Controversy over U.S. RFG program still alive

The U.S. oxygenated gasoline controversy, which has lain relatively dormant this past summer, reappeared with a bang at the end of September, bringing together strange bedfellows.

All were represented at Oil & Gas Journals first international oxygenates conference last week in Houston.

New Jersey Republican Gov. Christine Todd Whitman announced Sept. 28 northern New Jersey will withdraw from the Environmental Protection Agencys program to use oxygenated fuel to cut wintertime carbon monoxide levels.

As a result, the New York Mercantile Exchange, which operates a gasoline futures market, sought and obtained an injunction. It prevents New Jersey from eliminating the oxyfuels program until the EPA accedes to a request for a waiver from New Jersey.

In a related move, Fred Craft, executive director of the Oxygenated Fuels Association (OFA), said last week at the OGJ conference OFA signed a letter with several other associations spelling out their plan to sue EPA if it allows New Jersey to withdraw from the oxyfuels program. Other signers were the Renewable Fuels Association, American Corn Growers Association, and American Methanol Institute, which promotes the production and use of methyl tertiary butyl ether while opposing the ethanol subsidy.

Craft said such a consensus and joint efforts will be necessary to keep the oxygenates industry viable.

He said politicians and some oil companies that are trying to get oxygenates taken out of gasoline are creating uncertainty and confusion that will eventually harm the oil industry. He also said OFA will strive to get the diverse interests working under one big tent.

However, another speaker said a Bosnian Parliament would be a better symbol of the groups working relationships up to now.

Uncertainty

In raising the uncertainty issue, Craft echoed comments of the keynote speaker at the OGJ conference, John R.Hall, chairman and chief executive officer of Ashland Inc. Hall, who favors the use of oxygenated fuels, characterized the current situation as a reign of confusion.

He said, Much of the confusion over reformulated gasoline in nonmandated areas has been fueled by EPAs failure to stand firmly behind the fuel.

Bowing to political pressure, the EPA even suggested marketers provide an alternative to RFG in Milwaukee, one of the nine mandated areas. To its credit, the oil industry declined this opportunity to violate the Clean Air Act.

EPAs lack of resolve, he said, has made RFG fair game, enabling its opponents to make unsubstantiated claims about health effects, price difference, and performance.

In addition, RFG marketers have been placed in the uncomfortable position of appearing to serve self-interests merely by defending a legally endorsed fuel.

EPA officials who were campaigning strenuously on behalf of RFG 18 months ago are now reluctant to enforce their own regulations and are taking a lenient approach toward new state implementation plans.

Hall said Ashland is in a good position to supply RFG, particularly because it has MTBE capacity, as well as an interest in an ethanol plant, and can either transport all its gasoline from its major Catlettsburg, Ky., refinery by barge or sell it at the refinery rack. However, its Pittsburgh market opted out of RFG, and its Louisville and northern Kentucky markets are considering a similar move.

Alaskas experience

Fairbanks and Anchorage, Alas., made national headlines with citizen complaints of headaches and nausea from MTBE in oxyfuels. Walter Hickel, governor of the state at the time, told the OGJ conference the complaints were real and were caused by the EPAs attempt to make one rule fit all 50 states.

Hickel stressed that Alaska is an arctic state. What works in Hawaii or even Denver wont necessarily work in Anchorage or Fairbanks.

Hickel said there is no air movement for long periods during Alaskas winters. He believes MTBE is trapped during these periods like the fog from respiration that hangs over huge caribou herds in the winter.

There have been no definitive studies of MTBE in an arctic environment.

However, John Del Pup, manager of the risk assessment and science policy division of Texaco Inc., said extensive epidemiological and clinical studies and rodent assays have given MTBE a clean bill of health.

Eventually, Alaska oxyfuels suppliers switched to ethanol, which gets a big state subsidy in Alaska in addition to federal tax credit.

The consensus at the conference was that the move to eliminate the federal ethanol subsidy is dead in spite of early trumpeting by House Speaker Newt Gingrich.

Craft pointed out that the U.S. Senate minority and majority leaders are from midwest agricultural states, and one of the first presidential primary elections takes place in Iowa.

Sen. Phil Gramm, a presidental hopeful, wrote Bill Archer, chairman of the House ways and means committee, Sept. 27:

I am deeply concerned about the House ways and means committees proposal to raise taxes on ethanol...

To Gramm, eliminating the subsidy now means raising taxes on the ethanol industry.

Price difference

Charles Dale of the Energy Information Administration said much of the flak that RFG got earlier this year was because it was introduced at a time of high crude oil prices.

His statistical tracking showed that shortly after introduction RFG was about 10/gal higher than conventional gasoline. The spread has dropped to 4-6/gal in recent months.

OFAs Craft said price spreads are accentuated because consumers are in RFG islands surrounded by users of conventional gasoline.

Surprises

Ronald D. Ripple of East-West Center, Honolulu, reported some surprising results when using the California Air Resources (CARB) predictive model to blend CARB Phase 2 RFG.

He said one blend could result in zero oxygenate demand. This means demand in California for MTBE could range from zero to 90,000 b/d in 1996.

That range of uncertainty, Ripple said, is about equal to the output of seven world-scale MTBE plants or twice the installed MTBE capacity in the Asia-Pacific.

G.R. James in an economic comparison of ethanol and methanol pointed out the clear advantage of the latter when produced from natural gas. He also raised the prospect of making methanol from wood, a huge renewable resource.

Unocal patent

A major issue in California is the patent to make RFG that has been granted to Union Oil Co. of California.

Major refiners, including Exxon Co. U.S.A. and Shell Oil Co., have challenged the patent in court to stop Unocal from collecting royalties.

There is no question that Unocal has the patent, and it is not easy to overturn one that has been awarded, Robert Strozier, a patent attorney and chemist associated with a Houston firm, told the OGJ conference. The stakes are huge, he said.

Unocal has filed a counterclaim, accusing other refiners of patent infringement and claiming damages. Strozier said it is a most unusual patent with 155 claims.

The patent is based on a discovery by Unocal that certain properties of RFG affect the type and volume of noxious exhaust gases. It also is based on the discovery that four fuel properties are critical for producing less polluting fuel. They are the 50% D-83 distillation point, Reid vapor pressure, octane value, and olefin content.

Strozier said the patent dispute could require as many as 10 years for settlement, allowing time for a trial and an appeal. Some may settle out of court, while others continue to pursue their cases in court. Copyright 1995 Oil & Gas Journal. All Rights Reserved.