Big Oil's Stall on Ethanol - 9/28/07

In a recent BusinessWeek article, much light is shed on the growing tension between Big Oil and its critics. The Consumer Federation of America published a report called "Big Oil's War on Ethanol," wherein author Mark Cooper suggested big oil "perceives the growth of biofuels as an independent, competitive threat to its market power." This perception is unlikely to fade anytime soon and, at the same time, the Big Oil industry continues to be rewarded for its minimal involvement with ethanol. Through subsidies created by Congress to encourage a larger ethanol market, Big Oil collects $.51 for every gallon of ethanol it mixes with gasoline and sells as E10. This injustice infuriates the pro-ethanol groups who worked so hard to secure the subsidies, including the NEVC and the auto industry, which has proudly put more than 5 million flex-fuel vehicles on the road and pledged that half of its new-vehicle sales will be flex fuel by 2012. However, GM, Ford and Chrysler must await bigger commitments of E85 pumps before doing so.

Without suprise, Big Oil has even gone so far as to utilize their abundant ethanol subsidies for implementing campaigns against ethanol. A study released in June by the American Petroleum Institute falsely concluded that "consumers will be 'losers' in the runup to Congress' target of 35 billion gallons of biofuel by 2017 because they will have to pay so much more for food as corn prises rise to meet ethanol demand." The study contains flaws, much like the often referenced 2005 paper by Cornell University falsely concluding ethanol takes 29 percent more energy to produce than it supplies, which uses old data and overestimates corn farm energy use by 34 percent.

Clearly, most oil companies see ethanol as being too inconvenient for them to integrate in their operations, since it does require separate pumps, trucks and storage tanks. Their opposition to installing E85 pumps goes so far in some cases to barring even their branded independents from buying fuel from anyone except them. Some aren't forbidden from buying fuel through outside sources and carrying E85, but the costs they must incure to meet the gas suppliers' restrictions are so high they might have to spend as much as $200,000 to install a separate E85 pump. This helps explain why, of the 179,000 pumps at U.S. fuel stations, less than 1 percent (about 1,300 stations) are able to affordably carry E85.

To view this article in its entirety, go to: http://www.businessweek.com/magazine/content/07_40/b4052052.htm?chan=top+new

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