Maureen Lorenzetti
Washington Editor
WASHINGTON, DC, Mar. 17 -- If Congress does not act quickly to reform federal clean fuel programs, uncoordinated state bans on the clean fuel additive methyl tertiary butyl ether may exacerbate gasoline shortages this year, the American Petroleum Institute warned a House subcommittee.
Edward Murphy, API downstream general manager, said at a Mar. 13 hearing that a recent decision by the New York Mercantile Exchange to suspend gasoline futures trading beginning in 2004 was a "shot across the bow" and may foreshadow future supply problems if Congress fails to reform reformulated gasoline rules this year.
Currently 16 states have acted to ban MTBE because of water contamination concerns.
Murphy spoke before the House Energy and Commerce Subcommittee on Energy and Air Quality. Republican leaders in both the House and Senate said they want to pass comprehensive energy legislation this year that includes an RFG title; last year negotiations on a final bill failed.
A Senate Environment and Public Works subcommittee is also scheduled to address the RFG issue on Mar. 20.
Action builds on 2002 Senate deal
Last year's Senate bill included a provision supported by API, fuel ethanol producers, Northeast air regulators, and some environmental groups. It updated RFG rules by phasing out MTBE, removing an oxygenate requirement, and protecting fuel ethanol market share through a renewable fuels standard that included a credit trading program.
A draft House provision crafted by House Energy and Air Quality Subcommittee Chairman Joe Barton (R-Tex.) in fall 2002 was similar to the Senate version in that it preserved a 5 billion gal "renewable fuel" mandate for transportation fuels and removed the current 2 wt % oxygen standard. There were also important differences from the original Senate version (OGJ Online, Oct. 2, 2002).
Barton's plan removed the federal phaseout of MTBE, extended the liability waiver in the Senate bill to include both MTBE and its chemical sister ETBE (ethyl tertiary butyl ether), and stretched out the fuel ethanol mandate timeline.
The House plan called for the renewable fuel standard to start Jan. 1, 2005, with a requirement of 2.3 billion gal/year; suppliers would not have to meet the 5 billion gal/year level until 2014, 2 years later than the Senate version.
New compromises
Barton is expected to unveil a new proposal this week that may largely resemble an earlier compromise considered by House and Senate lawmakers last fall. One proposal being considered drops a mandatory MTBE phase out plan and preserves liability relief for fuel ethanol. Merchant MTBE producers also are expected to get expanded "transitional assistance" if they convert their facilities to other fuel blendstocks. Republican leaders in both houses also want to extend the limited liability or so-called "safe harbor" provision in last year's Senate bill to all ethers.
Environmental groups, some of which supported the original Senate plan from last year, testified at the recent House hearing that they strongly oppose giving oxygenate producers limited liability relief. They argue that adopting the "safe harbor" provisions for renewable fuels, including ETBE, reduces the incentive to avoid renewable fuel additives that replicate the problems of lead or MTBE.
"One frustrating aspect of this debate is that essentially, history is repeating itself," said A. Blakeman Early, on behalf of the American Lung Association. "Refiners chose to use MTBE in gasoline to replace tetraethyl lead in gasoline after Congress banned it."
He added, "It took 10 years to get the lead out of gasoline. Hopefully, Congress can get rid of MTBE in gasoline more quickly."
Meanwhile, refiners represented by the National Petrochemical & Refiners Association told House lawmakers they continue to oppose API's support of a federal MTBE phase-down coupled with an ethanol mandate.
NPRA Pres. Bob Slaughter urged the subcommittee not to "exacerbate a tight supply situation by arbitrarily eliminating MTBE, a significant contributor to the nation's gasoline supply."
Slaughter also criticized the 2002 Senate credit trading system that "requires fuel manufacturers and their customers to pay for the privilege of not using ethanol in their gasoline."
Energy markup up this week
Chairman Barton said his staff was hoping to craft a new proposal all parties could accept.
