New regulation could widen ethanol, non-ethanol fuel price gap

Gas pumps are shown at a station in Cedar Rapids. (Dallas Houtz/The Gazette)

Changes at the pumps beginning this week will likely force motorists to decide between fueling their vehicles with an ethanol blend or paying more.

In response to the Federal Renewable Fuels Standard, a regulation that requires more ethanol be mixed with gasoline, refineries will start shipping a sub-octane fuel – 83 or 84 octane, down from 87 octane – through the pipelines to the Midwest, said an official from Magellan Midstream Partner, which operates Iowa’s largest pipeline.

Bruce Heine, director of government and media affairs for Magellan, said the company hopes to complete the transition by the end of the month.

The change to sub-octane will force Iowa gas stations to either blend with ethanol or blend with premium gasoline to reach the minimum 87 octane fuel legal for retail in Iowa.

A study by the Iowa Renewable Fuels Association predicts the changes will increase the gap between a “clear” non-ethanol fuel and an ethanol blend. The 87 octane non-ethanol fuel could cost 52 cents per gallon more than the 10 percent ethanol blend.

“It could be a 30 to 50 cent spread,” said Monte Shaw, executive director of Iowa Renewable Fuels Association. “People who don't want ethanol are going to have to pay more money.”

Dawn Carlson, president of Petroleum Marketers and Convenience Stores of Iowa, said retailers have as many questions about the change as consumers, and it’s too early to know how the changes will shake out at the pumps.

“I wouldn’t quote any of those prices. I don't think it was very credible,” said Carlson, questioning the study’s sample size.

While demand of consumers will dictate what is offered at the pumps, Shaw and Carlson both agree the change could pave the way for a 15 percent ethanol blend, or E15. Shaw said this would become the cheapest fuel option, but Carlson cautions that older cars, and gas station infrastructure, such as underground storage, gas dispensers and gaskets, aren’t ready for E15.


According to AAA, average gas prices in Iowa today are $3.57 for regular, $3.48 for mid-grade, and $3.84 for premium.

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