GAO: Special gasoline blends raising prices

July 6, 2005
The US proliferation of special gasoline blends is lowering emissions of air pollutants but raising fuel costs, says a study by the Government Accountability Office.

By OGJ editors
HOUSTON, July 6 -- The US proliferation of special gasoline blends is lowering emissions of air pollutants but raising fuel costs, says a study by the Government Accountability Office.

Special gasoline blends are designed to reduce emissions of volatile organic compounds and nitrogen oxides and to meet requirements for oxygen content. The federal government requires them in areas troubled by ozone pollution. And some state and local governments have set their own specifications for special blends.

GAO said it found 11 distinct special blends in use during the summer of 2004. With octane difference and other factors, "there were at least 45 different kinds of gasoline produced in the United States during all of 2004," it said.

Models used by the Environmental Protection Agency show special gasoline blends cut vehicle emissions by varying degrees. California's reformulated gasoline, the nation's strictest in terms of content and performance standards, cuts VOC emissions by 25-29% and NOx by 6% compared with conventional gasoline.

The most common special blend, used along the Gulf Coast, cuts VOCs by 12-16% and NOx by less than 1%.

The rising number of required blends has raised costs and aggravated price volatility, GAO said. The blends cost more to make than conventional fuels, require special handling to prevent contamination, and limit interchangeability.

GAO noted a consensus among experts that "the increased complexity and higher refining, transportation, and storage costs associated with supplying special gasoline blends have contributed to higher gasoline prices overall and for specific special blends either because of more frequent or severe supply disruptions or because higher costs are likely passed on at least in part to consumers."

It said its findings support those of other government, academic, and private studies showing that "the gasoline supply system is increasingly stressed" and finding "isolated pockets of higher and/or more volatile prices in cities that use special gasoline blends that are not widely used."

Price findings
In 100 cities studied by GAO, the highest pretax, wholesale gasoline prices generally were in cites using a special blend that's not widely available in the region or that costs significantly more to make than other blends.

Cities distant from major refining areas or other gasoline sources also had high prices.

Most of the 20 cities with the highest prices used special gasoline blends. Cities in the high-price group using conventional blends year-round are far from refining centers or are served by single, small pipelines.

During December 2000 through October 2004, average prices in the 20 high-price cities were 14-41¢/gal higher than those in the lowest-price city.

Five of the 10 cities with the highest average prices are in California.

Of the 20 cities with the lowest gasoline prices, eight use conventional gasoline, and nine use 7.8 rvp gasoline, common along the Gulf Coast. The other three low-price cities—Houston, Birmingham, and Atlanta—use less common special blends but are close to Gulf Coast refining centers.

The study also found price volatility to be higher in cities using special blends. Eighteen of 20 cities with the most volatile prices use special blends, and 17 of 20 cities with the lowest volatility use conventional or 7.8 rvp gasoline.