Sunday, January 28, 2001

Cleaner air vs. cheaper gas

Varying formulas add to shortages

By James Pilcher
The Cincinnati Enquirer

        Now that average temperatures are beginning to creep back up, oil refineries across the nation soon will slow production of home heating oil in favor of building gasoline reserves for the summer driving season.

        But one factor that led to massive price spikes throughout the Midwest last summer — the “balkanization” of the gasoline industry by reformulated gas formulas — has yet to be addressed.

        “They are constantly changing blends of gas, and there is no room for any error because the U.S. is at almost 99 percent refining capacity,” said Peter Beutel, an oil industry analyst. “We can't import it from anyone else either, because we have so many different kinds of "boutique' gas. That just makes it worse.”

        Nationally, 14 different mixes of reformulated gas are required for different areas, and that's not including all three grades — regular, plus and premium.

        Reformulated gas was instituted in 1995 by the U.S. Environmental Protection Agency in the hope that cleaner-burning gas would reduce vehicle emissions that help cause ozone, or smog.

        According to EPA regulations, polluted areas must switch over June 1, which is about the same time demand spikes.

        That surge in demand, coupled with the fact that each area has its own say in what the formula should be, has begun stressing an already tight system. According to the American Petroleum Institute, the oil industry's main trade group, reformulated gas accounted for about 43 billion of the 130 billion gallons of gas sold nationally last year.

        And with the U.S. Department of Energy's Energy Information Administration predicting a 33 percent jump in the demand for gas in the next 20 years, the problem could only get worse.

        “We're getting more regulation ladled onto a system that's already maxed out,” API chief economist John Felmy said.

        In Chicago, for example, reformulated gas must meet the federal standard, but refiners must use ethanol — a form of alcohol derived from corn. It is difficult to ship ethanol over long distances because of its volatile and evaporative properties.

        Gas companies pointed to the difficulty in converting to the Chicago blend of reformulated gas last spring and summer as a main culprit for the $2 gas in most of the upper Midwest last summer.

        A refinery in Blue Island, Ill. just outside Chicago announced last week it was shutting down early in February, cutting out two percent of the Midwest's refining capacity. That adds even more likelihood that Chicago could once again become the epicenter of summer gas price spikes.

        Much of California has tougher standards, while areas such as Atlanta, Houston and Minnesota have different standards for how much of the gas will evaporate.

        Northern Kentucky and Louisville both require reformulated gas, because air quality in those areas does not meet federal standards. Both areas use the federally approved formula for reformulated gas, which allows the use of either the chemical MBTE or ethanol as the main additive that reduces emissions.

        The EPA, however, has called for MBTE to be phased out after evidence showed that the chemical could be polluting ground water near underground storage tanks.

        Steve Wilborn, executive director of the Kentucky Petroleum Council, said most of the reformulated gas sold in the state includes ethanol.

        Ohio doesn't require reformulated gas, choosing instead to implement an emissions check on all vehicles. Still, the state is one of the leading users of ethanol-blended gas.

        “But we still feel the pinch any time there's a problem,” said Elise Spriggs, associate director of the Ohio Petroleum Council. “When they (areas that use reformulated gas) switch over, that means less regular-formula gas for the rest of us.”

        Some environmentalists dispute industry claims that reformulated gas causes high pump prices, noting instead that the industry shifted supply intentionally toraise prices.

        But a Cincinnati-based Sierra Club organizer agreed with oil companies, saying reformulated gas isn't the final answer to clean air.

        “It's a Band-Aid at best,” said Glen Brand, Sierra Club organizer. “We need to be talking about new technology that reduces the need for gas, as well as controlling sprawl that makes us drive more and providing new types of transportation, such as light and commuter rail.”

        Mr. Felmy said other solutions are to create a national standard formula or build more refineries - both of which are problematic.

        “First, what would be the standard?,” Mr. Felmy asked. “Would it be the tough one in California or a lower one from elsewhere? And that's not taking into account the political power of the ethanol-producing states.

        “And we could meet the demand and be more flexible if we would add refining capacity, but that's too expensive for many companies.

        “We've got to do something, though,” he said, “because it's only going to get worse.”


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