The cost of achieving required U.S. gasoline formulations this winter in Environmental Protection Agency carbon monoxide (CO) nonattainment areas could reach 3-50/gal, an Energy Information Administration analysis has found.
EIA says new winter demand for gasoline blending oxygenates such as methyl tertiary butyl ether (MTBE) or ethanol created by 1990 amendments to the Clean Air Act (CAA) will exceed U.S. oxygenate production by 140,000-220,000 b/d. The shortfall must be made up from inventory or imports.
EIA estimates the cost of providing incremental oxygenate to meet expected gasoline blending demand likely will result in a price premium of about 20/gal of MTBE equivalent over traditional gasoline blend octane value. That cost likely will be added to the price of oxygenated gasoline.
Assuming oxygenated gasoline meeting wintertime requirements in CO nonattainment areas will contain at least 15 vol % MTBE and account for as much as 38% of the U.S. gasoline market, EIA says the oxygenated gasoline price premium will amount to 1-2/gal nationwide.
As amended in 1990, CAA requires motor gasoline sold during 4 winter months beginning Nov. 1, 1992, in 39 CO nonattainment areas to contain at least 2.7 wt % oxygen in the form of blended oxygenates. To meet that requirement, oxygenated gasoline will have to contain at least 15 vol % MTBE or 7.4 vol % ethanol.
STUDY HIGHLIGHTS
EIA projects total U.S. demand for oxygenates during the 1992-93 winter at 450,000-500,000 b/d of MTBE equivalent.
Baseline demand for oxygenated gasoline next winter is expected to amount to about 31% of total U.S. gasoline consumption. Spillover of oxygenated gasoline into attainment areas increases the share to 38%. EIA estimates total U.S. gasoline supplies will average about 7.1 million b/d during fourth quarter 1992 and first quarter 1993.
Oxygenate production this winter will amount to 280,000-310,000 b/d of MTBE equivalent.
Operable U.S. MTBE capacity has grown to more than 135,000 b/d from about 50,000 b/d in 1986. By Jan. 1, 1993, EIA estimates U.S. MTBE production capacity will increase to 202,000 b/d.
EIA expects ethanol capacity of about 94,000 b/d at present to increase to 96,000 b/d by Jan. 1, 1993.
In terms of oxygen content, 1 bbl of ethanol equals 2.04 bbl of MTBE.
To make up for the oxygenate production shortfall next winter, EIA estimates an MTBE working inventory of 21-33 million bbl of MTBE equivalent will be needed. At the end of January 1992 U.S. MTBE inventories stood at 12.9 million bbl. By the end of April, inventories had increased to 14.9 million bbl.
Because of the supply shortfall, EIA predicts oxygenates will command a premium price over traditional gasoline octane blending values corresponding to the costs of building U.S. MTBE inventories, shipping ethanol by truck or rail from the U.S. Midwest to CO nonattainment areas on the East or West coasts, or exchanging U.S. gasoline octane blendstocks for MTBE produced in Europe or the Middle East.
DEMAND PROJECTIONS
EIA's oxygenated gasoline demand projections are based on 1990 populations of designated CO nonattainment areas and projected per capita gasoline demand, corrected for spillover of oxygenated gasoline into CO attainment areas, reduced automobile operating efficiency, price inelasticity, continuing oxygenate demand in CO attainment areas not affected by spillover, and overcompliance.
Spillover is likely because the geographic boundaries of CO nonattainment areas don't match normal products distribution patterns, and many petroleum products pipelines and terminals serve CO attainment and nonattainment areas. Spillover is not expected to be a problem in CO nonattainment areas that are isolated or supplied with ethanol.
Given those distribution variables, EIA estimates an oxygenated gasoline spillover rate of about 485,000 b/d.
U.S. oxygenate demand next winter also could increase because of efforts to provide a safety margin above minimum oxygen content requirements to assure compliance despite variance of laboratory analyses. EIA estimates compliance assurance precautions could increase oxygenate demand by about 5%, or 18,000 b/d of MTBE equivalent.
EIA's study assumes average fuel efficiency for vehicles using oxygenated gasoline will be about 2.5% less than that for conventional unleaded gasoline. Compared with current gasoline oxygenate blending levels, EIA estimates net reduced fuel efficiency in oxygenated gasoline markets at 1.5%.
By contrast, a 5% increase in gasoline prices in CO nonattainment areas would reduce consumption of oxygenated gasoline by about 13,000 b/d and MTBE by about 2,000 b/d.
OXYGENATE SUPPLY
Oxygenate supplies available next winter for gasoline blended for CO nonattainment areas will be reduced by competing uses for oxygenates in CO attainment areas.
Some oxygenates will continue going to voluntary reformulated gasoline programs at state or local levels, while some ethanol will be used for its chemical value. In addition, state and federal tax credits for fuels containing ethanol will consume some ethanol, EIA says.
EIA estimates that about 55,000 b/d of MTBE equivalent oxygenates will be sold next winter in attainment areas not exposed to spillover from CO nonattainment areas. Added oxygenate demand arising from state and federal gasohol tax credit programs will amount to about 25,000 b/d of MTBE equivalent.
The EIA study assumes that refinery MTBE plants will operate at an average 70% of capacity and merchant plants at 85%.
Although the 1992-93 winter oxygenated gasoline season generally will last at least 4 months, refiners will need a phase-in period to assure that oxygenated gasoline meets minimum requirements Nov. 1. EIA estimates a 1 month period will be needed.
The phase-in period effectively will extend the length of the oxygenated gasoline season and stretch capability of inventories to complement production. EIA says a 15 million bbl MTBE working inventory could provide an average 125,000 b/d in a 4 month season but only 100,000 b/d during 5 months.
To achieve a 21 million bbl MTBE equivalent inventory by Oct. 1, producers must add about 1.2 million bbl/month to inventory. Accumulating an inventory of 33 million bbl of MTBE equivalent would require addition of about 3.6 million bbl/month.
EIA cites industry studies that project a U.S. net MTBE imports range of 10,000-30,000 b/d during the 1992-93 winter. In 1990 and first half 1991, U.S. MTBE imports averaged about 1,150 b/d less than MTBE exports.
EIA says international MTBE production capacity is expected to rise to 219,000 b/d by yearend 1993 from 165,000 b/d at yearend 1992 and 112,000 b/d at the end of 1991. Meantime, world demand will increase to about 105,000 b/d in 1993 from about 76,000 b/d in 1990.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
