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THE NEW YORK TIMES: Gas Costs Expected to Be High This Summer

Gas Costs Expected to Be High This Summer

Published: April 11, 2006

Filed at 2:58 a.m. ET

WASHINGTON (AP) — Summer driving will be expensive, with gasoline costs likely to stay high after jumping nearly 20 cents over the past two weeks.

The cost of gasoline averages $2.68 nationwide for a gallon of regular. Some analysts say motorists may pay $3 a gallon this summer if there are unusual disruptions in supply.

The Energy Department was to release its summer outlook for motor fuel prices at a news conference Tuesday.

Prices at the pump have been climbing since February when the cost of regular grade gasoline averaged $2.25 a gallon. The average price of $2.68 a gallon last week is 40 cents a gallon higher than a year ago.

Analysts cited high crude oil costs. The price of light sweet crude for May delivery settled at $68.74 a barrel Monday on the New York Mercantile Exchange, the highest close since Aug. 30, 2005, when Hurricane Katrina shut down Gulf of Mexico production.

But there are other factors driving up prices of motor fuels.

Driving remains heavy with demand for gasoline expected not to ease much this summer, according to analysts.

And refineries are moving away from using MTBE, the gasoline additive that has been used in much of the country to help curtail air pollution, but which also has been found to contaminate drinking water supplies.

Three of the biggest refiners — Valero Energy Corp., Exxon Mobil Corp. and Shell Oil Co. — said they will stop putting MTBE into gasoline beginning May 5. Valero estimates that will shrink the nation's gasoline supply by 145,000 barrels a day.

The oil industry has cited the shift away from MTBE as a major reason for gasoline price increases.

At a congressional hearing last month, Guy Caruso, head of the government's Energy Information Administration, said about 130,000 barrels of ethanol, a substitute additive for MTBE, will be needed. That's about 50 percent of current output.

The demand for more ethanol has caused the price of the corn-based additive to surge to about $2.75 a gallon, an increase of about 50 cents a gallon.

The additives account for about 10 per cent of gasoline volume in areas where they are used, so a 50-cent increase in ethanol translates into about a nickel a gallon boost in the fuel's cost to motorists.

Bob Dinneen, president of the Renewable Fuels Association, a trade group that represents the ethanol industry, told a Senate hearing late last month that the industry will be able to meet ethanol demand even as refiners move away from using MTBE.

He said the industry is filling East Coast ethanol storage tanks and contracting barges that can ship ethanol down the Mississippi River to Gulf coast refiners and up the Atlantic seaboard.

''The market is responding,'' he said. But he also said it was the oil industry's decision to stop using MTBE this soon.

Last year, Congress as part of broad energy legislation lifted the requirement that refiners include 2 percent oxygenate — MTBE or ethanol — in gasoline sold in areas having clean air problems, clearing the way for refiners to stop using MTBE.

The highest prices for gasoline last week were on the West Coast where motorists paid an average of $2.75 cents a gallon. The cheapest gas was found in the Rocky Mountain states where the average price was $2.48 a gallon.


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