In an episode that illustrated Hawai'i's increased vulnerability to gasoline shortages, the state veered perilously close to a gasoline supply disruption last week when a shipment of ethanol appeared to be contaminated.

At a hastily called meeting on July 19, state and oil industry officials discussed ways to avoid a temporary shortage, including asking the military for assistance.

In the end, the ethanol shipment proved to be usable and the problem was averted.

"We dodged a bullet in this case," said Maurice Kaya, chief technology officer for the Department of Business, Economic Development and Tourism.

Since April, the state has required most gasoline to be blended with 10 percent ethanol to move Hawai'i away from imported oil. However, local ethanol production is still at least a year away, so oil companies have been importing the grain-based fuel at a rate of about 4 million gallons per month.

Last week, a tanker of ethanol purchased from ED&F Man Holdings and brought in by Tesoro Corp. tested high for sulfates, which could damage vehicle engines. If the ethanol could not be used, there was a chance that Chevron and Tesoro could have exhausted existing ethanol supplies before the next scheduled tanker arrived in August.

That could have led to small-scale gasoline supply disruptions, which might have been made worse if news of the problem resulted in panic buying.

A second round of testing showed the ethanol to be low enough in sulfates that it could be used safely, Chevron said.

The problem "was certainly serious enough to warrant a larger discussion so we could get our arms around the situation," said Chevron spokesman Al Chee.

The potential for a supply disruption is an unfortunate consequence of ethanol-blended gasoline, he said.

"Ethanol is here, and we're dealing with it," Chee said. But, "to some degree I think we are more vulnerable. This situation that we avoided shows that we need to be on top of things."

Chevron notified the state once it appeared that a tanker of ethanol might be contaminated. The company explored the option of bringing in a tanker of ethanol on an emergency basis and also asked state officials for help in locating fuel-filtration equipment.

WARNING NOTED

Tesoro spokesman Nathan Hokama agreed that the situation was a warning. Tesoro will push to get ethanol test results sooner and consider ways to quickly find alternative sources for ethanol in the future, he said.

"That is the best you can do because the whole system is based on having local ethanol production," Hokama said. "Without that, the only thing you can do is take those steps to manage the situation in the meantime."

Hawai'i isn't alone in having its gasoline supply susceptible to the availability of ethanol. California, which also uses ethanol-blended gasoline, faces similar risks, said David Hackett, president of oil industry consultant Stillwater Associates of Irvine, Calif.

"If you run out of ethanol, you run out of gasoline," he said.

So far there have been no significant ethanol supply or gasoline shortages, Hackett said.

"There is a risk, but I don't think it's a very big risk," he said. "It's one more complication in the logistics chain. It's another place for something else to go wrong."

Hawai'i's close call should serve as a reminder to the oil industry of the risks.

"Now that they've seen the problem, this is sort of a wake-up call," Hackett said. "They'll figure out how to not put themselves at risk again."

Despite the scare, the state-driven switch to ethanol is good for Hawai'i, said DBEDT technology officer Kaya.

"It reflects the strong desire we have to try and facilitate local production," he said. "Clearly it's superior to have a product produced locally."

LOGISTICAL PROBLEMS

When ethanol is not available, the state could waive the ethanol blending requirements. However, switching from ethanol-blended gasoline to conventional gasoline presents logistical challenges, according to oil industry officials. That's because the octane level of gasoline rises when ethanol is added. That means the octane level of the base gasoline must be lowered by about 3 points to keep ethanol-blended gasoline similar to those found in conventional gasoline.

Most cars require an octane level of at least 87.

If the state runs out of ethanol, unblended supreme gasoline, with an octane level of about 88, could be sold as regular-grade gasoline. However, the octane grade of unblended regular gasoline would be too low to sell.

COMPLICATIONS

Both of Hawai'i's oil refineries — Chevron and Tesoro — said it is possible to switch back to making conventional gasoline. However, distributing that gasoline could be complicated, especially if storage tanks on O'ahu and the Neighbor Islands were already full of gasoline that needs to be blended with ethanol.

As a result, a forced switch to conventional gasoline could create small-scale gasoline supply disruptions, said Chevron spokesman Chee.

"There's always that possibility (of a disruption in ethanol supply)," Kaya said. "But as a state, we think it's incumbent on those that supply gasoline products to ensure that it doesn't happen again."

Reach Sean Hao at shao@honoluluadvertiser.com.