CURRENT NEWS ITEMS

MTBE Phaseout May Fuel
Price Hike

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State Could Face Gasoline
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8/19/02

NEWS

MTBE phaseout may fuel price hike
Motorists could pay 50 to 75 cents more at independent gas stations

Alan Zibel, The Oakland Tribune

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A shift in the mixture of gasoline at many California oil refineries could spur a 50- to 75-cent jump in gasoline prices as early as March and also cause supply shortages at independent gasoline stations -- the places where the best gas prices can often be found.

The problem arises from the gradual phaseout of MTBE (methyl tertiary butyl ether), a fuel additive that is being eliminated from California gasoline because it is a suspected cancer-causing chemical.

To meet federal air-quality standards, California refiners are replacing MTBE with ethanol, most of which comes from Midwestern corn.

Atle Erlingsson, spokesman for AAA of Northern California, said people in the oil industry are expecting a 50- to 75-cent price spike.

"It could be much less, it could be much more," Erlingsson said. "No one out there knows. There are just too many variables."

A potential war with Iraq during that same timeframe could drive up the price of crude oil and make matters worse, he said.

"I think it's going to be complete, unmitigated chaos," said John Kingston, director of global oil for the energy information service Platts. "The prices are going to soar, there may be spot shortages, there will be all sorts of screaming, and (Gov.) Gray Davis will blame all the oil companies."

The essential problem is that by blending in ethanol, the state will produce about 5 percent less gasoline than with MTBE, said Kingston, who spent last week in California meeting with oil traders.

Price spikes are likely to happen in early March as refiners prepare to switch over to their summer gasoline blend, he said.

Still, some in the industry dispute predictions of a dramatic jump in prices because of the switch to ethanol. Tony Hoff, vice president of marketing at ST Service/Shore Terminals in Crockett, which imports most of the ethanol for Bay Area refineries via rail cars, said he doesn't see much of a problem on the horizon.

"I don't see where there would be a significant enough disruption in supply of ethanol that it would cause prices to go up significantly," Hoff said. "Everything's falling into place as far as getting all the facilities in order."

Davis originally ordered the phaseout of MTBE by the end of this year, but decided last spring to delay it to 2004 amid concerns about gasoline shortages and price spikes.

"We have done everything possible to make for a smooth transition," said William Rukeyser, assistant secretary of the California Environmental Protection Agency. "The governor concluded that the most prudent way to safeguard Californians at the gas pump was to allow an extra year's flexibility."

After the governor's decision to delay the MTBE ban, three major oil refiners -- Shell, BP and ExxonMobil -- decided to phase out ethanol by the end of 2002 anyway.

Once those companies make the switch, more than half of the state's gasoline supply will contain ethanol. Ethanol prices are up around 30 percent this year amid increased demand from California refiners, according to Bloomberg News.

ConocoPhillips already has made the switch to ethanol and has been advertising its MTBE-free gasoline at its 76-branded gas stations.

Valero Energy, which owns two California oil refineries, says it will stick with MTBE through 2003, as will ChevronTexaco's Richmond refinery. Tesoro Petroleum, which owns a refinery near Martinez, is expected to stick with MTBE, but didn't return calls for comment Tuesday.

Independent or unbranded stations, which typically offer the lowest prices, may be hurt by the creation of a "two-flavor" gasoline system in California, said Jay McKeeman, executive director of the California Independent Oil Marketers Association. In Northern California, those stations are mainly supplied by Valero and Tesoro refineries.

MTBE and ethanol-blended gasoline can't be mixed. That means refiners that stick with MTBE won't be able to trade gasoline with refiners that use ethanol and could have shortages, McKeeman said.

"It could be a big problem," McKeeman said. "There's just not going to be a whole lot of unbranded (gasoline) on the spot market."

Alan Zibel can be reached at azibel@angnewspapers.com or
(925) 416-4805.
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