GAO: REFORMULATION THREATENS SMALL REFINERS

A national shift to increased use of reformulated gasoline, which pending Clean Air Act reauthorization legislation apparently will require, threatens small U.S. refiners and distributors. The General Accounting Office offered that conclusion in a report to Congress entitled "Uncertainties Surround Reformulated Gasoline as a Motor Fuel." It defined reformulated gasoline as new mixtures developed to reduce emissions of environmentally harmful compounds.

July 2, 1990

3 min read

A national shift to increased use of reformulated gasoline, which pending Clean Air Act reauthorization legislation apparently will require, threatens small U.S. refiners and distributors.

The General Accounting Office offered that conclusion in a report to Congress entitled "Uncertainties Surround Reformulated Gasoline as a Motor Fuel."

It defined reformulated gasoline as new mixtures developed to reduce emissions of environmentally harmful compounds.

POSITIVE, NEGATIVE EFFECTS

GAO said reformulated gasoline offers the potential of improving national air quality without the need to develop a new motor fuel distribution system.

But it warned, "Possible negative impacts include increased production costs for refiners, financial failure of some small refiners and independent gasoline marketers, increases in the consumer cost of gasoline, and an increase in crude oil imports."

Refiners told GAO it will be very expensive to reconfigure refineries to make reformulated gasoline. Two industry officials estimated this reconfiguring of refineries might require capital investments of $20-30 billion to reformulate all gasoline.

GAO said reformulated gasoline also will reduce the value of some refinery products.

"For example, as gasoline blending components, aromatics have relatively high value. To reduce the aromatics content of gasoline, refiners would need to find other uses for them or reduce the amount of aromatics produced during the production of gasoline.

"They could be sold to the chemical industry as feedstocks. However, government and industry officials said the market would have difficulty in absorbing large surpluses of aromatics that likely would result from reformulating all gasoline. These officials said depressed prices for aromatics probably would result."

SMALL REFINERS

GAO said some small refiners may be forced out of business if required to produce significantly reformulated gasoline.

Currently there are about 75 small U.S. refiners with crude oil processing capacity of 100,000 b/d or less, representing about 13% of total U.S. gasoline production.

Officials of trade associations representing small refiners told GAO their members generally lack the processing flexibility to adjust to demand for a significantly different fuel. Further, they tend to operate on small profit margins and would have difficulty attracting investors if expensive new equipment were required to produce a new gasoline formulation.

GAO said the loss of small and foreign refiners contributing products would place pressure on independent gasoline marketers.

It said severe gasoline reformulations probably would result in lower volumes of gasoline produced per barrel of crude oil, increasing the need for oil imports.

Government officials expressed concern that the emergence of reformulated gasoline might discourage development of alternative fuels such as methanol and ethanol, which are not made from petroleum.

But GAO said, "With the uncertainties concerning composition and potential impacts of reformulated gasoline, it would be premature to draw conclusions about the potential of reformulated gasoline in comparison to other alternative fuels."