Energy Dept. Says Summer of Surging Gas Prices Possible

Drivers could face a new round of surging prices at the gas pump this summer, the government says, citing tight supplies through the year's heaviest driving season. Last year price spikes reached $2 a gallon.

The Energy Department's forecast also anticipates continued high natural gas prices that are likely to fuel steeper electricity costs across much of the country. Many power plants run on natural gas.

The government's seasonal forecast predicted a high probability that motorists this summer will pay on average more for gasoline than the $1.53 cents a gallon they paid last summer.

How much more will depend on supply and distribution problems, the department said. Average gasoline prices nationwide this week were about $1.44 a gallon, according to the government survey.

With current inventories tight, the gasoline markets will be "vulnerable to sharp price run-ups if supply disruptions or bottlenecks occur," said the report, issued Friday by the Energy Information Administration.

It said that by the end of May, the beginning of the summer driving season, gasoline inventories are expected to be about 200 million barrels, or 9 million barrels below what they were at the same time last summer.

Even with refineries churning at top capacity, the low stocks "are expected to remain low throughout the driving season" making the market vulnerable to unexpected problems such as refinery or pipeline disruptions.

Gasoline price flare-ups are likely to be regional and not nationwide, the report said. One irritant is low stocks of additives used to make cleaner "reformulated" gasoline, which accounts for about a third of the gasoline sold and is required in areas with serious smog problems.

A Federal Trade Commission report on last summer's gasoline price spikes in the Midwest, where prices soared for a time well past $2 a gallon, recently warned that prices could surge again this summer. One reason is that smaller gasoline inventories give little margin to deal with unexpected refinery problems or pipeline disruptions.

The FTC investigation, which focused on the Midwest market, found no evidence of industry collusion, although it said some companies took advantage of last summer's tight supplies to maximize profits.

The industry may be better prepared for problems in the Midwest this summer, and a major pipeline that shut down last year has resumed full operation, the Energy Department report said. Additionally, the Environmental Protection Agency has eased its ethanol standard making it easier to blend cleaner reformulated gas in the region.

At the same time, though, the report noted that Midwest gasoline supplies are lower now than they were a year ago and a major Illinois refinery that operated last summer has since shut down.

Ethanol is produced from corn and is widely used as a gasoline additive in the Midwest. Elsewhere the additive is usually MTBE, derived from natural gas. MTBE production in January fell to the lowest level since 1995 and has not rebounded adequately because of the high demand for natural gas as a fuel.

The energy outlook report said the economic slowdown had been expected to ease the squeeze on crude oil supplies. However, it said crude oil inventories remain tight because of the recent decision by the Organization of the Petroleum Exporting Countries to cut production by 1 million barrels a day, beginning in April.

Although the winter heating season is over, natural gas prices probably won't ease but will remain at more than twice what they were in 1999 at about $5 per thousand cubic feet, the government analysts said.

They also warned that natural gas prices, which spiked to as much as $10 per thousand cubic feet this past winter, could rebound sharply again this fall, depending on the severity of next winter.

A particular worry is the low level of natural gas stocks in underground storage. If natural gas demand is strong for electricity generation this summer, stocks could fall further. Low inventories and an early cold spell last fall were blamed in part for the unexpectedly sharp price spike late last year.