The E.P.A. will begin the process of allowing sales of E-15 gasoline year-round. Although the waiver will increase ethanol more significantly in the long term, short term demand impacts will be limited by investment requirements and consumer preferences. As a result, ESAI Energy forecasts a high of just 60,000 b/d of additional E-15 sales by 2020, or just 10,000 b/d of additional ethanol blending.
E-15 Won’t Disrupt Near-Term Gasoline Markets
President Trump announced Tuesday that he had instructed the E.P.A. to begin the process of allowing year-round sales of E-15 gasoline. Similar to E-10, E-15 gasoline requires a wavier during the summer months due to tightened RVP and other specifications.
In May, we wrote that we expected the E.P.A. to grant the waiver, but that the timing was uncertain. ESAI Energy continues to believe that E-15 supply and demand will grow slowly despite the waiver. Unless the rule making eliminates additional misfuelling mitigation steps that are currently required, fuel sellers will have to make investments in pump and storage infrastructure as well as sort out labelling issues in order to sell E-15.
Most stations will have to make some investment. Currently there are roughly 1,400 fueling stations equipped to sell E-15 gasoline, out of 106,000 stations nationwide. So even if the rule is fast tracked and ready for next summer, which is not guaranteed, E-15 sales will be limited by a lack of investment through 2019 and 2020.At the same time, consumer preferences will also hinder growth in E-15 consumption. With options to purchase both the traditional E-10 or an E-15 grade, ESAI Energy expects that many consumers will be reluctant to switch initially.
Given the obstacles for a rapid increase in E-15 sales, ESAI Energy continues to forecast just 60,000 b/d of sales growth by 2020. This growth rate is based upon the assumption that the number of stations selling E-15 nationwide will roughly double from current levels, which may be overly optimistic. In terms of the additional ethanol in the gasoline pool, this increase would only equate to roughly 10,000 b/d. If the number of stations selling E15 increased roughly eight-fold by 2020 to 10,000, E-15 demand could rise to nearly 450,000 b/d. However, even at this significant level of growth, ethanol would replace just 60,000 b/d of petroleum-based gasoline in 2020.
While the introduction of year-round E-15 will not immediately have a significant impact on petroleum-based gasoline supply, one potentially significant effect of higher ethanol ratios is on the market for other high-octane, low-sulfur blending components such as alkylate, particularly during the summer. Since alkylate is an expensive, octane-boosting blending component, used more heavily during the summer months due to RVP requirements, blenders could look to replace some alkylate volumes with ethanol, thereby reducing the cost of their gasoline blend.