Attention! If you own energy stocks, be on alert. The first warning shot has been fired in a brewing war over liability for polluting the nation's groundwater. Fingers will be pointed at both refiners and oil companies, and litigation will affect companies industrywide.
Here's the update: Congress passed and President Bush signed a 1,700-page new energy bill.
One of the most interesting facets of the bill is that refineries such as Valero
What is MTBE?
Methyl tertiary butyl ether was first used in gasoline in 1977 as a replacement for lead additives. That year, Jimmy Carter's Congress mandated that MTBE or other additives (ethanol, for instance) be added to gasoline to reduce smog emissions in the nation's air.
Scientists, however, have claimed that MTBE leaks from underground storage tanks. The irony, of course, is that MTBE was added to the nation's gasoline to clean the air. Unfortunately, MTBE is blamed for making underground water in springs and wells taste like turpentine. MTBE has also been shown to cause cancer in laboratory mice.
Some states have already banned MTBE as an additive in gasoline, and those states are drawing up plans to find money to pay for the huge cleanup of underground waters contaminated by MTBE. States aren't the only ones looking to sue refineries and Big Oil. Many water utilities are now hiring lawyers on a contingency basis to sue those liable for allowing MTBE to be used for so many years -- even as scientific evidence mounted that the additive was dangerous and a carcinogenic.
California, for example, is looking to sue not only oil companies and the Environmental Protection Agency (which is said to have sat on insider information that MTBE was dangerous to underground water back in the 1970s) but also refiners. We're talking about hundreds of millions of dollars in cleanup funds every year until all MTBE spills are cleaned.
This scenario could take years to play out, but you can bet that ExxonMobil
The obvious winners here are ethanol producers: Dow Chemical
Given the potential of litigation on the horizon, it is prudent that shareholders start monitoring positions more closely. Although oil prices will continue to rise, litigation could prove to be a drag on market performance just as the tobacco lawsuits proved to be a hindrance for Altria and competitors.
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Richard "DJ Rock" Yates has not bought or shorted any shares of companies named in this article. He loves the disappearing coral reefs in the Florida Keys that have been damaged by global warming. The Motley Fool has a disclosure policy.