Why E85 is the cheapest gas at the pump
Ilya Protopopov stopped at a U-Stop station in Lincoln, Neb., on his way to the track to fuel up his truck and a few dirt bikes. His fuel of choice, 91 octane unleaded, was selling for $4.01 per gallon.
“I used to complain about $1.50 gas, now it’s over $4,” Protopopov said. “Pretty steep.”
But on the same pump there was another fuel selling for under $3. E85 was going for $2.53.
E85 is a blend of gasoline and 85 percent ethanol, which is mostly made from Midwestern corn. Especially in big corn states like Nebraska, Iowa and Illinois, E85 prices are the lowest at the pump. According to the crowdsourcing site E85Prices.com, E85 averages $2.86 per gallon across the country.
The catch is, it only works in flex-fuel cars and trucks. Protopopov’s truck and motorcycles would not run on E85. But Mark Whitehead, whose company runs a chain of U-Stop gas stations, says enough of his customers’ cars can that he has already seen a difference in sales since prices fell earlier this summer.
“In first quarter this year we were at almost 4 percent of total sales – were E85,” Whitehead said. “Currently, we are at about 5.5 percent of our total product sales, which is about a 50 percent jump.”
That’s the kind of trend oil companies need to see nationwide. E85 prices are down, not because oil companies want to sell more ethanol, but because they have to.
The oil companies are in a bind. People are driving less and using less gas, but a federal mandate, called the Renewable Fuel Standard, requires the companies use more ethanol.
Most gas is already 10 percent ethanol, or E10, and auto manufacturers say that’s as much as most cars should use. That’s why, according to API, Americans only use enough gas to consume 13.3 billion gallons of ethanol, about 10 percent of the fuel supply. But this year the RFS requires oil companies to use 13.8 billion gallons of corn-based ethanol, and that number is scheduled to keep rising.
That has many in the oil industry fuming.
“It’s an unrealistic mandate to blend more ethanol than can be used safely,” said Bob Greco of the American Petroleum Institute (API). “It’s not a problem with the ethanol itself. It’s an issue with the mandate.”
To meet their annual quota, oil companies have to buy credits from companies that sell E85. Between the cost of those credits and the cost of installing E85 gas pumps, Greco says any discount for E85 means everyone else pays a little more.
What oil companies would really like is a drop in the mandate, something the Environmental Protection Agency says it will consider next year. But Geoff Cooper of the Renewable Fuels Association says the mandate was designed to put pressure on oil companies to use more ethanol, encouraging market growth for a renewable fuel produced in the U.S.
“That’s exactly how this program was intended to work and drive demand for these higher ethanol blends,” Cooper said.
It remains to be seen whether E85 is a long term answer. It takes the right car at the right place at the right price. But that’s not always easy to find.
“There’s about 120,000 retail gas stations in the country,” said Darrel Good, an ag economist at the University of Illinois. “Somewhere around 3,000 of those can dispense E85.”
He says there are only about 15 million flex fuel cars and trucks on the road, 5-6 percent of all the vehicles in the U.S. Still, that small fraction of vehicles could use more than 4 billion gallons of E85, which is more than enough to help oil companies meet the government mandate.
To sell more, though, the price of E85 has to make up for a loss in miles per gallon. Mileage varies, but a gallon of E85 contains about 20 percent less energy than a gallon of gas.
At the U-Stop store in Lincoln, all of the pieces came together for Scott Croner, who pulled in to fill up his flex-fuel SUV.
“I’m going to put in E85,” Croner said. “As you can see, it’s almost a dollar a gallon less, so over 20 gallons you can do the math. It’s a significant savings.”
Like it or not, oil companies need that math to work in their favor.