Blender pumps may hold the key to ethanol’s market future, and a new heavy-hitting partnership is taking action to unlock the possibility of more ethanol blends at more of America’s gas stations.

The American Coalition for Ethanol, the Renewable Fuels Association, the National Corn Growers Association, and leading state corn grower groups are teaming up to launch an unprecedented national effort to multiply the number of ethanol blender pumps across the country.

“We’re excited to announce the launch of this program that will dramatically change the landscape of ethanol marketing,” said Ron Lamberty, ACE’s Vice President / Market Development. “It’s a win-win-win proposal – ethanol producers get access to a larger part of the gasoline market, consumers get the choices they deserve at the pump, and station owners get product flexibility and cost-effective new equipment. In a few years’ time, ethanol’s marketplace will be greatly expanded.”

The “Blend Your Own” program – pronounced “bio” but with a whole new meaning – will offer a single source of ethanol information, technical expertise, and will serve as a clearinghouse for renewable fuels infrastructure incentives. The million program will operate over the course of three years, with the goal of establishing 5,000 new blender pump locations in key areas of the country.

The partnership

The partnership behind this program brings together the ethanol industry’s best expertise and the corn industry’s desire to support the expansion of blender pumps as a market development tool for their growers’ products.

“It seemed only natural to work with the American Coalition for Ethanol on this campaign, bringing all the ethanol industry expertise on blender pumps into one combined effort,” said the Renewable Fuels Association’s Robert White. “By working together, ACE, RFA, and America’s corn growers can greatly expand the reach of blender pumps and increase the use of ethanol, two issues vital to this industry’s future.”

White serves as Director of Market Development for RFA, previously working with blender pumps and associated programs for the Ethanol Promotion and Information Council (EPIC) and with E85 at the National Ethanol Vehicle Coalition.

Ron Lamberty has led ACE’s market development program since 2000, now in its tenth year of working with petroleum marketers to explain ethanol’s blending economics and how ethanol can bring opportunities to their business. A gas station owner himself, Lamberty has 29 years experience in the petroleum business.

“In today’s economic climate, working together and avoiding duplication of efforts are more important than ever,” said Brian Jennings, Executive Vice President of ACE. “This partnership between ACE, RFA, and corn growers represents a smart leveraging of resources to get the job done of tapping into critically important new markets for ethanol.”

The ACE/RFA proposal was presented before a coalition of state corn groups that had a desire to see a national program for the expansion of ethanol infrastructure. Having done a program previously with EPIC to install blender pumps at stations in South Dakota, the South Dakota Corn Utilization Council (SDCUC) was approached by other states and asked for advice on how to make blender pumps a more national priority.

“South Dakota led the nation by pioneering the first state blender pump program, and its remarkable success quickly caught the attention of other states desiring to create similar infrastructure for mid-level blends of ethanol,” said Lisa Richardson, SDCUC Executive Director. “In visiting with my counterparts in other states, it became clear that demand for a national blender pump program has arrived, and the collaboration of groups and resources has been extraordinary.”

Richardson believes that the right people have come to the table to lead the effort.

“We couldn’t be more excited about two ethanol groups working together to make a difference nationwide by providing choices for consumers at the pump with mid-level blends of ethanol,” Richardson said. “With a partnership between two leaders with tremendous track records of success for the ethanol industry, the American Coalition for Ethanol and Renewable Fuels Association along with the support from the corn industry will undoubtedly drive the National Blender Pump program forward to reach its goal.”

Two proposals were heard at a meeting of state corn grower groups in Minneapolis in mid-May. The group liked the ACE/RFA proposal, and since then five states have committed to the partnership behind this national blender pump program.

The boards of the South Dakota Corn Utilization Council, the Iowa Corn Promotion Board, the Nebraska Corn Board, the Kentucky Corn Growers Association , and the Kansas Corn Commission have voted to put forward funding for the program. The National Corn Growers Association has done so as well . As of press time, several more states have board meetings scheduled soon that will include consideration of the idea.

“The Kentucky Corn Growers Association has realized the necessity of advancing the corn-based ethanol industry in our state for many years, and participation in the blender pump program is the logical next step,” said Philip McCoun, KyCGA president and farmer from Shelbyville, Kentucky. “In the last year, retail outlets providing E85 in the state have doubled, so we believe the momentum is strong for the success of this program.”

The program

This is the right time for a national campaign for blender pumps for a number of reasons. The Renewable Fuels Standard is changing the way Americans will fuel their vehicles, increasing the amount of biofuels that will be consumed nationwide, and as a result, increasing the amount of biofuels blended into each gallon of gasoline. This process is beginning as the U.S. Environmental Protection Agency considers approving an E15 blend for all vehicles.

