'BOUTIQUE' GASOLINE | KC area's solution to easing pollution
20.05.12
Ten years ago the Kansas City area switched to a special blend of gasoline in the summer to battle smog.</p><p>The “boutique gas,” experts said, would slash harmful vapors wafting into the air. And it wouldn’t cost much more.</p><p>Wrong on both counts. </p><p>The boutique blend didn’t come close to cleaning our air as much as promised. We’re again teetering on the brink of violating air-quality laws.</p><p>And it has cost area drivers, The Star has determined, at least $150 million more than the average cost of conventional gasoline we were using. </p><p>Based on price figures from the last six years, the period made available to The Star by the Oil Price Information Service, that’s an average of 10 cents a gallon more.</p><p>Experts had forecast that the boutique blend would cost just 1 to 2 cents a gallon more.</p><p>“Looking back, this has been a screw-up,” said Cal Hodge, an industry veteran with a stint at the former Amoco refinery in Sugar Creek. He is also a former chairman of the Oxygenated Fuels Association.</p><p>“People in Kansas City should be angry, because nothing is being done about it.”</p><p>They’re called “boutique fuels” because they’re specially designed to be used in particular regions.</p><p>Kansas City turned to its boutique gasoline, sold from June 1 to Sept. 15 in Johnson, Wyandotte, Jackson, Clay and Platte counties, because of pressure from federal air-quality regulators. Smog can make you wheeze and cough, and even damage your lungs. </p><p>The boutique blend selected was designed to cut vapors by not evaporating as quickly as conventional gasoline. </p><p>It was chosen over what area and state officials agreed was really a better solution, even though it was then more expensive — so-called reformulated gasoline. It also cuts pollution by evaporating less, and it burns cleaner, too.</p><p>But that option had been blocked by a victorious oil industry lawsuit in the mid-1990s that argued that the Kansas City area’s air wasn’t dirty enough yet under federal law to warrant its use. </p><p>That wasn’t the case in the St. Louis area, which had dirtier air, so officials there went with a reformulated blend. It’s used all year but tweaked in the summer to make it more effective in fighting smog. And it’s combined with the use of vapor-recovery equipment at gas stations, another option Kansas City rejected.</p><p>Although 10 years ago reformulated gasoline was more expensive than boutique fuel, that’s no longer necessarily true. In the last few years the average summer wholesale price for gasoline in St. Louis was often a couple of cents a gallon cheaper than gasoline in Kansas City.</p><p> Reformulated fuel can now be cheaper in winter, too, even after Kansas City switches back to conventional gasoline. In mid-December, for example, the national wholesale average price for reformulated fuel was a couple of cents cheaper than conventional gasoline now being used instead of the summer blend.</p><p>The hoped-for bargain offered by our summer boutique blend turned out to be a mirage for two reasons.</p><p>• The United States turned in a big way toward ethanol, but when the corn-based biofuel is put into gasoline, it makes gasoline evaporate faster again. That has drastically reduced the pollution-cutting effect of our boutique blend.</p><p>• Kansas City’s boutique gasoline is so rare you have to travel at least 740 miles to cities in Michigan or Alabama to find the closest place that requires the same fuel. Our boutique fuel comes from a handful of refineries in Kansas, Oklahoma and Texas. </p><p>That leaves area drivers vulnerable to production problems, shortages and price swings.</p><p>“KC, even more so than some other cities, can be likened to an isolated island with regard to gasoline specifications in the summertime,” said Mike Thornbrugh, a spokesman for QuikTrip, the biggest seller of gasoline in the area. </p><p>Our boutique blend was chosen by area officials on a committee coordinated by the Mid-America Regional Council. The agency still thinks the best decision was made.</p><p>“Anything you can do to reduce emissions has to be helpful,” said Amanda Groer, air-quality program manager for the regional council. </p><p><span class="subhead">Advantage to refiners?</span></p><p>To make the Kansas City area’s boutique blend, refiners remove the lighter components of gasoline, such as butane, to cut evaporation. That makes the fuel more expensive. </p><p>Cindy Kemper, director of the Johnson County Environmental Department, who was among those involved in the decision 10 years ago to use the fuel, recalls hearing assurances that costs could rise just 1 to 2 cents a gallon. And, she said, officials thought that protecting consumer pocketbooks and gas station operators was a key reason to select the blend.