Chevron Plans Test of Market for Ethanol

Chevron Corp. plans to begin selling fuel made mostly from ethanol in California this summer to test demand among motorists who pay the highest gasoline prices in the continental U.S.

Chevron, which produces almost a fifth of California’s gasoline, will build three filling stations to pump E85, a motor fuel made from 85% ethanol and 15% gasoline, Gregory Vesey, president of the company’s alternative fuels business, said Thursday. Ethanol is a form of alcohol distilled from corn or sugar that can be burned in engines.

E85 uses almost nine times as much ethanol as regular gasoline, reducing the amount of crude oil needed to make each gallon. San Ramon, Calif.-based Chevron and other oil companies have been denounced by lawmakers and consumer advocates for doing too little to expand fuel supplies while reaping record profits.

“I’m at a loss as to why Chevron would be doing this, unless it’s some sort of PR move,” said Anthony Radich, an economist at the U.S. Energy Department who studies ethanol demand and prices. “That’s certainly what it sounds like.”

Refiners began adding ethanol to most of the gasoline sold in California in 2003 to prepare for a Jan. 1, 2004, statewide ban on a competing additive known as MTBE that fouled groundwater supplies. Those mixtures are limited to 10% ethanol to prevent the fuel from evaporating on hot days.

E85 is used in vehicles with engines modified to burn higher concentrations of ethanol and prevent evaporation. The Chevron venture will double the number of E85 stations in California.

California has three E85 stations, two of which are located at government installations, according to the Energy Department. There are E85 stations at the department’s Lawrence Berkeley National Laboratory near Oakland and at Vandenberg Air Force Base in Lompoc. The only retail E85 station in the state is RTC Fuels in San Diego.

“We’re doing this to determine if this will be a viable and commercial enterprise,” Vesey said. “We’ll run it for a year, gathering data on the vehicles and customers and see if this is going to be a retail play.”

Vesey expects the stations to lose money during the first year of operations as the company learns what sort of special handling and equipment is needed. All three stations will be located at state highway installations to serve government-owned fleets of cars and trucks, he said.

E85 is unprofitable in California now because rising demand for ethanol has pushed prices for the additive above wholesale gasoline, Vesey said.