oversight

Gasoline Marketing: Uncertainties Surround Reformulated Gasoline as a Motor Fuel

Published by the Government Accountability Office on 1990-06-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

GASOLINE
MARKETING
Uncertainties
Surround
Reformulated Gasoline
as a Motor Fuel


               142020
                   United States
CkAO               General Accounting Office
                   Washington, DC, 20648

                   Resources, Community,   and
                   Economic Development    Division

                   B-227776.5

                   June 14,199O

                   The Honorable Philip R. Sharp
                   Chairman, Subcommittee on Energy
                     and Power
                   Committee on Energy and Commerce
                   House of Representatives

                   Dear Mr. Chairman:

                   The administration’s July 1989 proposed legislation for amending the
                   Clean Air Act included an initiative to promote the use of cleaner-burn-
                   ing alternative fuels for motor vehicles, such as ethanol, methanol, and
                   compressed natural gas, to reduce motor vehicle emissions. Shortly after
                   the proposal’s introduction, officials from the petroleum and automobile
                   industries suggested that gasoline could be reformulated to burn as
                   cleanly as alternative fuels. Because little is known about reformulated
                   gasoline, you requested that we provide the Subcommittee with infor-
                   mation on (1) what reformulated gasoline is, (2) when reformulated gas-
                   oline could be made available and how it will be produced, and (3) what
                   the impacts will be of producing and using reformulated gasoline.


                   Reformulating gasoline generally refers to changing the chemical
Results in Brief   makeup of gasoline for a specific purpose. Reformulated gasoline, as it is
                   being discussed today, involves changing the composition of gasoline to
                   improve its emissions characteristics. While some petroleum companies
                   have recently begun selling limited quantities of a reformulated gasoline
                   to meet specific markets, the most effective formulations for reducing
                   emissions have yet to be determined. The petroleum and automobile
                   industries have only recently undertaken in-depth research of possible
                   reformulations which could lead to several recipes of reformulated gaso-
                   line. Much remains to be learned about the benefits and costs of various
                   possible compositions; therefore, the exact formulations and likely dates
                   of availability are uncertain.

                   In general, government and industry officials agree that reformulated
                   gasoline could make a positive contribution to air quality by helping
                   reduce some vehicle emissions. In addition, reformulated gasoline offers
                   advantages over other clean-burning alternative fuels because it can use
                   the existing petroleum distribution system. However, producing refor-
                   mulated gasoline in large quantities and in the more effective formula-
                   tions would require at least several years’ lead time and large


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             B-227776.6




             investments in new refinery equipment. These officials also believe it
             could adversely affect small refiners, increase the cost of gasoline to
             consumers, and require additional imports of crude oil.

             With the uncertainties concerning the composition and potential impacts
             of reformulated gasoline, it would be premature to draw conclusions
             about the potential of reformulated gasoline in comparison to other
             alternative fuels.


             Air pollution from motor vehicle emissions has been a major environ-
Background   mental issue over the past 2 decades. Thus far, the automotive industry
             has achieved emission reductions primarily with engine modifications
             and exhaust system improvements, most notably by equipping vehicles
             with catalytic converters (devices that transform vehicle exhaust con-
             stituents into relatively benign substances).

             During the same time frame, federal regulations required changes in gas-
             oline composition that helped reduce vehicle emissions. For example,
             regulations established in 1973 directed the petroleum industry to pro-
             duce unleaded gasoline to reduce the health hazard from toxic lead emis-
             sions. In addition, 1989 regulations imposed limits on gasoline volatility
             to reduce amounts of evaporative vehicle emissions (gasoline vapors
             escaping from a vehicle’s fuel system when the vehicle is not in use).

             Also during this time frame, tax incentives were introduced by federal
             and state governments to encourage the blending of ethanol in gasoline.
             Ethanol is one of several oxygenates (fuels containing oxygen) which
             help reduce carbon monoxide emissions. Four states require the use of
             oxygenates in certain areas during heavy pollution periods.

             Despite these actions to lessen the impact of emissions from motor vehi-
             cles, the problem has not been solved. The Environmental Protection
             Agency (EPA) has identified 101 areas in the United States which have
             not met the National Ambient Air Quality Standards for various pollu-
             tants which are primarily the product of vehicle emissions.

