Posted on 04/18/2006 4:27:22 PM PDT by SierraWasp
The high cost of summer driving
Ethanol switchover could stoke gasoline prices
By Stephanie I. Cohen Last Update: 7:00 PM ET Apr 18, 2006
WASHINGTON (MarketWatch) -- The drive to produce cleaner-burning fuel could lead to gasoline price spikes in some areas of the country as ethanol markets remain tight throughout the summer, government and industry officials are warning.
These hikes would be on top of the 25-cents-a-gallon average increase in prices at the pump already expected this summer compared with last year, according to the Energy Department.
Ethanol is a home-grown renewable fuel made primarily from corn feedstock that can be blended with gasoline to make it burner cleaner. In August 2005 President Bush signed legislation creating a national renewable fuels standard to boost the use of renewable fuels such as ethanol.
While the domestic ethanol industry has ratcheted up production over the past year, a number of factors have pumped up demand for the biofuel and created supply concerns.
Areas of the country believed to be most vulnerable to spikes triggered by the ethanol rush include Houston, Dallas, and Fort Worth in Texas, along with areas in the mid-Atlantic and East Coast regions of the U.S. that rely on reformulated gasoline.
"We see them as being logistical dislocations and how that resolves is in higher prices. So the implication would be perhaps isolated spikes in the wholesale prices of reformulated gasoline," said Guy Caruso, administrator of the Energy Department's statistical arm, the Energy Information Administration.
"We're not predicting that we're just saying that's possible," Caruso said.
Last fall, Congress passed energy legislation mandating a seven-year ramp up in the amount of biofuel blended into the nation's gasoline stocks, beginning with nearly 4 billion gallons in 2006 and rising to 7.5 billion gallons in 2012. Ethanol is expected to fulfill most of this requirement.
Additionally, numerous states that use reformulated gasoline have banned the use of ethanol's only commercial competitor, methyl tertiary butyl ether, or MTBE, which has been found to contaminate underground water supplies.
Congress also decided not to include a liability waiver in the energy bill to protect refiners that blended MTBE into gasoline from lawsuits stemming from contamination. This has touched off a rapid phase-out of MTBE from gasoline stocks ahead of May when the renewable fuel provisions in the energy bill kick in and refiners say they face liability exposure.
Motorists operating gasoline-powered vehicles in areas not affected by price spikes are unlikely to be aware of changes in the content of gasoline offered at their neighborhood retail station. Ethanol is a fairly standard component of in conventional gasoline markets.
"In terms of performance of vehicles there will be no difference. Where [motorists] will see a difference is in price. It's impacting prices nationwide," said Mantill Williams, director of public affairs for AAA, a national organization that represents motorists. Ethanol by the numbers
Demand for ethanol averaged about 263,000 barrels a day, or 4 billion gallons in 2005, according to Gordon Schremp, senior fuels specialist with the California Energy Commission. California currently uses almost 1 billion gallons of ethanol a year, or a quarter of the domestic market.
By January of this year, the domestic ethanol industry was producing 288,000 barrels a day, the most recent month for which figures are available. The Renewable Fuels Association says domestic producers have the capacity to deliver at least 4.5 billion gallons this year, more than the bump up mandated by the energy legislation.
But the renewable fuels mandate coupled with the phase-out of MTBE and state fuel requirements is expected to produce a need for about 395,000 barrels of ethanol a day, or 6.1 billion gallons in 2006, according to the Energy Department.
Schremp also pointed to imports of reformulated gasoline -- about 240,00 barrels in 2005 -- containing MTBE that are primarily shipped to East coast markets, which will need to be replaced with MTBE-free supplies.
Caruso acknowledged that ethanol typically added to conventional gasoline blends will need to be diverted to the East Coast and Texas. The roughly 600 retail gas stations that dispense E85, made up of 85% ethanol and 15% gasoline, for use in flexible fuel vehicles are a likely target.
"Gasoline suppliers today are repositioning ethanol previously used in discretionary conventional gasoline blending in areas like the Midwest to the East Coast and Texas," according to short-term outlook released by the Energy Information Administration this week.
