U.S. REFORMULATED GASOLINE RULE COMPLEX, CONFUSING

Anne K. Rhodes
Refining/Petrochemical
Editor

Refiners are in for a worse ride than they feared under the U.S. Environmental Protection Agency's final rule for reformulated gasoline.

Last Dec. 15 EPA issued the long-awaited rule required by 1990 Clean Air Act amendments (OGJ, Dec. 27, 1993, p. 27). The complexity of the final rule, which immediately drew fire from the petroleum industry, leaves it open to interpretation, further increasing the likelihood that refiners will face as yet unseen hardships.

"The ... final version of the [reformulated gasoline rule] will precipitate significant distribution and economic pressures within the refining industry," says Tom Hawthorne, manager of refining strategy and business analysis for Wright Killen & Co., Houston.

"Refiners have withstood a 2 year delay in the finalization of the complex model only to learn that 20 30% of all gasoline made in the U.S. cannot be produced within the confines of this model, and they have less than 1 year to find a solution."

Wright Killen Pres. Calvin Cobb said, "After reviewing the more than 900 pages of this legislation, Wright Killen believes the regulations, as written, include incongruities. It is likely they will require further work by all parties."

BACKGROUND

EPA designated nine major U.S. metropolitan areas as "extreme" or "severe," in terms of atmospheric ozone levels. These so called nonattainment areas represent about 25% of the 1998 U.S. gasoline market, says Hawthorne.

Although ozone standards are exceeded mainly during the summer, reformulated gasoline (2 wt % oxygen) will be required year round in those cities.

In addition, 87 other areas were designated "serious" or "moderate. Those areas can opt in to the federal reformulated gasoline program if requested in their state implementation plan (SIP) and approved by EPA.

Opt in areas, which will be governed by individual SIPS, could represent as much as an additional 20% of the U.S. gasoline market in 1998, says Hawthorne. Not all of those areas, however, are expected to exercise their option to join the program.

Further, if atmospheric pollution fails to reach the goals of the CAA amendments, EPA will issue more stringent regulations, tending to increase the likelihood of opt in.

Similar measures have been enacted for areas out of compliance with EPA standards for carbon monoxide. Such areas are required to use oxygenated gasoline (2.7 wt % oxygen) each winter.

To further complicate matters, says Hawthorne, ambient air conditions have improved in several areas in recent years. Hartford, Boston, and Memphis asked EPA to be excluded from the wintertime oxygenated gasoline requirements, based on improved carbon monoxide levels in those cities. No ruling has been issued in those positions, according to Wright Killen.

In addition to the volume of reformulated and oxygenated gasolines required by each area, an allowance must be made for the imprecise nature of the gasoline distribution system. For example, "spillover" occurs when an area adjacent to a nonattainment area receives reformulated gasoline - even though it is not required to do so because the area is supplied by the same terminals as the nonattainment area.

Spillover is expected to increase demand for reformulated and oxygenated gasolines by as much as 5%, says Hawthorne. He believes this spillover will be offset partially by a small amount of noncertified gasoline inadvertently reaching nonattainment areas, especially in the early years of the regulated gasolines.

BASELINE

Project consultant Christopher Henderson of Woodward Clyde Consultants, Denver, says even U.S. refiners not producing reformulated gasoline have to comply with its provisions, namely the baseline reports and audits. And after the baseline provision begins, another portion of the regulation will follow, creating annual work through 2000.

Henderson considers the most important aspect of the new rule its "antidumping requirements for conventional gasoline." Determination of an accurate baseline is designed to prevent dumping of undesirable constituents from the reformulated gasoline pool into the conventional gasoline pool.

This section of the regulation contains requirements that will dictate refiners' future regulatory requirements. Increasing compliance requirements and standards are phased in during the following 7 years.

Refiners and importers are required to account for all gasoline in determining their 1990 baseline. This includes various grades of gasoline product and intracompany sales and transfers.

"Every refiner and importer should be working to establish their own comprehensive compliance program," says Henderson, "or, at the very least, to determine their 1990 baseline or the method by which they will determine their baseline."

Selection of the baseline method will require analysis and review of the 1990 gasoline constituents.

The selected compliance strategy can determine a refiner's level of production and distribution to covered areas. A compliance strategy will include:

Selecting the simple or complex model.
Selecting the per gallon or annual average reformulated gasoline compliance method.
Developing secure supplies of oxygenates.
Reviewing and reconfiguring exchange agreements.

Every refinery or terminal producing gasoline, either by blending or refining, is required to estimate the environmental quality parameters of their 1990 gasoline. These parameters disillation, olefins, aromatics, sulfur, benzene, Rvp, and oxygen content are collectively called the baseline.

The quality of all conventional gasoline produced at a facility in the future will be compared to those data to determine if the gasoline meets federal standards.

EPA allows three methods of calculating 1990 baseline: method 1, based on 1990 shipment data; method 2, based on 1990 stream data; method 3, based on stream data from later years by "backcasting" to 1990 operating conditions.

