At the beginning of the 20th century, petroleum refining was subject to sweeping changes. In roughly 20 years, the number of new US plants rose nearly five fold, the number of employees and wage earners increased six fold, and capital investment surged seven-fold.
This positive refining environment was a result of rapidly expanding demand for products and major shifts in the quantity and quality of crude supplies. Cheap fuel and environmentally sensitive fuel formulations helped the US achieve air quality that is the envy of the industrialized world.
Virtually 100 years later, on the brink of the industry's second century of challenge, the number of operating plants has greatly diminished, and employee counts are down. Capital investment required, however, is likely to surge to new highs.
New and costly mandates are responsible for these turns in events.
RFG regulation
In response to the 1990 Clean Air Act Amendments, refined product producers and automakers worked together to develop reformulated gasoline (RFG), a cleaner burning gasoline intended to reduce smog and other air pollutants. They designed RFG to reduce ozone precursors and toxics. RFG does not evaporate as easily as conventional gasoline and has a 2.0 wt % minimum oxygen content.
In 1995, in Phase I of the RFG program, nine US cities with the worst levels of ozone began to use RFG. Phase 2 RFG makes its debut at gas stations on Jan. 1, 2000.
Lack of logic
The refining industry has spent billions of dollars for a better, cleaner environment. Experience proves-and the expectations of corporate and community stakeholders demand-that future investment in motor fuels be based on sound science. Yet a couple of facts point to a lack of logic in the clamor for new fuel specifications:
- Vehicle emissions have been reduced by nearly 98% since the 1960s. The full extent of emissions reduction based on existing regulation, moreover, has not yet been reached.
A study released by the American Automobile Association (AAA) in September 1999 pointed out that stationary sources were the biggest sources of pollution in the country by a three-to-one margin. It is time, said AAA, to stop punishing motorists and-by extension-motor-fuel manufacturers.
- New rules do not consider other pollution-reduction devices, timing, or cost. Some of the most promising pollution-reduction measures available today are not fuels-based. For example, simple equipment additions like heated catalytic converters can reduce HC and NOx emissions during the engine's initial cold-start.
New fuel formulations require large, capital-intensive plant additions that treat feed streams entering conversion units, treat stocks exiting conversion units, or both. The time required to design, contract, and build-not to mention securing federal, state and local permits via petition and public hearing-is considerable.
Legislators should consider that it takes automakers 3+ years to bring a new vehicle design from drawing board to show room, and they do not have to build new plants to accomplish the task! The price tag for change is so substantial that, in some countries (like the UK), government subsidies have been proposed to defray the costs.
The debate over emissions is, in general, driven by perception and not sound science. Today, the perception is that poor air quality is widespread and health-threatening. Hence, some feel the need to limit, change, and regulate current hydrocarbon fuels.
The fact is that 80% of Americans live in areas meeting clean air standards. Our air quality continues to improve, based on initiatives already undertaken by automakers and oil companies.
According to the US EPA, estimated VOC, NOx, and toxic emissions are lower than those required by the RFG Phase I program. NOx reductions have exceeded twice the required amount (4.9% vs. 1.5% required) and toxic emissions are close to having done that (30% vs. 17% required).
While changing fuel specifications may help air quality, sound science demands that the case for fuel change be made by reproducible, peer-reviewed data and that the technology solution be well understood and commercially proven.
Future-fuel reformulations
How will transportation fuels reasonably change in the coming years?
Part of the answer can be learned by looking at the recent past. Developments like lead phase out, lower Reid vapor pressure (rvp), winter-oxygenated gasoline, lower sulfur highway diesel, and RFG indicate an accelerated pace of change characterized by ever larger industry investments.
Through the years, California has been at the forefront of the new fuels experimentation. The nation's largest state has one of the nation's largest air pollution problems, brought about by the concentration of traffic and industry in the natural heat sink of the Los Angeles Basin.
California resources, technology, and media attention have been focused on the need for dramatic emissions' cuts. As a result, California has the highest gasoline prices in the nation.
The oxygen mandate in RFG is a good example. Under this federal mandate, refiners are required to blend oxygenates such as methyl tertiary butyl ether (MTBE) in RFG.
California has taken steps to eliminate the MTBE blending option, however, because of contamination in groundwater. California's phase out of MTBE could spread across much of the rest of the country. Congress is already considering such a move. A vote in Congress or an EPA directive could leave MTBE out of gasoline and leave refiners out of time to find reasonable volume and octane replacements.
From a scientific perspective, the industry knows less about other potential ether or alcohol additives than it does about MTBE. As a consequence, alternative options probably will be deemed too risky to blend, based on the recent MTBE experience.
