(Adds background, quotes from Valero, American Petroleum
NEW YORK May 7 About a dozen oil companies
agreed to pay $423 million and clean-up costs to settle
litigation over decades of groundwater contamination from the
gasoline additive and possible carcinogen MTBE, lawyers said on
The settlement affects public water utilities and public
agencies in 17 states, attorneys for water agencies said.
Refiner Valero Energy Corp (VLO.N) confirmed the agreement but
added that the court must affirm it.
BP America Inc (BP.L), Chevron Corp (CVX.N), ConocoPhillips
(COP.N), Shell Oil Co (RDSa.L), Marathon Oil Corp (MRO.N),
Venezuela's Citgo Petroleum Corp, Sunoco Inc (SUN.N) and Valero
agreed to the deal, involving a key ingredient to gasoline for
"The one big holdout was ExxonMobil Corp (XOM.N)," said
Robert Gordon, of Weitz and Luxenberg, one of the three lead
lawyers for the plaintiffs. Exxon did not immediately comment.
MTBE, or methyl tertiary butyl ether, in 1979 replaced lead
in gasoline to make car engines run smoother. Then Congress in
1990 required refiners to use oxygenates like MTBE to clean up
MTBE helps air quality, but it hurts water quality. The
additive has leaked into water supplies in many states,
sparking the lawsuits. The U.S. Environmental Protection Agency
says MTBE is "a potential human carcinogen" and that unlike
other gasoline components seeps easily into groundwater because
it does not "cling" to soil.
Lawyers said one of the most important parts of the
settlement was to clean up the groundwater contamination.
"There is going to be treatment of the wells and the
affected areas guaranteed for the next 30 years," Gordon said.
The 2003 lawsuit by public water providers in 17 states was
consolidated into a single federal case.
The settlement, filed in U.S. District Court in Manhattan,
is "a step in the direction of making the parties responsible
for the contamination pay for it rather than the folks who
drink the water and pay the rates," said Victor Sher, another
of the lead attorneys. "It's a significant development."
Five smaller companies have not settled, including the
former Lyondell Petrochemical Corp, largely a chemicals maker
but also owner of a Houston oil refinery. The company is now
LyondellBasell Industries, one of the world's biggest chemicals
When MTBE gets into groundwater, it makes the water taste
and smell like turpentine.
Trying to make gasoline less-polluting has proven a
difficult task for oil refiners, who have long said they added
MTBE to the fuel mix because of government mandates for cleaner
fuel, especially in big cities and in the summer.
Support began to crumble for MTBE in the late 1990s when
two states that accounted for 40 percent of its use --
California and New York -- announced intentions to phase out
Ethanol began to replace MTBE in earnest by 2005, when
about 4 billion gallons were added to the U.S. gasoline
Now, oil companies face the issue of using corn-based
ethanol to burn cleaner gasoline, also in part because of
government mandate. But using corn for fuel is linked to higher
"The MTBE decisions were made because there simply wasn't
anything practical that could be used in the volume needed,"
said John Felmy, chief economist with the industry advocate
American Petroleum Institute.
Federal mandates require that the 141 billion gallons of
U.S. gasoline expected to be used in 2008 should contain 9
billion gallons of ethanol. That requirement will increase to
15 billion gallons by 2015 and to 36 billion gallons by 2022.
Felmy said the oil industry turned to MTBE instead of
ethanol in the 1990s as the ethanol industry was not developed
enough to handle the volume required.
(Reporting by Leslie Gevirtz, Adam Tanner, Peter Henderson,
Bernard Woodall; editing by Jeffrey Benkoe/Andre Grenon/Braden