             An alternative fuels program was included in the administration’s July
             1989 Clean Air Act proposal which recognized the need to further regu-
             late motor fuel composition to reduce vehicle emissions. The proposal
             required, among other things, the sale of specified numbers of vehicles
             using alternative fuels-such as methanol, natural gas, and ethanol-in
             areas with the most serious air pollution. The Senate, on April 3, 1990,


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  ,*
                        B-227776.5




                        and the House of Representatives, on May 23, 1990, passed their ver-
                        sions of the Clean Air Act amendments, which advocate the use of refor-
                        mulated gasoline to meet vehicle emission performance standards in
                        cities with severe air pollution problems.


                        In a broad sense, reformulated gasoline may refer to any past changes in
Composition of          the chemical composition of gasoline which were done for a specific pur-
Reformulated Gasoline   pose. However, in the context of the debate over new clean air legisla-
Is Uncertain            tion, reformulated gasoline now specifically refers to new formulations
                        of gasoline which industry is developing in response to the administra-
                        tion’s alternative fuels proposal. In this sense, the composition of refor-
                        mulated gasoline is yet to be determined.

                        Recently, Atlantic Richfield Company (ARCO) began marketing a refor-
                        mulated gasoline called Emission Control-l (EC-l). Beginning in Septem-
                        ber 1989, EC-~replaced ARCO'S leaded regular gasoline in southern
                        California. ARCO'S tests indicate that it reduces emissions from pre-1975
                        vehicles without catalytic converters. Two other companies, Conoco and
                        Diamond Shamrock, subsequently began marketing limited quantities of
                        reformulated gasolines similar to EC-l in parts of Colorado. Since our
                        review work, other companies have also announced that they have
                        begun or plan to market limited quantities of a reformulated gasoline in
                        specific areas. For example, in April 1990 Shell Oil Company began mar-
                        keting a reformulated premium gasoline in nine metropolitan areas hav-
                        ing the most severe ground level air quality problems, as well as in
                        Washington, DC.

                        While gasoline has previously been reformulated to improve its emis-
                        sions characteristics, government and industry officials said that with
                        research, more effective new gasoline formulations intended to reduce
                        emissions should be identified. They said that more information is
                        needed about the emissions resulting from new gasoline compositions.
                        To obtain this information, as well as emissions data on other alterna-
                        tive fuels, the automobile and petroleum industries are currently
                        engaged in a joint research program studying reformulated gasolines,
                        methanol, and ethanol. (See app. I for a description of the research pro-
                        gram.) IJntil the results of this program become available (Phase I is
                        expected to be completed in late 1990 and Phase II at least 2 years
                        later), industry officials said the composition of reformulated gasoline
                        remains uncertain, These officials said a number of new gasoline recipes
                        may emerge from this industry effort. (App. II discusses reasons why
                        multiple recipes for reformulated gasolines are possible.)


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                        R-227776.5




                        Reformulating gasoline in the future to help reduce vehicle emissions
                        could involve changing the concentrations of numerous components of
                        current gasoline. Candidates for reduction include the aromatics, such as
                        toxic benzene, the olefins, and hydrocarbons with high boiling points.
                        (These and other gasoline components are described in app. III.) Also, a
                        reduction in sulfur content could increase the effective life of catalytic
                        converters. Increasing the oxygenate content of gasoline through the
                        addition of ethanol or ethers such as methyl tertiary butyl ether (MTBE)
                        and ethyl tertiary butyl ether (ETBE) is yet another possibility. Finally,
                        removing more butane from gasoline could further reduce evaporative
                        emissions.

                        We asked officials at the Department of Energy (DOE) and EPA to com-
                        ment on the likely composition of reformulated gasoline. Officials of
                        both agencies said it was too early to predict the precise composition of
                        the new fuel. However, EPA officials told us that two of the proposed
                        measures for reformulating-adding      more oxygenates and further
                        reducing volatility-could    reduce emissions from gasoline in the near-
                        term. WA is planning an analysis of reformulated gasoline as part of its
                        series of reports on alternative fuels but is awaiting definite specifica-
                        tions from industry before proceeding with this effort.


                        At this time, it is uncertain when reformulated gasolines intended to
When and How            help meet more stringent vehicle emissions standards will be widely
Reformulated Gasoline   available. While several firms are marketing reformulated gasolines,
Will Be Produced Is     these products represent only a limited portion of the total gasoline
                        sales of these companies and are produced with only minor changes in
Uncertain               refinery operations. Industry officials told us that other companies
                        could also produce limited amounts of reformulated gasoline within a
                        short time. However, these officials pointed out that the production of
                        larger amounts of reformulated gasoline in the more effective formula-
                        tions would require substantial changes in refinery operations and
                        would appear to be several years away at a minimum. Generally, they
                        told us that the more severe the composition changes undertaken and
                        the greater the percentage of the total gasoline pool affected, the longer
                        it will take to make reformulated gasoline available.

