GASOLINE HEADING TO $3.00 A GALLON OR MORE
Gasoline heading to $3 - or more
Drivers will face big increases again this summer as changes to regular and diesel fuel add to refiners' costs.
By Harold Brubaker
Inquirer Staff Writer
Spring is barely here, but gasoline prices already have begun climbing toward - perhaps to beyond - $3 a gallon for the summer driving season.
There is more at play than the usual anticipation of increased demand from vacationers. Oil refiners are working through major changes to the composition of gasoline and diesel fuel.
With crude-oil prices already $9 a barrel higher than a year ago, analysts expect the formulation changes will contribute to a fourth consecutive summer of record fuel prices.
In the last month, average gasoline prices in Philadelphia and the Pennsylvania suburbs have climbed by 30 cents a gallon, or 13 percent, to $2.60 a gallon, AAA Mid-Atlantic reported yesterday. In South Jersey, the three-day average was $2.42, a gain of 36 cents, or 17 percent.
Mark Braverman of Jamison has noticed the upturn. Because of it, he parked his 12-miles-per-gallon Lincoln Aviator in favor of his Saab 9-3 convertible, which gets 24 m.p.g. "If I have a vehicle that gets better mileage, it's economics," Braverman said Tuesday after gassing up at a station in Warminster.
The federal government reported yesterday that gasoline inventories had declined for the fifth straight week, maintaining upward pressure on prices.
It is going to be "another summer of very volatile prices, with $3 within reach," predicted Ben Brockwell, editor in chief of Oil Price Information Services.
The Energy Information Administration said that both formulation changes had the potential to cause "regional supply disruptions with periods of increased volatility."
The first hurdle is the phaseout of MTBE - methyl tertiary butyl ether - which has been added to gasoline in Philadelphia and certain other areas of the United States to reduce air pollution.
MTBE causes gasoline to burn more cleanly, reducing toxic emissions from cars. But it has come under fire for contaminating groundwater. Because the federal Energy Policy Act of 2005 failed to shield oil refiners from water-contamination lawsuits, and an increasing number of states are banning the substance, refiners decided to stop using it.
However, refiners must still meet clean-air regulations, and can do that only by replacing MTBE with another clean-burning component. Federally subsidized ethanol - which is also being touted as a renewable fuel that can help reduce dependence on oil - is the only viable choice, industry experts said.
Ethanol has been used as a clean-burning additive for years in some parts of the country, especially in Midwestern markets, but the massive shift to ethanol this spring in the Northeast and in Texas could strain the supply chain, even if there is enough ethanol to meet demand. Plus, ethanol costs more than MTBE, putting further pressure on prices.
Valero Energy Corp., the largest U.S. refiner, estimated that removing MTBE from gasoline will reduce U.S. supplies by about 145,000 barrels a day - or about 1.5 percent of total U.S. supplies.
"That is like losing the gasoline production of three 100,000-barrel-per-day refineries - just as we head into summer driving season," said Mary Rose Brown, spokeswoman for the San Antonio, Texas, company.
Michael J. Hennigan, Sunoco Inc.'s senior vice president for supply, trading, sales and transportation, said he believed logistics were the challenge. "Can you get Midwest ethanol to the coasts?" he asked, referring to the Atlantic and Gulf Coasts.
The federal Energy Information Administration estimated that as much as 2.5 times more ethanol will have to come to the East Coast this year as last year, prompting questions about whether enough railcars and barges will be available.
Spokesmen for CSX Corp. and Norfolk Southern Corp. said the railroad operators, which bring much of the ethanol east, are up to the challenge. CSX's ethanol-shipping business was up 50 percent last year, and this year it is up even more, spokesman Bob Sullivan said.
While Sunoco started using ethanol in the Midwest in 1996 and in other places more recently, the Philadelphia company plans to start supplying gasoline blended with up to 10 percent ethanol in the Mid-Atlantic and in New England in the middle of this month.
Valero, which operates refineries in Paulsboro and Delaware City, Del., has been phasing out MTBE since last month, and received an air permit last week to begin storing and blending ethanol in Delaware City.
Buckeye Partners L.P., which operates a terminal in Malvern supplied by Valero's Paulsboro refinery, is converting a tank in Malvern for ethanol blending, said Jim Scandola, senior manager of transportation at Buckeye, of Emmaus, Pa.
Scandola said the second big change this year, switching to diesel with a much lower sulfur content, was a greater challenge for the fuel-transportation industry.
The regulation on ultra-low-sulfur diesel - 15 parts per million compared with 500 in the current formulation - is unusual in that the sulfur specification has to be met at the fuel nozzle, not at the refinery gate, as is typically the case.
The reason for this is that new diesel truck engines - starting in model year 2007 - must use ultra-low-sulfur diesel in order for new pollution-control equipment to work.
It is a challenge for pipeline companies because a single pipeline carries gasoline, diesel, home-heating oil, and jet fuel, one after another. That creates the potential for sulfur from fuels such as home-heating oil to contaminate the ultra-low-sulfur fuel as it makes its way through the pipeline.
To prevent such contamination, pipeline and terminal operators are spending hundreds of millions of dollars on monitors and on other equipment to segregate ultra-low-sulfur diesel from heating oil and other products, Scandola said.
The regulation goes into effect for refineries on June 1, and must be met at retail by Oct. 15, with some allowances for higher-sulfur diesel for the next four years.
All these complications add up to a market that has plenty of reasons for commodity traders to jump at the least sign of trouble, driving prices higher, said Brian L. Milne, an editor with DTN, a business information company. He said: "They climb the wall of worry."
