The conversion from MTBE to ethanol additives in California’s gasoline raises the specter of soaring pump prices next year, to as much as $3 per gallon, according to the Contra Costa Times. California Gov. Gray Davis tried to fend off any possible gas price increase by allowing oil companies to continue to use MTBE until 2004. The delay, according to Davis, would buy time for construction of the transportation and fuel-blending facilities needed to replace MTBE with ethanol. On the other hand, the oil companies are anxious to get the conversion process over with as soon as possible, because of legal concerns, even though it will reduce the volume of gasoline available from the state’s refineries. Despite Davis’ assurances that Californians have no reason to worry, oil company officials, wary of violating antitrust laws, refuse to estimate where pump prices might go as a result of the switch. The oil industry consultant whose warnings caused Davis to extend the phaseout date three months ago said prices could jump to between $2.25-$3 per gallon by next spring. “There will be a significant increase in gasoline prices, but I hope I’m wrong,” said David Hackett. The federal Clean Air Act mandates that areas not meeting air quality standards must use MTBE or ethanol to reduce vehicle pollution. California refiners chose MTBE, which they make from petroleum, instead of buying ethanol from the Midwest. Hackett noted that among the reasons gasoline makers might want to switch to ethanol are the opportunity to avoid added exposure to environmental lawsuits, the reduction in the amount of additives they will have to handle, and the opportunity to capitalize on higher prices.

Originally posted on Fleet Financials