Why E85 is the cheapest gas at the pump

At many gas stations in Nebraska and across the Midwest, E85 is the cheapest fuel available. However, only a fraction of cars on the road can use it, and on E85 they get less mileage. (Photo by Grant Gerlock, NET News/Harvest Public Media)
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August 13, 2013 - 6:30am

Gas prices across the country average well over $3.00. But there is a cheaper option. Flex fuel vehicles can fill up with E85, gas with 85 percent ethanol made from corn. Although oil companies may not like it, they need gas stations to sell more.

Ilya Protopopov stopped at a U-Stop station in Lincoln on his way to the track to fuel up his truck and a few dirt bikes. His fuel of choice, 91 octane unleaded, was selling for $4.01 per gallon.

“I used to complain about $1.50 gas, now it’s over $4.00,” Protopopov said. “Pretty steep.”

But on the same pump there was another fuel selling for under $3.00. E85 was going for $2.53.

Photo by Grant Gerlock, NET News/Harvest Public Media

Three U-Stop stores in the Lincoln area are among more than 80 gas stations in Nebraska selling E85.

Photo by Grant Gerlock, NET News/Harvest Public Media

Mark Whitehead of Whitehead Oil, the company that runs U-Stop stores, said after E85 prices went down sales jumped 50 percent.

E85 is a blend of gasoline and 85 percent ethanol, which is mostly made from Midwestern corn. Especially in big corn states like Nebraska, Iowa and Illinois, E85 prices are the lowest at the pump. According to the crowdsourcing site E85Prices.com, E85 averages $2.86 per gallon across the country.

The catch is, it only works in flex-fuel cars and trucks. Protopopov’s truck and motorcycles would not run on E85. But Mark Whitehead, whose company runs a chain of U-Stop gas stations, says enough of his customers can that he has already seen a difference in sales since prices fell earlier this summer.

“In first quarter this year we were at almost 4 percent of total sales – were E85,” Whitehead said. “Currently, we are at about 5.5 percent of our total product sales, which is about a 50 percent jump.”

That’s the kind of trend oil companies need to see nationwide. E85 prices are down, not because oil companies want to sell more ethanol, but because they have to.

The oil companies are in a bind. People are driving less and using less gas, but a federal mandate, called the Renewable Fuel Standard (RFS), requires the companies use more ethanol.

Most gas is already 10 percent ethanol, or E10, and auto manufacturers say that’s as much as most cars should use. That’s why, according to the American Petroleum Institute (API), Americans only use enough gas to consume 13.3 billion gallons of ethanol, about 10 percent of the fuel supply. But this year the RFS requires oil companies to use 13.8 billion gallons of corn-based ethanol, and that number is scheduled to keep rising.

That has many in the oil industry fuming.

“It’s an unrealistic mandate to blend more ethanol than can be used safely,” said Bob Greco of the API. “It’s not a problem with the ethanol itself. It’s an issue with the mandate.”

To meet their annual quota, oil companies have to buy credits from companies that sell E85. Between the cost of those credits and the cost of installing E85 gas pumps, Greco says any discount for E85 means everyone else pays a little more.

Photo by Grant Gerlock, NET News/Harvest Public Media

Josh Ulozas' 2005 Subaru STI was not designed to run on E85, but he tuned the engine to run exclusively on flex-fuel. He puts up with less mileage because he likes the performance.

                         Photo by Grant Gerlock, NET News/Harvest Public Media

Scott Croner fills his flex-fuel Chevy Suburban with E85 when he can find it.

What oil companies would really like is a drop in the mandate, something the Environmental Protection Agency says it will consider next year. But Geoff Cooper of the Renewable Fuels Association says the mandate was designed to put pressure on oil companies to use more ethanol, encouraging market growth for a renewable fuel produced in the U.S.

“That’s exactly how this program was intended to work and drive demand for these higher ethanol blends,” Cooper said.

It remains to be seen whether E85 is a long term answer. It takes the right car at the right place at the right price. But that’s not always easy to find.

“There’s about 120,000 retail gas stations in the country,” said Darrel Good, an ag economist at the University of Illinois. “Somewhere around 3,000 of those can dispense E85.”

He says there are only about 15 million flex fuel cars and trucks on the road, 5-6 percent of all the vehicles in the U.S. Still, that small fraction of vehicles could use more than 4 billion gallons of E85, which is more than enough to help oil companies meet the government mandate.

To sell more, though, the price of E85 has to make up for a loss in miles per gallon. Mileage varies, but a gallon of E85 contains about 20 percent less energy than a gallon of gas.

At the U-Stop store in Lincoln, all of the pieces came together for Scott Croner, who pulled in to fill up his flex-fuel SUV.

“I’m going to put in E85,” Croner said. “As you can see, it’s almost a dollar a gallon less, so over 20 gallons you can do the math. It’s a significant savings.”

Like it or not, oil companies need that math to work in their favor.



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