                        Government and industry officials said that reformulating all gasoline
                        could not be accomplished quickly. This would entail significant changes
                        at existing refineries, including the reduction or complete elimination of
                        some processes and the construction of new processing units to replace
                        them. For example, an ARCO spokesman estimated that his firm will need


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                        B227776.5




                        to invest approximately $2 billion over the next 5 years in improve-
                        ments to existing facilities to reformulate all its gasoline. Mobil Oil Cor-
                        poration officials told us that 3 to 4 years would be needed to obtain
                        necessary permits, and design and install new refinery units following a
                        decision to produce reformulated gasoline in quantity.

                        The fact that several firms were able to quickly introduce reformulated
                        gasolines to replace leaded gasoline does not necessarily demonstrate
                        whether large quantities of reformulated gasoline could be made availa-
                        ble in a short time. For example, ARCO'S EC-I represents only a limited
                        portion of its gasoline. An ARCO official told us that the firm was able to
                        offer EC-I for sale within a month of completing emissions tests on the
                        new fuel because z-1 is produced by changing the blending of existing
                        refinery products rather than by adding new refinery processes. For
                        instance, aromatics have been reduced in EC-I by moving some of them
                        into unleaded regular gasoline, where ARCO contends they are burned
                        more cleanly by vehicles with catalytic converters. Officials of Diamond
                        Shamrock and Conoco told us that their firms’ reformulated gasolines
                        are produced in a manner similar to EC-~.

                        The above three reformulated gasolines on the market replaced leaded
                        gasolines only in portions of California and Colorado. Furthermore, an
                        official of the Lundberg Survey, Inc., told us that leaded regular sales
                        currently account for about 8 percent of the total U.S. gasoline sales.
                        Given these limitations, the share of the total U.S. gasoline market that
                        could be affected by these reformulated gasolines is small at this time.

                        An official of the National Petroleum Refiners Association observed that
                        the movement toward reformulated gasoline has been influenced by
                        petroleum companies’ perception that further government regulation of
                        motor fuels is inevitable. However, in the absence of an actual govern-
                        ment mandate, there is no guarantee that these companies and others
                        will decide to reformulate all gasoline. Thus, government and industry
                        officials believe the decision to reformulate larger volumes of gasoline is
                        not likely to occur until after the passage of new clean air legislation and
                        the issuance of implementing regulations.


                        We identified several potential positive and negative impacts of refor-
Potential Impacts of    mulated gasoline. Potential positive impacts include an improvement in
Reformulated Gasoline   air quality and no necessity to develop a new motor fuel distribution
                        system. Possible negative impacts include increased production costs for
                        refiners, the financial failure of some small refiners and independent


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              B-227770.5




              gasoline marketers, increases in the consumer cost of gasoline, and an
              increase in crude oil imports. The severity of these impacts is unclear at
              this time because of uncertainties about the composition of reformulated
              gasoline and the amount of gasoline to be modified. Generally, the more
              severe the reformulation and the greater the volume of gasoline
              affected, the more significant the impacts will be. A brief discussion of
              each potential impact follows.


Air Quality   Many government and industry officials agreed that the widespread
              introduction of reformulated gasoline would have a positive impact on
              air quality. While the extent of the benefit is uncertain at this time, offi-
              cials we contacted believe that reducing concentrations of gasoline com-
              ponents such as aromatics and olefins will result in some decreases in
              the ozone and air toxics attributable to motor vehicles. They told us that
              the current joint research program should provide the data necessary to
              estimate these benefits.

              Industry officials pointed out that some of the emissions benefits of
              reformulated gasoline could, in a relatively short time, be achieved by
              the existing vehicle fleet, unlike other alternative fuels for which new
              distribution systems and new vehicles may need to be developed.
              According to these officials, this would make significant emissions
              reductions possible from older vehicles- the most serious polluters. For
              example, an ARCO research report states that pre-1975 cars and trucks
              without catalytic converters make up about 15 percent of the vehicles in
              southern California. The report concludes that using EC-l, a reformu-
              lated gasoline, in those older cars could reduce vehicular pollutants in
              that area by an amount equivalent to removing 20 percent of those vehi-
              cles from the road altogether.