In addition, petroleum marketers are being faced with new Payment Card Industry regulations that may result in them putting in new PCI-compliant pumps before the July 2010 deadline. Government incentives exist to cover new E85 pumps, or the E85 portion of blender pumps. Faced with the possible need to upgrade infrastructure soon, and looking at a future that seems certain to include more ethanol blends, now is the perfect time for a national effort to ask petroleum marketers to look at blender pumps.

The “BYOethanol” program will function as an expanded market development program of the two ethanol groups and as the only one-stop source for all the technical, regulatory, safety, and environmental information petroleum marketers will need about ethanol.

Extensive work at petroleum marketer events and at standalone ethanol educational seminars, plus web presence designed specifically for petroleum marketers, will be key to the campaign’s success.

A flex-fuel infrastructure upgrade program will provide assistance for marketers to receive E85 tax credits and coordinate incentives or discounts with equipment manufacturers. All state blender pump incentive programs will be routed through the central clearinghouse for the convenience of the petroleum marketers the program serves.

“Previous E85 programs gave away a lot of money, but failed to address the station owners’ main concern, which is how they pay for the rest of the pump when only 3 percent of cars can use it and 90 percent of those drivers don’t know they can,” Lamberty said. “Blender pumps sell gas, E10, E85, and any blend in between. Every customer helps pay for the pump, which means a small amount of help from the government, corn growers, and the ethanol industry can make much more progress than all of the money we spent on E85 over the past 15 years.”

Organizers say the program will create a single source of reliable, user-friendly information about ethanol and blender pumps, from experts many petroleum marketers already know and respect. The financial incentives for blender pumps provided through the program are important, but they say the key is making the business case for why retailers should add blender pumps.

“If we present petroleum marketers with the facts about why this is a good business decision – and it is a good business decision – they will consider adding blender pumps to their station,” Lamberty said. “If they consider the financial incentives for the equipment, the ability to give more fuel choices to their customers, plus the ability to blend their own E10 instead of taking pre-priced E10 for their oil industry suppliers, it’s an easy decision. We will be there to explain the facts and to serve as support for any questions they may have.”

White believes that consumer choice is key.

“This campaign is all about choices, both for today and for tomorrow,” he said. “This is not only for retailers, but for consumers alike, helping to increase profit while saving the consumer money, and bringing a new approach to utilizing more ethanol to curb our dependency on foreign oil.”

 

Q&A with Ron Lamberty, ACE Vice President / Market Development

ET: Why is this the right time for a national blender pump program?

RL: Nationally we’ve got a Renewable Fuels Standard that will change the way we fuel our vehicles over the next 15 to 20 years. Right now, though, is the time where we’re transitioning, where we’ve got 10 percent ethanol in nearly all of our gas and we need to go something beyond that.

As Congress and EPA consider allowing us to put 15 percent ethanol in our cars, or maybe 20 or maybe 30 over the next several years, petroleum marketers have got to look at their equipment. One thing to consider is what kind of pump to put in, and it only makes sense to put in a pump that will work with the blends of the future – whether it’s E15, E20, or E30. That’s one of the reasons that blender pumps, and this program, are a good opportunity at the right time.

Another factor in the timing is that retailers are facing compliance with new PCI, or Payment Card Industry, standards for accepting debit cards at the pump. New rules are going into effect next July, and a lot of gas station owners will be looking at putting in new pumps that are PCI compliant.

At the same time that these two things are happening – these fuel changes and these credit card rule changes – you’ve also got federal dollars that are available to pay for the flexible fuel part, the E85 part, of the pump. There are also state programs and industry incentive programs. So if retailers are looking at upgrading their pumps, now is the time for them to look at blender pumps.

ET: Talk a little more about the PCI compliance issue.

RL: PCI stands for Payment Card Industry. There are some new rules going into effect next July to make using your debit card at a pump more secure, so petroleum marketers are being faced with possibly having to make expensive upgrades to their pumps to become compliant.

About half of the cost of a gas pump is actually the computer part that handles credit cards; the other half is all the piping and other machinery. If retailers are going to have to replace their pumps in the next several months anyway, now is the perfect time for us to say, “Here is an option you should consider.” It may not cost the marketer any more to go ahead and put in a blender pump, plus they get these new options like blending their own E10 and offering more choices to their customers.

So this PCI compliance issue is just another reason that the timing is right. I did one case study where a new pump could be purchased for less than ,000 thanks to a state incentive program, a corn grower program, plus the federal tax credit. It’s our job to go out and make sure they are aware of the math, aware of the numbers, showing them how blender pumps make more sense.

ET: Let’s talk about the partnership behind this blender pump program. How did this partnership come about and why is it significant?

