Lawmakers debate cause of rising gas prices

The head of the nation’s largest independent refinery on Tuesday pleaded with Congress to dismantle an eight-year-old mandate that forces gasoline makers to blend ethanol into the nation’s fuel supply.

“The renewable fuel standard is out of control,” said Bill Klesse, CEO of San Antonio-based Valero Energy Corp. “We support and believe that ethanol will be part of the fuel mix in this country, but the RFS is broken.”

Klesse’s comments came during a Senate Energy and Natural Resources Committee hearing on rising gasoline prices that underscored the many reasons motorists are paying more for fuel and the deep divide among lawmakers on how to tackle the problem.

While Klesse focused on the renewable fuel mandate, other witnesses blamed refinery outages, limited transportation options and a global market for keeping both oil and gasoline prices high even as energy companies extract ever-more crude from dense rock formations across the United States.

Sen. Ron Wyden, D-Ore., the committee chairman, said motorists aren’t seeing the benefits of expanded domestic production. “Lower crude oil costs from these new sources of production aren’t being passed through to the consumer,” he said.

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But Adam Sieminski, head of the government’s Energy Information Administration insisted that gasoline prices are global.

“Consumers are benefitting from the growth in domestic oil production — 2 million barrels a day or so that we’ve seen in just the past few years,” Sieminski said. “Increases in oil production from any source around the world, including the United States, tend to hold oil prices down.”

The backdrop for the hearing was a sudden spike in gasoline prices during the peak summer driving season. AAA said the average price of a gallon of regular gasoline was $3.65 on Tuesday, up 15 cents from a week ago.

Refiners like Valero have been arguing that a major driver is the cost of complying with the renewable fuel standard, as they hit a “blend wall” where they can no longer mix in enough ethanol to meet the mandate’s volumetric targets without exceeding a 10 percent threshold acceptable for use in all cars and trucks. To comply, refiners must buy biofuel credits, but the price of those so-called RINs has climbed to over $1 per gallon, up from $0.05 a year ago.

Valero estimates the purchase of RINs to comply with the renewble fuel mandate will cost it $750 million this year.

Klesse noted Valero’s investments in renewable fuels, including $749 million to buy 10 ethanol plants and some $400 million on its Diamond Green renewable diesel plant in Louisiana.

“Valero is the third-largest corn ethanol producer,” he said, but “the RFS must be fixed.”

In particular, Klesse stressed that dearth of cellulosic ethanol that is required under the mandate but has not been commercially produced in large quantities in the U.S. Several cellulosic plants are under construction.

“It’s just this continuous drumbeat for more and more of products that are nonexistent,” Klesse said. “We should repeal the RFS and start over.”

The American Petroleum Institute has taken a similar stance, insisting that the RFS is so fundamentally broken Congress should repeal it.

But Sen. Al Franken, D-Minn., said that would mean throwing out a policy that has helped “to wean us off foreign oil.”

“I don’t think it’s fair to blame the renewable fuel standard,” Franken said. “I don’t think it’s time to attack the RFS when a number of cellulosic plants are about to come on.”

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Sen. Debbie Stabenow noted a major challenge facing ethanol producers: In some cases, the gas-pumping infrastructure is owned by the competition.

The oil industry fundamentally doesn’t have the incentive to install specialized ethanol blender pumps and other infrastructure to supply more biofuel to motorists, she said. “We’re at odds here on how we move forward on all this.”

But Dan Gilligan, the head of the Petroleum Marketers Association said the big obstacle to greater ethanol penetration — including wider sale of a 15 percent blend known as E15 — isn’t that oil companies have control over filling stations. (In fact, more than two thirds of U.S. gasoline stations are independently owned).

“Many of our member companies have significant investments in ethanol blending and would love to offer E15,” he said, “but they simply cannot easily resolve the liability and infrastructure problems.”

Some senators questioned whether better monitoring of outages at U.S. refineries could ward off gasoline price spikes. Climbing prices in February were largely blamed on refinery repairs, including both planned maintenance and unexpected outages.

“It’s pretty clear that outages have an impact on gasoline prices,” Sieminski said, “and it’s worse when utilization is high.”

The Energy Information Administration recently canceled a program for monitoring outages in the face of budget cuts. Wyden suggested it to be restarted.

FuelFix policy reporter Jennifer Dlouhy covered the hearing live on Twitter Tuesday: