U.S. refiners aren't likely to revamp processing units quickly enough to meet projected demand for reformulated gasoline.
An inadequate supply of oxygenates, mainly methyl tertiary butyl ether (MTBE), will cause the Environmental Protection Agency to delay or relax oxygenate levels spelled out in amendments to the Clean Air Act (CAA), says a report by Bonner & Moore Associates, Houston.
President Bush signed the amendments into law Nov. 15.
They require an oxygen content of at least 2.7 wt % during 4 winter months beginning in 1992 in gasoline sold in 44 cities where EPA has measured excessive CO levels. Also, by 1995 gasoline sold in nine severe ozone contamination areas must have at least 2 wt % oxygen content year round (OGJ, Oct. 29, p. 18).
CO nonattainment areas account for about 27% and ozone nonattainment areas about 22% of U.S. gasoline consumption.
Bonner & Moore estimates about one third of U.S. gasoline markets will be required by CAA amendments to sell reformulated gasoline during at least a portion of the year.
The petroleum industry blasted the measure while it was in Congress, warning of "substantial" increases in the cost of gasoline with little environmental benefit even if required volumes of reformulated motor fuel can be made.
PROBLEMS SPELLED OUT
Because of tight supplies, MTBE cost will become an important variable in gasoline pricing, often exceeding the spread between prices of regular and premium unleaded gasolines, says Cynthia D. Poynter, vice-president of Bonner & Moore Management Science.
Historically, toluene and MTBE competed as octane enhancers. But as limits are placed on total aromatics, toluene prices will fall significantly below the octane equivalent level for MTBE and regular/premium unleaded spread, she told a seminar at Johns Hopkins University.
Gasoline blending operations will become vastly more complicated, particularly during the winter months when oxygen minimums are imposed in CO nonattainment areas.
Logistical problems associated with moving blending stocks to refiners and distributing multiple grades of fuel likely will extend the market range of reformulated gasoline beyond borders of nonattainment areas to include most U.S. markets.
Butane supply will be very tight as reformulation proceeds, with shortfalls possible.
Butane should be adequate for minimal volatility reductions in summer 1992. But, Poynter warns, a boom/bust cycle is possible for butane suppliers.
The firm also predicts tight world gasoline markets will restrict imports into the U.S. and support hefty gasoline margins.
OXYGENATE SUPPLY/DEMAND
CAA amendments will cause extreme seasonal fluctuations in demand for oxygenates by the winter of 1992. By then, Poynter expects U.S. MTBE capacity to be about 160,000 b/d, leaving U.S. suppliers about 150,000 b/d short of peak demand.
At a minimum, even if only nonattainment areas were supplied with reformulated gasoline, an added 300,000 b/d of MTBE capacity will be needed.
As much as 700,000 b/d of new MTBE capacity could be required.
Although imports could bring another 50,000-60,000 b/d of MTBE into U.S. refineries, a lack of adequate oxygenate supply will cause EPA to delay or lower required oxygenate levels.
Oxygenate supplies will remain tight on U.S. markets through the mid-1990s, with an average shortfall of 70,000 b/d by 1995, reaching a peak seasonal shortfall of more than 170,000 b/d.
Gasoline margins during this decade are expected to remain good, as supplies remain tight worldwide, despite reduced gasoline demand following the crisis in the Middle East.
Gasoline margins will decline in the late 1990s in response to a spike in crude prices.
COST OF REFORMULATION
Poynter estimates outlays of $13-23 billion for new instrumentation and fractionation units will be needed to achieve reformulation as required by CAA amendments.
Substantial investment will be needed to increase storage, install sophisticated control equipment, and expand U.S. butane isomerization and dehydrogenation units in new MTBE plants.
Gasoline reformulation will increase refinery operating costs by 2.4-3.4/gal, with much MTBE stock bought from third party producers. The cost of MTBE feedstock alone could add as much as 10/gal to the cost of blending reformulated gasoline if long term supply contracts recover essential capital expenses.
The need for more refining and petrochemical capacity will strain engineering, construction, and equipment manufacturing capabilities and could cause expansion costs to rise, Poynter says.
Reducing benzene content to 1 vol % in gasoline sold in nonattainment areas will require fractionation of reformer feed and/or benzene extraction.
Cat gasoline and reformate will be fractionated as a secondary control for aromatics, limited by CAA amendments to 25 vol %.
Reformer throughput rates and operating severities will be reduced to control aromatics contents, at the same time limiting an important hydrogen source for desulfurization.
So refiners will be forced to invest in costly hydrogen plants to compensate for the loss.
Eventually, Poynter predicts, spare reformer capacity on the U.S. Gulf Coast could produce enough high octane components or finished gasoline for exports.
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