The Trump administration's plan to allow year-round sales of higher-grade corn ethanol would have limited impact on the depressed U.S. ethanol market, with record supplies and prices for the fuel hovering near the lowest in a decade, analysts said.
President Donald Trump announced the decision last week ahead of a campaign trip to Iowa, the top producer of corn and ethanol. With mid-term elections looming, Trump aimed to give a boost to corn producers in the Farm Belt, who helped secure his narrow 2016 election victory.
He said his administration would allow a waiver for sales of E15, which was banned from June 1 to Sept. 15 and has about 5% more ethanol than the most common E10 gasoline formulation.
The cheaper E15 variety is not allowed in some U.S. states during the summer because its higher alcohol content can make it evaporate more quickly in warmer temperatures, increasing smog.
Oil refiners are opposed to the move and have vowed to sue, arguing that only Congress can lift the ban.
Even if the plan moves forward by next summer and hundreds of mostly small and rural gasoline station chains install new dispensers to sell E15, overall sales likely would increase only slightly.
There are more than 1,300 stations with pumps that can dispense E15, according to the Renewable Fuels Association trade group. That is a small portion of the estimated 122,000 stations in the country, according to the National Association of Convenience Stores.
RFA said the number of stations offering E15 could double to around 2,700 by late 2019 to early 2020, or 2.2 percent of the total.
Analysts said large oil refiners were unlikely to build new infrastructure for E15. Major fuel sellers, including BP, Exxon Mobile Corp, Royal Dutch Shell Plc and Valero Energy did not respond to requests for comment.
Mark Lytle, a vice president at pipeline and terminal operator Pro Petroleum, said his company would consider adding ethanol tank storage if fueling stations start demanding more of the biofuel. But due to the uncertainty regarding challenges to the measure, expansions in the short-term were unlikely.
Lytle said it can cost $250,000 to add fuel pumps, tanks and other equipment - investments that could take about six years to pay off with sales of E15.
"There's a lot of capital investment that's required," Lytle said. "It's simply return on investment – can I sell enough E15 to pay for my project?"
Ethanol makers are desperate for any demand boost. U.S. supplies last week swelled to 24 million barrels, just below a record from March. The market has been under pressure since China, formerly the top importer of U.S. ethanol, imposed tariffs on shipments as part of the Washington-Beijing trade spat.
J.P. Morgan analyst Ann Duignan said infrastructure to dispense E15 is insufficient. "The likely impact on U.S. ethanol and corn demand in the foreseeable future is immaterial, in our view," she said in a note.
Casey's General Stores Inc said in a statement that it would expand E15 offerings to as many as 500 of its 2,000 stores over the next few years.
The Sheetz Inc gas station chain will add E15 pumps at each of the 20 to 25 new stores it builds annually during the coming years, said Michael Lorenz, vice president of petroleum supply at Sheetz.
Sheetz already offers E15 at 240 of its 580 locations in the eastern United States.
Ethanol prices of $1.30 per gallon were 64 cents cheaper than gasoline on Monday. Sheetz sells E15 at about 5 cents less than regular gasoline.
"The consumer is sensitive to price when it comes to gasoline. They appreciate (E15) being offered at a lower price," Lorenz said.
Crude oil inventories also hit another record high on the U.S. Gulf Coast, where the bulk of the nation's refining capacity is located.
Mars Sour, the benchmark for sour U.S. Gulf Coast grades, was trading at a $1.05 premium to U.S. crude futures on July 1.
Demand for energy storage has soared as the COVID-19 pandemic crushed fuel demand, spurring oil producers and traders to fill storage facilities across the U.S.