New York state expected to ask for oxygen waiver

Maureen Lorenzetti
Washington Editor

WASHINGTON, DC, Jan. 10 -- New York state is expected to formally ask the US Environmental Protection Agency to waive a federal clean air rule that requires fuel suppliers to sell reformulated gasoline (RFG) with an oxygenate, typically ethanol or methyl tertiary butyl ether (MTBE), sources familiar with the request said.

In June 2001, EPA rejected California's petition to obtain a waiver of the 2 wt % oxygen requirement for reformulated gasoline. A source familiar with the waiver request said that New York's argument this week will be that an oxygen-free clean fuel is a better way to stop smog than using a fuel that contains ethanol.
Both New York and California are banning MTBE because of groundwater contamination concerns next year. Connecticut, meanwhile, has a ban on MTBE that takes effect this October. Washington state's ban is also scheduled for this year. An earlier MTBE ban in Arizona expired in 2001. Five other states, including Colorado, Nebraska, South Dakota, Minnesota, and Iowa already have bans on MTBE. Meanwhile, Kansas, Illinois, and Indiana have bans that take place in 2004 like California and New York. And by 2006, a total of 16 states plan to have bans in place, according to American Petroleum Institute data.

EPA rejection
Shortly after EPA rejected California's request, the state filed a lawsuit against the agency. The National Petrochemical & Refiners Association also filed an amicus brief in support of California.

NPRA's brief says that the "real-world impact" of EPA's decision to deny the California waiver request "is to establish an ethanol mandate for RFG within California. NPRA officials also reminded the court of the decision in API and NPRA v. EPA, which struck down EPA's 1994 attempt to impose a nationwide ethanol mandate in reformulated gasoline.

New York state officials did not respond to a request for comment on the waiver request.

Fuel suppliers in both the Northeast and California have told EPA they are worried about the impact of MTBE bans on fuel supply if they must use ethanol to comply with current clean fuel rules.

However, according to the California Energy Commission, most refiners in the state have started early MTBE phaseouts. ConocoPhillips, they said, has already been producing the majority of their gasoline for blending with ethanol. Royal Dutch/Shell Group, ExxonMobil Corp., BP PLC, and Kern Oil Co. earlier said they planned to stop blending MTBE and switch to ethanol a year before the current deadline of December 31, 2003.
Meanwhile, ChevronTexaco Corp. announced this week that they would be producing gasoline with ethanol in Southern California. Valero Marketing and Supply Co., Tesoro Co. and ChevronTexaco in Northern California are the only refiners who have decided to adhere to the Governor's revised phaseout date, although limited production of gasoline for blending with ethanol may occur, CEC said.

Ethanol marketers say shipments began arriving in December and production of a specially tailored California clean fuel is already underway at 9 of the 13 refineries that produce RFG. CEC says that 60 to 70% of the state's gasoline production is expected to contain ethanol by the end of January, which would represent an ethanol demand of between 37,000 and 43,000 b/d.

MTBE bans effect
A recent API analysis shows that current and anticipated state MTBE bans could put undue pressures on fuel delivery systems in the coming years, creating temporary fuel shortages and price spikes.
Barring a legislative fix by Congress or a change of heart by EPA, over half of the estimated 159,000 b/d of ethanol production (2.7 billion gal/year) will have to be shipped to either coast later this year.

Currently, the Midwest uses nearly all of that capacity, according to API. Without that ethanol volume, Midwest refiners will have to replace missing barrels in a market that could be facing other supply pressures because of disruptions in Venezuela and Iraq.

Suppliers are hoping that, given the unsettled short-term nature of world oil markets these days, the White House may step in and encourage EPA to reverse itself on California and allow Northeast states the same flexibility. California fuel marketers recently urged the agency to consider allowing them to use both MTBE and ethanol in fuel for an unspecified period while the state makes the transition to all ethanol-blended RFG.

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