Facts At A Glance

HIGHLIGHTS FROM NPRA'S WRITTEN TESTIMONY: RENEWABLE FUELS INFRASTRUCTURE

"The lack of adequate renewable and alternative transportation fuel infrastructure creates significant production and environmental challenges. This situation, coupled with the uncertainty of a guaranteed supply of affordable renewable fuels - especially when considering the massive amounts being discussed - will only lead to more market instability and consumer impacts.""

Charles T. Drevna
Executive Vice President, National Petrochemical & Refiners Association (NPRA)
July 31, 2007

More Costly Across the Economic Spectrum

"Ethanol, however, has a lower energy content than gasoline and may create ozone emission problems, especially in warm weather. Creating artificial demand for biofuels places unwarranted strain on other industries that compete for the same feedstocks. Recent reports indicate that ethanol demand has raised corn prices, thus impacting food and other commodity prices. Projected ethanol demand is likely to further exacerbate the problem and create food price increases across the economic spectrum."

Limitations, Costs of Distribution Infrastructure

"Unlike gasoline or diesel, renewable fuels such as ethanol cannot be distributed through pipelines because of problems with water contamination or corrosion. Due to its water solubility, for example, ethanol separates from fuel during shipment through pipelines and results in noncompliant or substandard fuel. In addition, due to ethanol's corrosive properties, it degrades the strength of pipeline valves and joints. Consequently, ethanol must be blended with gasoline or the appropriate blendstock as near to the consumer as possible, usually at the delivery terminal. Ethanol delivery and distribution, therefore, must be done through more expensive means such as truck, rail car, barge or ship before it is blended at the terminal."

"A recent GAO study evaluated the biofuels distribution infrastructure and found:
The biofuel distribution infrastructure has limited capacity to transport the fuels and deliver them to consumers, and significant growth in the distribution system faces a variety of impediments. Biofuels are primarily transported by rail, but also by truck and barge, and limited capacity in this distribution system has led to supply disruptions and concerns about the system's ability to effectively transport greater amounts of biofuels if production significantly increases. The key challenges to meeting biofuel transport needs are potential capacity limitations in the freight rail system and the cost of developing a dedicated ethanol pipeline system if one is needed. . . . The current biofuel transport system is also more costly than for petroleum fuels. According to NREL, the overall cost of transporting ethanol from production plants to fueling stations is estimated to range from 13 cents per gallon to 18 cents per gallon, depending on the distance traveled and the mode of transportation. In contrast, the overall cost of transporting petroleum fuels from refineries to fueling stations is estimated on a nationwide basis to be about 3 to 5 cents per gallon."

"GAO examined the infrastructure costs for using ethanol:
The key challenge to increasing biofuel production is making biofuels cost-competitive with petroleum-based transportation fuels. . . . [T]he average wholesale price of ethanol per gallon in 2006 was about 33 percent higher than the average wholesale price of gasoline. Since ethanol contains one-third less energy than gasoline, the price differential is even more significant than this comparison indicates. . . . For example, because ethanol is corrosive, E85 requires separate storage tanks, pumps, and dispensers at fueling stations. It can cost a fueling station operator around $3,300 to minimally modify existing equipment or about $60,000 to install new equipment - which may be a significant impediment for many potential retailers."

Federal Government Lacks a Strategy for Coordinating Production with Distribution

"GAO also believes that the Department of Energy, the Agency responsible for implementing energy policy, does not currently have 'a comprehensive strategic approach to coordinate the expansion of biofuel production with biofuel distribution infrastructure development and vehicle production, and has not evaluated the effectiveness of biofuel tax credits.' Further, GAO also found 'DOE has not yet developed a comprehensive strategic approach to coordinate the significantly larger volume of biofuel production that could result from the Biomass Program with distribution infrastructure development and vehicle production. DOE officials told us [GAO] they recognize the importance of developing a strategic approach and have taken an initial step in that direction.'"

Transportation Challenges

"The most notable economic challenge to the development of a viable, stand-alone biofuels transportation industry is the seemingly constant push for an ever-increasing mandate of these fuels. As the transportation biofuels sector grows, its expansion will have a direct impact on those industries that use and transport its products and those industries that compete with it for the same resources. A significant increase in biofuels consumption complicates the entire transportation fuel production, supply and distribution network. … The strain biofuels place on the nation's rail infrastructure and tank-car capacity is of particular concern. … It remains to be seen whether transportation capacity growth will keep pace with biofuels production, particularly after factoring the significant increases in the government mandate that are being proposed. As the biofuels industry expands, it will monopolize increasing amounts of truck, rail and barge traffic."

Economics of the E-85 Infrastructure

"E-85 is not currently compatible with fuel dispensing equipment at most retail gasoline stations. Furthermore, due to ethanol's corrosive nature, Underwriters Laboratories (UL), in October 2006, suspended authorization to use UL Markings on components for fuel dispensing devices that will dispense any alcohol blended fuels containing over 15 percent alcohol (such as E-85)."

"E-85 also has a substantially lower energy content per gallon than gasoline (only about 70 percent of gasoline's energy content) that results in a significant fuel economy penalty for E-85. In order for retail consumers to cover the same distance they would using gasoline at the same cost, the retail price of E-85 must be 25-30 percent lower than the price of gasoline.

Today's Domestic Refining Industry

"Leadership on this Committee and elsewhere in Congress has stressed the need to maximize refining capacity in the United States, and our members have risen to the challenge, principally by adding hundreds of thousands of barrels of capacity at existing refineries. In fact, on the aggregate over the last 14 years, our companies have essentially built the equivalent of one new world-class refinery each year. … U.S. refiners are generating record amounts of refined product. According to EIA, production was at an all-time weekly high from June 22 - June 29, averaging about 9.4 million barrels a day. Despite the unplanned refinery outages and regularly scheduled maintenance, production for the first half of the year is at an all-time high (9 million barrels a day), about 700,000 barrels a day higher than the same period four years ago (8.3 million barrels a day)."

Recommendations to Congress

"The Congressional Budget Office should conduct a comprehensive environmental impact analysis. Congress should consider energy security, public health and environment, transportation, infrastructure, job impacts, and rural economic development impacts. Legislation should not promote an extensive expansion of renewables without giving any consideration to the environmental or economic consequences to the U.S."

"Congress should consider preempting state and local biofuels mandates."

"We strongly encourage Congress to further review and consider the five core strategies recommended in the recent National Petroleum Council report requested by Energy Secretary Bodman."

"Make increasing the nation's supply of oil, oil products and natural gas a number one public policy priority."

"Resist tinkering with market forces, including imposition of 'windfall profits' taxes, LIFO repeal, elimination of foreign tax provisions or 'price gouging' legislation."