INDUSTRY AWAITS EPA'S DECISION ON OXYGENATES FROM RENEWABLE SOURCES

The U,S. government is about to play a wild card as products pipelines prepare to serve markets that require reformulated gasoline (RFG).

The card is the Environmental Protection Agency's proposal to require 30% of oxygenates used in the RFG program to come from renewable sources, effectively meaning ethanol or ethyl tertiary butyl ether (ETBE).

Industry sources say EPA has promised to issue a decision on the proposal by the end of this month. EPA may decide to abandon the proposal, adopt it, or change it. Whatever it decides will affect the way the U.S. petroleum industry-refiners and pipeliners in particular-conduct their operations.

ETBE currently is shipped by pipeline, usually as a component of oxygenated gasoline.

But ethanol can't be shipped by pipeline from refineries. Rather, it is moved by rail, barge, or truck to distribution terminals, where it is blended with gasoline to achieve oxygenate contents required for local markets. If EPA approves the renewable oxygenate rule as proposed, that practice is likely to continue, perhaps with severe logistical effects.

Ethanol accounts for about 35% of all oxygenates blended into gasoline in the U. S., but mostly it is used in markets near its production site, far from mandated RFG areas.

HIGHER COSTS

Few find fault with Mobil Corp.'s warning that if large volumes of ethanol have to be diverted to RFG markets on the East Coast or in California-far from oxygenated gasoline markets mostly in Midwest and Rocky Mountain states where it is now being used - significant supply disruptions could add as much as 6cts/gal to the cost of producing and distributing RFG.

Other possible incremental costs include conversion of methyl tertiary butyl ether capacity to produce ETBE by refiners on the U.S. Gulf Coast and building and maintaining more storage capacity, piping, and blending facilities at distribution terminals.

"One scenario that might play out under the renewable oxygenate rule as currently proposed is ethanol during the winter season might move by rail to Chicago and New York," Hawthorne said. "In the summer, it could move to the Gulf Coast to be made into ETBE, blended directly into gasoline, and shipped up one of the major interstate products pipelines."