Few are likely to be surprised that the “Big Five” oil companies -- Exxon Mobil, Shell, BP, Chevron, ConocoPhillips -- have gamed the U.S. fuel distribution system in an effort to prevent biofuels from reaching consumers.
But how do they do it?
The strong-arming methods used to achieve such aims are outlined in a new study done by the Renewable Fuels Association titled “How Big Oil Covertly Blocks the Sale of Renewable Fuels.”
“With this report we wanted to shine a little light on the narrative coming from the big oil companies these days,” said Bob Dineen, president and CEO of the Renewable Fuels Association during a July 8 press call. The oil companies say “‘The U.S. market can’t possibly absorb more than 10 percent ethanol. The consumers don’t want it and won’t buy higher level ethanol blends.’ And my personal favorite: because major oil companies have disinvested from their downstream blending operations, they don’t have any control over the infrastructure or what’s sold.”
Dineen dismissed such claims as “rubbish. It’s a shame the EPA has bought into much of that in trying to determine the 2014 RFS (Renewable Fuels Standard) and beyond.
“The oil companies – particularly the big five – simply don’t want to provide market access (to ethanol). They’re using every tool in the monopoly toolbox to deny consumers the lower cost option.”
Peeling the onion
The latest statistics, said Geoff Cooper, the association’s senior vice president, show “the oil companies own less than five percent of the retail (fuel) stations out there. In turn, they argue they can’t distribute increasing volumes of renewable fuels that would be required by the RFS.”
Peel the onion, though, and “you quickly see the major oil companies do, in fact, continue to exert tremendous control and influence over what fuel products are offered at stations,” said Cooper. “They do this through highly restrictive branding and franchise agreements. They do this through highly prescriptive fuel supply contracts and a whole host of other subversive tactics that essentially prevent, or significantly discourage, retailers from selling greater volumes of renewable fuels.
“This is particularly true for stations that still carry a big oil company brand. Again, while the oil companies don’t physically own the stations, more than half of the stations carry the brand name, logo and signage of a major integrated oil company or oil-refining company.”
The impetus for the study was “we wanted to analyze the retail fuel market -- which consists of about 150,000 retail gas stations -- to determine who exactly is selling E85 and who isn’t.
“We found that that about 48,000 stations carry a brand of one of the ‘Big Five’ oil companies. Out of those stations E85 or E15 is offered at fewer than 600, or six-tenths of one percent.”
Further, said Cooper, some “22 percent of retail stations (34,000) are branded by other oil refiners. … They have a slightly higher proclivity to sell E85 or E15. But that’s really because two refiners (CHS Cenex and Speedway/SuperAmerica) far surpass the average. They account for about half the refiner stations selling E15 and E85.”
Of the remaining roughly 74,000 other stations not branded or affiliated “about 1,700 to 2,600 are selling E85 or E15. (Such stations) are about four to six times more likely to offer” ethanol blends.
Why is that?
Most of the fuel contracts between oil companies and gas stations “require supplier exclusivity,” said Cooper. “That means the retailer or distributor to the retailer can only sell fuels made available by the supplier. So, if the supplier doesn’t make E15 or E85 available the distributor can’t (provide) it to the retailer.
“Often the contracts require minimum sales volumes of branded fuels. If you’re a retailer that might want to sell (ethanol blends) you might jeopardize the ability to meet that quota.”
Cooper charged that many of the branding agreements “actively discourage retailers from promoting or even advertising the availability of E85. We’re aware of one case where a retail station was fined because it was advertising E85 prices in the top position of its price sign on the highway. It was fined for being in violation of its franchise agreement.”
What can be done?
Among other solutions, Dineen encouraged a Federal Trade Commission (FTC) investigation into big oil’s anti-competitive practices. An association letter to the FTC requesting such an investigation was answered, he said, with a response that “was somewhat perfunctory. You know, ‘Thank you for your letter. We’ll look into it.’ It’s a year later and they’ve done nothing. It’s frustrating.”
Most importantly, Dineen said the RFS must be enforced at a level friendly to biofuels.
“The RFS was the mechanism that was designed to break the monopolistic hold over the gas pump that the major oil companies have. If we back off from the RFS we reward those companies. This isn’t the time to be rewarding companies that are exercising market power to deny Americans choice at the pump.”