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May 1, 2009 | Vol. 59, No. 11

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In This Issue
Dear PEI Member:

We can talk and/or fret all we want about the effects mid-level ethanol blends (E12, E13, E15, E20) might have on legacy petroleum equipment, but that conversation is wasted if the source of ethanol dries up. A new report, issued in April by the Congressional Budget Office (CBO), details the plight of the ethanol industry and suggests that the current economic environment has put all ethanol producers in dire straits.

The profitability of corn-based ethanol sits at the intersection of corn and gasoline prices. Although the relationship between these two commodity prices is highly volatile both season-to-season and year-to-year, the CBO has found that ethanol producers using current technology typically break even when the price of a gallon of gasoline is more than 90 percent of the price of a bushel of corn.

When the ratio breaks 90 percent, the CBO says that ethanol producers bring in enough capital to cover operating costs as well as invest in additional capacity and equipment. But when the ratio drops below 90 percent, the economics of producing corn-based ethanol begin to fall out of favor for producers.

When government subsidies for ethanol are factored in, the break-even ratio drops to 70 percent, says the CBO, providing some cushion for ethanol producers. The U.S. federal government currently provides a 45¢ per gallon subsidy. Nevertheless, the CBO study found that the gasoline-to-corn price ratio has only broken 90 percent once since 1970—in 2005—which illustrates just how reliant the ethanol industry is on government support.

Since hitting the high point in 2005, the ratio has been in a steady freefall. In fact, ethanol producers are currently facing some of their toughest economic conditions to date. On April 28, NYMEX gasoline futures settled at $1.42 per gallon and CBOT corn futures settled at $3.75 per bushel, putting the gasoline-to-corn ratio at a paltry 38 percent. The bankruptcy of ethanol producers such as VeraSun and Aventine over the past six months is testament to the intense pressure this sector is under.

Tough Times for Ethanol Producers

Biodiesel in California

Costco Settles
ATC Suit

In This Issue

PEI and Industry Events »


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U.S. ethanol production hit a record high last year, exceeding the nine billion gallon mark. According to mandates specified in the Energy Independence and Security Act of 2007, gasoline blenders in the U.S. are expected to blend in 15 billion gallons of corn-derived ethanol starting in 2015 and 36 billion gallons of biofuels by 2022, with non-corn based fuels bridging the gap. That’s a tall order, and that’s why the government and the petroleum industry are talking about raising mid-level ethanol blends and making sure the equipment used can safely store, meter and dispense it.

The CBO report drives home a few points I think that we should all consider going forward. First, ethanol producers are in the business to make money. If they can’t, they will go bankrupt and the industry might have trouble producing enough ethanol to meet the required blend levels. Second, any government policy dealing with alternative fuels should keep the economics in mind before mandates are set. And third, government support of the ethanol industry is critical. It must stay in place if the fuel is to continue in the marketplace.

The agenda for the May 5, 2009, California State Water Resources Control Board (SWRCB) meeting includes consideration of a proposed resolution to adopt emergency regulations for biodiesel blends up to B20. The resolution would provide an interim variance (36 months) from third-party material compatibility testing and approval requirements for underground storage tank systems storing biodiesel blends up to B20 in double-walled tanks and piping. Release detection equipment is also included. Click on this link to read the four-page discussion on this subject and the resolution under consideration.

Costco Warehouse Inc., Issaquah, Washington, has agreed to settle its lawsuit concerning the temperature of the fuel it sells in a class-action case in the U.S. District Court for the District of Kansas. Under the agreement, Costco would install temperature compensated dispensers within five years in 14 southern and southwestern states where it sells fuel provided "legally required regulatory approval" of automatic temperature compensation (ATC) is passed by the state(s) where Costco markets.

NATSO, the trade association that represents truck stops and travel plazas, called the litigation "completely without merit, and nothing more than a shakedown by trial lawyers." NACS says that NATSO's comments "are consistent with the NACS position." The petroleum marketing groups cite a California Energy Commission study and a report commissioned by NATSO, PMAA, NACS and SIGMA finding that consumers are not being overcharged for gasoline and diesel fuel, and that requiring ATC equipment will increase costs to consumers.

The National Conference on Weights and Measures will decide to permit, mandate, or not allow ATC at its annual meeting July 12-16, 2009, in San Antonio.

California air regulators have approved the nation's first plan to reduce carbon emissions from transportation fuels. The plan attempts to achieve a 10 percent reduction in motor vehicles' emissions of greenhouse gases by 2020 and spur commercial development of low-carbon fuels like hydrogen, compressed natural gas, electricity and cellulosic ethanol.

The fuel standard is part of California's push to reduce its emissions of greenhouse gases 20 percent below 1990 levels by 2020, as mandated by the state's landmark 2006 climate law, A.B. 32. The rule calls for fuel blenders, refiners and importers to achieve those emission reductions for their entire fuel mix and allows them to buy credits from producers of low-carbon fuel.

Somewhere between 11 and 16 states are considering adopting a low-carbon fuel standard for automobiles by the end of the year, and members of Congress are currently considering a bill that seeks to regulate greenhouse emissions from fuels nationwide. 

J. E. Martin & Associates
moved April 1 to 2002 Lillian Lane, Arlington Heights, Illinois 60004. Phone: (847) 577-7109. Fax: (847) 577-7235.
OPW, A Dover Company, has named Susan Hathaway chief financial officer. She joined Dover in 2001, beginning with OPW Engineered Systems. In 2005, Hathaway became CFO for OPW Fluid Transfer Group. She succeeds David Harris, who is retiring in mid-May.
Petrofuse USA, Holiday, Florida, has named Roger J. Rolewicz vice president of sales and marketing. He will be responsible for the expansion of the company's secondary containment systems (tank linings) for underground and aboveground storage tanks.         

. "Kansas Secretary of Agriculture Adrian Polansky has announced that he is making permanent the guidelines his department developed for a pilot project to allow at-the-pump blending of biofuels, including blending ethanol with gasoline in percentages ranging from 10 percent to 85 percent. Blending pumps can also dispense biodiesel blends ranging from B2 to B99. To prevent unwitting consumers who aren't driving a flexible fuel vehicle from dispensing a higher ethanol blend than is appropriate for their vehicle, the pumps feature a bright orange label with the message, 'For use in flexible fuel vehicles only.'"—The Marketer, Winter 2009, Petroleum Marketers and Convenience Store Association of Kansas.

Alabama installation and service contractor
. Caskey Petroleum Equipment Repair and Maintenance, Inc., P. O. Box 63, Theodore, Alabama 36590, has applied for service and construction division membership. Jess Caskey is president of the company, which was established in 2003. The firm installs, repairs and services dispensers and monitoring systems. Sponsored for PEI membership by Fred Monroe, Monroe, Arlington, TX.
DEF Supplier
. Terra Industries, Terra Environmental Technologies Inc., P. O. Box 6000, Sioux City, Iowa 51101, has applied for affiliate division membership. Rod Carter is distribution infrastructure manager for the company, which was established in 1964. Terra's DEF will be distributed through multiple types of equipment solutions. Sponsored for PEI membership by Charlie Tew, SoPmpTnkNC, Charlotte, NC.


  • Marcia Hawkins, Rex Oil Co., Inc., Thomasville, NC (O&E)



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Petroleum Equipment Institute
P. O. Box 2380
Tulsa, OK 74101-2380

The TulsaLetter (ISSN 0193-9467) is published two or three times each month by the Petroleum Equipment Institute. Robert N. Renkes, Executive Vice President, Editor. Opinions expressed are the opinions of the Editor. Basic circulation confined to PEI members.