Texas Diesel What should Texas do

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Texas DieselWhat should Texas do?

• Texas Oil Gas Association
• April 26, 2004

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Texas DieselBackground

• TNRCC adopted a Texas specific diesel spec
  statewide in late 2000
• The Texas oil industry sued based on federal
  pre-emption, lack of significant environmental
  benefit and high cost to consumers
• The Texas Legislature forged agreements between
  legislators, TNRCC, EPA Region 6 and Industry
  codified in 2001 HB 2912
• HB 2912 was adopted into regulation in late 2001,
  cutting geography to east Texas only and delaying
  the rule from 2002 until 2005
• Texas Low Emission Diesel (LED) specifications
  are different from the rest of the country, but
  similar to those in California
• The difference in air quality benefits to the
  critical Houston area in 2007 between federal
  diesel fuel (EPA ULSD) and Texas LED is estimated
  at about 2-3 ton/day (Houston target is gt700 t/d)

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Texas DieselCurrent Situation

• HB 2912 and current regulation (2001) allow
  substitute fuel strategies for refiners who do
  not make Texas LED
• Industry was told that early production of EPA
  Ultra Low Sulfur Diesel (ULSD) would be an
  acceptable substitute for Texas LED
• A TxOGA survey of Texas refiners (3Q02) indicated
  capacity to supply compliant Texas LED diesel
  fuel in Texas for sale 4/1/2005 was lt15 of
  projected demand
• TxOGA efforts to repeal rule in 2003 legislature
  passed House with incentives for those who made
  reductions, but failed in Senate
• EPA Region 6 and TCEQ now (summer 2003) indicate
  that ULSD is not an acceptable substitute unless
  it goes with retrofits
• Texas refiners are looking for ways to comply and
  are worried about supply

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Texas DieselProblems with Current Rule

• Texas LED diesel supply not expected to meet
  projected demand in east Texas
• Current fungible supply system may have trouble
  with multiple diesel formulations (east Texas
  /west Texas, out of state, different refiner
  formulations). Limitations have potential to
  affect supply
• Compliance by alternative formulations may result
  in many suppliers using different formulations
  for both diesel and gasoline - daily supply
  exchange and trading (commonplace today) may be
  difficult
• Rule implementation uncertainty and timing
  (changing requirements 2000-2003) and slow
  approval of alternative plans by TCEQ (and EPA?)
  have clouded direction for industry. Inadequate
  time remains to permit and construct new refinery
  process units
• Uncertainty, logistics and economics have
  potential to drive suppliers from the Texas
  diesel market. Making EPA diesel and piping it
  out of state, requiring no refinery
  modifications, may be an attractive option

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East Texas Production MovementGasoline
Valero
EM
Explorer
TEPPCO
CTX
CTx LaGloria
TEPPCO
CTx, EM
Colonial
FHills
Exxon/Mobil Shell Premcor Altofina
EM
FHills, Citgo
BP EM Lyondell Shell Valero(2) MAP CP
Coastal
FHills Citgo Valero (2)
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East Texas Supply/DemandGasoline
TEPPCO/ Explorer
500

• Texas provides 1/4 of U.S. gasoline
• EPA Tier 2 gasoline now being delivered
• EPA ULSD begins mid 2006

Dallas/ Ft. Worth 179
Colonial
Other East Texas 123
855
Beaumont Port Arthur 12
Austin 45
San Antonio 50
Houston 165
Corpus Christi 11
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Texas DieselWhat should we do?

• TCEQ should support efforts to reduce emissions
• Make suppliers of cleaner than required fuel TERP
  eligible
• Grant tradable credits for production of cleaner
  than required fuels for use in new projects,
  modifications or SEPs (allow SS or mobile
  applications)
• Grant credits for use under Cap and Trade program
  in HGA
• TCEQ should return to EPAs diesel program in
  Texas
• Minimizes supply problems and cost to consumers
• Utilizes EPAs coordinated fuel/engine program
  developed as part of national diesel strategy
• Impact on air quality from program change is
  small

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Texas Diesel What should we do?

• TCEQ needs to revise state rules and SIP now so
  state and federal requirements can be clear in
  2005
• Even this timing may be tight for EPA to react
• 2005 legislative action will be too late for EPA,
  some refiners may supply fuel under enforcement
  discretion, others will not
• Texas can take credit for EPA diesel program in
  place of Texas LED and use voluntary industry
  actions
• Efforts to encourage voluntary application should
  be aggressive
• TCEQ may end up with more overall reductions

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Support Slides
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Austin/San AntonioWhat about 7.2RVP for EACs?

• TCEQ should hold to position that local measures
  must be implemented first
• Consistent with EPA policy
• Lowest cost to consumer
• Full effect of EPA Tier 2 (low sulfur) gasoline
  begins 1/1/2006
• TxOGA has longstanding position against
  boutique fuels
• Current 7.8RVP (summertime) is commonplace
  throughout southern US NAAs and made at many
  Texas refineries already
• 7.2RVP would be unique

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