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Analysis: Where are we with E10 gasoline in Europe?

London — Increasing biofuel mandates across Europe for 2019, combined with navigating the complexities of the post-2020 renewable energy framework (RED II), have brought discussions over wider adoption of E10 back on the table for European producers and policy makers.

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The gasoline blend containing 10% of ethanol has long been seen as a panacea for Europe's oversupplied market environment by producers who have endured poor or even negative margins since October 2017. With all production capacity running in Europe and with a global sugar surplus that will see more European beets put into ethanol rather than sugar production, 2019 is also set to be a difficult year for producers. Widespread E10 adoption would increase demand as it would allow for overcoming the current blendwall and would double the amount of ethanol consumed for the same volume of gasoline sales.

So far E10 has been introduced in France, Belgium and Germany, with the first two seen as major success stories. For example in France, the latest data from the National Association of Agricultural Alcohol Producers (SNPAA) show E10 sales in the first half of the year totaled 2.112 million cu m, an increase of 13.4% year on year.

This is partly due to increasing gasoline sales, but E10 is also clearly gaining market share thanks to a more competitive price at the pump due to tax breaks, while the renewal of the car fleet has increased the amount of vehicles compatible with E10.

Moreover, 217 more filling stations were offering E10 in June compared with the beginning of the year, bringing the total to 6,068, according to SNPAA. This took the E10 market share to 41.8% from 38.5% a year earlier and French ethanol consumption in 2018 is expected to reach 1.075 billion liters, up from 965 million liters estimated for 2017.

The UK and the Netherlands are next in line for an E10 roll-out, pending discussions and government decisions, but the expected timeframe for this to go ahead keeps getting pushed further and further back. Decisions aside, implementation can be a lengthy process, with distribution issues and vehicle compatibility to be taken into consideration.

There are also different ways of implementation, with Belgium for example offering only two options at the pump: E10 and a higher octane gasoline blend (gas98), while France and Germany offer three options: gas95-E5, gas95-E10 and gas98-E5.

In the UK, the Department for Transport opened a consultation on the subject on July 20 to run until September 16, signaling the government's intention to finally move forward with an E10-roll out.

But even if the decision is positive, the timeline for implementation is uncertain and a UK-based source said that even "April 2019 looks very doubtful." The way this would be implemented and the options offered at the pump are also critical for consumer uptake of the E10 blend. The current proposal includes keeping a protection grade on offer for older vehicles.

However, the same source indicated that 30% of gas stations (by number) in the UK are set up to offer only two types of fuel: diesel and unleaded, hence in practice eliminating the option of the protection grade. This could support a speedier uptake from consumers.

However, part of the government consultation seeks to identify the most effective way to introduce E10 at the pump and whether it needs to be restricted to larger filling stations with enough infrastructure.

In the Netherlands, expectations for any progress with E10 are also getting pushed back to the third or fourth quarters of 2019. A source said the cost of implementation is a major concern and less optionality would likely be favored, potentially pointing to a Belgian model of implementation.

However, the source said the more decisions on E10 get delayed, the harder it will be for EU member states to fulfill increasing blending mandates for 2019.

Post-2020, as RED II comes into force, Europe will also be faced with a crop cap for biofuels, set at the 2020 level, with a maximum of 7%. As a result, E10 adoption across Europe could help maximize ethanol consumption, therefore keeping that cap as high as possible up to 2030.

--Chrysa Glystra, chrysa.glystra@spglobal.com

--Edited by Jonathan Fox, jonathan.fox@spglobal.com