WASHINGTON -- NACS 2004-2005 Chairman Bill Douglass (CEO, Douglass Distributing Co., Sherman, Texas) told the U.S. Senate Committee on the Environment and Public Works today that the decline in the use of methyl tertiary-butyl ether (MTBE) as a gasoline additive “is a direct result of Congress' failure to adopt liability reform provisions for MTBE as part of last year’s energy bill.” 

“I am not seeking to get into a debate as to whether Congress should have adopted the so-called MTBE safe-harbor last year. But, this committee, and Congress as a whole, must understand that the decisions you made last year are having repercussions in the gasoline markets this year,” said Douglass, testifying on behalf of NACS and the Society of Independent Gasoline Marketers of America in the hearing, “Impact of the Elimination of MTBE.”

“It is clear that the domestic ethanol production industry is doing its utmost to maximize the amount of ethanol it will produce and sell this year. But it is uncertain whether these best efforts will be sufficient to meet the demand for ethanol in the next six months as the nation transitions away from MTBE,” said Douglass in both written and oral testimony.

Douglass also said that boutique fuels continue to complicate the supply and distribution of gasoline. “The energy bill’s cap on the number of boutique fuels does not cover state boutique renewable fuel mandates, and such mandates constrain the availability of ethanol in other areas of the nation and limit supply flexibility in the marketplace,” he said.

Douglass noted that the transition from MTBE-additized gasoline to ethanol-additized gasoline will affect retailers, noting that preparations for the new fuel require several steps that will take time.

“Retailers will be undertaking preparations to market gasoline blended with ethanol at the same time that they are preparing to switch from winter to summer gasoline blends. And while many retailers have been selling ethanol blended gasoline for years, there are others like myself who will be making this transition for the first time…This could be problematic as there are many others in my situation,” said Douglass.

While there are few public policy options open to Congress to mitigate potential gasoline or ethanol supply shortages and price volatility in the short term, Douglass suggested that the action that would have the greatest significant positive effect on supply and consumer prices in the next six months would be the temporary suspension of the tariff on imported ethanol. 

“Such a move would help supplement the efforts of the domestic ethanol industry to satisfy the rapidly escalating demand without penalizing consumers with a 53 cent-per-gallon tariff. This would be meaningful, sound public policy enacted for the good of the consumer,” said Douglass.

In the medium term, Douglass suggested that Congress consider two additional actions. The first would be to extend the boutique fuels cap under the Energy Policy Act of 2005 to limit state boutique renewable fuel mandates, thereby easing the transition to an ethanol market.  Second, Congress should pass legislation to encourage the expansion of domestic refining capacity.

Tomorrow’s issue of NACS Daily will provide more news on Douglass’ testimony and the Q&A discussion.