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Ethanol Boost in Texas

March, 2006
Gas may soon cost $3 a gallon in North Texas

cost an arm and a leg

Gas may soon cost $3 a gallon in North Texas; Railroads scrambling to find tank car capacity for ethanol Motorists in North Texas are facing a potential spike in gasoline prices in coming weeks comparable to the one after Hurricanes Katrina and Rita in 2005. The U.S. Department of Energy said last month that because of bottlenecks in the ethanol-supply chain, North Texas and Houston face potential spot shortages of gasoline during the late spring and early summer, when demand typically rises. “So far all the talk about ethanol has made the price of gasoline increase, and it will probably go up further,” said Bob Harris, a Fort Worth wholesale gasoline distributor. Lynton Allred, president of the Texas Petroleum Marketers & Convenience Store Association, said of ethanol, “There’s going to be a lot of problems getting the fuel to the user.

” The U.S. Department of Energy’s warning of spot shortages touched off a bullish frenzy for gasoline in commodity markets that motorists will feel in the summer of 2006. Average prices for regular self-serve unleaded gasoline in Tarrant County ( Fort Worth, Texas) rose from $2.10 to $2.48 per gallon in the April / March time frame, according to Fort Worth Gasprices.com, despite the Department of Energy saying that there are ample supplies of crude oil.

Midwestern politicians, aided every four years by the Iowa presidential caucuses, have long touted corn-based ethanol as a fuel, particularly after the Arab oil embargoes of the 1970s sensitized Americans to their dependence on foreign sources. The use of ethanol was first used in the 1920's by Henry Ford, lasting until the early 1940's. Ethanol use rose once again during the 1980s and ’90s when the price of gasoline, fed by ample supplies of crude oil, dipped to as low as $1 per gallon but soon faded. Ethanol got its latest boost last year when the 2005 energy bill passed by Congress renewed subsidies for the fuel and omitted a provision requested by U.S. Reps. Tom DeLay and Joe Barton of Texas. The provision would have shielded the Houston-area manufacturers of MTBE from liability lawsuits even though major oil companies said they would no longer use MTBE as an “extender” after May 2006.

The government issued a warning in April of 2006, and the markets are responding. The wholesale price of unleaded gasoline rose more than 30 percent to $1.95 per gallon in trading in late March on the New York Mercantile Exchange. That is the highest price since it reached $2 per gallon in September and October due to shortages caused by damage from the 2005 hurricane season. Add the additional cost of state and federal taxes of 38.4 cents per gallon in Texas, plus storage and transportation charges, and it’s no surprise that predictions of retail gasoline prices of $2.75 to $3 per gallon by summer (have) arrived as early as April, 2006.

MTBE (methyl tertiary butyl ether), a fuel additive to boost its octane or to meet clean fuel oxygen requirements (i.e., reformulated gasoline and winter oxygenate gasoline) is being set aside because of environmental and liability concerns. MTBE is toxic and, absent a requested waiver from Congress shielding producers from lawsuits, major refiners have said they will quit using MTBE by early May. Ethanol, a nonfossil fuel, is the only large-volume alternative available.Railroads and oil companies are struggling to provide enough corn-based ethanol to replace MTBE, and allow the Dallas-Fort Worth area to meet emissions standards set by the government.

The ethanol will be needed after May 5th to replace the (MTBE), used as an additive to reduce pollutants during the summer in Dallas-Fort Worth, Houston and other major cities, mostly on the East Coast.

MTBE has been used in Houston metro areas for the past decade to cut sulfur emissions and help those areas and Dallas-Fort Worth come closer to compliance with federal clean-air standards. Because ethanol has different chemical properties, it can’t be moved in conventional oil and gasoline pipelines. Storage tanks and tanker trucks must be cleaned and all traces of water removed before ethanol can be injected, unlike gasoline, Ethanol doesn’t naturally separate from water. Three-quarters of ethanol moves by rail, and both the BNSF Railway Company and Union Pacific Railroad are scrambling to find tanker-car capacity and arrange to deliver and store the ethanol that will be shipped south to Texas.

Questions have been raised about the ability of the nation’s 90 ethanol plants, most of them in Iowa, Nebraska, Minnesota, Illinois and South Dakota, to meet the demand. Last year those plants made 4.3 billion gallons of ethanol (3 percent of the 140 billion gallons of gasoline consumed yearly in the US) mostly to use in E-85 gasoline sold at stations in the Corn Belt and, more recently, in California. The oil industry, which until this year kept its distance from the growing ethanol industry, has pledged to provide local storage terminals where the ethanol and refined gasoline will be mixed at a ratio of about 1-to-10. Exxon Mobil spokesman Dave Gardner said that Exxon Mobil’s Irving terminal could store ethanol, and other gasoline suppliers, including Shell and Valero, have made similar commitments. Mixing ethanol and gasoline at storage terminal sites will be a significant logistic change for oil companies accustomed to mixing gasoline and MTBE at their Gulf coast refineries and moving the product in regular pipelines.

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