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.
Yup! Your CONgressperson did this too you, so it's no wonder their so unpopular. People instinctively know we're all in trouble whenever they're in session!!!
I believe you'll get worse MPG, so you will pay more for less.
E85 isn't insane, the mixtures, well that's another thing. If people knew the costs, they wouldn't be used.
Now, by Congressional fiat, change the materials that must be used in the blend -- without regard to their availability.
Thank God for Big Oil!
Actions are respectable. Moaning is pathetic.
Yeah? Well go look at what I just posted over there!!!(grin)
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.WTF does that mean?
I don't know guys, I'm coming from this thread. I need to be overdosed - brought up to speed - quickly.
Now! How do ya like them apples there, Mr. McKing???
It is a rotation. Gas prices, national debt, manufacturing going to China. Say has anybody noticed that this
Rumsfeld brohaha is obscuring really outstanding progress with China trade? Wag the dog.
Well go look what I just posted over there!!!
Then don't forget to come back over here to discuss the inane insanity!!!
Absolutely! Alcohol (well, how the heck do ya spell it?) may burn cooler, but hasn't got near the energy that gasoline does!!!
You need to expand on this for the uninformed that lurk!!!
I agree, but the regulatory burden is beginning to make the beast of burden buckle and breath hard!!!
Good follow-on to your corny Kerry graphic!!! Kerry & Gore = Bevis and Butthead!!!
Methanol has a kick, but you have to spray more of it for the boost. Add a tad of Nitro-Methane to the mix, and you have 4 second 330MPH plus quarter mile machine.
LLS
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