There appears to be a disagreement between ethanol lobbyists and the Department of Energy over whether
the phase-out of MTBE-blended gasoline will mean market volatility this summer.
US refiners are phasing out MTBE in "stages," rather than the "rapid reduction" mentioned in a report by
the DOE's Energy Information Administration,
according to a March 14 letter to the EIA from Bob Dinneen,
CEO of the Renewable Fuels Association.
The EIA report last month warned that East Coast and Texas reformulated gasoline prices could spike this
year as the market phases out RFG blended with MTBE and switches to RFG made by blending ethanol into
Reformulated Blendstock for Oxygenate Blending, or RBOB.
Ethanol prices are at some of their highest levels ever on a jump in demand.
EIA's view that the industry is moving away from MTBE ahead of the 2006 driving season "suggests a rapid
reduction in RFG blended with MTBE, whereas it is our understanding that a number of refiners intend to
remove MTBE in stages," said Dinneen in a letter made public by RFA.
While ethanol supply will be "strained," he said, "a phased reduction will allow a smoother transition than
that projected by EIA."
But EIA analyst and RFA letter recipient Joanne Shore told Platts that original plans by refiners for a
more "leisurely" MTBE phase-out have changed. She said the EIA report remains valid: "Bottom line is that
the ethanol market is and will remain tight for some time."
Ethanol prices are at some of their highest levels ever on a jump in demand. New York spot ethanol prices
assessed by Platts are currently about $2.62/gal, down from a recent high of $2.80 in February but up from
about $1.35 a year ago.
Dinneen cited as an example of a slower phase-out Colonial Pipeline's reversal of an earlier decision to ban MTBE on its line by mid-April
and allow MTBE-blended gasoline on a case-by-case basis.
In a conference call earlier this month, Shore said Colonial's decision was probably designed to avoid a
gasoline supply crunch. "Colonial doesn't want to see its customers having to put bags over their pumps,"
she said.
Many US refiners are phasing out MTBE, an oxygenate known to contaminate drinking water, and replacing it
with ethanol. While the "mass transition" from MTBE this year will create "some minor complications," the
ethanol industry is building capacity to meet new demand, said Dinneen.
"The US ethanol industry has been planning for this transition for months and has already taken the
necessary steps to ensure that every drop of ethanol produced in this country makes it to the areas that
need it. There are 33 ethanol plants under construction and many more completing planning stages," said
Dinneen.
"Plants under construction don't provide ethanol now," said Shore. She said the US will be relying mostly
on spare Brazilian ethanol production, but "Brazil doesn't have a lot of extra exports." That country
recently cut the ethanol content of gasoline to 20% from a longstanding 25% on fears of a local supply
shortage.
Meanwhile, Dinneen said the ethanol industry has restructured local deliveries, "freeing up rail
capacity to deliver product to the East Coast." Others are staging barges to ship ethanol via waterways
or have begun prefilling ethanol storage on the East Coast ahead of the transition away from MTBE, he
added.
"This is no time to create unnecessary fears in the marketplace," said Dinneen.
"We have an obligation to alert the public to potential problems," said Shore.
Created: March 31, 2006
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