Bay Area shells out most ever to fill tank - Average price of regular unleaded gasoline jumps 28 cents to $2.14

www.trivalleyherald.com106691238081,00.html By Alan Zibel, BUSINESS WRITER

Nine out of 10 large Bay Area cities are experiencing the high- and predicted that prices will rise even higher.

"Then we'll all go out of business," he said.

The 15 percent increase in average Bay Area gas prices over the past month compares unfavorably to the nation as a whole. The national average for regular unleaded increased 5.5 percent, or 9 cents, to $1.70 a gallon on Tuesday, according to AAA statistics.

Drivers filling up in San Francisco on Tuesday were paying the highest average gasoline prices in the country, with prices at $2.24 a gallon, said AAA spokeswoman Jenny Mack. San Mateo was not far behind, with prices at $2.21 a gallon.

The only place in the Bay Area that had not yet broken its all-time price record as of Tuesday was Pleasanton, where the average price of $2.03 was two cents shy of the previous record of $2.05. That record was set in June of 2001, Mack said.

Gas prices have been on the rise since early to mid-January. Analysts attribute the nationwide increase to high crude oil prices, which have risen on fears of a war with Iraq and because of low production in Venezuela due to a strike there.

Still, California's dramatic price increases have outpaced the nation. Analysts say one reason is that the state's shift away from the polluting additive MTBE (methyl tertiary butyl ether) to corn-based ethanol has caused logistical difficulties for oil refiners. Also, the state's specifications for its clean-burning gasoline are different than the rest of the nation, reducing the state's ability to import gasoline from elsewhere.

Because of its unique gasoline standards, California "doesn't have as many supply options," said Peter Zipf, editor-in-chief of Platts Oilgram News. "If supply is tight, there are far fewer places to reach out and go and get more."

Jay McKeeman, executive vice president of the California Independent Oil Marketers Association, said many oil refineries are down for maintenance right now, as they make the switch from the winter gas formula to summer blends.

A price spike normally occurs during this switchover, McKeeman said, but this year's switch has been worsened by the transition from MTBE to ethanol.

Some refiners are still using MTBE as an additive, though, and oil companies cannot legally mix the two kinds of gasoline. However, using both blends in a vehicle does not present a mechanical or performance problem. The switch, McKeeman said, has "eliminated the ability of companies to efficiently and quickly swap product to cover shortfalls that they may have."

"I think this spike isn't over yet," McKeeman said. "I could see three dollar gasoline real easy during the summer if we start having refinery problems."

The transition to ethanol has complicated the switch from winter-grade to summer-grade gasoline and caused logistical problems as refiners make "rather major changes in how they make their gasoline," said Rob Schlicting, spokesman for the California Energy Commission.

"You may see some outages, some shortages," Schlicting said.

Still, Schlicting said he was encouraged by one piece of data: California's refiners produced 8.2 percent more gasoline last week than the week before.

"That's good news," he said. "A lot of this right now is a tight market. The more supplies that we have, the better it's going to be."

Last week, Sen. Barbara Boxer, D-Calif., called for a federal investigation into California's gasoline prices, saying she was concerned about possible manipulation of gasoline supplies due to shutdown refineries.

According to energy commission data, refiners' cost and profit margin -- the difference between the cost of crude oil and the wholesale price of gas -- has increased to 55 cents for name-brand gasoline this week. That's up from a margin of 25 to 38 cents earlier this year.

Still, Ron Planting, an analyst at the American Petroleum Institute, denied allegations of price gouging, saying that there have been numerous investigations into gasoline prices.

"In all cases, they have not found evidence of anticompetitive behavior or price fixing or any of those things," he said.

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