Fuel of the Future?

The Fuels Institute shines a spotlight on the growth of the biofuels market.

Fuel of the Future?

October 2019   minute read

For more than a decade, the focus on reducing U.S. reliance on petroleum products has centered around increasing biofuels in the marketplace. And these efforts have been successful: Since 2008, the year following expansion of the Renewable Fuel Standard (RFS) by Congress, consumption has increased more than 500% for biodiesel and nearly 50% for ethanol.

Biofuels, specifically ethanol and biodiesel, provide a great opportunity for convenience retailers to diversify their fueling offer—a hot topic at this year’s NACS Show and at the FUELS2019 conference that took place in May.

Global Outlook

In May, Dr. Tristan Brown, assistant professor of energy resource economics at SUNY College of Environmental Science and Forestry, shared with FUELS2019 attendees preliminary results of research he is conducting for the Fuels Institute on the biomass-based diesel and biodiesel markets, as well as demand and availability of feedstocks.

Biodiesel production has quadrupled in the United States since 2009, but there is a disconnect between where it’s produced—the PADD 2 and PADD 3 (Midwest and Gulf regions, respectively)—and where it’s consumed—PADD 1 and PADD 5 (Northeast and Western regions, respectively), which are home to the most demand. Feedstocks have largely kept pace with biodiesel production, he added, with slightly more than half coming from soybean oil.

Despite the dominance of liquid petroleum fuels, alternatives are gaining not just attention but also market share.

The biggest challenge biodiesel could face is infrastructure and downstream logistics, Brown said, noting that most biodiesel is transported by truck, which is cost prohibitive and a non-sustainable option over time. This raises a few questions for the biodiesel market’s future: How much biodiesel can the U.S. transport into other PADD regions, and can biodiesel move by rail or pipeline and become less reliant on trucking?

Ethanol also has experienced growth. Mario Lopez, a reporter at Argus Media, noted the U.S. saw record ethanol blending and exports in 2018. Steady ethanol production has remained even as margins continue to fall, and blending rates have been steady despite small refinery exemptions.

Key influences on the ethanol market’s future could transpire in the regulatory environment, Lopez suggested, particularly with RFS volume obligations, low carbon fuel standard policies percolating in more states outside of California, and the Environmental Protection Agency’s proposed (at the time of his presentation, the rule had not been finalized) rulemaking that combines a one-pound (psi) Reid vapor pressure (RVP) waiver for higher ethanol blends, such as E15, with reforms to the Renewable Identification Number (RIN) market.

Industry Insight

At FUELS2019, John Eichberger, executive director of the Fuels Institute, led an interactive discussion about the biofuels market with:

  • Chris Bliley, vice president of regulatory affairs at Growth Energy
  • David Cox, director of operations at Coalition for Renewable Natural Gas
  • Scott Fenwick, technical director at National Biodiesel Board
  • Ken Kleemeier, vice president of fuels at Kum & Go
  • Geoff Moody, vice president of government relations at American Fuel & Petrochemical Manufacturers

Biofuels Defined

Per the U.S. Energy Information Administration (EIA), nearly all gasoline sold in the United States is about 10% ethanol by volume (E10). Any gasoline-powered engine in the U.S. can use E10. A flexible-fuel vehicle can use gasoline with ethanol content greater than 10%. In October 2010, EPA ruled that cars and light trucks of model year 2001 and newer can use E15 (gasoline with 15% ethanol). E85 (gasoline with 51%-83% ethanol) can only be used in a flexible-fuel vehicle.

Biodiesel is a fuel made from vegetable oils, fats or greases, such as recycled restaurant grease, per the EIA. Pure biodiesel is non-toxic, biodegradable and produces lower levels of most air pollutants than petroleum-based diesel fuel, and biodiesel is usually sold as a blend of biodiesel and petroleum-based diesel fuel. Fuels composed of up to 5% biodiesel are regulated as petroleum-based diesel fuel and require no additional notifications of biodiesel content. A common blend of diesel fuel is B20 (20% biodiesel).

