THE FLIP-FLOP ON MTBE:
IT COST MONEY TO START AND IT COST MONEY TO STOP

Commentary by John Powell, Ammonite Resources

New Canaan, Connecticut

     I've got a friend who used to work here in town. When he got a job in the city he told his wife, "The job's better, but I'll have to take the bus and spend more money on commuting." A few years later, the bus line canceled his bus service. He told his wife, "Since I can't use the bus, I'll have to buy a car and drive to the city. The job will be the same, but commuting by car will cost more than by bus." His wife didn't understand, when her husband started taking the bus, commutation cost more; now, he' going to stop taking the bus and commutation is going to cost more again.

     While my friend's situation is all too obvious, the non-obvious but identical situations existed in the past with lead in gasoline, and now with MTBE in gasoline. The lead example is about as simple as my friend's bus problem. The public demanded higher-octane gasoline. The solution was to add lead to the existing quality gasoline, raising its octane and cost. When lead was banned by the EPA, refiners needed to find alternate sources of octane to meet the demand. These alternate sources, like buying the car, required a capital investment and increased the cost of producing gasoline.

     The MTBE case is only slightly more complicated. The EPA mandated that refiners produce reformulated gasoline. This gasoline required the inclusion of oxygen through blending an oxygenated compound with the hydrocarbons that made up normal gasoline. MTBE was chosen by many refiners to meet this need, but it added a costly blending component to the gasoline raising the gasoline's cost.

     Now the EPA is considering banning MTBE from gasoline. The complication with MTBE is that the quality of the gasoline refiner must produce is not just staying the same, but the quality requirement is going up with the EPA's Phase II Regulations. Removal of MTBE from gasoline will require the refiner to invest in facilities to replace MTBE's good qualities (high octane, contributes to product volume, no sulfur, no olefins, no aromatics) , and Phase II will require investment in facilities to raise the overall quality of the gasoline produced.

     Like my friend's commutation situation, one should expect the price of gasoline to go up when MTBE is added to gasoline, and to go up again when MTBE is removed from gasoline.

Submitted 9/7/00