesota gas stations carry Minnoco as their fuel brand, with four selling E15 at the pump. According to Klatt, 19 more stations will soon offer E15 in the Minneapolis-St. Paul area, bringing the total to 23 retailers offering E15 in the Twin Cities.

    Three of the four Minnoco c-store and gas station operators currently selling E15 joined CSNews for an in-person interview. All three retailers ? mechanics by trade ? stressed that E15 does not cause any engine issues and said the alternative fuel is selling well.

    Richard Bohnen became the first Minnoco dealer to offer both E15 and E30 at the pump when he added it to his south Minneapolis store in October 2013. The former Mobil operator said customer response to alternative fuels has been ?very positive? thus far. He sells E15 for 15 cents cheaper than E10, which is considered traditional petroleum under the blend wall.

    ?The perfection of fuel injection makes E15 and higher [ethanol] blends that much easier to utilize,? Bohnen said. ?We have yet to receive any consumer complaints about our alternative fuels.?

    Bohnen believes he has an advantage because he sells E15. ?A lot of my customers are excited about the fact they can buy a cleaner, cheaper and renewable fuel,? he said. ?That gives me a leg up. I offer a product that nobody else does.?

    Joel Hennen, third-generation operator of Hennen?s Auto Service in Shakopee, Minn., is a former Shell-branded operator who currently sells eight different fuels, including E15 and E30, making the possibility of misfueling much higher. ?Anyone wanting a misfueling nightmare should come to my [location],? he joked. ?[But seriously], in the past nine months, we?ve had zero misfueling issues.?

    Jerry Charmoli, also a former Mobil-branded operator and a 45-year veteran of the retail business, took Bohnen?s comments a step further by stating that E15 is a great thing for the local community because of the choices it provides consumers, as well as the environmental benefits ethanol provides. He acknowledged that many consumers who visit his Coon Rapids, Minn., Minnoco location are unaware that traditional petroleum already contains 10-percent ethanol, but education can go a long way to solving that problem.

    ?E15 has been selling very well at my store,? Charmoli said. ?It?s really fun working with customers to let them know the fuel choices they now have.?

    Bohnen also sees education as the biggest roadblock standing in the way of E15?s success. ?The most common question we get about E15 is: ?Will it work in my car??? he said. ?It would be nice if customers knew that. Education will be the biggest hurdle we have to overcome.?

    FUTURE GROWTH

    Considering E15 is only available in about one-fourth of the states and the alternative fuel is sold at just 91 of the total 126,658 convenience stores selling fuel nationwide, it?s fair to say E15 has plenty of room for growth. Although a majority of E15 stations are currently in the Midwest, this fact is about to quickly change, relayed O?Brien of Growth Energy.

    ?Most of our conversations and interest is coming from outside the Midwest,? he revealed. ?You will see E15 sold in a wide geography of the country conservatively in the next year.?

    In fact, Protec Fuel on Sept. 2 announced it will team with fuel retailers to offer E15 in a multi-phase rollout at 28 locations in Atlanta, Houston, San Antonio, Florida and Virginia. Some retailers in these locales will sell E15 as early as this month, with the rest coming online during the remainder of the fourth quarter and first quarter of 2015.

    ?Because of the success of our retailers who have offered E85 in the past, our retail customers are asking us for E15,? said Todd Garner, CEO of Protec Fuel, an ethanol blends provider and ethanol blends station installer.

    Zarco USA?s Zaremba certainly believes E15 is ready to take off, and he is quite pleased many other c-store retailers have followed his lead.

    ?It?s always great to do what you believe is the right thing to do and have others come on board,? he said. ?But it?s always hard work making progress when you are going up against an established [petroleum] industry that has been around 100 years.?

    Although the growth opportunities for E15 are tremendous, challenges do lie ahead. None of the six states that currently disallow E15 have specifically announced they are opposed to the fuel, but laws would need to be changed in most circumstances. Altering any law is a lengthy process and could face opposition from groups such as API and AAA.

    Hence, E15 still faces challenges in Arizona, California, Delaware, Hawaii, Nevada and New York moving forward. But considering it?s only been two years since the EPA approved E15, progress is solid in terms of both the number of stations offering the fuel and the number of states allowing its sale, with the potential for a much stronger future.

    O?Brien can see a day when E15 is considered the standard mid-grade fuel offered at the pump, as opposed to being characterized as an alternative fuel.

    ?There are two types of retailers: those who currently sell E15 and those who will be selling E15,? he concluded. ?The economics prove it. Consumers want cheap gasoline and E15 sells, on average, for 10 cents less than traditional petroleum.?

    By Brian Berk, Convenience Store News
    • About Brian Berk Brian Berk is managing editor of Stagnito Business Information's Convenience Store News and Convenience Store News for the Single Store Owner, where he specializes in covering motor fuels, technology and financial news. He has served the magazine industry for 14 years and has also worked in the radio and newspaper fields. Berk holds a bachelor's degree in communications from the State University of New York at Cortland and a master's degree in journalism from Quinnipiac University in Hamden, Conn.

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