By Maureen Lorenzetti
OGJ Online
WASHINGTON, DC, Apr. 26 -- Sen. Frank Murkowski (R-Alas.) warned Thursday that US consumers could pay more than $3/gal for gasoline this summer.
Murkowski spoke following a Senate Energy and Natural Resources Committee oversight hearing on how fuel specifications and infrastructure constraints are affecting energy supplies and prices.
He said, "We don't know what will happen this summer. It [the price of gasoline] might go over a $3/gal. America moves on oil. We have no alternative."
If that happens, Murkowski said fellow congressmen should be prepared to explain to consumers why they have not allowed development of potential oil reserves on the Arctic National Wildlife Refuge in northeastern Alaska.
He said it is likely that consumers would face higher and more volatile gasoline prices this summer due in part to strong demand, a plethora of fuel specifications, and a lack of new refinery capacity.
"American refiners will be operating at 96% of capacity just to meet the nation's summer driving needs." He said between 1990-99 refinery capacity increased from 15.9 to 16.4 million b/d but during the same time US consumption rose from 17 to 19.5 million.
Another factor influencing prices are the dozens of reformulated gasoline formulas refiners make to meet clean air requirements, industry witnesses told the committee. Complicating matters is the possible phase-out of the oxygenate methyl tertiary butyl ether (MTBE) from reformulated gasoline because of groundwater pollution concerns.
Don Daigle, director of Americas Refining for ExxonMobil Corp. called on Congress to repeal the oxygenate mandate in RFG, or �at a minimum amend the law to grant authority to governors to waive the oxygenate mandate on a regional basis.� In the meantime, Congress should encourage EPA to grant waivers from the mandate -- starting with California, he added.
Another sore spot to refiners is the Environmental Protection Agency�s New Source Review program, which impacts refineries and other large industrial sectors such as electric power generators. NSR aims to improve air quality from stationary source polluters but the regulators have often overstepped their authority by enforcing tough new standards retroactively. Refiners therefore have shied away from making major new investments in capacity at a time when they are needed most, panelists said.
One solution would be for EPA to suspend NSR enforcement actions until the new administration conducts a thorough review on how to revamp the system, officials added. Otherwise, refinery investment may be severely discouraged, placing further constraints on the gasoline delivery system and driving up prices.
Compromise
After the hearing, two moderate Northeast lawmakers offered their own plan to ease future gasoline price spikes.
Sens. Charles Schumer (D-NY) and Susan Collins (R-Me.) released a report that recommends increases in domestic oil production along with incentives to reduce demand. The said that their bipartisan proposal only includes "doable" actions that could be supported by both parties.
Schumer said he recommended a compromise to Vice-Pres. Dick Cheney that could keep both industry and environmental groups happy. For industry, there could be expansion of drilling on federal lands in the Rocky Mountains and in the Gulf of Mexico where a history of development already exists. For green groups, the government could impose new fuel efficiency standards for minivans and sport utility vehicles.
Schumer and Collins's report called for reducing the backlog of applications for development rights on federal lands already approved for oil and gas exploration and expand incentives for exploration and drilling on federal lands in the Rocky Mountains and the Gulf of Mexico. A natural gas pipeline from Alaska should also be built to help supply the Lower 48, they said.
The senators do not advocate opening the ANWR coastal plain or national monuments to exploration, they said.
API testimony
Meanwhile, the American Petroleum Institute told a House committee Wednesday that consumers line and America�s drivers should have enough fuel for the upcoming summer driving season.
John Felmy, APII�s chief economist, said, "Already this year we are experiencing a second set of price spikes in gasoline caused by tight market conditions. Unless we realistically address these issues in an effective national energy policy, these shocks may continue with increasing frequency.�
He testified before the House Agriculture Committee�s subcommittee on conservation, credit, rural development and research.
He said that gasoline production so far this year is 1.7% lower than last year because refineries have been working all-out to produce winter fuels. Also, he said, this year�s gasoline demand is up 1.6% from last year�s while gasoline imports are 7% lower than last year�s.
Those factors and the required inventory reductions to meet the EPA summer-gasoline mandates, have pushed gasoline inventories lower than last year�s relatively low levels, he said, and resulted in price volatility, especially in the Midwest.
The good news, Felmy said, is that refineries are now finishing their required maintenance and have increased production of gasoline during the recent 4 weeks.
�If the system can continue to work smoothly, a significant build-up in gasoline inventories to be ready for the summer driving season is possible,� he said.
Contact Maureen Lorenzetti at [email protected]