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Action urged to prevent gas crisis

Source: Milwaukee Journal Sentinel Publication date: 2001-03-31

Action urged to prevent gas crisis Expert says more production needed to avoid shortage


of the Journal Sentinel staff

Saturday, March 31, 2001

With the release of a report on last summer's skyrocketing gas prices, politicians and industry figures turned Friday toward avoiding a repeat of the situation this summer.

A prominent oil industry analyst said refineries need to step up production in light of what he called an "ominous" drop in reformulated gas supplies. Otherwise, analyst George Gaspar warned, any production glitch could increase prices by more than the normal 10- to 12-cent summer boost he predicted earlier this week.

Wisconsin's congressional delegation, meanwhile, suggested everything from legal action against foreign oil producers to better monitoring of gasoline supplies and looser environmental regulations on gasoline.

Those comments came after the Federal Trade Commission reported that its probe into why gas prices topped $2 a gallon in the Milwaukee and Chicago areas last year found that oil companies didn't do anything illegal but did try to maximize their profits.

Milwaukee and Chicago, along with many of the nation's other large metropolitan areas, are required to use cleaner-burning reformulated gas and to switch from the winter version of the gas to the summer version between April 30 and June 1.

Last year, the FTC report said, low gas inventories coincided with refinery and pipeline problems as the oil companies were switching to a new blend of the summer reformulated gas.

This year, reformulated gas inventories are about 2.4 million barrels below last year's level and refineries last week were operating at 89.5% of their capacity, down 1.8 percentage points from the week before, said Gaspar, who is managing director of petroleum research at Robert W. Baird & Co. in Milwaukee.

However, crude oil supplies are up, and if refineries push production to 92% or 94% of capacity, they can manufacture enough summer-blend reformulated gas to meet the increased demand of the summer driving season, Gaspar said.

It's possible that reformulated gas supplies are low because oil companies are trying to get rid of their winter-blend gas and make room for summer-blend gas, U.S. Rep. F. James Sensenbrenner (R-Wis.) said. However, he agreed that any production problem would mean "we could be in trouble very quickly."

To avoid such problems, Sensenbrenner and Sen. Herb Kohl (D-Wis.) said, the U.S. Department of Energy needs to monitor gas supplies more carefully and detect any problems that are arising. Sensenbrenner also backed recent moves by the Environmental Protection Agency to ease requirements on reformulated gas.

But the Midwestern price spikes weren't the only factor driving up the cost of gas last year. The Organization of Petroleum Exporting Countries also tightened up on production, which led to a long-term increase in gas prices nationwide.

In response, Kohl and Sen. Mike DeWine (R-Ohio) introduced legislation Friday to let the U.S. Department of Justice and the FTC sue foreign nations for collusion in setting oil prices.

"Our legislation would, for the first time, enable our authorities to take legal action to combat the illegitimate price-fixing conspiracy of the oil cartel," Kohl said in a news release.

Reaction to the FTC report varied among spokesmen for oil companies and gas station owners.

"All along, we were confident that the probe would find nothing wrong," said Erin Roth, executive director of the Wisconsin Petroleum Council, which represents the nation's major oil companies. "We feel exonerated."

Bob Bartlett, executive vice president of the Petroleum Marketers Association of Wisconsin/Wisconsin Association of Convenience Stores, said his organization would be disappointed if anyone took advantage of drivers or of the gas stations he represents.

"In the end, that puts an extra burden on retailers," Bartlett said, adding that members have seen profit margins the last six quarters that are the lowest in the last few decades.

"On the other hand, I can understand how no collusion was involved," he said. "If you sold snow blowers in Wisconsin and we had a blizzard of epic proportions and you sold them for $40 more than normal, are you price gouging or are you making up for winters when there was little snow? One person's gouging is another person's recovery of profits."

Jesse Garza of the Journal Sentinel staff contributed to this report.

-- Martin Thompson (, March 31, 2001

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