Drivers will face big increases again this summer as changes to regular and diesel fuel add to refiners' costs.
By Harold Brubaker
Inquirer Staff Writer
Spring is barely here, but gasoline prices already have begun climbing toward - perhaps to beyond - $3 a gallon for the summer driving season.
There is more at play than the usual anticipation of increased demand from vacationers. Oil refiners are working through major changes to the composition of gasoline and diesel fuel.
With crude-oil prices already $9 a barrel higher than a year ago, analysts expect the formulation changes will contribute to a fourth consecutive summer of record fuel prices.
In the last month, average gasoline prices in Philadelphia and the Pennsylvania suburbs have climbed by 30 cents a gallon, or 13 percent, to $2.60 a gallon, AAA Mid-Atlantic reported yesterday. In South Jersey, the three-day average was $2.42, a gain of 36 cents, or 17 percent.
Mark Braverman of Jamison has noticed the upturn. Because of it, he parked his 12-miles-per-gallon Lincoln Aviator in favor of his Saab 9-3 convertible, which gets 24 m.p.g. "If I have a vehicle that gets better mileage, it's economics," Braverman said Tuesday after gassing up at a station in Warminster.
The federal government reported yesterday that gasoline inventories had declined for the fifth straight week, maintaining upward pressure on prices.
It is going to be "another summer of very volatile prices, with $3 within reach," predicted Ben Brockwell, editor in chief of Oil Price Information Services.
The Energy Information Administration said that both formulation changes had the potential to cause "regional supply disruptions with periods of increased volatility."
The first hurdle is the phaseout of MTBE - methyl tertiary butyl ether - which has been added to gasoline in Philadelphia and certain other areas of the United States to reduce air pollution.
MTBE causes gasoline to burn more cleanly, reducing toxic emissions from cars. But it has come under fire for contaminating groundwater. Because the federal Energy Policy Act of 2005 failed to shield oil refiners from water-contamination lawsuits, and an increasing number of states are banning the substance, refiners decided to stop using it.
However, refiners must still meet clean-air regulations, and can do that only by replacing MTBE with another clean-burning component. Federally subsidized ethanol - which is also being touted as a renewable fuel that can help reduce dependence on oil - is the only viable choice, industry experts said.
Ethanol has been used as a clean-burning additive for years in some parts of the country, especially in Midwestern markets, but the massive shift to ethanol this spring in the Northeast and in Texas could strain the supply chain, even if there is enough ethanol to meet demand. Plus, ethanol costs more than MTBE, putting further pressure on prices.
Valero Energy Corp., the largest U.S. refiner, estimated that removing MTBE from gasoline will reduce U.S. supplies by about 145,000 barrels a day - or about 1.5 percent of total U.S. supplies.
"That is like losing the gasoline production of three 100,000-barrel-per-day refineries - just as we head into summer driving season," said Mary Rose Brown, spokeswoman for the San Antonio, Texas, company.
Michael J. Hennigan, Sunoco Inc.'s senior vice president for supply, trading, sales and transportation, said he believed logistics were the challenge. "Can you get Midwest ethanol to the coasts?" he asked, referring to the Atlantic and Gulf Coasts.
The federal Energy Information Administration estimated that as much as 2.5 times more ethanol will have to come to the East Coast this year as last year, prompting questions about whether enough railcars and barges will be available.
Spokesmen for CSX Corp. and Norfolk Southern Corp. said the railroad operators, which bring much of the ethanol east, are up to the challenge. CSX's ethanol-shipping business was up 50 percent last year, and this year it is up even more, spokesman Bob Sullivan said.
While Sunoco started using ethanol in the Midwest in 1996 and in other places more recently, the Philadelphia company plans to start supplying gasoline blended with up to 10 percent ethanol in the Mid-Atlantic and in New England in the middle of this month.
Valero, which operates refineries in Paulsboro and Delaware City, Del., has been phasing out MTBE since last month, and received an air permit last week to begin storing and blending ethanol in Delaware City.
Buckeye Partners L.P., which operates a terminal in Malvern supplied by Valero's Paulsboro refinery, is converting a tank in Malvern for ethanol blending, said Jim Scandola, senior manager of transportation at Buckeye, of Emmaus, Pa.
Scandola said the second big change this year, switching to diesel with a much lower sulfur content, was a greater challenge for the fuel-transportation industry.
The regulation on ultra-low-sulfur diesel - 15 parts per million compared with 500 in the current formulation - is unusual in that the sulfur specification has to be met at the fuel nozzle, not at the refinery gate, as is typically the case.
The reason for this is that new diesel truck engines - starting in model year 2007 - must use ultra-low-sulfur diesel in order for new pollution-control equipment to work.
It is a challenge for pipeline companies because a single pipeline carries gasoline, diesel, home-heating oil, and jet fuel, one after another. That creates the potential for sulfur from fuels such as home-heating oil to contaminate the ultra-low-sulfur fuel as it makes its way through the pipeline.
To prevent such contamination, pipeline and terminal operators are spending hundreds of millions of dollars on monitors and on other equipment to segregate ultra-low-sulfur diesel from heating oil and other products, Scandola said.
The regulation goes into effect for refineries on June 1, and must be met at retail by Oct. 15, with some allowances for higher-sulfur diesel for the next four years.
All these complications add up to a market that has plenty of reasons for commodity traders to jump at the least sign of trouble, driving prices higher, said Brian L. Milne, an editor with DTN, a business information company. He said: "They climb the wall of worry."
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