Uncle Sam's hand in high gas prices?
 

Uncle Sam's hand in high gas prices?
Critics say ill-timed legislation is partly responsible for prices at the pump, but others say the industry should have seen what was coming.
By Steve Hargreaves, CNNMoney.com staff writer
April 18, 2006: 11:25 AM EDT


NEW YORK (CNNMoney.com) - As gasoline prices spiral upward ahead of the high-demand summer season, some traders and consumer advocates are laying at least part of the blame squarely on the doorstep of the federal government.

While near-record crude prices account for nearly 60 percent of the cost of making gasoline, and unabated demand from U.S. drivers has done nothing to ease prices, part of the run-up has to do with problems with switching from one type of gasoline additive to another.



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The switch is happening because lawmakers didn't include liability protections for makers of MTBE, a cancer-causing additive easily soluble in water that has been the subject of several lawsuits, when they enacted an energy bill last August.

So refiners are scrambling to switch to ethanol, a corn-based additive that also makes fuel cleaner burning, which is required in most major metropolitan markets. But with just six months to make the switch, supplies of ethanol and the trucks and rail cars needed to bring it to market are stretched, which has helped push gasoline futures to their highest level in over six months and prices at the pump closer to the $3 a gallon mark.

"We're staring down the barrel of a policy problem that's causing this situation for consumers," said John Kilduff, an energy analyst at Fimat in New York. "They should have been given more time."

Geoff Sundstrom, a spokesman for AAA, a drivers' advocacy group formerly known as the American Automobile Association, agrees.

"Without a phase out period, industry has been saying it would result in this," said Sundstrom. "It seems the whole process could have been managed better by the federal government."

But Bob Simon, the Democratic staff director for the Senate Energy and Natural Resources Committee refused to take the blame, saying the change has been in the works for years and that energy companies should have been prepared.

"The refineries were betting that they were going to get MTBE liability protection, and they placed a bad bet," said Simon, noting that the committee's chairman said publicly last year that there was no way the product would ever get liability protection. "I don't know how much clearer it could have been."

Sen. Byron Dorgan, D-N.D., said he thought the switchover had very little to do with the high price of gasoline.

"I think it's a preposterous argument," said Dorgan. "It has to do with the OPEC countries organizing a cartel, larger oil companies and an orgy of speculation."

Making the change is hard because ethanol, unlike MTBE, absorbs water and therefore can't be transported by pipeline, which is how most gasoline moves from refineries to regional markets, said Mary Rose Brown, a spokeswoman for the refining company Valero (Research).

So ethanol needs to be transported separately by truck or railcar from the Midwest, where it's produced, to the pipeline terminus, where it's then blended with gasoline as the gas is loaded onto trucks for delivery to gas stations, said Brown.

"We've yet to see how hard it will be, but we will see spot outages," she said, noting that there have already been shortages in Dallas and Houston, where the switch is currently taking place.

Brown admitted the industry didn't think it was going to have to stop using MTBE, but said having a grace period like the one in California when that state banned its use would have been nice.

"Having a year-long phase out period took a lot of pressure off the market," she said.

Nice deflection by the gasoline industry.

Blame it on the government when they don't cover your legal ass for using an additive that has been determined to be dangerous.

Yeah the government has a hand in it. The hand is all the ridiculous fuel taxes that make up like a quarter of the total price.

What are the oil companies making off this? Probably not as much as the government is making.

LMAO at the oil industry bastards...the prices are high because they've made them high...and no other reason.

Supply < Demand. Economics 101. China and India are using more now than ever and are not going to stop. We shoulda been drilling in Alaska 10 years ago. Same goes for off the west coast. We use alot, we pay alot. Get used to it cause it ain't going away..ever.

And yeah, the Government makes more off of one gallon of gas that do the Oil companies. How come nobody wants them to relax their prices? Oh yeah, cuz people are stupid. That's right...

We are collectively dumber than a bag of hammers.

Exactly.

At least the oil company profits are going into the hands of private citizens who are going to put the money into the economy, instead of the government where it can be used in innumerable ways that add much less or nothing at all to the economy.

Gas prices actually went down here yesterday. 2.59 to 2.58. What a huge relief! :rolleyes:

What about all the Environmental Tree huggers causing custom blends to be created....that isn't cheap either. MTBE was a result of that.

Ethanol....E85 could have been pushed years ago.

The irony is, the same person that posted this article also posted an article about the current low supply that is driving up prices.

Those taxes pay for roads, maintenance, etc. To claim that "nobody wants them to relax their prices" is essentially saying no one wants lower taxes, which we all know is isn't true. If they weren't taxing gas, they'd be taxing us elsewhere. If you want to bitch about taxes. go ahead, but it's different issue. Oil companies are still recording record profits and paying out $160 million severance packages to their CEOs.

What do you want them to do? It's a private business charging a price consumers are willing and able to pay.

What do you want the government to do? Build roads without tax money?

How about the government pledge to take only what they use for roads in the fuel tax and not a penny more? Surely if it doesn't end up in slush there would be no issue.

You mean the government makes money on the gas that is sold? Is there anything OUR government doesn't make money on? So who is worse, the government who is supposed to be for the people or the oil companies who sell a product to make money, and lots of it.

Carter or Reagan should have done something in the late 70's early 80's that would have been visionary to help prevent this vice that is on the balls of American fuel buyers.

The writing was on the wall, yet they refused to address the situation.