With statutory provisions of the RFS ending in 2022, a few of these panelists pointed out there are misperceptions that the RFS is going to expire. Instead, EPA will reset renewable fuel volumes up to 2022 and work to set volumes after 2022. For retailers that decide to incorporate higher ethanol blends such as E15 into their fueling offer, Kleemeier suggested that the uncertainty surrounding the future of the RFS poses long-term challenges for retailers that are investing in new equipment and new store builds today. He also noted that the regulatory limitation that had been in place preventing the sale of E15 year-round dissuaded many other retailers from even pursuing the fuel.

Fleet Diversification

UPS is heavily investing in alternative fueling solutions. Mike Casteel, UPS director of fleet procurement, shared at FUELS2019 the company’s agreement with Clean Energy Fuels Corp. to purchase 170 million gallon equivalents of renewable natural gas (RNG) through 2026 and reduce greenhouse gas (GHG) emissions by more than one million metric tons, a significant investment for UPS’s diverse fleet of 80,000 compressed natural gas, hybrid electric, battery electric, liquified natural gas, hydraulic hybrid, composite diesel, ethanol and propane delivery trucks and vehicles.

“When it comes down to it, there has to be a return on investment,” said Casteel, noting that sustainability is also an important consideration from an environmental and economic standpoint.

UPS has used more than 28 million gallons of RNG in its ground fleet since 2014, and RNG is a key part of the company’s strategy to increase alternative fuel consumption to hit 40% of total ground fuel purchases by 2025, supporting efforts to reduce its ground fleet’s GHG emissions by 12% by 2025.

Biofuels, specifically ethanol and biodiesel, provide a great opportunity for convenience retailers to diversify their fueling offer.

“Since RNG is supported by existing national infrastructure used to transport natural gas, it’s a winning solution that will help UPS to reach our ambitious sustainability goals. At the same time, we hope our unprecedented seven-year commitment [with Clean Energy] serves as a catalyst for wider adoption of RNG by other companies,” Casteel said.

Investing in natural gas has been successful for UPS. Casteel noted the truck performance is positive, with the costs to maintain these vehicles in line with diesel-powered trucks. For rural routes, UPS relies heavily on propane, which Casteel admits hasn’t taken off as a viable alternative fueling source like it could, given its low emissions profile and lower energy content.

“We can be a trendsetter,” said Casteel when it comes to adopting alternative fuel and energy sources and reducing the environmental impact, which is also positive for the UPS brand.

Amid the long-term lack of clarity around the RFS and low carbon fuel standards, Casteel said that UPS will continue to invest, and that its investment in so many different types of alternative vehicle technologies is a strong indicator that all types of cleaner fueling options have a place in the market.

EPA’s Final Rule

The EPA released its final rule in June to allow gasoline blended with up to 15% ethanol (E15) to receive a year-round 1 psi Reid vapor pressure (RVP) waiver during the summer months. Prior to the rule, E15 could not be sold in some regions of the United States from June 1 to September 15, an obstacle for retailers selling E15 or considering selling the higher ethanol blend.

EPA also made changes to the Renewable Identification Number (RIN) compliance system, with the final rule requiring public disclosure when RIN holdings exceed specified thresholds and additional collection of data to improve market transparency and enhance EPA oversight.

Bright Future

Despite the dominance of liquid petroleum fuels, alternatives are gaining not just attention but also market share. The U.S. Department of Transportation’s Transportation Statistics Report 2018 highlights numerous trends that suggest the transportation energy market will be much more diverse in the coming decades. Here are highlights from the report:

  • The efficiency of transportation energy use continues to increase.
  • Improvements to light-duty vehicle fuel economy saved about 1.7 trillion gallons of gasoline from 1975 to 2017.
  • Driven by renewable fuels requirements, biofuel in the form of ethanol blended up to 10% by volume with nearly all gasoline sold in the U.S. increased from 0.13 quads in 2000 to 1.04 quads in 2010 and 1.15 quads in 2017.

The government report notes that although petroleum remains the predominant source of energy for transportation in the U.S., the use of biofuels, natural gas and electricity has increased.