California's refiner-marketers continue to work under a cloud regarding the status of federal vs. state guidelines on clean fuel supplies once the state's ban on methyl tertiary butyl ether takes effect.
The US Environmental Protection Agency is operating under the assumption that California's MTBE ban will not be impacted by federal legislation in the near future.
Agency officials say they are sympathetic that California's unique fuel specifications make distribution issues especially challenging, but they are not willing to offer specific guidance on issues such as commingling of fuel until state regulators offer their own guidance.
According to a Jan. 3 Petroleum Marketers Association of America bulletin, California marketers have met with the California Air Resource Board to develop a guidance document outlining appropriate contingency plans in case of a supply shortage.
"PMAA has asked that the EPA deem parties in compliance with federal regulations who have taken actions in accordance with CARB directives," the group said.
Ban background
The ban on MTBE was to have taken effect after Dec. 31, 2002, but early last year California Gov. Gray Davis signed an executive order requiring CARB to delay the ban until after Dec. 31, 2003.
CARB said, "This action gives those refiners who are not ready to fully remove MTBE extra time to adjust to the phase-out and thereby protect California consumers from disrupted supplies and price spikes."
Federal clean air rules require oxygenates in gasoline as a means to reduce emissions. Because the MTBE phase-out leaves ethanol as the only practicable oxygenate alternative, slaking California's thirst for gasoline would require a huge surge in ethanol supply that most refiners contend cannot happen within the time window for MTBE phase-out. The likely result would be gasoline supply disruptions and price spikes.
California has sued EPA over the agency's denial of a waiver for the state from the oxygenate requirement, and federal legislation has been introduced to change the oxygen requirement beginning in 2004. The MTBE ban delay then could dovetail with that new legislation.
Ethanol mandate
But industry itself is divided over the wisdom of what amounts to an ethanol mandate—in the form of a renewable fuels standard in lieu of an oxygenate standard—in proposed federal energy legislation. This proposal received the endorsement of the American Petroleum Institute last year under an accord with the Renewable Fuels Association. That accord has drawn fire from the National Petrochemical & Refiners Association, which opposes an ethanol mandate (see related Point of View).
"If that (API-RFA-endorsed proposal) passes, then it lets California make its own decisions about mandating volumes of ethanol," a California industry official told OGJ in an interview last year. "It releases California from the mandate, but it also creates uncertainty and thus causes problems for neighboring states with their own 'boutique fuels' requirements."
Such uncertainty does little to alleviate California refiners' concerns over meeting the state's fuel supply needs, the official noted: "The biggest underlying issue is that demand for product is growing dramatically—40% in the past 20 years."