"We will try to reach a compromise for everyone," he said. Barton's subcommittee also is working closely with another Energy and Commerce Committee panel, the Environment and Hazardous Materials Subcommittee, on MTBE liability. That subcommittee may seek additional funding or legal relief for MTBE producers as it considers updates to the US Environmental Protection Agency's leaking underground storage tank program. Barton plans to begin marking up provisions on electricity restructuring and RFG Wednesday; the two proposals will be part of a larger comprehensive energy bill that Republican leaders want the full House to consider later this spring.
Stakeholders weigh in
API's Murphy told Barton's subcommittee that the RFG provision is "urgently" needed this year to reduce the possibility of supply problems.
"A solution that relies on state-by-state MTBE bans to fix the problem is not efficient nor will it alleviate supply problems that are likely to arise out of disjointed state requirements," Murphy said. "Unique state fuel requirements isolate affected markets and, in the event of a supply disruption, could cause shortages and price volatility, as experienced in 2 of the last 4 years in Chicago and Milwaukee. Sixteen states already have enacted MTBE bans or caps and additional states are considering bans."
API told the panel that Congress should repeal the federal oxygen requirement for RFG, and require a national phasedown of MTBE. The group also supports a renewable fuels standard that phases in as much as 5 billion gal over several years.
API also supports what it calls "limited" liability protection for both ethanol and MTBE producers. The association said that its members recognize that when Congress mandates the use of oxygenated fuels, "it is quite reasonable to disallow defective product claims for introducing that product into commerce. This limited liability relief would not affect liabilities for cleanup costs and the legal regime for cleanup of hazardous spills would be left in full force."
Oxygenate producers
Representing fuel ethanol producers, Bob Dinneen, president of the Renewable Fuels Association, said the Senate RFG language from last year, now recently introduced in both the House and Senate as the "Fuels Security Act of 2003," is a good way to improve the country's clean fuel program.
The bill does not require that any renewable fuels be used in any particular area, he said, "allowing refiners to use these fuels in those areas where it is most cost-effective." Moreover, "there are several provisions allowing the requirement to be adjusted or eliminated if price or supply problems occur," he added. He said that small refiners are exempted from a renewable standard for several years, giving those companies an easier transition to the program. Finally, recognizing that MTBE producers made investments in reliance upon a federal mandate, the bill provides significant transition assistance to MTBE producers, he said.
Scott Segal, counsel for the Oxygenated Fuels Association, spoke on behalf of MTBE producers. He said that water quality issues associated with MTBE stem from problems with leaking underground storage tanks, not any inherent danger associated with the oxygenate. He added that if gasoline containing MTBE is negligently spilled, an injured party should still be allowed to sue. However, producers should be given protection from product liability lawsuits because Congress essentially mandated the use of MTBE when it updated clean fuel rules in 1990.
There are also gasoline supply issues to consider, he suggested.
Any policy designed to hasten MTBE's exit from the marketplace complicates the existing picture for gasoline and supply; they also undermine a clear and present need for national security, Segal said.
Referring to the possible use of US military force in Iraq, Segal said: "As mobilization continues, one would be hard pressed to think of a worse time to remove 10% of motor fuel capacity in the nation's most populous cities."
In particular, Segal said problems in California are complicated by conversion from MTBE to ethanol fuels. He cited several oil analysts who blame the state's upcoming MTBE ban for retail pump prices that are outpacing the national average.
But RFA officials refuted that statement, saying ethanol cannot be blamed for higher prices in the state.
"World events are driving gasoline prices up across the county. Heaped on top of that, California experienced another series of unpredictable supply disruptions at the worst possible time," said RFA spokesman Monte Shaw. "The convergence of international, national and state specific events combined to form the perfect gasoline price storm."
RFA said that RFG with ethanol is selling for 10¢/gal less than RFG with MTBE at Los Angeles distribution terminals.
Contact Maureen Lorenzetti at [email protected]
