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California

State Could Face Gas Price Spikes

Refinery repairs and the switch to a new fuel formula are blamed for supply fluctuations.

May 10, 2003|Nancy Rivera Brooks | Times Staff Writer

California gasoline prices rose higher and faster than pump prices elsewhere in the nation this year because of supply problems caused by refinery repairs and the transition to a new clean-fuel additive, the U.S. Energy Department said Friday.

Refiners in the state are switching to ethanol as part of the recipe for cleaner-burning fuel, eliminating water-polluting methyl tertiary butyl ether, or MTBE, in advance of a Jan. 1 state ban.

This change in fuel additives, designed to meet the federal oxygen requirement for gas, helped push California gas prices higher and might leave the state short of supplies during peak summer driving months, the report by the Energy Information Administration said.

That in turn could trigger more frequent price spikes, said the EIA, the Energy Department's research and statistical arm. The agency said the report was a preliminary assessment and that it plans to release more detailed findings this fall.

"There is a chance that California could see a recurring problem with volatility," said Joanne Shore, an EIA senior analyst who led the team that produced the report. "Certainly, that is an issue for this summer that everyone is going to continue to watch."

The report, requested by Rep. Doug Ose (R-Sacramento), provides more ammunition for California officials who have demanded without success that the state be freed from the federal requirement to add oxygenates to its gasoline.

"The infrastructure problems caused by ethanol will mean that Californians will be paying higher prices for years to come," said Yier Shi, a spokesman for Ose. "The report says what we have feared: that the transition will not be smooth and that consumers will pay the price."

Improvements in refinery technology and pollution-fighting equipment on cars and trucks have made oxygen-boosting additives unnecessary in California, said William L. Rukeyser, spokesman for the California Environmental Protection Agency. But the federal government has refused to grant California a waiver from the Clean Air Act, he said.

"We are able to fight pollution ... without the burdensome requirement to add oxygenate to every single gallon of gasoline," Rukeyser said.

Wild swings in gasoline prices have become almost routine in California since 1996, when the state required the production of lower-emission gasoline.

The cleaner-burning fuel is produced by few refineries outside of California, so any production disruptions cause prices to soar.

Friday's report blamed most of the run-up in gasoline prices -- to a record average of $2.145 a gallon on March 17 -- on the sharp increase in worldwide crude oil prices.

California's spike was bigger than the rest of the nation's partly because of routine maintenance at state refineries. More refineries were out of commission than usual and for longer than expected, the EIA report said.

The other factor was production problems caused as some refiners switched to ethanol at the same time that they were transitioning from winter gasoline to a federally mandated summer blend that is more difficult to produce -- especially with ethanol rather than MTBE, the report said.

What's more, California's already delicate balance between supply and demand could be worsened because of the switch to ethanol.

The ethanol-gasoline blend has a higher gas-to-additive ratio than the MTBE blend. To maintain the 2% oxygen requirement, only 6% of the ethanol additive is needed for a gallon of gas, compared with 11% for MTBE.

As a result, it takes more gasoline to produce every gallon of blended product for sale -- further constricting gasoline supplies.

The problem is compounded in the summer because refiners must remove other components, including butane, to reduce evaporation.

"Our refinery infrastructure is so delicate it doesn't take much to knock it out of balance," said Suzanne Garfield of the California Energy Commission. "Some refiners did have difficulty in blending summer gasoline. They do it in their labs, but sometimes when you do it in the large tanks and start blending you get a different result."

Garfield said the combined effect of using ethanol and switching to summer fuel would reduce California gasoline production by about 10%. And with growing consumer demand, "we are being pushed against the wall," she said.

Refiners are responding this year by increasing production to summertime levels of about 1 million barrels a day earlier in the year, Garfield said.

Oil industry spokesman Jeff Wilson said the report supports the industry's assertions that the price increases were caused by market factors rather than improper behavior by oil companies.

"There's a tendency to try to find a culprit or a villain," said Wilson of the Western States Petroleum Assn. "Prices continue to be driven by market forces."

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