LOS ANGELES, March 30 (UPI) -- A Senate committee was reassured Wednesday that the decision by many U.S. refiners to abandon the controversial oxygenate MTBE in favor of ethanol will not result in significant shortages of fuel this summer.
At an oversight hearing before the Senate Environment and Public Works Committee, representatives of the ethanol and oil industries maintained there would be enough ethanol to meet the annual summer increase in gasoline demand.
"Ethanol supplies will be available to meet this new demand," said Bob Dineen, president of the Renewable Fuels Association. "Dramatically increased ethanol production capacity will satisfy much of the new demand. In addition ... several ethanol and gasoline marketers have been storing ethanol supplies at terminals in these new markets in anticipation of the transition from MTBE."
The two-hour hearing produced few of the shocks, surprises and gloomy news that have become de rigueur on Capitol Hill whenever the topic of summer gasoline supplies and its impact on pump prices comes up for discussion.
However, Wednesday's hearing was held against the backdrop of what some fear is a premature debut for ethanol in a starring role.
"The sudden elimination of MTBE and the current state of the ethanol industry means that significant volumes of ethanol must be imported," said Sen. James Inhofe, R-Okla, the chairman of the committee. "About 130,000 barrels per day of additional ethanol is needed to replace MTBE. In other words, the United States needs to come up with close to half of the ethanol currently being produced domestically."
Ethanol and MTBE were the primary oxygenates added to reformulated gasoline, or RFG, since 1990 under the federal Clean Air Act; however, recent concerns that MTBE could be carcinogenic led the federal government to order its phase out within the next four years.
At the same time, however, the potential liability posed by MTBE has caused refiners to stop using it right away - leaving the nation and the ethanol industry with a premature need to ramp up ethanol supplies.
That concern was spotlighted in February when the U.S. Energy Information Administration, the authoritative research arm of the Energy Department, warned that some areas of the country could see tight gasoline supplies this summer aggravated by even tighter supplies of ethanol.
Dineen told the committee that such predictions were premature and belied the fact ethanol production has been increasing by leaps and bounds in recent years, reaching a record monthly production of 228,000 barrels per day in January, 47 percent over January 2005.
"I think that if the EIA were to re-do its analysis today, they might be a little more hopeful," he said.
Although President Bush this winter waived the requirement for oxygenate in summer-grade RFG, the Energy Policy Act passed last year includes a Renewable Fuels Standard that requires an increasing level of ethanol to be used in the nation's fuel supply over the years.
With ethanol's regulatory future secured, the issues of supply and infrastructure come to the forefront.
Dineen said 85 percent of the ethanol used in the United States is covered by long-term supply contracts that should shield the price of ethanol from the ups and downs of the spot market and imports.
However, gasoline containing ethanol cannot be shipped by pipeline due to its tendency to attract water. That requires trucks, railroad tank cars and storage tanks dedicated strictly to ethanol.
Bill Douglass, who testified on behalf of the Society of Independent Gasoline Marketers of America and the National Association of Convenience Stores, told the committee that gasoline wholesalers were scrambling to hire more truckers as well as contractors to clean out and prepare tanks for ethanol storage.
"Gasoline suppliers and marketers seeking to blend ethanol into gasoline this spring, assuming they can locate the ethanol at a reasonable price, will be forced to scramble to find storage for this ethanol at bulk terminals or will locate separate and at times distant ethanol storage facilities at which they will blend ethanol with gasoline," Douglass said. "These bulk storage infrastructure constraints will result in an added level of complexity in an already stressed gasoline supply distribution system."
Douglass did not present the committee with any dire predictions of soaring gasoline prices during the summer months - at least any based on ethanol. The high price of crude and strong demand from consumers alone will likely make certain $3 per gallon comes to pass in many areas regardless of the ethanol supply.
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