gasoline prices in md. shoot up 39 cents in month

Global turmoil, shrinking inventories drive up cost

Gasoline prices surge 39 cents, most since 2002

April 11, 2006|By PAUL ADAMS | PAUL ADAMS,SUN REPORTER

Maryland gasoline prices have surged 39 cents in a month - and this time you can't blame it on hurricanes.

Instead, petroleum industry analysts point to a perfect storm of a different kind - the combination of global unrest, rising demand and shrinking gasoline inventories. The result has been the largest March-to-April run-up in gas prices in Maryland since 2002, when prices jumped 21 cents, the AAA auto club said yesterday.

"It's hard to justify the gigantic jumps that we're seeing this year," said Amanda Knittle, a spokeswoman for AAA. "They defy explanation in consumer's minds, and in our minds."

The average price for regular unleaded is approaching $3 in Montgomery County, and has topped that at some stations in Bethesda and around Washington.

The statewide average is $2.71 a gallon, compared with the national average of $2.68.

Average prices nationwide are about 37 cents a gallon more they were a year ago, the federal Energy Information Administration said. Prices are highest on the West Coast, averaging $2.75 a gallon, and cheapest in the Rocky Mountains, where they averaged $2.48.

The pressures come as demand for gasoline continues to inch upward, despite prices that have topped $2.50 a gallon for months. Demand continues to grow at a near-normal pace of 1 percent to 2 percent annually.

"The fact that people aren't cutting their demand tells us that we're grumbling about the gasoline prices, but it's really not changing our behavior much," said Thomas Firey, senior fellow for the Maryland Public Policy Institute and an energy expert at the Cato Institute.

The price of crude oil, which accounts for more than half the price of gasoline, has surged in recent weeks on concern that a dispute over Iran's suspected nuclear program could disrupt supplies from that country. Continued political unrest in Nigeria also is disrupting oil production, with little end in sight.

Oil surged again yesterday, jumping $1.35 to $68.74 a barrel and approaching the record $70.85 per barrel reached in August, on reports that the United States prepared plans for a military confrontation with Iran that could include use of tactical nuclear weapons.

At the same time, the energy bill passed by Congress last year has prompted refiners to stop blending gas with MTBE, or methyl tertiary butyl ether, in favor of ethanol, which is more expensive and must be transported from the Midwest to the Mid-Atlantic and other areas where it's needed.

The fuel-additive changeover has created a logistical nightmare for gasoline distributors and will likely result in prices creeping up further before things settle down heading into the summer driving season, experts said.

"All of these things are kind of swirling together right now and I think people are just a little bit spooked in the market," said Firey of the Cato Institute. "So a really tight, sticky, painful situation is getting even tighter and stickier as the summer driving season is on the horizon."

The size of the ethanol problem has caught the industry by surprise, Firey and other experts said, and has the potential to pose particular problems for Maryland, where gasoline terminals are not well equipped to handle the alternative fuel.

Last year's energy bill didn't include protections the industry sought from lawsuits related to MTBE, which has seeped into groundwater in some communities, such as a Fallston neighborhood in Harford County, and raised health concerns. Without that protection, the industry has all but decided to phase out the fuel additive, which is blended with gasoline to make it burn more cleanly.

Ethanol producers are rushing to taking its place, creating a new set of problems for suppliers. The Energy Information Administration recently wrote a report questioning whether ethanol producers could meet the surging demand. Even if they can, getting ethanol from the Midwest, where it is primarily produced, to the East Coast by way of truck, rail and barge is costly. Several groups are trying to build ethanol production plants in Maryland and on the East Coast, but results of those efforts are potentially years off.

Part of the problem is that ethanol tends to separate from gasoline during transport, which means it can't be shipped by pipeline. Instead, it must be blended at local distribution terminals just before heading out to service stations. The additive also has to be stored in separate tanks. Some terminals simply don't have the space.

"These are some pretty big hurdles in front of us," said John Eichberger, director of motor fuels at the National Association of Convenience Stores, a trade group.

Ethanol also is more expensive than MTBE. Currently, the fuel is trading at 20 cents to 30 cents per gallon more than the gasoline it's being blended with, which will also contribute to rising gasoline prices as the transition continues.

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