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State May Ease Rules to Stretch Gas Supply

Posted on: Friday, 9 September 2005, 21:00 CDT

Sep. 9--Trying to reduce the risk of gasoline shortages and even higher prices in California as a result of Hurricane Katrina, the administration of Gov. Arnold Schwarzenegger is considering relaxing some air pollution rules on gasoline.

On Thursday, the state Air Resources Board held a hearing in Sacramento on an emergency proposal to allow oil companies to begin selling so-called "winter blend" gasoline immediately. Normally, the change occurs Oct. 31.

The earlier switch would allow oil companies to make 10 percent more gas from each barrel of oil, state officials say. But it would also increase smog-forming emissions by about 3 percent for the rest of the summer.

It's not clear what the changes will mean for gasoline prices, which averaged $3.05 for regular unleaded in California this week. Some experts suggested it might dampen price increases, or even cause prices to dip slightly.

By Thursday evening, Catherine Witherspoon, executive officer of the air board, had not announced a decision. Many observers in industry, government and environmental groups said they expect the rules to be relaxed today.

During summer months, state law requires refiners to make gasoline with low levels of evaporation, to reduce smog. But to do that, oil companies must lower Reid vapor pressure, a measure of evaporation, by adding chemicals called alkylates. California imports those chemicals from Louisiana and Mississippi, along with about 5 to 10 percent of the gasoline consumed in California.

With nine oil refineries and much of the chemical industry of the Gulf of Mexico shut down, state officials now fear California shortages.

By waiving the winter blend rules seven weeks early, California's oil companies could use another chemical called butanes, instead of alkylates, enabling refineries to make 10 percent more gasoline from every barrel of oil, according to a staff report from the air resources board.

"This should flatten prices, if not make them start to drop down," said Claudia Chandler, a spokeswoman for the California Energy Commission.

Chandler would not predict how much gas prices might fall. But she said combined with less overall driving after Labor Day, it would help. Other officials agreed.

"Nobody knows for sure," said Jerry Martin, a spokesman for the air resources board. "The main thing we'd get from this is a stable supply of fuel."

Oil industry officials said the move would boost supplies.

"This will certainly keep prices from going up any further," said Jay McKeeman of the California Independent Oil Marketers Association. He predicted $2.50 to $3 a gallon for the remainder of the year.

The rule change is supported by the oil industry, the California Energy Commission and environmental groups.

"We're not happy about the state authorizing an exemption that will increase pollution, but given the emergency nature of the situation, and the short-term nature of the variance, we aren't opposing it," said Bonnie Holmes-Gen, vice president of the American Lung Association of California.

If approved, the new gasoline would increase by 75 tons a day statewide a type of pollution known as volatile organic compounds, or VOCs, a component of smog. All vehicles, machinery and industry in California emit 2,517 tons a day of VOCs, so the new gas represents 3 percent more.

Environmentalists said they expect that in April, when state law requires the cleaner summer blend of gasoline again, those rules will not be waived. And they said they want oil companies to pay into a fund to offset the extra pollution by funding programs like retrofitting diesel engines on school buses.

"Under normal circumstances, we would oppose this," said Roland Hwang, vehicles policy director for the Natural Resources Defense Council in San Francisco. "The goal is to prevent $3.50 or $4 a gallon in a few weeks."

Hwang said the wider problem is that America's demand for gasoline is too high.

"Washington has failed miserably at raising fuel economy standards," he said. "If we had raised fuel economy standards 20 years ago, we wouldn't be in this problem."

Many environmentalists privately weighed the 3 percent smog increase for seven weeks over the political risk of being perceived as having blocked a strategy that might bring relief to gas prices. One group, however, opposed the proposed changes.

"There's no proof that if we increase supplies by 10 percent that prices will come down," said Danielle Fugere, climate change director of Bluewater Network, a division of Friends of Earth, in San Francisco. "You are exchanging health benefits -- asthma, heart disease -- for a few pennies at the pump."

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Source: San Jose Mercury News

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