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US motorists gear for higher fuel prices, shortages
3/20/2006
 

          NEW YORK, Mar 19 (AFP): US motorists are likely to face a fresh surge in fuel prices in the coming months amid a possible supply crunch, as new environmental rules come into effect at a time of peak demand, analysts say.
Prices for gasoline, or petrol, are likely to test highs hit in the aftermath of Hurricane Katrina last year of over three dollars per gallon (3.8 liters).
US refiners are phasing out the use of Methyl Tertiary Butyl Ether (MTBE), a fuel additive that helps increase the oxygen content of gasoline, because of health risks linked to MTBE, which is a known carcinogen.
A number of US states have been banning the use of MTBE, and Congress last year declined a request from oil companies to shield them from liability in the event of MTBE leakage into water supplies.
The US Environmental Protection Agency meanwhile has lifted regulations requiring the presence of oxygenates like MTBE because of health concerns about the additive.
All this means higher gasoline prices and tighter supplies as the summer driving season approaches, say analysts.
"For this summer, gasoline has the chance to notch three dollars again," said Mike Fitzpatrick at Fimat USA.
"Implied gasoline demand stood above the five-year average and could be posting records by the end of May."
Refiners are moving to replace MTBE, which helps gasoline burn more completely, with ethanol, or alcohol made from grain. But this will take time.
A recent report from the US Department of Energy highlights concerns about tight supplies.
"The largest challenge in the transition may be supply availability and transportation of ethanol," DoE said.
"Ethanol capacity in the United States is running near capacity and therefore is not adequate to replace the MTBE lost at this time."
The current situation "may give rise to local imbalances between supply and demand and associated price surges during the change," the report said.
US refiners are just beginning to make inroads into ethanol use, and it remains unclear how quickly they can adapt to needs of production, distribution and storage.
"My concern is: could we get enough ethanol?," said James Williams, analyst at WTRG Economics.
"It's obviously going to stress the ethanol market. For a consumer standpoint it's more likely to add pressure to gasoline prices."
But Williams said that despite these concerns, he does not see new record prices at the pump.
"The current gasoline situation is excellent," he said. "We have more gasoline storage by far than normal."
Although futures markets have been driving prices higher, Williams said he sees enough supplies eventually coming to the market.
Even if pump prices top the psychologically important level of three dollars a gallon, Williams said this may be "beneficial" in the long run by encouraging conservation.

 

 
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