BP Ahead of Schedule

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BP Ahead of Schedule

SAN FRANCISCO -- BP plc, the largest gasoline supplier in California, said it would accelerate a switch of federally mandated fuel additives in the largest U.S. gasoline market, in a move industry experts say could tighten supplies and hike pump prices.

BP said by Dec. 31 it would phase out MTBE, or methyl tertiary butyl ether, which was banned from the state by Gov. Gray Davis in 1999 for contaminating groundwater, and replace it with ethanol, Reuters reported.

BP has already contracted with several suppliers of ethanol. Federal clean-air laws require the use of an oxygen-enhancing chemical such as MTBE, a suspected animal carcinogen, or ethanol, to make the fuel required in a third of the nation's pumps.

"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.

In March, Davis postponed his original mandated 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.

Currently, California does not have the adequate facilities to unload ethanol and blend it into the volumes that will be required to meet the state's appetite for gasoline for the entire industry to switch over by year's end. It is also doubtful that domestic ethanol production will ramp up in time to meet California's needs and that the product, which is mostly made from corn in the Midwest, can be transported to the West Coast in the necessary volumes, the report said.

Despite Davis's extension, the five oil majors who control 75 percent of the California market have said they may stick to their original plans, which would be welcomed by the ethanol industry.

Phillips Petroleum has already started blending some of its gasoline with ethanol, and experts say that BP's clout and market share may be enough to force the others - Chevron Texaco Corp, Exxon Mobil Corp., Shell Oil Products and independent refinery Valero -- to catch up.