From: Tom Doggett, Reuters
Published March 30, 2006 12:00 AM

U.S. Ethanol Makers Say They Can Meet Oil Refiner Demand

WASHINGTON — U.S. ethanol producers told Congress on Wednesday there will be enough of their mostly corn-based product to meet the demands of oil refiners that will need more of the fuel additive to make gasoline for the summer driving season.

Every major U.S. oil refiner is expected to stop using the water-polluting fuel additive MTBE and switch to ethanol by May 5, when the federal oxygenate requirement for reformulated gasoline is repealed, according to the Renewable Fuels Association, a trade group that represents ethanol producers.

At a Senate environment committee hearing into the effect that phasing out MTBE will have on gasoline supplies and prices, RFA President Bob Dinneen said about 2 billion gallons of MTBE still sold in the Mid-Atlantic states, the Northeast region and Texas likely will be replaced by ethanol.

"There will be adequate supplies of ethanol to meet the demand created by the removal of MTBE," Dinneen said. "I am confident the transition can, and will, go smoothly."

Many oil companies are worried they could be sued if they keeping using MTBE (methyl tertiary butyl ether), which has been banned in many states, and are switching to ethanol.

The problem is refiners are eliminating MTBE in favor of ethanol at a much faster rate than many energy experts had anticipated. Ethanol is also difficult to transport, because it can't be mixed with other petroleum products in pipelines.

To help meet the new ethanol demand, Dinneen said, U.S. ethanol makers will add 500 million gallons in production capacity before July and another 900 million gallons in output by the end of the year.

Several refiners also have contracted with Brazilian and Caribbean-based ethanol suppliers to import the product, according to Dinneen. Ethanol shipments to the U.S. market in 2006 are expected to be more than last year's 130 million gallons, he said.

Large U.S. gasoline inventories, thanks in part to strong motor fuel imports, have been seen by the Energy Department as a cushion during the transition from MTBE to ethanol.

However, gasoline stocks fell a huge 5.4 million barrels last week, the biggest decline since August 2003, even though U.S. imports of gasoline topped 1 million barrels a day for the eight week in a row.

At 216 million barrels, U.S. gasoline inventories are still in the upper end of the average range for this time of year.

The Energy Department said on Wednesday a benefit from this winter's milder temperatures was refineries did not have to replenish heating oil stocks and could make more gasoline ahead of this summer's peak driver demand.

Source: Reuters

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