The American Petroleum Institute predicts the U.S. refining industry will be able to provide ample supplies of reformulated gasoline (RFG) Jan. 1.
API made its prediction despite the challenges that lie in complex new rules for cleaner burning gasoline that go into effect on that date.
But independent fuel terminal operators say the Environmental Protection Agency must adjust its RFG rules if they are to provide their sector adequate gasoline supply.
The comments came at a House energy and power subcommittee hearing on the logistical problems of supplying RFG.
Rep. Phil Sharp (D-Ind.), subcommittee chairman, said the switch to RFG in major urban areas has greatly reduced the fungibility of gasoline. He said, "There are now dozens of different 'flavors' of RFG. Many cannot be mixed in the countless distribution networks that move fuel from refineries through pipelines, barges, terminals, and trucks to retail gas station tanks."
API, NPRA
Charles DiBona, API president, said the 1990 Clean Air Act amendments requirement for RFG is the biggest change in fuel or product composition the industry has been called upon to make.
He urged EPA to complete work on the RFG rules.
"Refiners have not yet received EPA approval of their baselines specifying the parameters for each refiner's fuel. This is true even for refiners who submitted their baseline data to EPA as early as March of this year, well ahead of the June 1 deadlines.
"In addition to regulatory uncertainties surrounding RFG, there are other new and evolving requirements that will have to be taken into account in producing this new gasoline--and again, having adequate lead time is important to us. These include the final rule on detergents, which is due Oct. 15, and a requirement to reregister fuels and fuel additives, due by Nov. 27.
"But despite these challenges, companies have been making the needed modifications to refining, transportation, and storage facilities. We have been arranging for the supply of huge quantities of special chemical components needed to make the new fuel. And we have been planning the logistics of getting RFG to gasoline markets. We expect to be ready."
The National Petroleum Refiners Association also was optimistic that industry would meet the challenge.
It said, "Industry must manufacture and distribute many new types of fuels, in addition to conventional fuels, through a system already operating close to capacity. The new fuels include various octane grades of RFG, oxygenate program RFG, and oxygenate program conventional gasoline. This is in addition to low sulfur diesel fuel introduced in October 1993."
Philip Verleger, vice-president of Charles River Associates, Washington, predicted the RFG rules would raise the cost of gasoline 10-31cts/gal. He said, "A good portion of these increases could be avoided had the EPA used more thought and care in writing the regulations."
GOVERNMENT VIEW
Richard Wilson, a deputy assistant EPA administrator, said there apparently will be ample supplies of RFG, but "distribution logistics will be the key element in meeting the demands of the marketplace under the new regulatory structure." Wilson said the new fuel could cost 3-5cts/gal more than conventional gasoline.
John Riggs, a deputy assistant Department of Energy official, placed the increase at 5-7cts/gal and predicted it will be higher if there are spot shortages.
Riggs said, "Because the logistical system will be operating close to its maximum capacity, there will be less margin to handle unanticipated events such as exceptionally cold weather or the loss of a terminal, pipeline, or northeast refinery."
A DOE study elaborated on that theme. It said states from Virginia northeast to Maine will need 1.3 million b/d of RFG next year, Northeast refiners can produce 630,000-720,000 b/d of RFG, importers could bring in 160,000-190,000 b/d, and Gulf Coast refineries could supply 420,000540,000 b/d.
The study warned that the U.S. gasoline storage, blending, and distribution systems, along with administrative control systems, will be severely stressed in handling the increased number of gasoline types required under the RFG program.
It said unanticipated shutdowns could tighten RFG and other petroleum product supplies and lead to temporary shortages.
"Such events do occur with some frequency. For example, in the summer gasoline season of 1989, of the total downtime for domestic reformers, over 30% was unscheduled."
DOE said EPA's product segregation requirements will cause problems for terminal and pipeline operators.
"Tankage may be insufficient at terminals and pipeline breakout points for constant dedicated tank usage through each season. Given this, tank heels and 'tank turning' continue to be major points of concern with many pipeline operators."
The study noted EPA has told DOE it will not require operators to completely fill a tank at the time its service is switched but has yet to inform operators.
DOE also said refiners are concerned about storage and distribution problems created by the renewable oxygenate standard, which will increase demand for segregated storage and blending capacity.
TERMINAL OPERATORS
The Independent Fuel Terminal Operators Association (Iftoa), whose members import and blend about half the gasoline moved into the U.S., urged EPA to reconsider the emissions baseline.
The RFG rule requires U.S. refiners and importers to offer RFG in 1995-97 with emission specifications at or above their historic baseline.
Iftoa said, "Because domestic independent importers and blenders do not have the data to create an individual baseline, they are assigned a baseline which is generally more rigorous than those of their refiner competitors. As a result, if these importers and blenders cannot be competitive, they will be forced to restrict or cease their operations,"
The group's solution would be to exclude California refineries in calculating the average baseline for all refiners. It said California's cleaner fuels inflate the national baseline.
The independents said, "The RFG program will result in U.S. consumers paving much higher prices for their gasoline--in excess of 15cts/gal. Moreover, this estimate assumes that the program will be implemented smoothly and bottlenecks will not occur. Such a result from such a complex program seems unlikely.
"Most significantly, these projected increases do not reflect the loss of competition in the market if domestic independent importers and blenders are foreclosed from their traditional role in the market."
Reps. Joe Kennedy and Ed Markey, both Massachusetts Democrats, pointed out that Northeast states rely on imported gasoline for as much as 30% of their needs. But European refiners are not offering importers supply contracts for RFG and have limited capacity to produce at the higher standard.
EPA's Wilson said his agency is looking at the issue, but "at the moment it doesn't look Eke the differences are very big" if the average is adjusted.
