Switch from MTBE could disrupt US fuel market, says PIRINC

Maintaining a US federal oxygenate requirement for motor vehicle fuel while quickly phasing out oxygenate methyl tertiary butyl ether at the state level could cause short-term supply disruptions, said the Petroleum Industry Research Foundation Inc. (PIRINC) in a report released this month.

By the OGJ Online Staff

HOUSTON, Dec. 6 -- Maintaining a US federal oxygenate requirement for motor vehicle fuel while quickly phasing out oxygenate methyl tertiary butyl ether (MTBE) at the state level could cause short-term supply disruptions, said the Petroleum Industry Research Foundation Inc. (PIRINC) in a report released this month.

In that report, the group said state initiatives to ban MTBE because of concerns about contamination of water supplies are setting the stage for a massive increase in demand for ethanol as an oxygenate for fuel.

Of the other oxygenates approved for this use, three are ethers and would raise similar concerns about water supplies, and tertiary butyl alcohol is used mainly in MTBE production.

"... A forced shift to ethanol with its different logistics requirements creates serious new risks of supply disruption and price spikes -- unless the time-frame for an MTBE phase-out is far more gradual than currently contemplated," it warned.

The group said that ethanol's current tax advantages make it competitive within its current market areas.

"[Ethanol] will continue to be used in growing volumes with or without an oxygenate waiver or further incentives and/or mandates for its use. Long-term, this is an issue with only marginal consequences in terms of benefits or costs. But short-term, failure to be flexible risks creating new vulnerabilities to the country's fuel supplies at a time when, since September 11th, we all have enough to worry about," said PIRINC.

PIRINC said Congress is considering a waiver of the oxygenate requirement for gasoline. The case for environmental regulation requiring an oxygenate component for motor vehicle fuel, especially for reformulated gasoline, grows weaker with technology advances and enabling fuel specifications, said the group. "The use of commonly available oxygenates in RFG has little impact on improving ozone air quality and has some disadvantages."

Political pressure from states that grow corn is increasing to keep the oxygenate mandate. Particularly with MTBE suppressed (at least 12 states are moving to ban the oxygenate), those states stand to profit from increased demand for their agricultural product.

PIRINC noted that if the oxygenate mandate is continued, perhaps the role of the federal tax advantage for ethanol should be considered, "since, with a mandate, the market for ethanol is essentially assured."

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