Discussions of pending and issued regulations were rife at the 98th National Petrochemical & Refiners Association (NPRA) annual meeting in San Antonio last week. Refiners were particularly concerned about the impact of the US Environmental Protection Agency's (EPA) reinterpretation of the new source review (NSR) rule, sulfur specifications for gasoline and diesel, and the phaseout of methyl tertiary butyl ether (MTBE).
Despite these technical challenges for the US refining industry, in the midst of sustained high crude prices, low inventories, and high demand, the refining industry is enjoying a period of improved refining margins. Jerry Thompson, senior vice-president for Citgo Petroleum Corp., pointed out at a press meeting on Mar. 26 that financial reports for US refineries will likely be good this quarter because of market fluctuations. "But one quarter," he warned, "does not make a business survive."
As a result of current low inventories, refined product prices are very susceptible to price volatility. In this tight supply environment, an unexpected refinery shutdown could "pole vault" prices, said Thompson.
Effective at the end of this year's annual meeting, Thompson replaced Robert H. Campbell as chairman of the board of NPRA, a 2-year position. During the conference, Campbell also announced his intention to retire from his job as chairman and CEO of Sunoco Inc. after its annual meeting in May.
New source review
As shown in the figure, the US refining industry faces a number of regulations between 2000 and 2008. Implementation of these regulations, said Campbell, will cost the industry billions of dollars.
The possible impact of the reinterpretation of NSR by EPA is subtle but powerful (see story, p. 29). EPA claims that some of the "capacity creep" projects in the past 20 years (projects that increase refining capacity without the construction of new units) for which industry did not receive permits should have required them. Under this reinterpretation, however, projects that increase on-stream factors by installing more reliable or safer equipment trigger NSR because they essentially increase capacity (OGJ, Mar. 13, 2000, p. 19).
As a result of this uncertainty regarding the reinterpretation of the NSR rule, refiners are having difficulty resolving how NSR should be applied to their facilities and if they need permits for capacity creep.
On one hand, points out Campbell, US Sec. of Energy Bill Richardson has implored refiners to maximize output of gasoline and heating oil to loosen supplies in this tight market (see related story, p. 26). On the other hand, EPA is criticizing refiners for having had capacity creep during the past 20 years with states' approvals.
Resolution of this issue is required to eliminate confusion the reinterpretation has raised regarding permitting and to allow for proper planning of normal maintenance repair and improvement jobs, such as turnarounds.
The final Tier 2 gasoline rule, issued at the end of December (OGJ, Jan. 3, 2000, p. 26), will cost the refining industry at least $8 billion, according to Thompson.
NPRA is still negotiating with EPA about the details and timing of diesel specifications. Presently, compliance with on-road diesel specifications is timed to coincide with that of gasoline sulfur specifications.
However, Robert Perciasepe, EPA assistant administrator, indicated that there might be some room to negotiate more time for compliance with ultra-low-sulfur specifications for diesel in the industry. He said, "They [gasoline and diesel regulations] can't happen all at once. On the other hand, we don't think they have to be linear."
Earlier this year, EPA sent a proposal to the White House Office of Management and Budget with a 15 ppm sulfur cap for on-road diesel, a 97% reduction from today's cap of 500 ppm. NPRA had expected that EPA would suggest a cap of 50 ppm (OGJ, Mar. 27, 2000, p. 23).
Concerning the 15 ppm cap, NPRA Pres. Urvan R. Sternfels said: "This is a very significant and quite distressing event for us, because, until recently, the EPA had been discussing with us a reduction of 90%."
The cost of a 15 ppm limit is unknown at this point, said Sternfels, "because we don't know what technology we could deploy to get to the very low levels of sulfur required of this cap." The fact that off-road diesel and heating oil, with higher levels of sulfur, are shipped in the same pipelines as on-road diesel also requires more study.
Such strict on-road diesel regulations, according to NPRA, put the US distillate supply at peril. Although the organization would like to produce refined products for customers at reasonable prices, given constant or growing demand, strict diesel sulfur regulations may limit supplies, which will, in turn, cause price hikes.
The refining processes that refiners will use to lower sulfur content in gasoline will likely reduce either gasoline yield or octane numbers. A ban on MTBE will exacerbate both of these problems, because MTBE provides both volume and octane.
Last year, 260,000 b/d of MTBE was blended in US gasoline. Refiners also use MTBE in place of aromatics and olefins to increase octane.
Another issue that an MTBE ban would complicate is the air toxics rule for gasoline, which covers mainly the aromatic components blended into the gasoline pool.
Taking MTBE out of the pool increases the percentage of aromatics, which contribute to less-favorable exhaust emissions.
On Mar. 20, EPA asked Congress to amend the Clean Air Act to reduce or eliminate the use of MTBE and replace it with a renewable fuels mandate. The renewable fuel that EPA suggested is ethanol (OGJ, Mar. 27, 2000, p. 36).
Although NPRA believes ethanol will be one of several alternatives used as a replacement for MTBE-should a ban on MTBE occur-it would like to see the oxygen mandate removed without any formulation mandate.
"What we need," said Campbell, "is the federal regulators to tell us what they expect from a performance standpoint and then let the refiners compete and come up with the most cost-effective solution. Tell us your environmental goal, not a prescription to achieve it."
"The last time we mandated fuel additives," said Sen. James M. Inhofe (R-Okla.) in a speech to conference attendees, "we got more problems than we solved, and I'd like not to do that again."