WASHINGTON, Feb. 19, 2002 -- Consultants have told the California Energy Commission that the cost to phase out MTBE may be prohibitively expensive.
Consultants from Stillwater Associates told the CEC at a public meeting that keeping the current phase out date for MTBE of January 1, 2003, will cause a 5 to 10% gasoline supply shortfall, and pump price increases of 50 to 100%. The consultants recommended delaying the MTBE phase out to November 2005.
"Governor Davis can save California motorists $1 billion to $3 billion at the pump each year by modifying the date of an MTBE phase-out," said Methanol Institute President and CEO John Lynn. "According to the state's own consultants, the phase out of MTBE could lead to an energy crisis that would make the recent electricity crisis look like a walk in the park. A forecast for $2.50 per gallon of gasoline and long lines at the gas station will not be a pleasant prospect for California consumers."
The CEC consultants pointed out many ominous similarities and differences between the electric power and gasoline markets. A few corporate players dominate both markets, and access to supply from outside the state is restricted by logistics. In the power market, however, electricity is completely fungible, consumers have many options for reducing demand, and capacity can be added quickly. California's gasoline market, on the other hand, has unique product specifications, few options for consumers to reduce demand, and adding new refinery capacity is complex and can take years.
"With Enron, California found out what can happen when one company dominates an energy market," Lynn added. "Archer Daniels Midland, with four huge ethanol production plants in Iowa and Illinois representing one-third of total ethanol capacity in the U.S., is well positioned to dictate price and supply to the California market."
While the CEC previously was told that ethanol can be made available in sufficient quantities to supply the California market, today the CEC learned that moving 55,000 barrels per day of ethanol into the state and then to the pump is simply not practical. A number of logistical issues have yet to be resolved: train off-loading facilities are lacking, storage tanks as distribution terminals are scarce, rail adequacy is questionable, and the means to transport ethanol from marine terminals to inland distribution systems is unresolved.
Further, the ethanol requirement means that finished gasoline can not be imported into the state, and it is unlikely that foreign or Gulf Coast refiners will be willing or able to make a base gasoline that meets California's stringent standards for blending with ethanol. The phase out of MTBE will only make the state's gasoline market more insular. Given the fact that California's refineries are already operating at 95% of capacity, any supply disruption will lead to major price spikes.
The Methanol Institute serves as the trade association for the methanol industry. Methanol is one of the principal ingredients used in the production of MTBE.
