Rising Gas Prices Could Boost Sales of Cheaper Ethanol Blends

-by Margery Beck of the Associated Press

More motorists may soon be trying ethanol-blended fuel - not because of their concerns about the environment, but because of concerns over their wallets.

Ethanol industry leaders say the recent sharp rise in gasoline prices could prove to be a boon for ethanol-blend gasoline, which is as much as 5-cents-per-gallon cheaper than regular gas at pumps around the Midwest.

"It's true that the economy of ethanol makes it more attractive to consumers financially than straight gasoline," said Ron Lamberty, market development director of the American Coalition for Ethanol in Sioux Falls, South Dakota. "If there's an upside to higher gas prices, I guess that's it."

In the competitive market around Omaha, some gas stations offer E-10 gas - 90 percent gasoline blended with 10 percent ethanol - at prices 4 cents a gallon cheaper than regular.

One of those is the Fantasy's station in Papillion, where a gallon of E-10 sold Monday for $1.64, compared with $1.68 for a gallon of regular blend gas.

While motorists haven't exactly abandoned conventional gasoline, sales of E-10 "might have jumped a little bit," said station manager Lorrie Randels.

"Most people who buy unleaded are die-hard unleaded fans who want nothing to do with ethanol," Randels said. "Then you have those who just want the cheapest gas they can get."

One reason there may not have been a drastic spike in E-10 sales at Fantasy's is that the alcohol-blended fuel is already the station's top seller, Randels said. But if gas prices continue to climb, Randels expects to see even more people switching to the cheaper ethanol blend.

Todd Sneller, administrator of the Nebraska Ethanol Board, said gasoline blended with ethanol - made mostly from corn - holds 55 percent of the fuel market in Nebraska. It hovers around 30 percent nationally.

There are several reasons ethanol-blended gas can be offered cheaper than regular gasoline, Sneller noted. One is that the industry is aided by a federal tax break that cuts 51 cents from the sale of each gallon of ethanol - or 5.1 cents from every gallon of gasoline containing 10 percent ethanol.

Several ethanol-producing states, such as Iowa, South Dakota and Idaho, also offer state incentives that range from 1 cent to nearly 3 cents per gallon of ethanol fuel. Those savings are often passed on to consumers in corn-producing states, Sneller noted.

Ethanol's profile has exploded nationally in recent years, thanks to recent bans of the additive's largest competitor, petroleum-based fuel additive methyl tertiary butyl ether - or MTBE, which was found to pollute ground water.

That opened up once-nonexistent markets on the West Coast and in the Northeast, where the density of vehicles makes a clean-air fuel additive like ethanol a necessity.

Subsequently, ethanol production jumped from 2.13 billion gallons in 2001 to 2.81 billion gallons last year, with 535 million gallons of that coming from Nebraska. Production is expected to reach 3.5 billion gallons this year, industry leader say.

"We're literally seeing unprecedented demand for ethanol," Sneller said. "Ethanol producers are selling every gallon they make."

Coastal retailers, however, have not generally passed on the savings they get from selling ethanol-blended fuel to consumers, Sneller said. It's not unusual to see California stations selling ethanol blends for as much as 10 cents more a gallon than regular.

The reason is that ethanol-blended fuels have a higher octane - 89 - than regular unleaded gas, allowing retailers to market it as a higher quality product.

But with gas prices threatening to break the $2-a-gallon average this summer, even some of those markets could change their ways, Lamberty said.

"I wouldn't rule out the coasts," he said, explaining that retailers there could pass on the tax breaks they get on ethanol-blended fuel to try to draw customers from competitors.

If gasoline prices climb high enough, even those reluctant to try ethanol-blended gas might be willing to give it a try to save some money, Lamberty said.

"That's exactly what we're hoping for," he said. "People are creatures of habit, and ethanol is a good product. If they try it, they'll keep buying it."

-by Margery Beck of the Associated Press More motorists may soon be trying ethanol-blended fuel - not because of their concerns about the environment, but because of concerns over their wallets.

-by Margery Beck of the Associated Press

More motorists may soon be trying ethanol-blended fuel - not because of their concerns about the environment, but because of concerns over their wallets.