Energy bills again hinge on oxygenate issues

Bob Tippee

Energy legislation in the US hinges again on gasoline oxygenates.

In wide-ranging energy bills passed by the House and working through the Senate, big oil and gas provisions relate to ethanol and methyl tertiary butyl ether. Most other major oil and gas items have wiggled out.

Tax changes sought by independent producers have been enacted elsewhere, for example. And the Senate moved leasing of the Arctic National Wildlife Refuge Coastal Plain into budget legislation.

For the still massive bills that remain, oxygenates might again prove fatal.

For most major oil companies, a priority goal of energy legislation is protection against product-defect lawsuits involving MTBE. The ether, which helps refiners meet gasoline oxygen-content requirements, has appeared in subsurface sources of drinking water. Governments are banning MTBE, and local interests are suing companies that made or sold fuel containing it.

As long as Congress requires oxygen in gasoline, of course, ethanol profits from MTBE's sorrows—to the great pleasure of agricultural interests. But reformulated gasoline doesn't need oxygen in the required concentrations to meet performance specifications. So past energy bills have addressed chemical and political realities by replacing the oxygen content standard with volumetric mandates for already-subsidized ethanol.

For the oil industry, which understands ethanol's performance and economic drawbacks, this presents a dilemma: no ethanol mandate, no energy bill; no energy bill, no MTBE relief. The temptation is strong to make a deal.

Ethanol interests see the issue as simply market expansion by fiat—the bigger the better. They persuaded the Senate committee to increase the proposed mandate to 8 billion gal/year from 5 billion gal/year in 2012.

This was too much for the American Petroleum Institute, which had dealt its way into support for the lower ethanol standard and now rightly—but unconvincingly—says it can't abide the higher.

With luck, incomprehensible energy legislation will fail again, keeping the industry from being complicit in the fleecing of its customers and US taxpayers. The industry can fight its MTBE battle better in the context of legal reform than in energy legislation that looks like a bazaar of favors for special interests.

(Author's e-mail: bobt@ogjonline.com)

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