Ethanol Supply Worries DOE, Oil Industry
By BRAD FOSS
WASHINGTON – The price of gasoline could rise this summer because of supply problems from the phaseout of a fuel additive found to contaminate groundwater, government and industry officials said at a Senate hearing Wednesday.
The additive, methyl tertiary butyl ether, or MTBE, accounts for about 10 percent of the volume of every gallon of gasoline with which it is blended – or 1.4 percent of the nationwide supply – but refiners plan to stop using it next month because Congress refused to grant them protection from lawsuits.
MTBE will be replaced with ethanol, but there are doubts within the Energy Department and the oil industry about whether there will be enough of the corn-derived fuel to meet the anticipated surge in demand, and whether the country’s distribution system is ready to handle it.
Guy Caruso, the head of the Energy Department’s statistical division, told the Senate Environment and Public Works Committee that the imminent transition from MTBE to ethanol “could cause temporary supply dislocations and may cause price volatility.” His agency estimates that 130,000 barrels per day of extra ethanol will be needed beginning May 5, an amount equal to almost 50 percent of current output.
Wholesale prices for ethanol have surged to roughly $2.75 a gallon, or about 50 cents per gallon higher than usual, and analysts say ethanol supply concerns have contributed to a sharp increase in gasoline futures since mid-February.
On Wednesday, gasoline for May delivery traded at $1.932 per gallon, rising 4.75 cents on the New York Mercantile Exchange after the Energy Department released data showing supplies shrank last week.
The average retail price of gasoline in the United States is $2.50 a gallon – the highest level since October – and some analysts say $3 is a possibility by summer.
Responding to a question from Sen. John Warner, D-Va., Caruso said relaxing a 54-cent-per-gallon ethanol import tax might help ease any potential supply crunch, though he stopped short of a full-blown endorsement of that idea.
Bob Dinneen, president of the Renewable Fuels Association, a trade group that represents ethanol producers, countered that the industry would be able to ramp up production in time for the phaseout of MTBE, and that enough imports would flow to the U.S. market without any relaxation of tariffs.
One of the key challenges for midwestern ethanol producers will be getting their fuel to key markets along the East Coast because of rail and trucking bottlenecks.
Dinneen said the industry is mitigating the situation by filling ethanol storage tanks on the East Coast before summer arrives and contracting barges that can ship ethanol down the Mississippi River and then up the Atlantic seaboard.
Dinneen said any supply tightness would likely disappear within two to five months – a point Caruso made as well. “The marketplace is responding,” he said.
Sen. Barbara Boxer, D-Calif., said the petroleum and ethanol producers have known about the impending fuel-additive transition since Congress passed an energy bill last July and said it was unfair that the lack of preparedness within industry would fall on the shoulders of motorists.
“It’s sort of like let’s punish the public again for something they had nothing to do with,” Boxer said. While Boxer expressed anger that refiners are going ahead with plans to phase out MTBE knowing that supplies are tight, she also said there is no way Congress will grant them the liability protection they seek.
The energy bill Congress passed last year eliminates a 2 percent oxygenate requirement for gasoline. MTBE has been the oxygenate of choice since a mandate was established about 10 years ago as a byproduct of the Clean Air Act.