BP to Switch From MTBE to Ethanol

BP, the largest gasoline supplier in California, said Thursday that it will switch federally mandated fuel additives in the largest U.S. gasoline market in a move industry experts have said could tighten supplies and hike pump prices.

BP said it would phase out cleaner-burning fuel additive MTBE, or methyl tertiary butyl ether, in California gasoline by Dec. 31, and has begun to sign contracts with several suppliers of the alternative gasoline additive, ethanol.

Gov. Gray Davis banned MTBE in 1999 amid mounting evidence the chemical contaminated groundwater supplies. In March, however, Davis postponed his original deadline for MTBE’s phaseout by one year to Dec. 31, 2003, citing fears of supply shortages and sharp price spikes reminiscent of last year’s electricity crisis.

BP’s announcement comes a day after a report in the U.S. Senate cited the company as one of several oil firms under investigation for deliberately withholding supply to profit from higher retail prices, particularly in key markets such as California and Michigan.

Federal clean air laws require the use of either ethanol or MTBE as an oxygen-enhancing agent to help gasoline burn cleaner in a third of the nation’s gasoline supply.

“We considered all of the factors within our control and determined that we could transition from MTBE to ethanol early,” said Bob Malone, BP’s regional president.

Agricultural giant Archer Daniels Midland Co., the largest producer of ethanol, pushed for other refiners to follow BP’s move.

“We hope other refiners move sooner rather than later to replace MTBE with ethanol despite the one-year extension of the ban,” said Larry Cunningham, the company’s senior vice president of corporate affairs.

“There are strong environmental and economic reasons for refiners to go ahead and make that move.”

MTBE producers, however, criticized BP’s move as financially motivated and noted studies commissioned by the California Energy Commission that pointed to a 5% to 10% shortfall in the state’s ultra-clean gasoline supply if Davis had stuck with his original 2002 deadline.

“This shift to ethanol by BP is an outrageously transparent move designed to raise gas prices in California by tightening gasoline supplies,” said Ryan Knoll, spokesman for Lyondell Chemical Co., the world’s largest producer of MTBE.