Oil industry scolded over ethanol

By HIL ANDERSON  |  May 6, 2005 at 6:45 AM
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LOS ANGELES, May 6 (UPI) -- A prominent national consumer group has called on the oil industry to be more open to ethanol as a means of letting some of the steam out of sky-high gasoline prices.

The Consumer Federation of America added a new voice this week to the debate over the merits of ethanol that has long been dominated by the differences of opinion between the oil and agriculture lobbies.

In a report, "Over a Barrel: Why Aren't Oil Companies Using Ethanol to Lower Gasoline Prices?" the CFA chastised the oil industry for supposedly stonewalling the idea of using ethanol to stretch out the supply of fuel.

"The major oil companies are reaping huge windfall profits while consumers across the nation are facing the highest gasoline prices in recent memory," said Mark Cooper, the CFA's director of research. "Oil companies in many parts of the country easily can blend ethanol -- a high-octane, domestically produced renewable fuel -- into gasoline, but have chosen not to. As a result, consumers are paying more than they should for gasoline."

Oil-industry executives take issue with this seemingly simple solution to tight gasoline supplies, but the entry of the CFA potentially could make ethanol more palatable to politicians outside the farm states, as the Senate once again considers energy policy legislation and its provisions to increase ethanol consumption.

The CFA report concluded that by bumping up the amount of ethanol used in a gallon of gasoline to 10 percent, the average price of regular could be cut by some 8 cents.

Cooper said retail gasoline-price reductions certainly would differ from region to region, but the overall impact of boosting ethanol consumption would be lower gasoline prices and a tangible step toward the elusive goal of using less oil.

"It is a policy question," Cooper told reporters on a conference call Thursday. "We have had it explained to us that America has to make hard choices in terms of energy, but as long as the policy makers and the oil industry don't do the simple things, it is harder to convince people to do the harder things."

The CFA chalked up the industry's reluctance to jump on the ethanol bandwagon as a sign of lack of competition and a desire to maintain what has been, of late, a very profitable status quo.

Ethanol, Cooper said, would probably be in wider use if the oil companies "were competitive at the refinery gate and at the pump, but the fact is that they are not very competitive."

At the same time, he argued, ethanol prices have fallen.

"We think there is a competitive market in ethanol that, unlike the oil industry, has become more competitive."

By way of a very rough comparison, the price of June ethanol futures on the Chicago Mercantile Exchange was around $1.20 per gallon Thursday compared to nearly $1.48 per gallon for June gasoline on the New York Mercantile Exchange.

Oil industry officials might take exception to the notion that ethanol is a cheap and easy ingredient to add to gasoline. Ethanol's chemistry makes it impossible to ship by pipeline, so it must be blended with gasoline at the terminal, where it is loaded into tanker trucks and then hauled to the local gas stations.

Bob Slaughter, president of the National Petrochemical and Refiners Association said the added logistics costs play a large role in a refiner's decisions whether to use ethanol.

"They use ethanol when it is economical," Slaughter told United Press International. "We are no slouches when it comes to using ethanol, but it doesn't fit everywhere and every time."

As a coincidence, the Minnesota Legislature passed a bill Thursday that would double the amount of ethanol added to gasoline from 10 percent to 20 percent within eight years.

Supporters of the legislation touted it primarily as a boon to corn growers in the Land of 10,000 Lakes, but ethanol's backers are increasingly anxious to drive home their contention that consumers would benefit as well, due to the assumption that ethanol costs less than finished gasoline.

"As families face record prices at the pump, it's time to reduce our dependence on expensive petroleum imports and ratchet up our use of lower-cost, domestically produced ethanol," Robert Dineen, president of the Renewable Fuels Association, said in a news release shortly after the House passed its version of the energy bill.

The bill includes a national "renewable fuels standard," which would mandate the use of 5 billion gallons of ethanol in the U.S. gasoline supply by 2012.

Cooper, who said the CFA was not affiliated with the ethanol industry, urged Big Oil not to wait for Senate's vote on energy legislation expected later this month and instead should drop its cautious approach and warmly embrace ethanol -- if for no other reason than to give the little guy a needed break at the pump.

"Clearly, an input (ingredient) that is lower in price should be finding its way into the marketplace," he said.


Hil Anderson is UPI's Chief Energy Correspondent. E-mail: sciencemail@upi.com

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