The world market outlook for oxygenates in general and methyl tertiary butyl ether (MTBE) in particular has become increasingly uncertain in recent months.
That's because of changes in government mandates for U.S. gasoline formulas.
Controversy over the price and health effects associated with reformulated gasoline (RFG) required in certain U.S. areas by the Clean Air Act amendments of 1990 has squeezed demand for MTBE (OGJ, Feb. 13, p. 17).
At the same time, prospects for a ban on MTBE use in the biggest U.S. market, California-beyond a clouded outlook for MTBE demand in the state even without a ban-leave the range of uncertainty for California imports of MTBE at 090,000 b/d. That's about equal to the output of seven world scale merchant plants or twice the installed MTBE capacity of the Asia-Pacific region.
Those are the main findings of an energy advisory by East-West Center (EWC), Honolulu. EWC contends these developments have raised the risk associated with manufacturing MTBE to supply the U.S. market for winter oxygenated gasoline and year-round RFG.
If taken to an extreme, the concerns could snowball into a truly gloomy scenario for MTBE. The product in recent years has attracted a sizable chunk of investment by refiners and petrochemical producers around the world because of high expectations for MTBE demand.
MTBE MARKET CONCERNS
EWC notes there has been an exodus from the federal RFG program in certain areas of the eastern U.S. where use of the new fuel is not yet required bv the Environmental Protection Agency but where some municipalities have chosen to join the program earning.
Much of that exodus is the result of consumers' reaction to the prospect of higher gasoline prices associated with the program and/or concerns about potentially harmful human health side effects from using MTBE in gasoline (OGJ, Apr. 17, pp. 21 and 22).
"While not corroborated by scientific study, the questions and allegations have led to additional requested retreats from the RFG program," EWC said.
In California, legislation has been introduced that would ban MTBE from use in any gasoline sold in the state.
Even without such a ban, a predictive model California Air Resources Board (CARB) has developed for industry may result in dampened state demand for MTBE. Because California's MTBE demand is such a big share of the world market and is met mainly from sources outside the state, such major changes in its MTBE outlook will shift the MTBE supply/demand balance on an international scale.
CALIFORNIA MTBE DEMAND
Late last year EWC's conservative forecast of California's MTBE imports pegged those volumes at 53,670 b/d in 1995, rising to 76,000 b/d in 2000, mostly from the U.S. Gulf Coast and non-U.S. producers.
The critical assumption underlying this forecast is that EPA!s RFG program and CARB's oxygenation program would be in effect this year.
EPA's RFG program in California applies to the South Coast Air Quality Management District, which includes Los Angeles and San Diego and accounts for about 61% of the state's total gasoline pool. When the winter oxygenation program is accounted for, about 72% of California's 1995 gasoline pool would contain an average 2 wt % oxygen.
The risk facing MTBE merchant suppliers-stand alone MTBE plants as opposed to those integrated within refineries-thus involves a range in demand from zero to the high end of EWC's yearend 1994 forecast.
If the legislation fails, California's MTBE import demand may approach or exceed the forecast. But even at that, the blending flexibility provided bv CARB's predictive model could result in MTBE demand settling anywhere between the two extremes. Volumes ultimately sold would be determined by the relative costs of blending components.
While California is not officially opposed to the use of ethanol, the net result of its strict emissions specifications is that MTBE is the oxygenate of choice for EPA and CARB programs for RFG and winter carbon monoxide emissions.
Recent state forecasts of gasoline demand climbing to 1 million b/d by 2000 underpins the higher end of projections for the state's MTBE imports (Table 1(21968 bytes). California's estimated 1995 imports of MTBE equal about 20% of total MTBE productive capacity in North America, are more than 10% of the world's installed capacity, and exceed the Asia-Pacific region's capacity of 44,700 b/d.
If a ban on MTBE use succeeds in California, "such a reduction in demand by itself would be significant for the merchants of MTBE, but when added to the reductions experienced in the eastern U.S., it becomes daunting," EWC said.
Even without the ban, CARB's predictive model under the Phase 2 RFG program, which takes effect statewide in March 1996, intensifies the uncertainty for MTBE in California. The model applies to gasoline to be certified under CARB Phase 2 RFG.
EWC's forecast for California MTBE demand assumes strict adherence to Phase 2 oxygen specifications of 1.8-2.2 wt % and an average of 2 wt %. The 2 wt % average implies MTBE will be blended at a rate of 11.1 vol %.
The predictive model allows for flexibility in how each refiner blends its gasoline to meet CARB Phase 2 specs. Rather than being forced to satisfy specified constraint for each of the eight variables CARB has identified (Table 2 (15898 bytes), the predictive model allows each refiner the option to change any of the variables except for Reid vapor pressure.
The requirement that must be satisfied for an alternative blend to be certified is that the resulting predicted emissions cannot exceed the CARB specified Phase 2 RFG predicted emissions by more than 0.05%. A potential result of the application of the predictive model is a certified CARB Phase 2 RFG that contains no oxygenate.
"It is technically possible to blend a gasoline that meets CARB requirements while containing no oxygen carrying blending component (Table 3 (12961 bytes)," EWC said. "However, the question of the economic viability of such a blend will differ from refiner to refiner and will depend on the relative costs of available blending components at any given time."
Such a blend may be costly to make because of its low aromatics and sulfur content, and it is uncertain whether it would provide marketable octane levels, EWC noted.
"Nevertheless, such a blend would limit the oxygen content to one half of that assumed to arrive at the MTBE requirements...in Table 1 and could result in zero oxygenate demand," EWC said. "The flexibility provided by the predictive model makes the volume of oxygenate demanded an economic decision rather than one based on a simple formulaic calculation resulting from a specified government regulation."
Of the 38 counties in New York, Pennsylvania, and Maine that had asked EPA to let them opt out of the RFG program after earlier asking to opt in to the program, all are classified as serious, moderate, or marginal in ozone nonattainment levels. They will be required to use RFG starting Jan. 1, 1998.
The opt-in program simply allows those areas to get an early jump on meeting ozone emission levels as long as EPA does not find that the opting in of non-mandatory areas could cause a shortage of RFG needed to meet demand in the extreme and severe ozone nonattainment areas.
Essentially, the main concern these counties raised is that motorists in these areas would be paying higher gasoline prices 3 years earlier than necessary, especially for certain remote counties with transportation disadvantages and relatively small markets.
These opt-outs have cut demand for MTBE about 10% from what industry expected as recently as November.
New Jersey and Wisconsin, however, have asked for exemptions on the grounds of potential health risks associated with MTBE.
New Jersey wants a shortened winter oxygenates program, and Wisconsin wants an exemption to the mandatory MTBE program applied to the Wisconsin area, which is classified as a severe ozone nonattainment area. Those health claims first arose in Alaska, which has banned MTBE use outright.
"To date, however, the consensus of scientific research is that MTBE does not pose a health risk," EWC said. "It is worth noting that MTBE has been used as an octane enhancer for more than 2 decades.
"These concerns regarding the safety of MTBE in gasoline, whether scientifically supported or not, have led to a short term reduction in demand for MTBE, which could develop into a long term death spiral for this gasoline blending component."
Copyright 1995 Oil & Gas Journal. All Rights Reserved.