Replacing MTBE will be a serious challenge. MTBE provides volume, octane, oxygen, and dilution, which lowers RFG's toxic emissions and distillation properties. These abilities help meet the auto industry's driveability concerns. No other single component can meet all of these needs.
The new millennium may begin with many new and expensive processes and, perhaps, increased gasoline imports in an effort to replace MTBE.
Already, the industry is preparing to introduce Phase II RFG in year 2000, followed by Tier 2 low sulfur gasoline in 2004. In the best example of what may be significant fuel changes to come, EPA is developing heavy-duty highway diesel fuel standards for the 2007-08 period which represent a 90% reduction in emissions from the 2004 heavy-duty vehicle standards.
Early in the next decade, gasoline sulfur levels will be driven to 30 ppm nationwide. It is possible that a new grade of light duty diesel will be created as well, one with ultra low sulfur levels. During this same time frame, it is likely that MTBE will be eliminated or substantially reduced in gasoline stocks.
The total capital investment for these reformulations will approach $10 billion. This is an unprecedented sum in an unbelievably short time frame.
Yet this is not the whole story. Urban air toxic regulations and health concerns dealing with diesel combustion will likely lead to further fuel changes. Global climate change concerns may lead to calls for improved fuel economy and prompt diesel to displace gasoline in passenger vehicles.
Costs and benefits
There is a role for regulation in maintaining and improving our environment. The challenge is to find the right balance among societal concerns, customer priorities, and technical feasibility.
Government efforts to replace petroleum products with alternate fuels will continue. Increased subsidies and further attempts at mandates will allow alternative fuels to make inroads in niche markets, such as inner-city buses and postal fleets.
These fuels, however, do not provide real "energy security."
How can the pivotal players (government, auto manufacturers, energy companies, environmental groups and ordinary citizens), better understand the dynamics of science, cost and economics? How can they deliver maximum benefit at minimal cost?
Experts can no longer lay out their data and "let the facts speak for themselves." Refineries are in a technically demanding and capital constrained-industry. Managers must undertake to separate scientific finding from policy preferences and explain the meaning of the data and the alternatives possible based on those findings.
Motorists, taxpayers, and government agents need to understand the various sides of the fuel issue, weigh the competing interests, and accept the consequences of a given decision.
The choice of which alternative is best often turns on a cents-per-gallon cost. Stakeholders in the decision need to bear in mind that a gasoline price increase of 1¢/gal means a cost of about $1 billion to the economy. Consumers will bear the ripple effect of lost jobs and higher prices for goods influenced by transportation costs.
It does not make sense to cripple the economy in the name of well-intentioned environmental initiatives that may prove to be unnecessary or premature or that don't stand up to rigorous cost-benefit analysis.
Careful and well-intentioned people from government, from oil and from the auto companies can agree to the wisdom of deliberate and comprehensive research. Fuel reformulation-especially sulfur reduction to de minimus levels-has been advertised as a "technology enabler." But technology development is best left to market competition, not political fiat.
The last round of diesel desulfurization in the early 1990s was based on "enabling" a technology that never made it out of the lab and into the real world. The filter-based process the regulators had in mind was, in practice, replaced by exhaust-gas recirculation valves so that NOx standards were met.
Lower sulfur may surely enable add-on catalysts and traps to do a more effective job of pollution reduction. Motorists deserve a fair test of new generation sulfur-resistant catalysts, however, that may change the need for fuel reformulation. Germany has already made strides in this area.
Many people, clamoring for refiners to "do it and be done with it," fail to understand what is involved. Time is required to adequately assess competing technologies and to negotiate the public hearing and permitting process. Regulatory timetables should be appropriate, real-world reflections of the task at hand.
In the rush to regulate, the attention to due diligence and due process is critical. The public deserves industry actions based on certain data.
Refiners and special interest groups should act to ensure that clean air is achieved in a cost-effective manner. As a stakeholder, the oil industry must find and defend appropriate solutions, else it risks losing common sense and science to extremism.
Policies driven by sound science, timetables reflective of real-world constraints, and cooperation between automakers and fuel processors are absolutely necessary to make the second century of challenge a century of success.
The Author
J. Louis Frank is president Marathon Ashland Petroleum LLC. He began his career more than 30 years ago at Marathon Oil Co. as a field engineer. Since then, he has held various management positions in the production, drilling, and refining areas.
Before the Marathon Oil Co. and Ashland Inc. merger, Frank was executive vice-president of refining, marketing, and transportation for Marathon Oil Co.
He holds a BS in petroleum engineering from Texas A&M University, College Station, Tex.
