Knowns and Unknowns (With thanks to Donald Rumsfeld) John Kingston The Energy Forum April 17, 2006

Known Knowns MTBE is not banned. Only in some small local pockets is MTBE likely to be used. The lawyers are definitely in charge here. There is almost zero chance that Congress will ever pass MTBE liability protection. MTBE did a lot of other things besides meet some federal oxygenate rule.

Known Knowns – Part II MTBE was about 2% of total US gasoline consumption. It could be blended as high as 14% if the numbers were good. Ethanol has been introduced due to MTBE bans in major population areas, and the sky did not fall. You can make reformulated gasoline without ethanol or MTBE, but it isn’t easy.

Known Unknowns Is ethanol supply adequate? (The price is indicating it is). Is the nation’s rail system up to the task? (Go ask the coal people). Has enough de-butanizing capability been put into place? At what point does the lack of fungibility between conventional and RBOB blow spreads out to the point where productive capacities shift?

Known Unknowns – Part II What is the role of conventional flexibility in the market outcome? If a blender wants to make ethanol-free RFG, what are the costs of alternatives? Will RVP waivers help? In past crises, the market reacted in a few weeks. How long will it take this time, if we do have a crisis? When will the RBOB contract on NYMEX come alive?

Known Unknowns – Part III Would Congress change steep tariff on imports? Will the market readjust by Europe and Latin America sending blendstocks here while raising the percentage of MTBE in gasoline? How long will it take for that readjustment to occur? How will the mix of European exports to the US change? If it changes significantly, is this just one more logistical speed bump that has an upward push on prices?

Unknown Unknowns