A spokesman for the petroleum industry is urging state officials not to have a “knee-jerk” reaction to the recent spike in gas and diesel prices. David Smitherman, an Iowa spokesman for the American Petroleum Institute, says high pump prices should not be used as a reason to pass a mandate that only ethanol-blended gasoline be sold at Iowa stations. “Whenever you mandate…what the marketplace has to do, historically two things have happened: higher prices to consumers and supply disruptions,” Smitherman says.
Republican gubernatorial candidate Jim Nussle as well as several state legislators have called for an “ethanol-only” rule for Iowa gas stations. Smitherman says federal regulations already will force the oil industry to produce four billion gallons of “alternative” fuels next year, and Smitherman contends that if states like Iowa begin mandating ethanol use, there may not be enough ethanol-blend to go around.
Iowa’s governor has called for a federal investigation into gas prices, suggesting the oil industry used Hurricanes Katrina and Rita to reap excess profits. Smitherman says whatever oil companies earned in the last month while gas prices were high, it’s just a “blip” in the big picture.
“Crude prices have certainly gone up dramatically due to the two storms. The refining and production sectors certainly have…realized additional revenue due to that, but you can’t take August and September. You have to look at the rate of returns for this year (and) for years past,” Smitherman says. “The rate of returns for the oil and gas industry in this country has been slightly below what the average has been for all industry in the United States.”
Smitherman says demand for oil is so strong, refineries have no “cushion” of supply left when Mother Nature shuts down production. Smitherman says when you lose 25 percent of refining capacity, which was the case when the hurricanes struck, you just can’t make it up with imports. Smitherman made his comments during a winter fuels forum held by the Department of Natural Resources. D-N-R officials predict that home heating costs will increase up to 40 percent this winter.