Gas spike brewing: Ethanol switchover accelerates
Motorists could see spike in fuel prices this spring By Alan Zibel - BUSINESS WRITER
California's largest gasoline suppliers are starting a changeover in gasoline formulas this week that will remove the polluting chemical MTBE but could send gas prices up to $2.50 or $3 a gallon between April and June.
The fuel additive MTBE (methyl tertiary butyl ether) is being eliminated from California gasoline because it is a suspected cancer-causing chemical that has polluted water supplies.
To meet federal gasoline standards, California refiners are replacing MTBE with ethanol, most of which comes from Midwestern corn.
Some oil companies, though, won't be making the switch until the end of the year. That means some Bay Area gas stations -- mainly independent operations without major brand names -- will be selling gasoline with MTBE this year. Other stations will use ethanol-blended fuel.
Experts say consumers should have no problems putting ethanol-blended gasoline and MTBE-blended gasoline in the same tank. A large sign proclaims Union 76 gasoline no longer contains the fuel additive MTBE.
"You would not see any performance issues or anything like that," said Wil- liam Rukeyser, assistant secretary of the California Environmental Protection Agency. "During this transition period, drivers don't have to be concerned about which one they put in, or in what order."
There is some disagreement, however, about whether pump prices will skyrocket.
David Hackett, president of the Irvine-based consulting firm Stillwater Associates, said he sees a good chance there will be a 50 to 100 percent price spike between April and June, as refiners switch from winter gasoline formulas to the summer variety.
That transition phase is when gas supplies are the tightest, he said, and the supply/demand balance is most vulnerable to refinery breakdowns.
"I hope we're wrong," Hackett said.
When gasoline is made with MTBE in California, it makes up about 11 percent of the gasoline mix, compared with 5.7 percent for ethanol.
Oil companies will have to make up the difference somewhere and don't have the capacity to produce more gasoline, especially in the summer driving season, Hackett said. He predicted that refiners will have to import gasoline from around the world, and that California gasoline imports will double to about 100,000 barrels a day.
Still, one oil analyst, Tom Kloza of the Oil Price Information Service, said ethanol might not necessarily be to blame for upcoming gasoline price spikes. Retail gasoline prices typically shoot up in the spring, as oil companies have to quickly change gasoline blends. Adding ethanol will make the switch more complicated, but it shouldn't necessarily be blamed for price spikes, he said.
"There's a period of adjustment there, (but) I wouldn't want to cast the blame on ethanol," Kloza said.
Rukeyser said that any price jump from the switchover to ethanol is probably going to be small compared to other factors such as a possible war in Iraq, and the shutdown of oil production in Venezuela.
"Ethanol is going to cause a very small ripple in an otherwise stormy sea," Rukeyser said.
Amid concern about price spikes, Gov. Gray Davis last year pushed back the state's original deadline for getting rid of MTBE by one year, to the end of 2003.
Still, oil companies BP, Shell and ExxonMobil decided to make the switch in the first half of this year. San Ramon-based ChevronTexaco, the state's second-largest seller of gasoline, said Wednesday that it will complete the transition by May in Southern California, but did not give a date for its refinery in Richmond.
Tesoro Petroleum and Valero Energy, both of which own Bay Area refineries and send much of their output to local independent gas stations, are not making the change to ethanol here until the end of the year, or sometime near then.
United Kingdom-based BP, which owns about 1,200 Arco gasoline stations in California and is the largest seller of gasoline in the state, will start delivering ethanol-blended gasoline to its stations beginning this weekend, spokesman Paul Langland said.
"It takes a while for the underground storage tanks at the stations to get rid of the MTBE and become basically all ethanol," he said.
The transition should be complete by the end of March, said Langland, who predicted a 5- to 10-cent increase in the price of gasoline due to ethanol.
Shell spokesman Cameron Smyth said his company started delivering ethanol-blended gasoline this week. Shell owns a refinery in Martinez, as well as two in Southern California. The changeover will be phased in at Shell gasoline stations around the state in the coming weeks, he said.
ConocoPhillips, which owns Union 76-branded gas stations and an oil refinery in Rodeo, already has switched over to ethanol and has been advertising MTBE-free gasoline at its stations.
Alan Zibel can be reached at azibel@angnewspapers.com (925) 416-4805.