RL: The partnership with the Renewable Fuels Association and the corn growers is a good fit. ACE has worked with petroleum marketers for many years, now in the tenth year of our market development program, and we’ve got some good contacts in that industry. We’ve talked to them about ethanol’s blending economics and the reasons they should consider putting E10 in their gas stations. RFA has concentrated on the technical aspects, issues like vapor pressure and labeling, all kinds of technical and regulatory issues. So instead of either of us trying to reinvent the things that are already out there, we decided that it was in ethanol’s best interest that we work together.

It’s a good fit for us. It’s a good fit for RFA. It gets things done that will sell more ethanol. We can work together to get all the information to the petroleum marketers. And talking to petroleum marketers is the cost-effective way of doing it. If you try and talk to every consumer in America, that’s 300 million people. If you’re talking to petroleum marketers, that’s 160,000 gas stations, a universe that’s still large, but a lot easier to get to than every consumer. It’s a good fit, a good opportunity. We believe it will get a lot of new pumps out there for E85 and mid-range blends.

ET: How should retailers looks at blender pumps differently than they’ve looked at standalone E85 pumps?

RL: In the past you’ve had E85 programs that focus just on E85, just that one fuel. If a petroleum marketer installs a standalone E85 pump, about a ,000 installation, even if you get half of the cost covered by federal incentives it would take something like 10 years to back for the other half if you sold an average amount of E85. That’s not figuring any profit, without figuring interest on the loan. The problem with previous E85 programs was that it was more often about how much money you needed to get from the government or from the corn growers or from the ethanol industry to make it worthwhile to put in the E85 pump. Because your customer base for E85 is only about the 3 percent of the vehicles are the road which are flex-fuel, it’s hard to make the numbers pencil out.

The beauty of the blender pump is that the pump sells E85, but it also sells unleaded, E10, and mid-range blends. The math is much more appealing when you can put in a new pump that’s paid for by not only your E85 customers, but by all your customers because they can all use unleaded and E10. And with blender pumps, you don’t have to replace the tanks, you don’t have to replace the lines, you don’t have to dig up any soil. Blender pumps just make sense, and that’s what this program will help explain to petroleum marketers all across the country.

ET: How does this program differ from previous E85 programs?

RL: Over the years, an attitude has been created among petroleum marketers that they probably shouldn’t put in an E85 pump unless somebody pays them to do it. It’s the saying, “If you give a man a fish he’ll eat for a day, but if you teach him to fish, he’ll eat for the rest of his life.” We’ve been giving people fish, these E85 pumps. People developed the expectation that gas stations should get free ethanol pumps and that consumers should get free or very cheap E85. All the wrong messages were sent.

The message that needs to be sent is that blender pumps present a good business opportunity for station owners. Here’s how you can make money, here is some information about incentives to pay for the installation. Your customers, here are more fuel choices for them. Ethanol is higher octane, it’s cleaner burning, it creates jobs in the United States. This is what needs to be communicated, and this is what our blender pump program will do.

ET: How does “the math” look today for ethanol and for blender pumps?

RL: There are two kinds of math you do with ethanol blender pumps. One is on the pump itself. A standalone E85 pump can only be paid for by 3 percent of your customers, the percentage of vehicles out there that are flex-fuel. But a blender pump lets you blend your own E10 out of your unleaded and your E85, plus a mid-level blend like E30 if you’d like. This allows you to offer more products in the same space for about the same cost. Today, with programs to incentivize the inclusion of E85 on those pumps, it brings the cost down to where it’s actually a bargain. Plus, the pump is paid for by everyone who uses the pump – not just the E85 customers.

The second math is done by the consumer. For a consumer, the math is better now because you’re going to have a number of choices at the pump. If you have a flex fuel vehicle, and you like the performance or the environmental benefits or the fact that your money stays in the United States, you can use E85. If you’re a person who just shops price, you can choose whatever option you like – unleaded or E85 or anything in between. This type of flexibility makes buying a flex fuel vehicle a smart move.

ET: How will you measure success for this national blender pump effort?

RL: We need to sell all the benefits of ethanol, rather than trying to sell it simply by giving big discounts on its price. We need to do a better job of making people understand why ethanol is valuable, why they should buy it. People will look at their own situations – whether it’s a belief in the environmental benefits, wanting to have more jobs here in the United States, or not wanting to send money overseas for oil. People will buy ethanol if they have the choice, but right now there are only 2,000 gas stations that give them the choice. We need to get ethanol out there as a choice, and that’s what this program will do.

We are committed to getting 5,000 blender pumps installed across the country within three years. Frankly, I hope that’s a low number. I’d like to see us do more than that. It really does make sense for a marketer to put in a blender pump, and we hope what we’ll be able to do here is get the word out to as many people as possible. In the past, marketers have shown us that, if we can help them make the business case for it, that will be our best chance for pulling more of our product through the market. I hope we can look back at the number 2,000 in three years and wonder why it took us 13 years to get to 2,000 E85 locations while we got to 5,000 in three years through this program.