Canadian refiners face multibillion dollar upgrading costs in this decade to meet new air quality standards.
Industry-wide cost estimates have been developed by the Canadian Petroleum Products Institute (CPPI) and Imperial Oil Ltd., a unit of Exxon Corp., which has about 28% of Canada's 1.825 million b/d refining capacity.
They are tentative because refiners still don't know what specific standards federal and provincial governments will impose in 1994.
IMPERIAL'S ESTIMATES
Imperial estimates capital costs for gasoline and diesel fuels at $2.4 billion, or about 13.6 cents/imperial gal for gasoline and 9.1 cents for diesel fuel.
A federal requirement to reduce sulfur content of diesel fuel to a maximum of 0.05% to control particulate emissions would mean refinery upgrading costs of more than $1 billion (Canadian) in 1990 dollars. A comparable investment of $1.1 billion would be needed if Canada decides to follow a U.S. initiative to limit concentrations of benzene in gasoline to 1% and total aromatics to 25%.
Imperial estimates facilities to recover gasoline vapors during filling of underground tanks at service stations and terminals and to capture vapors during vehicle refueling would cost $250 million. Other possible initiatives, such as further reductions in gasoline volatility during the summer, would increase industry operating costs by $70 million/year.
Imperial said if the methylcyclotentadienyl manganese tricarbonyl (MMT) octane enhancer were banned, industry likely would incur added refinery costs of about $75 million/year.
The 0.05% sulfur content for diesel fuel is seen as a firm federal objective.
Under an air quality accord signed between Canada and the U.S. in March 1991, Canada agreed to a limit of 2.3 million metric tons of sulfur dioxide emissions in eastern Canada in 1994. Ottawa plans to replace that guideline with a permanent national ceiling of 3.2 million metric tons/year in 2000.
Imperial said further scientific assessment and government consultation with refiners is needed before new standards are adopted for benzene and aromatic levels in gasoline. The company said particulates in the exhaust from diesel engines make a small contribution to the concentration of total suspended particulates in the air. Further, the need for a 0.05% limit on sulfur content in diesel for Canada has not been substantiated and should be reassessed by Ottawa.
CPPI'S FIGURES
CPPI has generated cost estimates, using the U.S. Clean Air Act as a research benchmark. Canada, at this point, has made no decision to follow U.S. standards.
CPPI estimates the cost of reducing benzene and other aromatics at $700-850 million. The issue is complicated because any aromatic reduction standard in Canada must consider that 15% of refinery stock is domestic synthetic tar sand oil with a relatively high aromatic content.
CPPI said reduction of aromatics would require more octane enhancing substances such as methyl tertiary butyl ether (MTBE). That would require new plants to produce the additive.
Additional measures would be required to reduce toxins and potentially harmful substances. Costs could be $3-4 billion.
CPPI estimated the cost of reducing sulfur in diesel fuel at $750 million to $1 billion. It estimated costs to reduce sulfur levels in heavy fuel oil in Quebec and Ontario at $650-950 million.
Costs to reduce nitrogen oxide and volatile organic compounds to meet mid-1990 targets at refineries could amount to $600 million.
OTHER MAJORS
Other industry majors such as Shell Canada Ltd. and Petro-Canada are still working on cost estimates.
Shell said it does not expect to have firm figures available until midyear at the earliest.
A Petro-Canada spokesman said the company does have data on upgrading costs but it is considered proprietary information at this point. Petro-Canada has closed or is mothballing two small refineries in British Columbia.
Imperial is evaluating the performance of all its refineries. Some closures are expected.
It said each refinery must prove that the substantial investment needed to meet tougher federal sulfur content standards is justified. All of its refineries must be able to produce gasoline as cheaply as it can be imported or they will be closed. Refineries that can't match the top 25% of North American refineries in operating performance by the end of 1992 will be shut down.
Shell has no plans for refinery closures. It is 1 year into a 5 year downstream restructuring program.
The company's refinery utilization rate was about 90% in 1991, but upgrading costs will be a factor in decisions as the restructuring evolves.
CANADIAN TURBO
Canadian Turbo Inc., Calgary, has confirmed it will close a 30,000 b/d refinery in the Calgary area.
Pay Less Holdings, of Victoria, B.C., a discount gasoline retailer, is currently closing a deal to buy Turbo.
Turbo Pres. Frank King said a closure date has not been decided for the plant, which employs about 100 out of a company-wide total of 2,000. The decision is part of a general rationalization in the refining sector to reduce excess refining capacity, he added.
King said it would cost about $40 million to upgrade the refinery to meet new federal refining standards, an amount Turbo could not raise even with the sale of the company.
Turbo is investigating alternate uses for the refinery site.
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