U.S Fuel Corp. (fka USFF)

[otis1111]

Bodman Says Ethanol Switch Disrupting Gasoline Supply (Update1)
2006-04-21 15:49 (New York)


(Adds closing crude oil price in seventh paragraph.)

By Robert Tuttle and Jim Efstathiou Jr.
April 21 (Bloomberg) -- U.S. Energy Secretary Samuel Bodman
said the switch to ethanol in gasoline may cause supply
disruptions for several months.
At least six filling stations in Philadelphia and the
surrounding region were out of fuel yesterday because of the
switch, according to AAA, the nation's largest motorist
organization. Refiners are seeking to replace the additive MTBE
in gasoline by May because of changes in fuel requirements in the
energy bill that President George W. Bush signed in August.
``We're going to see some problems,'' he told reporters
after giving a speech at a conference in Washington. ``I do
believe over a period of time -- that is, a matter of months --
it will level out.''
Bodman said the country's supply of ethanol is adequate
overall. The logistics of shipping the additive by barge, rail
and truck may cause regional disruptions, he said. Rules that
lower the acceptable level of sulfur in diesel fuel and refinery
maintenance delayed by last year's hurricanes are also boosting
supply concerns, he said.
The U.S. average gasoline pump price is climbing toward $3 a
gallon, a level last seen in September after Hurricane Katrina,
partly because of concern about supply problems related to the
switch to ethanol.
The average U.S. pump price for regular gasoline has risen
14 percent this month to $2.855 a gallon as of yesterday, up from
$2.218 a year ago, according to AAA's Web site.
Record crude oil is also pushing pump prices toward their
all-time high. Crude oil for June delivery rose $1.48 to $75.17 a
barrel today on the New York Mercantile Exchange. Today was the
first time crude topped $75, and the fourth straight day setting
a record.

Scattered Problems

An analyst at the Energy Department and an industry
representatives today said the concern about the ethanol switch
is overdone.
``The problems are scattered, they are transitional, and
they will probably run their course over the next two weeks,''
said Mike Burdette, a senior analyst at the Energy Department's
Energy Information Administration in Washington. ``There are no
widespread outages.''
The filling stations that ran out were around Philadelphia
and Wilmington, Delaware, AAA spokesman Geoff Sundstrom said.
Service stations and fuel terminals can't move to ethanol-based
fuel until they empty and clean their tanks, a process that can
take as long as two days, he said.
``This is related to the conversion from MTBE to ethanol,''
said Jeff Lenard, spokesman for the National Association of
Convenience Stores, a trade organization representing more than
2,200 retail outlets. ``It is not necessarily the same thing as
supply outages.''

Replacing MTBE

As many as 60 Dallas-area service stations ran out of
gasoline in early April because tanker trucks that would normally
be available to re-supply them were used to haul ethanol,
according to Valero Energy Corp. spokeswoman Mary Rose Brown.
Most refineries will have phased out the gasoline additive
MTBE, or methyl tertiary butyl ether, by May and replaced it with
ethanol in reformulated gasoline. Refiners are wary of
liabilities for MTBE that leaks from underground storage tanks
and contaminates drinking water.
Unlike MTBE, which can be mixed with gasoline at the
refinery, ethanol must be shipped separately by rail, truck or
barge and blended with gasoline at local terminals.

Energy Bill

The U.S. Energy Department in February predicted tight
supplies and ``volatile'' prices in the East Coast and Texas
because of the switch to ethanol.
The switch came after last year's energy bill removed the
requirement that gasoline contain oxygenates, which aid
combustion and reduce pollution. Some refineries said the
oxygenate requirement shielded them from liability suits. That
provision of the energy bill takes effect May 6.
The move toward ethanol also comes at the time of year when
the gasoline market switches to summer-grades of fuel from winter
blends.
Lee Raymond, former chairman of Exxon Mobil Corp., the
world's largest oil company, said government regulations
regarding the composition of gasoline were partly to blame for
high prices.
The government was told that if the move away from MTBE came
during the switch to summer grades of gasoline, ``with the
limited capacity that every service station has, we are going to
end up having an apparent shortage of gasoline,'' Raymond said
at an energy forum at Columbia University in New York on April
19. ``And it's exactly what's happened.''

--With reporting by Matthew Leising in New York and Jim
Efstathiou in Washington. Editor: Banker (rsd).

Story illustration: For a chart showing gasoline futures prices,
see {HU1 <Cmdty> GP <GO>}. For news related to refining
disruptions, see {NI REFOUT BN <GO>}. For the DOE's weekly data
on U.S. pump prices, see {USRFRUSA <Index> GP <GO>}.

To contact the reporter on this story:
Robert Tuttle in New York at (1) [phone] or
[e-mail];
Jim Efstathiou Jr. in Washington at (1) [phone] or
[e-mail].

To contact the editor responsible for this story:
Robert Dieterich at (1) [phone] or