Renewable Fuel Group Researches Gas Prices

Rest assured gas blended with ethanol isn't the reason prices are rising. Instead, it looks like gasoline production capacity is falling behind demand. Willie Vogt

Published on: Apr 1, 2004

Nothing like the threat of $2 gas nationwide this summer to get everyone hopping mad about fuel prices. And for some folks, finger pointing includes blaming reformulated gasoline (RFG) that often includes ethanol as an oxygenate.

Anticipating that the heat will be turned up on that debate soon the Renewable Fuels Association commissioned a study by Innovation and Information Consultants Inc., to identify and analyze the factors that have contributed to the run-up in gasoline prices. The study also compared the current situation with previous years and looked at marketplace factors that will be in force for summer 2004.

The study found the following factors that could be driving up prices:

  • Historically low petroleum gasoline inventories
  • Increased reliance on gasoline imports due to cutbacks in refinery utilization and inadequate domestic refining capacity
  • Higher OPEC-determined crude-oil prices
  • Rapidly rising gasoline consumption

Given those factors, why wouldn't RFG requirements weigh in on this situation?

Turns out that RFG production, which is a small part of overall gasoline production, has been constant during the last three months. And states that recently switched to RFG with ethanol - New York and Connecticut - have seen smaller price rises than other areas of the country. And refiners who may be blaming RFG are also using ethanol at the 10% blend rate even though the government-mandated minimum for RFG is 5.7%. That demonstrates that refiners are finding ample supplies of ethanol.

The challenge ahead is that there's no gasoline supply cushion on which policymakers can rest. A small rise in demand crimps that tight supply fast and boosts prices almost as quickly. And as gasoline demand has grown, the study reports that refiners have failed to utilize existing capacity and to increase new capacity to keep pace.

For the summer, it looks like prices haven't peaked yet. The RFA reports that unless refiners step up to the gasoline supply plate, summer tourists could find they're striking out with gas prices. Any refinery problems or inability to keep up with rising demand will require added imports and could push prices higher.