New EIA Report Questions Ethanol's Ability to Replace MTBE

Renewable Fuels Association assures that any disruption in supply will be minimal. Compiled by staff

Published on: Mar 14, 2006

Current U.S. ethanol production stands at 275 barrels per day. But another 130,000 barrels will be needed daily to make up for the accelerated oil-company phase-out of the gasoline additive methyl tertiary-butyl ether planned to occur before the busy summer driving season.

A new report from the Energy Information Administration - Eliminating MTBE in Gasoline in 2006 - says the rapid switch from MTBE to ethanol blends could have a negative impact on energy costs and the ethanol industry.

The report outlines that these impacts mainly stem from:

  • Net loss of gasoline production capacity
  • Tight ethanol market, limited in the short-run by ethanol-production capacity and transportation capability to move increased volumes to areas of demand
  • Limited resources and permitting issues hampering gasoline suppliers abilities to quickly get terminal facilities in place to store and blend ethanol
  • Loss of import supply sources that cannot deliver MTBE-free product, or that cannot produce the high-quality blend stock needed to combine with ethanol

EIA says ethanol-blended gasoline cannot be intermingled with other gasolines during the summer months. Also, ethanol, unlike MTBE, must be transported and stored separately from the base gasoline mixture to which it is added until the last step in the distribution chain. Many areas of the distribution system cannot handle additional products without further investments.

RFA responds to EIA claims

Renewable Fuels Association President Bob Dinneen sent a letter Tuesday to EIA countering assertions concerning the availability of ethanol for those gasoline markets transitioning out of MTBE. "The bulk of EIA's report is based on 2004 data and informal discussions with refiners," says Dinneen. "To make sweeping projections based on data that is more than a year old, discussions with unnamed companies, and no indication of how much MTBE will be lost from the market is problematic at best."

While the U.S. ethanol industry has anticipated a full-scale transition from MTBE to ethanol, the rapid rate at which gasoline refiners are now pulling MTBE from the marketplace has mobilized ethanol producers and marketers to quickly reorganize their delivery networks to meet the new demand.

"EIA should recognize that many in the ethanol industry have begun to restructure how they deliver ethanol to their local markets, freeing up rail capacity to deliver product to the East Coast," Dinneen writes. "Others are staging barges to ship ethanol via waterways or have begun prefilling ethanol storage facilities on the East Coast in advance of this transition. In view of the fact that EIA conducted informal meetings with oil refiners, it should also have met with key players in the ethanol and rail industry."

"The U.S. ethanol industry has been planning for this transition for months and has already taken the necessary steps to ensure that every drop of ethanol produced in this country makes it to the areas that need it," Dinneen writes. "...Refiners made the decision to accelerate the removal of MTBE, not ethanol producers. Nevertheless, we have worked diligently with our customers - the nation's gasoline refiners - to ensure that any consumer impact resulting from refiners' decision to hemorrhage MTBE will be temporary. That means having the ability to deliver product where it is needed as well as adding the domestic production capacity to meet this growing demand."