Henderson summarized the data required for the three methods:

Method 1 Requires data on 1990 shipments of gasoline, including total number of shipments of each grade, volume of each shipment, gasoline sampling dates, parameter measurement dates, and parameter values of each shipment or mixture of shipments sampled.
Method 2 Requires data on each type of 1990 gasoline blendstock produced in the refinery and used in the refinery's gasoline, the volume of each batch or the total volume if from a continuous process, and the blendstock sampling dates, parameter measurement dates, and parameter values of each sample or mixture of samples analyzed.

Blendstocks include volumes purchased or otherwise received, including intracompany transfers. ALL batches or distinct volumes of blendstock must be identified as either produced at the refinery, purchased from within or outside the company, or transferred from within or outside the company.

Method 3 Requires data on each type of 1990 or later gasoline blendstock produced in the refinery and used in the refinery's gasoline, the volume of each batch or the total volume if from a continuous process, and the blendstock sampling dates, parameter measurement dates, and parameter values of each sample or mixture of samples analyzed with supporting documentation.

Refiners are required to use all available data and to have at least 3 months of data from both summer and winter. Exceptions to these procedures are to be approved by EPA case by case.

EPA prefers specific laboratory tests but will allow alternatives if they are widely accepted by industry.

"Wright Killen has estimated that the costs of the necessary lab tests will range between $150,000/year and $250,000/year when performed by third party labs," says Hawthorne.

For a typical, single train fuels refiner, the baseline calculation requires about 50,000 data points to be entered into spreadsheets or data bases and manipulated.

When choosing a baseline calculation method, if a refiner has doubt about the data required under Method 1 or its admissibility, an available data required under Method 2 must be submitted, says Henderson.

If there is doubt about the data required under Method 1 or 2 and admissibility for a baseline fuel parameter determination may be questioned, all available data required under Method 3 must be submitted.

In addition, documentation of the operating conditions of each refinery in 1990 or later must be submitted, says Henderson. This includes:

Volumes and aggregate assays of crude oil refined.
Relative production of gasoline (by grade) and distillate.
Intermediate feedstocks produced, identified by volume and production unit.
Types and amounts of all gasoline blendstocks produced, purchased, or transferred.
Key process operating conditions (specifically, if applicable, catalytic cracker gasoline and distillate cut points, catalyst type and operating temperatures, reformer conditions, and time period for each gasoline blendstock).

If Method 3 is used, refiners and importers may submit their reports to EPA by next Sept. 1.

COMPLIANCE

Compliance of conventional gasoline is to be determined by tracking average annual gasoline emissions. The parameters listed previously will be measured on each batch of gasoline produced, and emissions will be calculated using one of two models.

During the first 3 years of the program beginning Jan. 1, 1995, refiners may choose either the simple or complex model to estimate emissions. After Jan. 1, 1998, refiners must use the complex model.

For conventional gasoline, the simple model allows a refiner's olefins, sulfur, and T90 (the temperature at which 90% is distilled) to exceed its 1990 values for the same parameters by no more than 25%. Benzene exhaust emissions (BEE), as calculated by this equation, cannot exceed 1990 values:

BEE, mg/mile = 1.884 + (0.949

x % benzene) + (0.113 x

[% aromatics % benzene])

After 1997, refiners must use the complex model, which calculates emissions of benzene exhaust, volatile organic compounds (VOCs), toxics, and NOx, in mg/mile. Hawthorne says the reference point for this calculation is the emissions calculated using the refiner's 1990 baseline parameters.

For conventional gasolines, emissions of benzene, toxics, and NOx cannot exceed 1990 levels. VOC emissions will be controlled by regional vapor pressure requirements. Compliance with the complex model continues on an average annual basis.

If, in the future, a refinery produces a larger volume of gasoline than it did in 1990, the incremental volume of gasoline must be compared to the parameters of the statutory baseline: benzene 1.6 vol %, aromatics 28.6 vol %, olefins 10.8 vol %, sulfur 338 ppm, T50 207 F., T90 332 F., Rvp 8.7 psi, E200 (% evap. @ 200 F.) 46%, E300 83%, Gravity 59.1.

The baseline for each refinery must be developed, audited by a third party that has been approved by the EPA, then submitted to EPA for approval. If a refinery does not have enough data, it will be allowed until next Sept. 15 to collect the data, calculate the baseline, have it audited, and submit it to EPA. Each approved baseline will be posted in the Federal Register.

Starting in 1998, all reformulated gasoline will be measured against the statutory baseline.

ETHANOL ISSUE

Issuance of the final reformulated gasoline rule coincided with a Clinton administration proposal concerning oxygenates. Under the proposal, 30% of oxygenates used in reformulated gasoline beginning in 1995 must come from renewable fuels such as ethanol.

A hearing on the issue was conducted Jan. 14, but the outcome was not available at presstime.

