Reflections on ethanol’s early tribulations

ELLISVILLE, Mo. — Bruce Heine first saw ethanol’s potential impact through his family’s gasoline retail business in 1980.

“We were gasoline retailers with a number of different retail locations throughout central Pennsylvania. That was near the time of the second oil embargo and for a branded Mobile distributor such as we were there were restrictions on allocations of supply. So, you would have a lot of investment on retail and unable to keep your stations open past 4 or 5 in the afternoon when your daily allocation ran out,” Heine said.

A decision was made to start blending ethanol at a number of those locations to extend supply of gasoline by 10%.

“In doing so, we were able to keep the stations open a little bit longer. That’s how I really first got involved in materially looking at how ethanol extended petroleum supply and I can’t think of a better example of one of the benefits of a domestically produced fuel like ethanol in a time like that. It was exactly what it was supposed do. It extended supply and worked out well for my family,” Heine said.

Heine, Magellan Midstream Partners vice president for government and media affairs, of Tulsa, Oklahoma, was the guest of a recent Renewable Fuels Association podcast produced by AgNewsWire as part of RFA’s 40th anniversary observance.

Entrepreneur

Heine’s interest in ethanol’s possibilities peaked while attending the University of South Florida where he was getting a business degree.

During an entrepreneur class in the late 1970s Heine studied the possibility of bringing ethanol to central Florida and called ADM and spoke to Doug Snyder.

“He took the time to walk me through how they would transport, deliver and store ethanol into central Florida. At that time ethanol really didn’t have a big footprint in Florida. That was one of the early stages in my involvement in understanding how ethanol transportation and storage would work,” Heine said.

By the mid-1980s, Heine moved from Florida to South Bend, Indiana, to work full-time with New Energy Co., now South Bend Ethanol, one of the original RFA member companies, as marketing director.

That eventually led him into ethanol policy work when the plant manager said there was “a problem in Indianapolis and we need a company employee to testify before the Legislature.”

“It was in regards to tax incentives of which brought the plant to Indiana and there were some trials and tribulations in those days in 1987-1988 in regards to the state’s continuation of those incentives,” he said.

Heine then moved from state to national policies where he met Bob Dinneen and Eric Vaughn, RFA leaders in Washington, D.C., and worked with them multiple years in a variety of different capacities, including serving as RFA marketing development chair in the late 1980s.

In the early years of his career, a large plant produced 60 million to 70 million gallons of ethanol annually.

“That’s obviously not a large plant anymore, but the trials and tribulations that we had as an industry were focused on the excise tax exemption and trying to educate lawmakers on the benefits of domestic ethanol production from a national security standpoint, from an environmental standpoint, and that took a lot of legwork from many, many dedicated industry participants back in those days,” Heine explained.

The ongoing challenge was lobbying to have the excise tax exemption constantly extended.

“We were never able to get it as a permanent piece of the tax code, but we continuously got it extended. Those were never easy battles and most of those were overcome by the dedication and the ambassadorship by those that were serving as leaders in the ethanol industry during that era,” Heine said.

Technical Pioneer

One of the initial challenges for the industry was educating the public about ethanol and gasoline. Heine credits the pioneering technical work of Bob Reynolds, an RFA consultant and the original marketing manager at New Energy Co.

Reynolds was the primary author of “Changes in Gasoline” and “Changes in Diesel Fuel.” In the late 1980s, early 1990s, Reynolds became an expert under contract with RFA to speak to auto mechanics throughout the nation to educate them on the fundamentals of gasoline, octane standards and what octane really means for mechanics, additives that are injected into gasoline, volatility schedules and why those are important.

“Then, through the ethanol industry, he spoke about E10 blends and what an E10 blend would do in your automobile compared to conventional gasoline, what the warranty statements are, how to dispel a lot of myths because motorists typically trust their mechanic and when they would get the mechanic’s view on an ethanol blended fuel it wasn’t always helpful and it could be a setback,” Heine noted.

“The perception that a mechanic could give to a motorist if they were uninformed about the true benefits of an ethanol blend could be damaging. So, Bob wrote the manuals, did a videotape, visited multiple classrooms and automobile dealerships throughout the Midwest and other parts of the country to educate the mechanics on ethanol fuels.

“Going back to the beginning days of the RFA, in my judgment, one of the most important things they did was to recognize the mechanics were a key stakeholder in educating motorists on the benefits of ethanol blends. And there’s really one gentleman that’s responsible for that outreach and that’s Bob Reynolds.

“He created a task force of experts to peer review his documents to make sure that they were technically correct and that they were, most importantly, readable for the mechanic who kept these manuals in place.”

Game-Changer

The nationwide acceptance of E10 was one of the biggest game-changers for the ethanol industry.

“Thirty years ago consumers sometimes had to go out of their way to find an ethanol blend. Today you don’t need to do that whatsoever. The E10 blend has been widely accepted. That’s shifting consumer perception. I think the automakers had a lot to do with that. The mechanics has a lot to do with that in getting more and more comfortable with ethanol blends meeting the appropriate standards, being transported, being blended correctly to where you get the exact amount of ethanol in the fuel that you expected at retail,” Heine continued.

He credits Magellan Midstream Partners for being at the forefront of blending ethanol with gasoline. The company currently has 79 petroleum terminals across 22 states, all of which have had blending capabilities.

“Our first investment in ethanol storage was in 1980 in Des Moines, Iowa. We’ve been handling ethanol a long time and know how to blend it correctly going from E10 to E15 to E85 today. That’s typically allowing the transport driver to come in the terminal, push one button to activate the system and choose E10 or E15 or E85 and then all that blending is done through a computerized system for the driver and that just helps to insure the accuracy of the blend,” Heine said.

“You really didn’t have a lot of that back in the 1980s in terms of terminals. There were more bulk plants in place for the driver load gasoline and then have to go off-site to find the ethanol to add the 10%. So, the driver would do the mathematics. We had laminated cards that we would give to drivers depending on the size of the compartment of the truck and that would tell them if they load 2,000 gallons of gasoline what their ethanol percentage needed to be dependent upon what percent of ethanol they desire.”

Future Potential

Looking forward, Heine believes there is room for renewable fuels to become more competitive with petroleum fuels and pipelines efficiencies can provide that opportunity.

“For example, moving a gallon of gasoline on our 9,800 mile pipeline system, the average tariff is only 4 cents a gallon. So, once you get into corn country and you start looking at the transportation rates by truck you can quickly utilize 4 cents a gallon by not going very far. The same is true by rail. The rates to move ethanol by rail are higher than it would be if we had a pipeline in place to be able to move that same product,” he said.

“We’ve looked at the possibility of an ethanol pipeline that would be dedicated for ethanol originating in the Midwest serving the Eastern Seaboard. There have been other opportunities to look at those types of projects from the Midwest down to the Gulf Coast or the Midwest into the Chicagoland area pipeline and then connect into rail systems there. There are future opportunities in front of us to look at the possibility of transporting biofuels in general by pipeline.”

He believes the first opportunity to see that materialize in a larger way is for biodiesel blends to find their way into the pipeline system in the mainstream and to have those fuels start to enjoy the efficiencies, safety and reliability of pipeline transportation.

“There will be different pockets of the country where that makes more sense than others, but longer term I think it is not only in the best interest of companies like Magellan to explore this opportunity, but in the best interest of the ethanol producers to see transportation efficiencies improve,” Heine said.

“The one way that will happen is for the renewable fuel sector to enjoy the same transportation efficiencies that the petroleum sector has enjoyed since really the early 1900s when pipeline clearly took off and became the preferred mode to move liquid supply from where it’s produced to where it’s consumed.”