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New Government Rules May Fuel Gas Prices

Gas Now Above $2.50 a Gallon

By Joe Benton
ConsumerAffairs.com

March 22, 2006
New Federal rules requiring oil companies to replace an emissions-reducing chemical added to gasoline with ethanol could spark shortages and lead to $3 a gallon gasoline again, according to a U.S. Energy Department assessment. Gas prices are already rising quickly, with the national average now above $2.50 a gallon.

The new regulations require refiners to replace the gasoline additive MTBE with more costly ethanol. The additive transition is scheduled for summer and ethanol producers in the Midwest may have trouble transporting enough of the fuel to key markets along the East Coast on a timely basis, according to the report.

The Energy Department reports that the U.S. ethanol industry continues to show serious growing pains that could bring higher fuel prices as well as cause short supplies at the pump.

Oil industry analyst Trilby Lundberg says prices could climb as much as another 30 cents a gallon though she does not expect prices to reach the record levels set following Hurricane Katrina.

"Chances are prices will be higher than they are now in the coming weeks, as we use more gasoline, and new regulations make gasoline more expensive to make," Lundberg said.

As prices continue to climb, experts are concerned that the ethanol industry will be unable to meet the summertime jump in demand and the shortfall could produce a spike in gasoline pump prices at the start of the country’s peak driving season.

The refining industry claims to have pointed out the difficulty ethanol producers might encounter iin offsetting the loss of MTBE, which accounts for about 10 percent of every gallon of gasoline.

There are transportation issues with ethanol as well. Gasoline can be shipped in large quantities through an extensive network of pipelines. Ethanol, however, corrodes pipelines and must be transported in trucks or other relatively small volume carriers to terminals where the fuel is blended into gasoline.

Gasoline prices are continuing to rise in anticipation of an ethanol problem. Uncertainty about future supplies, even though there's plenty to go around at the moment, seems to be enough to push prices up.

The national average prices for gasoline in now above $2.50 a gallon. Gasoline jumped 15 cents over the last week as the average price across the country reached $2.51.

A month ago the average price for regular unleaded was $2.24 a gallon. One year ago it was $2.07 a gallon.

Diesel fuel is on the rise as well with the average price up 3 cents to $2.66 a gallon. One month ago the average price was $2.55 a gallon. One year ago the average price for a gallon of diesel was $2.26.

The highest price found for regular unleaded gasoline is now in Ragged Point, California at $3.79 a gallon. Paducah, Kentucky enjoys the lowest gasoline price a $1.98 a gallon.

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