              An EPA official told us it is possible that reformulated gasoline may be
              able to match the automotive emission reductions that may be achieved
              by an MS5 methanol fuel (85 percent methanol, 15 percent gasoline).
              The agency has estimated that using an MS5 fuel would reduce current
              automotive emissions by 30 percent. On the other hand, EPA believes it
              unlikely that reformulated gasoline can match the potential emission
              reductions of a pure methanol fuel (MlOO), which it believes may reduce
              emissions by approximately 80 percent. Eliminating the last remaining
              amounts of gasoline can provide substantial emission benefits.

              In spite of this limitation, EPA and DOE officials view the development of
              reformulated gasoline as a positive step. They told us it signals a new


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                               R-227776.5




                               willingness on the part of the petroleum industry to seriously examine
                               fuel composition as a part of the solution to vehicle emissions. They also
                               said that reformulated gasoline could make a modest, short-term contri-
                               bution to cleaner air because of its potential to reduce emissions from
                               older cars. According to an EPA official, this benefit of reformulated gas-
                               oline would be useful during a period of transition to fuels which EPA
                               considers to be inherently cleaner, such as Ml00 or compressed natural
                               gas.


Fuel Distribution System       Petroleum industry officials said that reformulated gasoline has an
                               advantage over other alternative fuels in that it can make use of the
                               existing petroleum distribution system. Changes to pipelines, storage
                               facilities, and service stations would not be necessary. A petroleum
                               industry official claimed that the cost of replacing or modifying the dis-
                               tribution system to accommodate other alternative fuels would be far
                               higher than the increased costs of producing reformulated gasoline.


Cost of Reconfiguring          According to government and industry officials, the more extensively
Refineries                     that refiners have to change their operations to produce reformulated
                               gasoline, the more expensive it will be to produce. They told us it will be
                               very expensive to construct the necessary new refinery equipment. Two
                               industry officials estimated that this reconfiguring of refineries might
                               require capital investments of $20 billion to $30 billion to reformulate
                               all gasoline.

                               Several petroleum industry officials told us they would incur an addi-
                               tional cost from reformulated gasoline in the form of reduced value for
                               some refinery products. For example, as gasoline blending components,
                               aromatics have relatively high value. To reduce the aromatics content of
                               gasoline, refiners would need to find other uses for them or reduce the
                               amount of aromatics produced during the production of gasoline. They
                               could be sold to the chemical industry as feedstocks. However, govern-
                               ment and industry officials said the market would have difficulty in
                               absorbing the large surpluses of aromatics that would likely result from
                               reformulating all gasoline. These officials said depressed prices for aro-
                               matics would probably result from this oversupply situation.


Viability of hall   Refiners   Government and industry officials said they believe that some small
                               refiners may be forced out of business if required to produce signifi-
                               cantly reformulated gasoline. Currently, there are approximately 75


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                           5227776.5




                           small U.S. refiners with crude oil processing capacity of 100,000 barrels
                           per day or less, representing approximately 13 percent of total U.S. gas-
                           oline production. Officials of trade associations representing small refin-
                           ers told us that their members generally lack the processing flexibility to
                           adjust to a demand for a significantly different product. Furthermore,
                           they tend to operate on small profit margins and would have difficulty
                           in attracting investors if expensive new equipment were required to pro-
                           duce a new gasoline formulation.


Viability of Independent   Officials of the Society of Independent Gasoline Marketers of America
                           (SIGMA) told us that reformulated gasoline could create difficulties for
Gasoline Marketers         their members. They explained that independent marketers supply or
                           operate chains of high- volume/low-price gasoline retail stations. These
                           officials indicated that their members’ ability to stay in business
                           depends upon a competitive wholesale gasoline market. Currently, com-
                           petition is ensured by the availability in that market of numerous sup-
                           ply options, including the small domestic refiners and foreign refiners. If
                           these sources were to be eliminated, independent marketers believe
                           wholesale gasoline prices would rise and they would lose their competi-
                           tive advantage.

                           According to SIGMA officials, reformulated gasoline could threaten these
                           wholesale sources. As discussed above, reformulation could cause small
                           refiners to fail. Furthermore, the independent marketers believe foreign
                           refiners would seek other markets for their finished gasoline rather than
                           alter their refineries to produce reformulated gasoline for the U.S. mar-
                           ket. SIGMA officials said such changes in the wholesale market would
                           likely cause the failure of some independent gasoline marketers.