But Schremp said "it may not be realistic to assume that every single drop of discretionary ethanol can migrate to other markets."
More ethanol from domestic production will be available after the middle of the year, according to the Renewable Fuels Association. About 900,000,000 additional gallons of ethanol production will come online in the second half of the year, compared with 500,000,000 gallons in the first six months of 2006, an association spokesman said.
Unfortunately for drivers this means that any relief from tight ethanol markets will come sometime after the summer driving season, according to the Energy Department.
"While ethanol supplies are expected to remain tight this summer, sufficient new ethanol production capacity is under construction to replace MTBE and resume previous levels of discretionary ethanol blending in conventional gasoline in 2007," according to a short-term energy outlook released by the Energy Department's Energy Information Administration.
Why not just have the oil companies make ethanol from ethanne gas and water, as I proposed back in the mid-80's? There is plenty of ethane in natural gas that we can use to make as much drinking alcohol as we want! Tank up our cars, and ourselves...on BP or Shell Vodka!
My co-workers lost their jobs and never came back.
You only remember price increases, never the price decreases.
And you think we somehow control them. Friends, if we controlled them, there would never be price decreases. Your amnesia doesn't change reality.
Mr Exxon CEO is that you?
Not hardly, but if you don't want an American oil industry drilling for oil in this country, just say so.
Just repeating what I said up-thread a fur piece... Do ya ever git tired of pushing back the frontiers of ignorance? (as Walter Williams likes to say)
We'll be remembering $3 gasoline with fondness, and fifty years from now when we tell our grandchildren they won't believe any of it.
Just like I remember two bits per gallon gasoline!!! Actually, I think I remember it cheaper than that during some "GAS WARS!" (like under a dime!)
My first car I filled up every day for about $2, ten gallons. Used to drive a lot.
He said insane (pointing)
Ah heh-heh-heh-heh-heh-heh...
Let me "point" out, you can't even read! I did NOT say "insane!" Go back and try reading what was written... Ah heh-heh-heh-heh... PHHHHHHT!!!
Many happy returns!!!
Picture was for the people with a mind up their butts, not directed towards you.
Guess I should put a line or two explaining the pics I post.
No you don't. I built gas stations all thru the 80's and early 90's in NJ. MTBE, granted, floats on water and is insoluble, but the only way it gets into the water is thru leaks. Now leaks are already illegal, so the crap about ethanol is nothing but the Politics of Money at its best. The cost of Ethanol is more than MTBE and it give us worst gas mileage then regular gas. So now that cost of gas is going up, who is going to blame Congress for the rise, the drive-by Main Stream Media.
Homey, don't think so.
I've been working for a major oil company for more than 25 years and I think the switch to ethanol is stupid.
You either misunderstood my post or you think that your job in construction gives you more expertise to expound on what's going on than I have.
Eat an enviromentalist? I really like the irony of that, since most envirocommunists are vegetarians. Go ahead and roast mine too, if you could, please, but slow-roast him and make him rare if you would please, sir. Oh, and some A-1 sauce would be nice too. I hear vegetarians are kinda' dry... Thank you.
There is absolutely no reason that this country can't drill for it's own damned oil. Execpt for maybe America-hating Democrats who are more worried about the three hoofed elk than they are about the American way of life...
I have always wondered...since envirocommunists are so worried about the trees, does that mean that they don't use toilet paper?
But I digress...
I apologize for the mild profanity, but I do believe that the situation calls for it, sir.
respectfully yours,
.......leefish
Big V-8s and cheap gas forever! We can make it happen!
I like it! I love it!! I want somemore of it!!! (grin)
We're not going to run out of oil anytime soon unless we decide not to continue to extract it.
It's a matter of cost and political will.
Someday, I'd like to own a V-12.
Yes... I understand that's really smoooooooth POWER!!! Them piston are about the size of them little bitty cans of V-8 juice, right? (grin) Pour on the GAS, doggonnit!!!
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