Big Oil Explores Adding More Cheap Ethanol to Gasoline in Iowa

(Bloomberg) -- BP Plc and Royal Dutch Shell Plc are exploring adding more ethanol in gasoline in top corn state Iowa to take advantage of how cheap the biofuel has become.

The oil majors are gauging driver interest at a small number of stations in 15% ethanol blends, up from the current state standard of 10%, after the Trump administration in May allowed an increase nationwide.

Adding more ethanol to gasoline may help Midwest farmers who have been struggling to find markets for corn after biofuels demand plateaued last year. Ethanol futures slumped to the lowest in more than a decade in 2019, making it unprofitable to make the biofuel that accounts for about a third of demand for the U.S. corn crop. But cheap ethanol won’t save drivers much money: At current prices, filling up a Ford-F150 would only cost about a quarter less.

The BP-branded Elliott Oil Co. has for about two weeks been selling some E15 in the small town of Osceola, CEO Andrew Woodard said. BP spokesman Michael Abendhoff said the company does not comment on marketing strategy.

John Reese, downstream policy and advocacy manager in the Americas for Shell, said at the National Ethanol Conference in Houston that Shell offers higher ethanol blends, without offering specifics.

Shell spokesman Ray Fisher said the company is working to add E15 in Iowa, Indiana and Illinois. “Prior to implementing E15, there is due diligence to ensure we can deliver a quality product and meet state regulations.”

Benchmark Chicago cash ethanol traded at a one-year low in January, with the price decline generating interest in adding more to the mix. But that’s less than a penny per gallon below pump prices.

Efforts to boost ethanol have an edge because the U.S. is sending only trace amounts of it to China, and Mexico is trending toward using less corn-based fuel, Corey Lavinsky, ethanol analyst at S&P Global Platts, said by email.

There is also some political support. Iowa’s governor included an E15 tax credit extension and expansion in the state’s budget proposal.

Iowa drivers like E15, and retailers have noticed, said Monte Shaw, executive director of the Iowa Renewable Fuels Association in West Des Moines, by telephone.

“It’s happening because enough independents in Iowa, they know there’s no stigma, that Iowans will buy this stuff,” Shaw said.

To contact the reporters on this story: Jeffrey Bair in Houston at jbair4@bloomberg.net;Michael Hirtzer in Chicago at mhirtzer@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Jessica Summers

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