October 31, 2011
BY Susanne Retka Schill
Interesting article turned up this week from Australia, showing just what could happen with no RFS or mandate. The Courier-Mail reported “Queensland motorists dudded as fuel retailers pull ethanol blend petrol from service stations.”
Coles Express, a major retailer in the area, withdrew ethanol blends, following the lead of Shell, BP and Caltex. Now, this isn’t E85 or blender pumps, but plain old “E10 bowsers.” (Love these Aussie stories, they’re full of fun words – dudded, bowsers.) The article talks about how motorists will get hit with higher prices, since E10 is several cents cheaper than standard unleaded fuel. Oil companies were blaming insufficient demand and ethanol supply problems. The article quotes federal MP Bob Katter as saying it was about petrol profits. “The problem, the oil companies don’t want it and don’t have to use it unless it is mandated. They’re having a picnic and want to keep on having a picnic.” Turns out, retailers got $7 million to help make the transition to ethanol blends, but then Queensland dropped plans to mandate ethanol use, so bye bye ethanol blending infrastructure.
Queensland, apparently, is still in the chicken and the egg stage. Which comes first, supply and availability or demand and use? Mandates play a role in helping a newcomer break into what is essentially an oil cartel. Gasoline supplies are in the hands of relatively few players who would understandably not want to use a competing fuel – unless they had to. Although one story most likely does not fully describe all the complex factors playing into the situation, this Australian story suggests what can happen if a mandate goes away – so does the blending infrastructure.
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The story could serve as ammunition for those in the U.S. concerned about defending the RFS against attempts to dismantle or weaken it. Another bit of ammo might be that the corn market took off over $1 recently – so where’s the tight cause and effect? Yes, ethanol is playing a role in keeping strong ethanol prices, but ethanol use and production didn’t change significantly. There’s a whole host of factors involved in those high corn prices – nonetheleast the “noncommercial traders” who’ve moved into commodities looking for money-making opportunities. (I wonder what words Aussies use for speculator. I would hope not a spineless euphemism as has happened here.)
We have an interview in the December issue, in production now, that does suggest the situation for Big Oil isn’t quite as simple as often thought. While the suspicion is that the major oil companies are behind the efforts to do in the RFS, they also have invested big bucks into advanced biofuels. The executive in charge of one major’s biofuel division points out their investment will be negated if the requirement for using advanced biofuels goes away.
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