Blowback From Push For BioFuels May Be Gasoline Shortage

As "the current cost of gas, averaging $3.22/gallon - which in real terms is approaching the old peak of $1.42/gallon in March 1981, or $3.31 adjusted for inflation", oil executives have warned that these prices may not be temporary because they have reduced their investment in new refinery capacity.

The surprising reason for this cutback is the President's goal of increasing biofuel production as outlined in his State of the Union address.

"The oil companies say their views on the longer-term prospects for fuel reflect simple economics. Because of the enormous investments required to expand refineries, they say they have no other choice but to re-examine their plans in light of the calls for more ethanol fuel, regardless of how realistic they may be."

"If the national policy of the country is to push for dramatic increases in the biofuels industry, this is a disincentive for those making investment decisions on expanding capacity in oil products and refining," said John D. Hofmeister, the president of the Shell Oil Company. "Industrywide, this will have an impact."

"Refineries are a choke point in the nation's supply of fuel. Because they have not invested enough in refineries to increase gasoline supplies, oil companies have been unable to meet the country's growing demand in recent years. That has forced them to rely on imports, which are more expensive than fuel refined domestically."

"Lawrence Goldstein, an energy analyst at the Energy Policy Research Foundation, an industry-financed group, has been warning for nearly a year that the government's twin goals of encouraging refiners to increase production and promoting increased supplies of biofuels work against each other.

"These two policies are not complementary," Mr. Goldstein said. "These policies are in conflict."

Thanks to Mark Boshnack