Valero's Big Ethanol Push: Selling E-85 at the Company Store (Well, Gas Station)
More than two years ago, Valero Energy CEO Bill Klesse warned that using corn to make ethanol would jack up food prices and cause more misery than global warming. These days, ethanol and Valero (VLO) share a chummier affiliation. Valero's latest step to cementing its relationship -- albeit a small one -- is to start selling E-85, a blend of fuel with 85 percent ethanol, at its company-owned gas stations.
Valero's E-85 rollout is tiny at the moment. Only one of its company-owned Valero Corner Stores in San Antonio will sell the fuel. But it's a key indicator to where the company is going. Here's what Valero's retail division president Gary Arthur said in a recent release about the move into E-85.
There are already millions of flex fuel vehicles on the road, and there's a growing market for E-85. As Valero builds new corner stores, we will continue to introduce E-85 sales to satisfy this growing demand.Valero owns and operates nearly 1,000 corner stores throughout the southwest, Oklahoma and Wyoming. Which means E-85 fuel pumps could feasibly spring up in all of these, although that's unlikely. Valero's move into E-85 is essentially another way for its 1.1 billion gallons of annual ethanol production capacity to find a home, and hopefully a consumer to buy it. Right now, gasoline demand in the U.S. is tepid, and as an extension that means the demand for ethanol is rather stagnant as well.
Valero wants to grow its profitable, but small, ethanol business. One path to more revenues would be if the federal government raised the mandated ethanol blend wall from 10 percent to 15 percent. But so far the EPA has punted on the decision, leaving ethanol producers looking for other ways to offload their product.
Unlike other ethanol producers, Valero is an oil refiner and a gas retailer, which gives the company the freedom and access to sell E85. In short, it doesn't have to convince a gas retailer to sell its product. Add in the fact that Valero scooped up 10 ethanol plants over the past two years at bargain basement prices and you've got a solid business model -- at least in the short term. But corn ethanol faces a number of challenges, notably its reliance on the federal government, which mandates its use; and several soon-to-expire pieces of legislation, including a tax credit to blenders and a tariff on imported sugarcane ethanol.
Photo from Flickr user haydnseek, CC 2.0
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