Here's an update from CNN.com on the MTBE/gas price spike connection I wrote about earlier this week.
Some gasoline distribution terminals from Virginia to Massachusetts are seeing shortages as the industry phases out a water-polluting additive [MTBE], the U.S. Energy Department said on Thursday.
[...]
The shortages are not because refiners are not making enough gasoline, or because of a recent rupture on the key Plantation Pipeline that carries supplies from the Gulf Coast to the East Coast, industry officials said.
Rather, the oil industry is rapidly eliminating a gasoline additive called MTBE, banned in several states for polluting ground water, and replacing it with ethanol, a renewable fuel that can't be shipped by pipeline because it absorbs water.
"There's not a shortage of supply," said John Eichberger, a spokesman for the group. "It's a transitional issue."
Because ethanol is a solvent, it will strip corrosion and impurities that build up inside gasoline storage tanks, allowing them to mingle with gasoline supplies.
That means terminal operators must drain giant tanks that hold gasoline stocks and scrub out the impurities before they can be refilled with ethanol-enriched gasoline, he said.
"That's going to compromise supplies for awhile," he said.
The American Petroleum Institute said 40 percent of the gasoline produced in the United States by the first week of April was blended with ethanol, up from 33 percent a year ago.
Does anyone know what blend they are talking aobut? What is the current gas/ethanol blend?
Holding everything else constant, shortages cause price increases. The question is: What happens when EVERYTHING--future expectations, supply uncertainty, huge new markets,...--changes at once?
