California Officials Say Severe Gasoline Crunch Looms Fair use for educational/research purposes only! Updated: Tuesday, May 1, 2001 01:41 PM ET By Jason Leopold

OF DOW JONES NEWSWIRES

LOS ANGELES (Dow Jones)--California could be hit with a severe gasoline shortage if the federal government doesn't lift rules on how the state makes cleaner-burning gasoline, energy officials are warning.

Consumers will end up paying record high prices at the pump by the end of 2002 if California is forced to use the fuel additive ethanol to help it meet 1990 Clean Air Act Amendments rules, the California Energy Commission said in a report last week.

By 2003, California may be 6%-10% short of gasoline if the government doesn't waive a rule requiring it to use pollution-fighting additives called oxygenates, the CEC said in a report released in mid-April.

"Failure to issue a waiver will cost California consumers at least $450 million (more) a year," according to the CEC report last week. "Loss of fungibility and flexibility associated with the use of ethanol will likely result in costs to consumers well in excess of the original 3 to 6 cent per gallon estimate."

Two California refineries owned by Tosco Corp. (TOS, news, msgs) have already made the switch to ethanol, which is derived from corn.

The state is phasing out methyl tertiary butyl ether, or MTBE, the oxygenate it has used until now, because it seeps into groundwater and may be carcinogenic.

On Monday, Sen. Dianne Feinstein, D-California, asked President George Bush to grant the state's long-standing request for a waiver to let it stop using oxygenates.

But the Environmental Protection Agency is poised to uphold the waiver this week, according to a high level source in the Bush administration.

"From our point of view, this is a train wreck," said Dave Fogarty, a spokesman for the Western States Petroleum Association, a trade organization made up of oil companies and refiners. "There are catastrophic consequences for consumers if the oxygenate mandate remains in place."

California Can Blend Clean Without Oxygenates

California already produces the cleanest burning gasoline in the country, known as Phase 2 reformulated gasoline.

The state's refiners were forced to come up with a new recipe for producing a Phase 3 blend, which they developed without the use of an oxygenate.

But under the Clean Air Act Amendments, 70% of gasoline consumed in the state, much of it in Southern California, would have to include 10% oxygenates.

Ethanol is the only alternative to MTBE, according to the CEC. But it's in short supply and difficult to import.

Other states are starting to phase out MTBE, and are likely to start using ethanol, which could cause demand to outstrip supply.

In fact, ethanol isn't a real alternative because there simply isn't enough immediate supply of it, said Gary Heminger, executive vice president of Marathon Ashland Petroleum LLC.

"Relying on ethanol exclusively for this volume of gasoline would increase the time needed to complete our phase-out of MTBE and result in higher fuel costs to consumers," Gov. Gray Davis wrote in a letter to the federal Enviromental Protection Agency in 1999, requesting a waiver of the mandate.

California's gasoline demand will be over a million barrels per day by 2003, 6% greater than 2000, and production capacity will decline slightly, according to the CEC report from mid-April.

The CEC, along with the state's Air Resources Board, and several state lawmakers, are lobbying hard for federal legislation that would lift the oxygenate mandate in California.

But federal lawmakers have not responded to the requests, due to intense lobbying by the ethanol industry to keep the mandate in place, according to the EPA.

Williams Bio-Energy, a unit of Williams Companies Inc. (WMB, news, msgs), and the second largest producer and marketer of ethanol, is actively looking to lease terminal space in California to store its supply of ethanol.

Refiners will begin to replace MTBE with ethanol if the waiver isn't granted, according to Williams spokesman Mark Luitjens.

Williams could supply the West Coast with with ethanol through its marketing arrangements with Heartland Grains Fuel, which owns two ethanol plants in South Dakota.

- By Jason Leopold, Dow Jones Newswires; 323-658-3874; jason.leopold@dowjones.com

http://quicken.excite.com/investments/news_center/article/printer.dcg?story=/news/stories/dj/20010501/BT20010501004596.htm

-- Martin Thompson (mthom1927@aol.com), May 01, 2001

Answers

Bush has gone on record as favoring relaxation of environmental regulations in energy emergencies, if the result is increased energy product production to meet demand. This is the basis on which Bush advocates increased fossil fuel production on environmentally sensitive lands.

Thus, this issue will serve as an "acid test" as to whether Bush is internally consistent; or whether his true agenda is to punish and penalize California, for its liberal social climate and policies and laws. If the waiver is denied, in the face of a major California gasoline price spike and shortage, then this frightening conclusion clearly follows.

If so, it policy may well backfire, as California is the world's sixth (oops, make that eighth now) largest economy. The "punishment" will have nationwide, or even worldwide, cascading effects.

-- Robert Riggs (rxr.999@worldnet.att.net), May 01, 2001.

Thus, this issue will serve as an "acid test" as to whether Bush is internally consistent; or whether his true agenda is to punish and penalize California, for its liberal social climate and policies and laws. If the waiver is denied, in the face of a major California gasoline price spike and shortage, then this frightening conclusion clearly follows.

This may be naive but why should Bush grant a waiver so that the Democrats can claim that he is destroying the envirornment. Should the Democrats take the initiative and sponsor and vote for legislation relaxing the rules it achieves the same thing but they hhave to take responsibility for what they want.

-- (matriley@gateway.net), May 02, 2001.