Preparations for Meeting New York and Connecticut MTBE Bans
October 1, 2003
Executive Summary
Background
New York and Connecticut use Federal reformulated gasoline (RFG) that contains methyl tertiary butyl ether (MTBE). MTBE is used in RFG to diminish gasoline’s air emissions and to improve engine performance. However, detection of MTBE in some water supplies caused these two States, which consume about one quarter of all East Coast RFG, to ban its use in motor fuel by the end of 2003. As MTBE is eliminated, it is widely expected that ethanol, which like MTBE can be used to satisfy the RFG standard for oxygen content while supplying needed octane without adding toxic components, will replace it. Congressman Doug Ose, Chairman of the House Government Reform Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs, asked that the Energy Information Administration (EIA) characterize the progress being made in switching from MTBE to ethanol use in the gasoline supply for these States.
Supply constraints arise in the distribution system when replacing MTBE with ethanol in gasoline. Water is present in most of the gasoline storage and distribution chain. Petroleum does not mix with water, so water accumulates separately at the bottom of petroleum tanks and does not get into engine fuel lines. However, unlike petroleum, ethanol has a strong affinity to water. If ethanol-blended gasoline comes in contact with water, the ethanol is pulled into the water, resulting in gasoline that is not useable. Therefore, ethanol is transported and stored separately from other petroleum products. Refiners produce a base unfinished reformulated gasoline mixture to which the ethanol is added. This base material is referred to as reformulated gasoline blendstock for oxygenate blending, or RBOB. The ethanol is only blended into RBOB as the material is loaded onto trucks to be delivered to retail gasoline stations. RBOB is also a separate product from other gasolines in the system (MTBE-blended RFG and conventional gasoline). Terminals either specialize in a subset of gasolines or carry a greater number of distinct products. The result is a reduction in supply system flexibility.
RFG production constraints arise when switching from MTBE to ethanol use, as explained below, making this fuel change potentially problematic. The constraints occur mainly when producing summer-grade gasoline. Reid vapor pressure (RVP) is a measure of a fuel’s inherent tendency to evaporate. Because fuel evaporation occurs more rapidly at higher temperatures and is known to contribute to summer air quality problems, specifications for summer-grade RFG require that it have a lower RVP than winter-grade RFG. Adding ethanol to gasoline in place of MTBE, increases gasoline’s RVP and the rate of evaporation, if no other changes are made. To counter this effect, other gasoline components with relatively high RVP must be removed to lower the RVP of the RBOB to which the ethanol is to be added. This reduces the volume of ethanol-blended RFG that can be produced from a barrel of crude oil relative to MTBE-blended RFG
An investment is typically required to produce summer-grade RBOB, and while small, some refiners (particularly opportunistic foreign refiners that only occasionally ship cargoes to the U.S.) will choose to wait and see if the economics warrant the investment. Winter-grade RBOB, which can have higher RVP, is easier and less costly to produce. As was the case in the Midwest in 2000 when the Chicago-Milwaukee area first used low-RVP RBOB to meet Phase II RFG requirements, the largest transition problems may occur in late April and May, when production of summer-grade gasoline for the Northeast begins on the East Coast.
The Northeast supply situation when shifting from MTBE to ethanol varies in a number of ways from California and the Chicago-Milwaukee areas that use ethanol. The first major difference is that the Northeast depends to a large degree on gasoline supply from opportunistic foreign refineries that only send occasional volumes to the region. These importers have large incentives to wait until after bans are implemented to see if investing to produce the low-RVP summer-grade RBOB will be economical. The second difference is that the Mobile Source Air Toxics rule (MSAT), which limits total toxic components in gasoline supplied by individual refineries, did not affect supplies from California or Midwest refineries, but does affect East Coast refineries. A number of East Coast refiners are finding that as they increase RBOB production, they are constrained by MSAT. If they only produce RBOB volumes needed to produce levels of RFG historically provided to New York and Connecticut, they are not hindered by this constraint. But MSAT may keep some refiners from being able to increase RBOB production to fill in if other suppliers drop out of the RFG markets for those two States.