A hotbed of ethanol production, Minnesota sees demand dwindle

MINNEAPOLIS - Minnesota has been the unofficial testing ground for using ethanol to power vehicles, but after years of steady increases the interest appears to be waning.

Despite a push from the governor and an increase in the number of so-called flexible-fuel vehicles on the road - which can run on either gasoline or a mostly ethanol blend - sales of E85 have dipped in recent months, beyond the normal decline in winter months.

In February, sales of E85, a clean-burning fuel consisting of 85 percent ethanol and 15 percent gasoline, hit their lowest mark since 2006, according to a new report by the Minnesota Department of Commerce. Sales, which bottomed out around 1 million gallons per month, started to rebound this spring but are still lagging behind last year's numbers. In May, about 1.5 million gallons of E85 were sold in the state - almost 1 million gallons less than in May 2008.

Minnesota has about 351 stations that sell E85, far more than any other state with only Illinois having even half as many. Upper Midwest states have the vast majority of the nation's E85 pumps because that's where most of the corn that's used to make the fuel is grown. (The National Ethanol Vehicle Coalition lists only nine station stations in Arkansas that either sell the fuel or have it "coming soon.")

But much of the recent auto industry push to "greener" vehicles has focused on plug-in cars, gas hybrids and high-mileage smaller cars. Many E85-ready vehicles are large pickups or SUVs, but they get scant mention during environmental debates. One problem is that producing ethanol from corn uses almost as much energy as is derived from the fuel, according to many researchers. Some observers have said ethanol from corn should remain a small niche in the nation's energy supply, in part because food prices have been driven up by the increased demand for corn.

The ethanol industry also has been reeling from higher corn prices last year and the credit crunch. Some of the largest ethanol makers are in bankruptcy and being forced to sell plants, some of which they built but never opened.

Even the number of E85 pumps in Minnesota has declined slightly in recent months, down nine as of May from the 360 counted in February. It is one of the first noticeable dips in the number of E85 stations since well before the state offered up $1.75 million in subsidies in 2007 for station operators to install E85 pumps.

In 2006, Minnesota Gov. Tim Pawlenty had high hopes of installing 1,800 E85 pumps around the state by 2010, a number now beyond reach.

Ethanol proponents blame at least some of the recent sales decline on the recession.

Another reason, proponents say, is the decline in gasoline prices from a year ago. Since E85 fuel gets fewer miles per gallon than regular gasoline, many drivers will not buy the ethanol blend unless it's 40 cents to 60 cents per gallon cheaper than regular fuel - the point at which it is generally cheaper to drive with E85.

Consequently, when regular gas prices are high, people are more likely to fill up with E85 and when regular gas prices drop, E85 takes a back seat, said Ralph Groschen, a marketing specialist and ethanol expert for the Minnesota Department of Agriculture.

But even as gas prices started to climb this summer and E85 sales made their seasonal jump, officials were hesitant to predict another heyday for E85 like the one seen in 2008, when regular gas prices hit record highs and more than 22 million gallons of E85 were sold in the state.

"It really depends on what the price of gasoline is going to do," Groschen said. "I don't have that glow in my crystal ball."

On Friday, the national average cost of regular gas was $2.63 per gallon and E85 was $2.12, according to AAA's Fuel Gauge Report. In Arkansas, regular gas Friday averaged $2.49, according to AAA, which doesn't report the price of E85 in the state.

E85 is generally less expensive than regular gasoline because of subsidies from the federal government. The subsidy given to ethanol blenders was cut this year from 51 cents per gallon to 45 cents, a figure based on pure ethanol.

Another wild card is how many flex-fuel vehicles will be manufactured in the future.

Mark Hamerlinck, spokesman for the Minnesota Corn Growers Association, a big proponent of the corn-based fuel, said there is a "chicken and the egg dilemma" between car manufacturers and filling stations. Manufacturers don't want to make more flex-fuel vehicles until gas stations have more E85 pumps, but gas station owners don't want to install new pumps until more flex-fuel vehicles hit the road, Hamerlinck said.

source: nwanews