Ethanol rapped for higher gas prices in the East

America is changing to gasohol May 5, replacing the additive MTBE (methyl butyl ether) with a 10 percent input of ethanol. Ironically, the highly-touted corn derivative is being blamed for higher gasoline prices on the East Coast.

According to the New York Post, energy traders, by a margin of nearly three to one, anticipate record gasoline prices by Memorial Day, and that’s without any hurricane damage to production infrastructure.

“Leaving out the issue of hurricanes, we’re going to see some $4 gasoline appearing in some isolated cases,” said Jamal Qureshi, a senior gasoline analyst at PFC Energy in Washington, D.C. “If hurricanes really hit the refinery system as in the past—well, we saw what that can do.” Some observers are anticipating as much as $7 a gallon by mid-summer.

Most Americans have no clue about what lies ahead at the gas pump. As mentioned, the old additive MTBE is being dropped because it’s believed to be carcinogenic. It is being replaced by ethanol, and that’s where the rub comes in. Drivers and service station operators will need to rely on an adequate supply of corn to keep ethanol coming in huge amounts so the cleaner-burning gasoline can be blended.

New York and Connecticut already use the ethanol blend, but New Jersey and most of the remainder of the country do not. “There’s some new problems and challenges ahead in the national switch to ethanol,” Qureshi said. The biggest question is will there be enough; the next concern is distribution.

“Ethanol doesn’t travel well,” Qureshi said, “in pipelines, it separates into water and liquids—and has to be trucked wherever it goes.” Blending is done at the retail level, usually at wholesale tank farms just before it is hauled to local service stations.

“Traders remain extremely nervous about gasoline supplies, especially with the switch to ethanol nationwide,” said Peter Beutel, an energy analyst at Cameron Hanover.

Chances are that the world’s farmers will be very busy growing crops that can be converted to liquid fuels and for food. For some farmers, the “golden age” may begin this summer when large amounts of corn are made into ethanol for use as a fuel additive. On the other side of the coin, global droughts are shaping up,even in the U.S. and that “golden age” may get delayed.

One thing that may largely disappear in the near future is traffic congestion. When gasoline hits and passes $6 or $7 a gallon, and the credit cards book all the debt they can carry, a good deal of unessential driving will stop or greatly reduce. Vehicles also will carry more passengers than they do now.

Still, the government says Americans are not likely to stay home this summer, despite the rapidly rising cost of gasoline. The Department of Energy said the average price of a gallon of regular unleaded will hit $2.62 this summer, up from last summer’s average of $2.37 a gallon.

But government figures are notoriously unreliable.

“We’re already 40 cents higher per gallon than we were last year,” said Geoff Sundstrom, spokesman for AAA. “We think the Department of Energy may be underestimating what the impact will be at the gas pump.”

The government estimates U.S. drivers will use 1.4 percent more gasoline this year than they used last year. Diesel fuel also is expected to rise 21 cents from last year, averaging $2.62 a gallon this summer.

The Energy Department blames the higher prices on three factors—rising oil prices, additional costs of making low-sulfur gasolines and phasing out older fuel additives. Along with that is the growing demand from American drivers, even as the supply of oil begins to decline. Regular gasoline last week was near $2.80 per gallon.

From the April 19-25, 2006, issue

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