Cost to Consumers          According to government and industry officials, the costs related to new
                           capital investments incurred by petroleum companies and the decreased
                           value of components removed from gasoline would be passed on to gaso-
                           line consumers. It appears that limited reformulations would not result
                           in large increases. For example, ARCO officials told us that EC-1 costs 2
                           cents more per gallon to produce than leaded regular, but ARCO is not
                           passing this increase on to the retail level. However, more extensive
                           reformulation would likely cost more. While petroleum industry officials
                           did not speculate on possible price increases, a preliminary EPA estimate
                           of aromatics reductions may give some indication of the magnitude of
                           potential price increases. The estimate, based on EPA assumptions about
                           current gasoline composition and refinery operating costs, suggests that


                           Page 8                                   GAO/RCED-90-153   Reformulated   Gasoline
      .


                  R-227776.5




                  aromatics levels can be reduced from the current industry average of 35
                  percent of gasoline volume to 15 percent, for a cost of about 10 cents a
                  gallon.

                  The potential failure of independent gasoline marketers could have an
                  additional impact on consumer prices. Representatives of these compa-
                  nies said that their competitive pricing helps hold down the retail price
                  of gasoline. Without this competition, they believe that the marketers of
                  major brand gasoline would have greater freedom to raise their prices.

--~
Energy Security   Reformulated gasoline could negatively affect the nation’s energy secur-
                  ity. Energy Information Agency reports show a trend toward increasing
                  U.S. energy consumption and declining domestic crude oil production in
                  recent years, to the point where the United States is becoming more
                  dependent upon foreign oil sources to satisfy the growing demand.
                  Petroleum industry officials stated that the production of reformulated
                  gasoline is likely to exacerbate this situation.

                  According to government and industry officials, severe gasoline refor-
                  mulations would probably result in the production of lower volumes of
                  gasoline per barrel of crude oil. Although uncertainty about the compo-
                  sition of reformulated gasoline precludes precise estimates of the vol-
                  ume loss, some increase in the supply of crude oil would be required to
                  maintain the current volume of gasoline production. As indicated by
                  several officials we interviewed, it is likely that this additional crude
                  will have to be imported.

                  Furthermore, government officials expressed concern that the emer-
                  gence of reformulated gasoline might discourage the development of
                  alternative fuels such as methanol and ethanol, which are not made
                  from petroleum. Currently, the United States is almost totally dependent
                  upon petroleum-based fuels to operate its motor vehicles. Other alterna-
                  tive fuels may improve energy security because they use raw materials
                  that can either be domestically produced or obtained from a wider vari-
                  ety of foreign suppliers compared with petroleum.


                  The benefits and costs of reformulated gasoline are yet to be quantitied
Conclusions       with any degree of certainty. Preliminary indications are that reformu-
                  lated gasoline can offer reductions in some vehicle emissions that could
                  help to achieve the goals of the proposed Clean Air Act. Furthermore,
                  reformulated gasoline would not require major changes in the petroleum


                  Page 9                                   GAO/RCED-90-163   Reformulated   Gasoline
                                                                           .


B-227776.5




distribution system. Industry officials contend that this represents a sig-
nificant savings in comparison to other alternative fuels. On the other
hand, while these officials acknowledge that increased production costs
will probably cause consumers to pay more for reformulated gasoline
than conventional gasoline, it is not yet known how reformulated gaso-
line will compare in cost with other alternative fuels. However, price
increases cannot be quantified until the type and quantity of reformula-
tions are known.

The automotive and petroleum industries are conducting extensive
research on the emissions characteristics and cost-effectiveness of refor-
mulated gasoline. Initial results are expected in late 1990. At least until
then, there is insufficient evidence to indicate how reformulated gaso-
line compares with other alternative fuels.


The scope and methodology of our review are discussed in appendix IV.
We discussed the information contained in this report with DOE and EPA
officials. They offered some technical comments, which we have incor-
porated in the report. As you requested, we did not obtain official writ-
ten agency comments on this report. Our work was conducted from
October 1989 through March 1990.

Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days from the date of this letter. At
that time, we will send copies to the appropriate congressional commit-
tees; the Secretary of Energy; and the Administrator, EPA. We will also
make copies available to others upon request. Should you need further
information, please contact me on (202) 275-1441. Other major contribu-
tors to this report are listed in appendix V.

