From: Paul Wenske, The Kansas City Star, Mo.
Published May 6, 2005 12:00 AM

Gasoline Would Be Cheaper if Oil Companies Used More Ethanol, Report Says

Reluctance by big oil companies to blend more ethanol in their gasoline costs consumers 5 to 8 cents a gallon at the pump, a report claims.

The report, released Thursday by the Consumer Federation of America, argues that oil companies are keeping gas supplies tight and prices high even though ethanol is plentiful and available at prices that have dropped 40 cents a gallon or more since the beginning of the year.

"The major oil companies are reaping huge windfall profits while consumers across the nation are facing the highest gasoline prices in recent memory," said Mark Cooper, the federation's director of research.

A petroleum industry spokesman denied that oil companies are making undue profits. John Felmy, chief economist for the American Petroleum Institute, said the allegation the industry is artificially keeping prices high "is simply wrong."

Felmy said the oil industry already blends more ethanol than required by national clean air standards. "We are using a lot more ethanol," Felmy said. He said the present transportation and pumping infrastructure won't accommodate more ethanol.

Ethanol, which is mainly denatured alcohol, is most often blended with gasoline at a ratio of 10 percent ethanol to 90 percent gasoline. It is promoted as a renewable fuel that burns cleaner and reduces the country's dependence on foreign oil.

While gas prices have risen 23 percent or more since last year, the price of ethanol, produced from grain, has remained steady or actually dropped, partly because of increased production as more ethanol plants are built in the Midwest.

The consumer group contends the technology, destination terminals and pumps are now available to allow gas companies to blend more ethanol and reduce the cost of gas per gallon. But it contends gas companies can make more money selling gas.

According to the report, the 10 largest companies that refine crude oil in the United States increased profits by almost 60 percent in the first quarter of 2005 compared with the first quarter of 2004.

Felmy said those figures are misleading. He said while gas prices have boosted revenues, petroleum profit margins are in line with other industries, and are often lower.

He said fourth-quarter 2004 profit margins for oil and gas averaged 7 percent compared with 7.3 percent for other industries. "We are getting a fair return for everything we have to do to supply consumers' every day, seven days a week," Felmy said.

Source: Knight Ridder/Tribune Business News

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