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Fuel Prices in California Could Jump

SAN FRANCISCO -- California refiners may buck the state's decision to delay changes to the way they make an ultra-clean-burning gasoline even if the move results in supply shortages and price spikes of up to $3 a gallon.

Last month, Gov. Gray Davis postponed the fuel changes - which would replace one fuel additive, MTBE, with another, corn- or sugar-based ethanol - by one year to 2004, to allow the oil industry more time to prepare for the transition and head off another state energy crisis, according to Reuters.

But five major oil companies, which control 75 percent of the market, say they have already made significant capital investments and may stay on their original course to phase out MTBE. Davis decided to ban the possible carcinogen in 1999 amid mounting evidence that it quickly found its way from leaky tanks into groundwater supplies and took longer to decompose than most other oil products.

That the complete replacement of MTBE with ethanol may result in surging pump prices could be exactly what the refiners, including ChevronTexaco, ExxonMobil, Phillips, Shell Oil and BP want, according to sources including energy consultants, government experts, regulators, academics and oil industry sources.

Phillips Petroleum Co. says it is already making the fuel with ethanol instead of MTBE. But whether the oil industry can collectively produce enough of the specialized fuel to satisfy the state's 1-million-barrel-per-day demand by either 2003 or 2004 remains unclear, the report said.
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