Sincerely yours,                    I
                                  ./*
                           /Ji7
    /
/&
Victor S. Rezendes
Director, Energy Issues




Page 10                                   GAO/RCED-90-163   Reformulated       Gasoline
Page 11   GAO/RCED-90-163   Reformulated   Gasoline
Contents


Letter
Appendix I
Industry Research
Program on Motor
Fuel Composition and
Emissions
Appendix II                                                                                           16
Multiple Recipes for
Reformulated Gasoline
Are Possible
Appendix III                                                                                          17
Glossary of Gasoline
Components
Appendix IV                                                                                           20
Scopeand                Companies, Associations, and Government Agencies
                           Contacted
                                                                                                      20

Methodology
Appendix V                                                                                            22
Major Contributors to
This Report

                        Abbreviations

                        ARC0      Atlantic Richfield Company
                        DOE       Department of Energy
                        EC-1      Emission Control-l
                        WA
                        1         Environmental Protection Agency
                        ETI3E     Ethyl Tertiary Butyl Ether
                        MTBE      Methyl Tertiary Butyl Ether
                        SIGMA     Society of Independent Gasoline Marketers of America


                        Page 12                                GAO/RCED-SO-159   Reformulated   Gasoline
Page 13   GAO/RCED-90-163   Reformulated   Gasoline
Appendix I

Industry ResearchProgram on Motor Fuel
Composition and Emissions

                 On October 17, 1989, the 3 major domestic auto companies and 14 of the
                 major petroleum companies announced plans for a joint research pro-
                 gram designed to provide new information on the relationships between
                 motor fuel composition and vehicle emissions. Officials involved in plan-
                 ning the program provided the following information about its objec-
                 tives and methodology:

             . The program is designed to provide results that will permit the assess-
               ment of relative reductions in vehicle emissions and improvements in
               urban air quality, especially ozone, achievable with reformulated gaso-
               lines and with methanol fuels. The program will also evaluate ethanol as
               an additive to reformulated gasoline.
             . The first phase of the program, expected to cost approximately $14 mil-
               lion, will test 26 gasoline formulations in vehicles with older emissions
               control technology (model years 1983-85) and in vehicles with current
               technology (model year 1989). It will also test two methanol fuels and
               an industry-average gasoline in flexible-fuel vehicles. In addition, the
               research program will measure the emissions impacts of adding 10 per-
               cent ethanol to reformulated gasoline, the effects of adding ethers-
               methyl tertiary butyl ether (MTBE) and ethyl tertiary butyl ether (ETBE)
               to gasoline- and the effects of sulfur content on catalytic converter
               activity.
             l The gasoline composition portion of Phase I will include measuring the
               emissions impacts of various concentrations of aromatics, olefins, and
               hydrocarbons with high boiling points. Many compounds in these three
               groups of gasoline components are highly reactive and are considered
               the most likely contributors to the formation of ozone, the chief ingredi-
               ent in urban smog. Moreover, these components contribute various tox-
               its to the atmosphere such as the carcinogen benzene, a member of the
               aromatics family.
             l Researchers will make use of sophisticated equipment and new test pro-
               cedures to identify the individual components in vehicle emissions
               rather than just measuring total emissions. This detailed information
               will be used in atmospheric chemistry and air quality models to deter-
               mine the potential reductions in urban ozone from the use of the tested
               fuels.
             . Phase I will include an economic analysis aimed at determining the cost-
               effectiveness of producing various new gasoline reformulations. Part of
               this effort will involve a survey of petroleum companies by the National
               Petroleum Refiners Association. Survey results, expected in the early
               spring of 1990, are expected to provide information on refiners’ ability
               to reconfigure their refineries to produce selected recipes of reformu-
               lated gasoline. The survey data will be used by a private consulting firm


                 Page 14                                  GAO/RCED-90-153   Reformulated   Gasoline
    Appendix I
    Industry Rwsrch   Program    on Motor   Fuel
    Composition  and Emissions




  to estimate the amount of investment required to produce reformulated
  gasoline and the increased cost per gallon to consumers.
l Phase I testing was originally scheduled to begin in January 1990 and to
  conclude by approximately August 1990. However, as of mid-February,
  difficulties in establishing test procedures had delayed the start of
  actual testing. A program official could only tell us that testing would
  begin as soon as possible, with completion now expected near the end of
   1990.
. Final plans for the second phase of the research program have not been
  approved. Treating vehicles and the fuels they burn as a total system,
  Phase II will test the best of the new gasoline formulations identified in
  Phase I in future prototype vehicles designed to optimize the benefits of
  the new fuels. Phase II (originally projected to begin early in 1990) has,
  like Phase I, been delayed. New target dates for the beginning and end
  of Phase II had not been established as of mid-February. A program offi-
  cial speculated that it might begin in the fall of 1990 and continue for at
  least 2 years.




