Jan 7, 2009

With cheaper gas, less mileage, E85 ethanol loses 'green' appeal

In July, Florida Gov. Charlie Crist announced that the Florida's Turnpike Turkey Lake Service Plaza gas station, just north of Interstate 4, was the first in Central Florida to offer E85 ethanol for sale to the motoring public.

"The rising cost of gasoline is affecting Floridians' driving decisions, so it makes sense for us to offer a viable alternative," Crist said. E85 -- 85 percent alcohol, 15 percent gasoline -- went on sale there at $3.49 a gallon, 15 percent cheaper than the Turkey Lake station was charging for regular gasoline.

On Monday, the station was offering E85 at $1.56 a gallon, a few cents cheaper than Orlando's average of $1.63 for regular fuel.

But in 30 minutes of watching the pair of E85 pumps on the northbound and southbound sides of the Turkey Lake plaza one day last week, we saw just one E85 customer: a Florida Department of Transportation squad car based at the plaza.

At this point, Florida has no ethanol plants. Of the 1,921 stations in the United States that sell E85, Florida has 10 -- and two of those are closed to the public.

Ethanol, mostly made in the corn-producing Midwest states, has had to drop its price to compete with gasoline, though the price to manufacture ethanol hasn't dropped substantially. But companies such as VeraSun signed long-term contracts with some corn producers to buy corn at as much as $6 a bushel, which did not seem bad when corn topped out at $7.75 a bushel in June. When corn prices dropped to about $3.35 a bushel in the fall, VeraSun was stuck paying nearly double the going rate.

That's when the second crisis kicked in: The financing crunch meant that it was suddenly difficult and expensive, if not impossible, to get loans that would tide ethanol producers over until its market rebounds.

Like most ethanol producers, VeraSun, established in 2001, is a young company and doesn't have its own cash reserve to cope with the downturn.

Florida stands firm

Even so, Florida is doing its part to keep the ethanol industry going with its mandate to add 10 percent ethanol to every gallon of gasoline.

The requirement doesn't kick in until 2010, but oil companies have pushed ahead with E10, most notably in Central Florida, in part because of a renovated ethanol-capable pipeline that runs from the Port of Tampa to Orlando.
More than 500,000 vehicles in Florida have "flex-fuel" capability -- meaning they were built with a fuel system that can use gasoline or E85 -- but the vast majority of owners appear to be choosing gas.

"E85 has completely fallen off the radar," said Gregg Laskoski, managing director of public relations for the Tampa-based AAA South. When gasoline prices spiked in July, "we were hearing a lot about how it was a viable alternative. Now there's no buzz at all."

So what went wrong?

Two things, mostly: With the drop in gasoline prices, E85 is less of a bargain than ever. The Web site E85prices.com said last week that the national average for a gallon of gasoline was $1.61, while the average gallon of E85 cost $1.64.

And because the energy content of E85 is lower than that of gasoline, most "flex-fuel" vehicles that can use either gasoline or E85 get 20 percent to 25 percent worse fuel mileage on E85 than on gasoline. The flex-fuel 2009 Ford F-150, for example, is EPA rated at 12 miles per gallon overall on E85, 16 on gasoline.

AAA's online pricing service, fuelgaugereport.com, monitors the average pump price of E85 but adds 25 percent to that figure to give consumers a more accurate idea of what they are getting for their money, calling it the "adjusted price."

Realities pinch producers

With faltering demand, at least six ethanol manufacturers, including South Dakota-based VeraSun, the country's second-largest ethanol producer, have declared bankruptcy.

And plans by U.S. EnviroFuels, based in the Tampa suburb of Riverview, to build an $80 million ethanol-producing plant in Port Manatee and a $100 million plant at the Port of Tampa have been canceled.

The E10 rule was part of a state energy bill signed into law by Crist, which includes $6.5 million in annual investment tax breaks for biofuels. Crist also supports rollback of the 54 cents-per-gallon federal tariff on importing ethanol from Brazil.

The state Department of Agriculture says adding 10 percent ethanol is good for the environment because it will reduce gasoline consumption in Florida by 870 million gallons a year -- a tenth of 8.7 billion gallons used by Florida drivers, the third-highest total in the United States.

There is also a federal tax break on ethanol that pays the petroleum industry a bit more than 5 cents per gallon of ethanol sold.

For customers who simply want to make a statement against foreign oil, using E85 makes sense. For everyone else, though, the future of ethanol is impossible to predict.

Right now, though, it looks a little bleak.

Orlando Sentinel Automotive Editor Steven Cole Smith can be reached at scsmith@orlandosentinel.com, 407-420-5699 or through his blog at Enginehead.com.

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