Big Oil’s Choice: Complain About 70-Cent RINs, or Invest 6 Cents in Modern Infrastructure?

Posted on: March 22, 2013 in Ethanol, Oil, Renewable Fuel Standard

Later today, American Fuel & Petrochemical Manufacturers (AFPM) President Charlie Drevna will hold a conference call with reporters in which he will outrageously claim the Renewable Fuel Standard (RFS) is “adding $13 billion to the cost of gasoline” because of higher prices for RINs (Renewable Identification Numbers). We’ve already addressed the absurdity of that myth here, showing why the impact of RINs on gasoline prices would be no more than a fraction of a penny per gallon of gasoline.

Still, all this rhetoric from Big Oil about the economic impacts of RINs and the so-called “blend wall” got us thinking about a simple question: If oil refiners and gasoline marketers actually decided to invest in the modern fuel distribution infrastructure needed to dispense greater than E10 blends, what would it cost them in comparison to the wild “compliance cost" claims they make today?

The Regulatory Impact Analysis that accompanied the RFS2 final rule includes a detailed assessment of the costs to modernize fuel distribution infrastructure to accommodate higher-level ethanol blends under the RFS. Notably, the analysis is based on input from petroleum terminal operators, the rail industry, the marine transport sector, the trucking industry, retail gas station owners, manufacturers of fuel storage and dispensing equipment, and other industry sources.

One scenario in the analysis examined the cost of upgrading the fuel distribution system from handling a baseline of 13.2 billion gallons of ethanol annually to accommodating 33.2 billion gallons of ethanol—a 20-billion-gallon increase. The results of this scenario indicated a total capital investment of $9.9 billion would be necessary to modernize the terminal, fuel transportation and retail infrastructure. According to the analysis, that works out to just 6 cents of capital investment per gallon of additional ethanol use over the baseline. When amortized over total gasoline sales, the infrastructure costs would be fractions of a cent per gallon. These costs include construction of new rail cars, new tank barges, new tank trucks, new and retrofitted storage tanks and blending equipment at petroleum terminals, unit train receiving infrastructure, manifest rail receipt facilities, and marine terminal infrastructure. Additionally, the estimate includes the costs to outfit retail stations for higher-level blends, including installation of new dispensers, hanging hardware, refueling island hardware, automatic tank gauging equipment, canopy installation, underground storage tanks, and other retail infrastructure.

All of this means the higher-ethanol blend infrastructure necessary to bridge the gap between the infamous E10 "blend wall" (approximately 13.3 billion gallons) and the 2013 RFS requirement of 13.8 billion gallons would cost about $30 million—or $0.00023 per gallon of expected 2013 gasoline sales. 

So, the oil industry is howling about “billions” in fictitious “compliance costs,” when if they would just invest two one-hundreths of a penny of profit per gallon in infrastructure, no one would be talking about the “blend wall” or high RIN prices today. And, more importantly, consumers would be enjoying greater choice and lower prices at the pump.

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