March 25, 2006
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Posted on Sat, Mar. 25, 2006
The San Jose Mercury News
Gas prices flying back up
ETHANOL SUPPLY WORRIES ARE FACTOR
Mercury News
Gas prices could be marching toward $3 a gallon by summer and drivers are already starting to feel it at the pump.
Worries that ethanol could be in short supply this spring helped push the average price of gas in California to $2.70 a gallon on Friday, 20 cents higher than a month ago and a 33-cent jump from a year ago.
Prices could go even higher as more regions and oil companies begin using ethanol instead of the fuel-cleaning additive MTBE, or methyl tertiary butyl, because of underground water contamination fears.
“The shift from MTBE to ethanol is causing problems up and down the entire supply chain,” said Sean Comey, who tracks gasoline prices for the American Automobile Association. “Unfortunately, there are some troubling signs on the horizon.”
Last month the Energy Department reported that Midwestern producers could have trouble getting enough ethanol-blended gas to the nation. MTBE can be shipped rapidly through pipelines, while ethanol, which corrodes pipes, is moved on trucks, trains and barges.
Also, refineries need more gas when using ethanol, so demand goes up. If there is not enough ethanol to go around, prices are affected from New York to the Bay Area.
The U.S. Environmental Protection Agency last month ruled that California did not have to use ethanol in its gas after state officials convinced the EPA they could find a way to produce a clean fuel without MTBE or ethanol. But that restriction won’t be lifted for some time. Some companies have ethanol contracts still in effect and only recently spent millions of dollars retooling refineries to blend ethanol with gas.
Bob Dinneen, president of the Renewable Fuels Association, told the Associated Press that suppliers might fill storage tanks on the East Coast with ethanol before summer. But that has done little to ease nervousness.
In addition, California refineries are now switching from a winter to a cleaner-burning summer fuel. The switch creates a temporary decrease in supplies, contributing to higher prices. Last week the production of reformulated gas fell nearly 7 percent statewide.
For owners of diesel cars and trucks, the pinch is greater. Some stations are selling diesel for $2.99 a gallon.
By summer, gas prices could approach the $3 mark, reached last fall after hurricanes Katrina and Rita ripped into the Gulf Coast.
“We’re rapidly approaching pre-Katrina high prices,” Comey said, “and we’re headed into the time of year when fuel consumption typically increases, resulting in higher prices.”
If prices continue to soar, will drivers use their cars less or jump onto mass transit? An AAA survey last year found that 25 percent of drivers have cut down on driving at current prices while another 29 percent say they will drive less if prices top $3 a gallon.
Rising pump costs have Burt Cummings of Menlo Park taking several steps to conserve: dumping his family’s gas guzzling Suburban for a hybrid Highlander, using a Shell credit card with a 5 percent rebate on gas purchases, clicking onto www.gaspricewatch.com to find stations with the lowest prices and watching how he drives.
“Steady starts, gradual braking,” said Cummings, 52, CEO of an Internet company, who says he’s trying to counter “those people who make their jackrabbit starts, drive Hummers, and pass me at 75-80 mph on the Dumbarton, 880, 280 and about everywhere. . . . It wouldn’t matter so much if these people were the only ones who had to pay the price, but we all are.”