    Page 15                                        GAO/RCED-90-153   Reformulated   Gasoline
Appendix II

Multiple Recipesfor Reformulated Gasoline                                                    ’
Are Possible

---
               According to industry and government officials, differing refinery
               processes and market needs affect the formulations of gasolines. For
               example, the percentages of various hydrocarbons in the crude oil feed-
               stocks that industry uses vary, and the combination of refinery
               processes that industry employs to convert the crude to gasoline differs
               considerably from one refinery to another. Furthermore, different petro-
               leum companies produce gasolines to meet the specific geographical and
               seasonal requirements of their marketing areas, such as the requirement
               for higher volatility gasolines in the winter in northern areas. If gasoline
               is eventually reformulated, according to industry and government offi-
               cials we contacted, these factors will continue to be in force, so that a
               number of different recipes for reformulated gasoline are possible.




               Page 16                                   GAO/RCED-90-153   Reformulated   Gasoline
AAendix   III

Glossary of Gasoline Components


                Modern gasoline is a complex mixture of hundreds of different compo-
                nents, mostly hydrocarbons (compounds of hydrogen and carbon),
                blended in many different combinations. A refiner has many choices
                regarding what components to include in the mixture to get the desired
                combination of properties, and many different refinery processes may
                be used to produce those components. Such factors as the cost and con-
                tents of crude oil feedstocks, equipment available at each refinery, and
                desired product slate affect each refiner’s choices regarding the compo-
                sition of the gasoline produced. Thus, gasolines available today in the
                United States vary widely in their concentrations of numerous
                components.

                Those proposing to reformulate gasoline suggest that vehicle emissions
                may be reduced by changing the concentrations of certain gasoline com-
                ponents. Given the variations in gasoline composition, any change would
                be relative to an overall industry average. A brief discussion of the com-
                ponents being discussed as candidates for change in reformulated gaso-
                line is given below.


Aromatics       A class of high-octane hydrocarbons that currently constitutes about 35
                percent of gasoline. This percentage has increased in recent years, as
                refiners have blended more aromatics into gasoline to replace the octane
                lost as a result of lead reduction. The chief aromatics in gasoline are
                benzene, toluene, and xylene. In addition to concerns about the toxicity
                of benzene, some aromatics are highly reactive chemically, making it
                likely that they are active in ozone formation.


Benzene         A member of the aromatics family that currently constitutes about 1.5
                percent of gasoline. EPA has identified benzene as a carcinogen and has
                regulated exposure to it in the workplace. EPA has not yet regulated ben-
                zene emissions from gasoline but is currently considering doing so.


Butane          A light hydrocarbon added to gasoline to raise octane and increase vol-
                ume. Since it has high vapor pressure, adding or removing butane is the
                common method by which refiners raise or lower the vapor pressure of
                gasoline. Removal of butane was made necessary by imposition of gaso-
                line volatility limits set by EPA.




                Page 17                                  GAO/RCEDQO-163   Reformulated   Gasoline
                                                                                                       L




                             Appendix III
                             Glossary of Gasoline   Components




Ethanol                      An alcohol produced from starch or sugar crops such as corn or sugar
                             cane. Ethanol may be used as a fuel by itself, as is done in Brazil, or
                             blended into gasoline to boost octane and increase volume. In the United
                             States, ethanol is usually blended in a lo-percent mixture with gasoline
                             to form gasohol. As an oxygenate, ethanol supplies oxygen to gasoline,
                             which reduces carbon monoxide emissions from vehicles. However, eth-
                             anol cannot be transported in the same pipelines with gasoline, so it
                             must be blended into gasoline outside the refinery. In addition, ethanol
                             increases the volatility of gasoline. These drawbacks can be overcome if
                             ethanol is converted to its ether form, ETBE.


Ethyl Tertiary Butyl Ether   An ether compound made using ethanol. Although not yet produced in
                             commercial quantities, it could be used as a gasoline additive to boost
                             octane and provide oxygen. Since it has low vapor pressure, it could also
                             be useful in helping to comply with volatility controls on gasoline.
                             Unlike alcohols, ETBE could be produced and blended with gasoline at
                             the refinery and shipped in gasoline pipelines.


Hydrocarbons With High       Many of the hydrocarbons in gasoline with high boiling points are very
Boiling Points               reactive chemically and are considered to be likely contributors to ozone
                             formation. These hydrocarbons are the last to boil away as gasoline is
                             subjected to high temperatures. The group of hydrocarbons being tested
                             by the auto/oil joint research project is referred to as “the T!,,,Boiling
                             Point group.” This means the group consists of the last 10 percent of
                             hydrocarbons that remain after 90 percent of the gasoline has already
                             vaporized.


