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July 3, 2003

Ethanol Blends Consistently Cheaper than MTBE Blends in California Gasoline Market

Transition to Ethanol Continues Smoothly

Washington, DC – The Renewable Fuels Association (RFA) has highlighted the positive role ethanol plays in keeping down California gasoline prices as the state phases out the water-polluting gasoline additive MTBE. The RFA released California wholesale gasoline market information at a U.S. House Government Reform Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs field hearing on “California Gasoline Markets: From MTBE to Ethanol,” held by Congressman Doug Ose in Diamond Bar, California.

“Ethanol-blended gasoline has been consistently less expensive than MTBE-blended gasoline in the California spot (wholesale) market – that’s a fact,” said Bob Dinneen, RFA president. “Despite the facts, some try to place the blame for high gas prices on ethanol. That math just doesn’t add up. Due to California’s unique gasoline regulations and lack of adequate in-state refining capacity, California gas prices respond quickly and severely to any unexpected refinery outages. As in years past, we’re seeing that scenario play out again this year. It is clear, however, that this recurring price volatility is completely unrelated to the switch to ethanol.”

The California Energy Commission (CEC) studied February and March’s price volatility and concluded: “This year’s increase in gasoline and diesel prices is not unlike similar events that occurred in 1999 and 2001.” They also found no evidence faulting ethanol blending, stating: “The early, voluntary phaseout of MTBE by most of California’s petroleum industry and the transition to low volatility gasoline do not appear to have been primary causes of the recent high gasoline price divergence in California.”

At Congressman Ose’s request, the U.S. Energy Information Administration (EIA) also studied California’s gasoline prices during the first third of the year. The EIA concluded that in addition to “normal” factors, the decision by a small minority of California refineries to continue using MTBE created a segregated fuels market that influenced “the magnitude of the price increase.” However, other than that, the EIA found that other “factors associated with the MTBE/ethanol changeover, such as ethanol supply and price, and infrastructure to deliver, store and blend ethanol, did not seem to be significant issues…In general, the transition to summer ethanol-blended gasoline in California this year has gone remarkably well.”

 

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