New York seeks oxygen waiver

ogj.pennnet.com Maureen Lorenzetti Washington Editor

WASHINGTON, DC, Jan. 14 -- New York state Jan. 6 formally asked the US Environmental Protection Agency to waive a federal clean air rule that requires fuel suppliers to sell reformulated gasoline (RFG) with an oxygenate, typically ethanol or methyl tertiary butyl ether .

"In order to continue with the progress already being made in reference to the removal of MTBE contamination, New York wants to remove the minimum oxygen requirement in RFG," wrote New York Department of Environmental Conservation Commissioner Erin Crotty to EPA Administrator Christine Whitman.

Crotty said that New York is concerned that smog levels may increase if fuel suppliers are forced to replace MTBE with ethanol to meet the oxygen standard.

The commissioner also cited ethanol transport as an additional burden to suppliers. She said that regional clean air officials estimate that transporting 22.9 million bbl/year of ethanol to New York and surrounding Northeast states could require as many as 34,000 miles of barge travel and as many as 3 million miles of truck travel.

History In June 2001, EPA rejected California's petition to obtain a waiver of the 2wt % oxygen requirement for RFG.

Both New York and California next year are banning MTBE because of groundwater contamination concerns. Connecticut has an MTBE ban that will take effect in October. Washington state's ban is also scheduled for this year. An earlier MTBE ban in Arizona expired in 2001. Five other states— Colorado, Nebraska, South Dakota, Minnesota, and Iowa—already have bans on MTBE. Meanwhile, Kansas, Illinois, and Indiana, like California and New York, have bans that will activate in 2004. By 2006, a total of 16 states plan to have bans in place, according to American Petroleum Institute data.

EPA rejection Shortly after EPA rejected California's request, the state filed a lawsuit against the agency. The National Petrochemical & Refiners Association also filed an amicus brief in support of California.

NPRA's brief says that the "real-world impact" of EPA's decision to deny the California waiver request "is to establish an ethanol mandate for RFG within California. NPRA officials also reminded the court of the decision in API and NPRA vs. EPA, which struck down EPA's 1994 attempt to impose a nationwide ethanol mandate in RFG.

Fuel suppliers in both the Northeast and California have told EPA that they are worried about the impact of MTBE bans on fuel supply if they must use ethanol to comply with current clean fuel rules.

Ethanol suppliers meanwhile say there will be enough product to replace MTBE and that EPA should reject New York's waiver request.

"We would oppose the waiver because the only way EPA can grant a waiver is if it determines in this case ethanol blends would prevent New York from meeting air quality (standards) and that's not accurate," said Monte Shaw, a spokesman for the Renewable Fuels Association.

California picture According to the California Energy Commission, most refiners in that state have started early MTBE phase-outs. ConocoPhillips, they said, has already been producing the majority of its gasoline for blending with ethanol. Royal Dutch/Shell Group, ExxonMobil Corp., BP PLC, and Kern Oil Co. earlier said they planned to stop blending MTBE and switch to ethanol a year before the current Dec. 31 deadline.

Meanwhile, ChevronTexaco Corp. announced this week that it would be producing gasoline with ethanol in Southern California. Valero Marketing & Supply Co., Tesoro Refining & Marketing Co., and ChevronTexaco in Northern California are the only refiners who have decided to adhere to the governor's revised phase-out date, although limited production of gasoline for blending with ethanol may occur, CEC said.

Ethanol marketers say shipments began arriving in December, and production of a specially tailored California clean fuel is already under way at 9 of the 13 refineries that produce RFG. CEC says that 60-70% of the state's gasoline production is expected to contain ethanol by the end of January, which would represent an ethanol demand of 37,000-43,000 b/d.

MTBE bans A recent API analysis shows that current and anticipated state MTBE bans could put undue pressures on fuel delivery systems in the coming years, creating temporary fuel shortages and price spikes.

Barring a legislative fix by Congress or a change of heart by EPA, more than half of the estimated 159,000 b/d of ethanol production (2.7 billion gal/year) will have to be shipped to either coast later this year.

Currently, the Midwest uses nearly all of that capacity, according to API. Without that ethanol volume, Midwest refiners will have to replace missing barrels in a market that could be facing other supply pressures because of disruptions in Venezuela and Iraq.

Suppliers are hoping that, given the unsettled short-term nature of world oil markets these days, the White House may step in and encourage EPA to reverse itself on California and allow Northeast states the same flexibility. California fuel marketers recently urged the agency to consider allowing them to use both MTBE and ethanol in fuel for an unspecified period while the state makes the transition to all ethanol-blended RFG.

Contact Maureen Lorenzetti at Maureenl@ogjonline.com.