Ethanol may be driving gas price - California's increase more than double that of other states
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By Alan Zibel, BUSINESS WRITER As gasoline prices reach record highs, analysts say an ongoing switch in the makeup of California's gasoline may explain why the state's drivers are being hit with a bigger price hike than the rest of the nation.
The state is phasing out MTBE (methy tertiary butyl ether), a possible cancer-causing chemical, and replacing it with corn-based ethanol by the end of the year. Most major oil refiners are making the switch, while some smaller refiners are waiting until year's end.
Joanne Shore, a senior analyst at the U.S. Energy Information Administration, said recent price spikes in California are similar to pump price increases that took place when Midwestern states made a similar switch in summer 2000.
"This is a new way of producing gasoline for refiners," she said. "There's a more complicated production process with (less) room for mistakes."
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California's average gas prices increased 33 cents over the past month, a jump that was more than double the 14-cent increase seen nationwide over the same time period, according to AAA statistics. The state average for a gallon of regular unleaded on Monday was $2.07, compared with $1.69 nationwide.
Analysts say the national increase stems from high crude oil prices, which have risen on fears of the impact of a war in Iraq and because of low production in Venezuela.
All of this turmoil in the market is having its effect on ordinary consumers.
Filling up at a Shell station Monday on Santa Rita Road in Pleasanton, Gary Silva of Livermore said his family is cutting its gasoline bills by limiting car trips and using a compact Ford Escort instead of a sport-utility vehicle.
"We're conserving," he said. "Luckily, we've got one car that's really good on fuel, so we try to use it as much as we can."
The debate over ethanol's potential impact on California gasoline prices has been going on for more than a year. Last March, Gov. Gray Davis pushed back the deadline for removing MTBE from the state's gasoline supply to the end of 2003 on concern that the transition would cause supply problems and price hikes.
Neil Koehler, director of the pro-ethanol California Renewable Fuels Partnership, said the current high gas prices "have everything to do with international oil prices" and nothing to do with ethanol.
"Ethanol can help moderate gas prices and bring it down," he said.
Rob Schlicting, spokesman for the California Energy Commission, said there has been plenty of ethanol supply and low prices. Still, he said, ethanol-blended gasoline costs about 5 cents more per gallon than gasoline without ethanol.
California refiners switched to the summer formula of gasoline last weekend, and companies have been trying to empty their tanks of as much winter-grade gasoline as possible before switching to the summer-grade. That can cause some temporary supply problems, Schlicting said. The price spikes are likely related more to uncertainty in the market than serious transportation or distribution problems, he said.
"I think it's more unease rather than anything else," he said.
Philip Verleger, an oil expert and a fellow at the Council on Foreign Relations, said oil companies are worried that the United States might release emergency oil reserves and are buying money-back guarantees to hedge for the possibility that oil prices might fall.
"Any company buying crude oil has to worry about this impending Christmas sale," Verleger said.
San Ramon-based ChevronTexaco Corp. said Monday that it has scaled back crude oil exports from Iraq as the company questions the continued reliability of the supply. The company last loaded Iraqi crude in early February, but has not loaded any since then, given the uncertain future for Iraq, a spokesman said.
The Associated Press contributed to this report. Contact Alan Zibel at azibel@angnewspapers.com .