EPA reversed an earlier rule issued by President Bush, giving ethanol a 1 psi volatility waiver from reformulated gasoline requirements. The new mandate, a Clinton administration compromise, if passed, will ensure ethanol use in winter months and ethyl tertiary butyl ether (ETBE) use in summer, when volatility must be lower.

ETBE use will not become prominent, however, until refiners have had enough time 1 3 years, says Hawthorne to adapt their units to manufacture ETBE rather than methyl tertiary butyl ether (MTBE), as originally planned.

OTHER PROVISIONS

Hawthorne says the final reformulated gasoline rule laid to rest a number of controversial issues, including:

The compliance date for refiners has been advanced to next Dec. 1 to ensure compliance in the distribution system by the Jan. 1, 1995, regulatory deadline.
Refiners are still required to calculate and submit an audited baseline for each refinery to EPA by next June 1 with the exception cited previously. EPA has defined the volume of gasoline to be considered for baseline calculation as the larger of the volume produced at the refinery or the volume shipped from the refinery.
Individual refinery baselines must include separate parameters for summer and winter, calculations of exhaust emissions for Phases 1 and 2, and blendstock to gasoline ratios for each year from 1990 through 1993. Requirements to provide product shipment details, crude assay data, and port of entry data for imports, however, have been relaxed.
Gasoline exported from the U.S. in 1990 will be excluded from the baseline calculation. Refiners that produce a subgrade blendstock for downstream oxygenate blending, however, will include that volume in baseline volumes, including the volume of oxygenate used in downstream blending.
In establishing baselines, refiners can use alternative laboratory test methods that are not approved by EPA but only if the alternative methods are accepted by industry. If, in the future, after the baseline . has been established, a refinery changes laboratory test methods and an unfavorable bias is introduced, EPA will not allow the baseline to be adjusted.
Non U.S. refiners will be forced to follow the statutory baseline when exporting gasoline to the U.S. unless they exported at least 75% of their production in 1990. The statutory baseline represents the quality of the average gasoline sold in the U.S. in 1990 and reflects a gasoline pool based on highly complex U.S. gasoline refineries. Foreign refiners, many of which have lower complexity and charge higher sulfur crudes, will find that this requirement effectively prevents them from exporting gasoline to the U.S.
Small refiners that produced JP-4 jet fuel for the military in 1990 will be allowed to adjust their individual refinery baseline to allow for the effects of reforming the naphtha portion of the jet fuel but only if their total JP 4 production was at least 50% of their 1990 gasoline production. Most refiners with JP 4 contracts will not be able to meet this criterion, says Hawthorne, and will find it necessary to more closely restrict reformer throughput or severity to produce complying gasoline.
Refinery baselines also can be adjusted for "work in progress" if, at a minimum, funds were committed to the project in 1990, at least one of the baseline parameters would change significantly as a result of the work, a significant capital investment at least $10 million or 10% of the refinery's depreciated book value is at stake, and the project was launched with the intent of complying with legislative or regulatory environmental requirements promulgated before Jan. 1, 1991. The allowed adjustments in baseline parameters are restricted, however, such that the full effects of the work in progress may not be taken in many cases, Hawthorne said.
Where today multiple pipelines handle six to 12 grades of U.S. gasoline, the new regulations will overburden the system by doubling the number of grades to about 24.
Refiners that need to process more heavy, sour crude will find facility development costs higher than in the past because these facilities will be required to deal with sulfur and olefins content that exceed the statutory baseline.

DISTRIBUTION

Wright Killen says the fungibility system under which U.S. product pipeline systems operate will be allowed to continue, on a limited basis, for reformulated gasoline.

Before 1998, reformulated gasoline that is certified using the complex model may not be combined with reformulated gasoline certified using the simple model, except at the retail level.

Further complicating matters, reformulated gasoline certified with the complex model may not be combined with reformulated gasoline from another refinery also certified using the complex model unless their baselines are identical.

Because of those restrictions, the U.S. fungibility system probably will rely on the simple model for reformulated gasoline until 1998, when a single statutory baseline will apply, Wright Killen said.

FUTURE REQUIREMENTS

EPA is proposing a one time reporting requirement to establish the baseline blendstock to gasoline ratio.

Henderson says all refiners and importers of conventional gasoline will be required by Jan. 31, 1995, to submit a report showing the total volume of gasoline produced and imported for each calendar year from 1990 through 1994 to EPA. This report is to follow the same rules as the 1990 baseline report.

Refiners and importers producing reformulated fuel will be required to demonstrate compliance by averaging certain properties of conventional gasoline during a year long period or on a per gallon basis.

This regulation says refineries and importers must engage an independent auditor that is also a certified public accountant to examine the information at the conclusion of each calendar year. The date the audit reports are due varies, depending on which model and calculation method the refinery uses.

The regulation requires an independent laboratory to perform sampling and analysis of the gasoline products produced to show compliance. Batch or continuous stream sample collection can be an integral part of the data collection.