Thu Mar 30, 6:45 AM ET
Gasoline prices will be unusually high and shortages might occur this summer, because the U.S. ethanol industry can't keep up with the demand for fuel-grade alcohol to mix with gasoline, the head of the U.S. Energy Information Administration told a Senate committee Wednesday.
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Merely "short-term challenges," countered Bob Dinneen, president of the Renewable Fuels Association, the ethanol trade group. Whatever can't be produced here can be imported, he said.
But imported ethanol, mostly from Brazil, carries a 54-cents-per-gallon tariff that would boost fuel prices even more, unless it were waived. (Story: Energy independence spurs Brazil to boost ethanol goals)
Ethanol - grain alcohol made mainly from corn in the USA - is being promoted by the auto and ethanol industries and the government as a substitute for gasoline, usually in a mix called E85 that is 85% ethanol and 15% gasoline.
But the comments Wednesday at the Senate Environment and Public Works Committee underlined how distant a goal that is. The hearing wasn't even about a goal as ambitious as E85. It was to discuss ethanol as a substitute for MTBE, a clean-air additive in gasoline. Replacing it with ethanol would require only about 8% as much ethanol as E85 requires.
Refiners have used MTBE for years and now are discontinuing it because MTBE can taint water supplies and Congress has refused to protect them from MTBE lawsuits. Ethanol is the only ready substitute.
Dinneen pointed out that 33 ethanol plants are under construction and that some of the 97 others already producing are being expanded.
But EIA, in a report last month warning of shortages, said that "new (ethanol) facilities will not start soon enough to meet 2006 demand." That, EIA head Guy Caruso told the committee, "could cause temporary supply dislocations and may cause price volatility."
Ethanol mainly is made in the Midwest. But demand should be heaviest in the Northeast and Texas because of special clean-air fuel requirements there. Shipping alcohol costs more and takes longer because ethanol attaches to any moisture present and could contaminate petroleum pipelines - the cheap, fast way to ship.
EIA has forecast summer gasoline prices averaging about $2.50 per gallon, or 12 cents more than last year. It has not, however, directly blamed ethanol shortages.
EIA reported Wednesday that U.S. inventories of gasoline - though still robust - dropped 5.4 million barrels last week, the biggest drop since the week ended Aug. 22, 2003.
The wholesale price of gasoline for summer-month delivery rose several cents a gallon, to about $1.91.
Ethanol, by contrast, ranged from about $2.49 to $2.52.
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