Methanol                     An alcohol made primarily from natural gas. Methanol may be used as a
                             pure (or neat) fuel, in which case it is called Ml00 (100 percent metha-
                             nol). However, since Ml00 vehicles are hard to start and are still under
                             development, some gasoline is usually added to methanol to form MS5
                             (85 percent methanol and 15 percent gasoline) for M86 vehicles. Metha-
                             nol itself is not currently used as a gasoline additive for several reasons,
                             including its adverse effects on fuel system components in conventional
                             vehicles. However, when converted to its ether form, MTBE, it is widely
                             used as a gasoline additive.




                             Page 18                                   GAO/RCEDSO-163   Reformulated       Gasoline




                                                                                                  ,
   .
                        Appendix III
                        Glossary of Gasoline   Components




Methyl Tertiary Butyl   An ether compound made using methanol. MTBE has been widely
Ether                   accepted by refiners as a gasoline additive, and its use has been steadily
                        increasing over the past several years. As an oxygenate, it supplies oxy-
                        gen to help reduce carbon monoxide emissions. MTBE boosts octane,
                        while having little effect on vapor pressure. Unlike alcohols, MTBE can be
                        produced and blended with gasoline at the refinery and shipped in gaso-
                        line pipelines.


Olefins                 A group of highly reactive and volatile hydrocarbons that currently con-
                        stitute about 12 percent of gasoline. Olefins are considered to be likely
                        contributors to ozone formation.


Oxygenate               This term applies to any gasoline additive containing oxygen. Oxygen in
                        gasoline tends to reduce carbon monoxide emissions from vehicles.
                        Therefore, four states (Arizona, Colorado, Nevada, and New Mexico)
                        have mandated the use of oxygenated gasoline during winter months in
                        areas with high carbon monoxide emissions levels. Oxygenates include
                        the alcohols, such as ethanol and methanol, and the ethers, such as MTBE
                        and ETBE. Each of these compounds also boosts the octane of gasoline,
                        while their effects on volatility vary.


Sulfur                  A contaminant found to varying degrees in crude oil. Most of it is
                        removed during refinery processing so that the amount remaining in
                        gasoline averages only about 300 parts per million. However, industry
                        researchers believe that even this amount may adversely affect the
                        durability of catalyst material in catalytic converters,




                        Page 19                                 GAO/RCED-90-163   Reformulated   Gasoline
                                                                                               I




Appendix IV

Scopeand Methodology


                      In performing this assignment, we reviewed pertinent legislation, publi-
                      cations, testimony, technical literature, and reports by various interest
                      groups. However, because the concept of reformulated gasoline is rela-
                      tively new, the existing documentation was limited. Therefore, we relied
                      heavily on information obtained through discussions with officials from
                      the three domestic automobile manufacturers, seven petroleum compa-
                      nies, four trade associations, and a research firm. We also discussed the
                      concept of reformulated gasoline with officials from DOE and EPA and the
                      California Air Resources Board. To obtain views on reformulated gaso-
                      line from a non-petroleum perspective, we interviewed an official from a
                      major methanol-producing company. The companies, associations, and
                      government agencies we contacted are shown below.



Companies,
Associations, and
Government Agencies
Contacted

Automobile          Chrysler
        Manufacturers    Motors
                             Corporation
                      Ford Motor Company
                      General Motors Corporation


Petroleum Companies   Amoco Corporation
                      Ashland Oil, Inc.
                      Atlantic Richfield Company (ARCO)
                      Conoco, Inc.
                      Diamond Shamrock, Inc.
                      Mobil Oil Corporation
                      Sun Refining and Marketing Company


Trade Associations    American Independent Refiners Association
                      American Petroleum Institute
                      National Petroleum Refiners Association
                      Society of Independent Gasoline Marketers of America




                      Page 20                                 GAO/RCED-90-163   Reformulated       Gasoline
                         Appendix IV
                         Scope and Methodology




Researchand Technology   Talbert Fuel Systems, Inc.
Company

Methanol Company         Hoechst Celanese Corporation


Government Agencies      California Air Resources Roard
                         US. Department of Energy
                         1723.Environmental Protection Agency




                         Page 21                                GAO/RCED-90-163   Reformulated   Gasoline
Appendix V

Major Contributors to This Report


                          Judy A. England-Joseph, Associate Director
Resources,                James A, Fowler, Assistant Director
Community, and            Barry R. Kime, Assignment Manager
Economic
Development Division,
Washington, DC.

                          Anthony A. Krukowski, Evaluator-in-Charge
Detroit Regional Office   Michael R. Martin, Site Senior
                          Rebecca L. Thompson, Evaluator




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