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New requirements could raise cost of gas, shutter US refineries

09.01.2011  |  Thinnes, Billy,  Hydrocarbon Processing Staff, Houston, TX

Keywords: [EPA] [tier 3] [requirements] [gasoline] [emissions] [refineries] [US] [United States] [implementation costs]

A new study says that upcoming US Environmental Protection Agency (EPA) requirements could raise the cost of manufacturing gasoline, lead to the closing of domestic refineries, and force the US to double its gasoline imports while causing increased carbon dioxide (CO2) emissions. Baker and O’Brien executed the study on behalf of the American Petroleum Institute (API).

“The new EPA requirements could be devastating to consumers and communities across the nation,” said Bob Greco, API’s group director of downstream operations. “Consumers would be hurt by the increased cost of fuel projected by the study, and the closing of refineries could put local economies at risk, meaning there would be fewer jobs. In addition, we would be forced to rely even more on foreign fuel supplies, and that can only weaken our nation’s economy and national security.”

The study examines the potential costs of the EPA’s “Tier 3” fuel standard for gasoline blends, which could be proposed at the end of the year. It determined that the new requirements could boost the cost of making gasoline by up to 25 cents per gallon and could shutter up to seven US refineries. The study also predicted this scenario could drive up CO2 emissions by up to 7.4 million tpy because of the increased energy needed to manufacture the new fuel blend.

“These regulations don’t make sense environmentally or economically,” said National Petrochemical and Refiners Association President Charles Drevna. “The proposal would increase greenhouse gas emissions, hurt American consumers by adding billions of dollars to the cost of manufacturing gasoline, hurt communities and workers by threatening to put some fuel manufacturing plants out of business, and weaken America’s economic and national security.”

AAM report.

In 2009, the Alliance of Automobile Manufacturers (AAM) published a report documenting costs and benefits of a single US national standard for gasoline quality with significant reductions in sulfur and Reid vapor pressure (RVP) that would apply to all states except California. The AAM report called the new gasoline standard “national clean gasoline.”

Baker and O’Brien undertook this study in response to the AAM report, seeking to determine the potential supply and cost impacts of lowering the specifications for sulfur and RVP in gasoline. Included in the study is a refinery-by-refinery breakdown to see how these refineries would and could comply.

According to the study, implementing a nationwide (save for California) summer season 7 pounds per square inch (psia) RVP specification and sulfur limits of 20 ppm per gallon cap and 10 ppm per company annual average would remove a large quantity of natural gas liquids (NGLs) from gasoline. The modeling indicates that US domestic gasoline production would decrease by 1,157 thousand bpd during the summer, which is equivalent to 14% of projected summer 2016 hydrocarbon gasoline consumption. Under this scenario, summer gasoline imports would need to increase by 125%. However, the volume of gasoline with lower sulfur and lower RVP that would be available from foreign refineries is not clear. Regardless, regulations that close US refineries or lead to reduced output will make the US that much more vulnerable to supply disruptions, as more refined product will have to be obtained from overseas.

Implementation costs.

Domestic refinery investment costs for implementing the lower sulfur and lower RVP standards could range from $10–$17 billion. The study’s authors predict that if such standards are implemented, the US could see the closure of four to seven refineries. These refineries would make the decision to close rather than make the required investments to be compliant. Total compliance costs for the US domestic refining industry would be in the range of $5–$13 billion.

If the specifications for sulfur and RVP in gasoline are lowered, the additional hydrotreating and fractionation required to comply would result in an increase in CO2 emissions from refineries that continue to operate. On average, the study’s authors predict the total increase in CO2 emissions at US and foreign refineries is estimated at 2.9 million tpy to 7.4 million tpy.

These findings differ from those found in the AAM report. The AAM report used only three aggregate refinery models. The Baker and O’Brien study analyzed individual models of 112 refineries. It is also noted that the AAM report did not appear to consider the lost value of NGLs that would be removed from the gasoline pool, and its estimate of the volumes that would be removed is much smaller than that of the Baker and O’Brien team.

Another key difference is that the AAM report assumes that many refineries already have the capability to produce 5-ppm sulfur gasoline. This report indicates that most refineries will require capital investments to produce 5-ppm or 10-ppm sulfur gasoline. Further, this study included FCC feed hydrodesulfurization revamps, expansions and new units, whereas the AAM report did not. If your interest is piqued and you want to read the study, it can be found in its entirety on the API website (www.api.org).  HP

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Dear Sir,
The above survey and its conclusions is another example of the American Industry ostrich burying its head in the sand.
Thanks for allowing me another glimpse of this approach.

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