</p><p>From the beginning, some who helped choose the blend dismissed concerns about its connection to higher prices. </p><p>“There are those in the petroleum industry who try to say that they’re connected,” Bob Randolph in the air pollution office of the Missouri Department of Natural Resources told The Star a decade ago. “But from our agency’s standpoint, we don’t agree at all.”</p><p>The state agency recently declined to make Randolph available for further comment, but a spokeswoman said it was hard to sort out the forces that move gasoline prices. </p><p>But at least one oil company did make the connection between the rarity of the blend and its price. The company that owned a refinery in Coffeyville, Kan., once boasted to investors that its strategy to boost profits included selling a boutique blend in Kansas City.</p><p> In 2005 when Coffeyville Resources — now called CVR Energy — was considering a stock offering, it released a document sketching out its business strategy. The document, filed with the Securities and Exchange Commission, said refineries benefited when more blends had to be produced. The blends, it said, “exert pressure on product availability.” </p><p> “We have been able to supply value-added fuels such as boutique blends for Kansas City and Denver markets that trade at a premium price to regular unleaded gasoline,” the company said. </p><p>Contacted recently, Gina Bowman, vice president for government relations for CVR Energy, insisted that the area’s boutique fuel had been a good low-cost solution to reducing pollution. </p><p><span class="subhead">Battling over blends</span></p><p>In all, the United States uses 15 types of gasoline — several conventional gasoline and reformulated blends and seven boutique fuels. Reformulated and boutique fuels can be a little different because they are used in different climates or need to reduce different amounts of pollution.</p><p>Conventional gasoline still meets roughly 60 percent of demand nationwide. Reformulated blends fill about 30 percent. Boutiques fill the rest.</p><p>Like the CVR executives, many industry observers recognize that the overall complexity can help refiners make money. With smaller markets, they can manage supplies and avoid surpluses. </p><p>But it’s more likely that refiners can’t make enough of a particular blend, driving prices up.</p><p>Alan Gelden, based in the United Kingdom as an analyst for energy consulting and research firm Wood Mackenzie, said special fuels in Europe also once created smaller but more profitable markets. </p><p>“The refineries see no reason to simplify it,” he said in an interview at a conference in Las Vegas last fall sponsored by the Oil Price Information Service.</p><p>As for the oil industry, it has long said that boutique fuels in particular can cause price spikes. And it has called publicly for making things less complex overall.</p><p>In 2006, the American Petroleum Institute told Congress that supply problems would ease if the number of fuels were cut by more than half. Congress didn’t go along, but it did cap the number. </p><p>The petroleum institute still states on its website that boutique fuels can cause higher prices, but an official says the industry isn’t as concerned now because of the cap.</p><p> “At the end of the day, the current slate of those fuels offer states cost-effective options,” said Patrick Kelly, a senior policy adviser.</p><p> The oil industry has also taken another tack at times, blaming environmental regulations for so many gasoline blends in the first place. J.S. Carter, a regional director for ExxonMobil, told Congress after drivers began using Kansas City’s boutique blend that the “the proliferation of fuel specifications in the U.S.” was causing price swings. </p><p>Republican Sen. Roy Blunt of Missouri has said “radical environmentalists” are behind boutique fuels.</p><p>Henry Henderson, director of the Natural Resources Defense Council’s Midwest program, used a barnyard epithet to dismiss the accusations. Environmentalists, he said, “didn’t ask for it to be like this.”</p><p>Henderson does acknowledge that the complexity contributes to price volatility. But he says the area’s push for reformulated gas was stopped by the oil industry lawsuit. Going to reformulated gasoline, he pointed out, would have simplified the regional market. </p><p><span class="subhead">The price impact</span></p><p>Judging the effect of boutique gasoline on retail prices can be difficult because of various factors such as local competition. But look at wholesale prices, and it’s easy to see differences.</p><p>Ric Foster, the owner of a gas station off Interstate 35 in Gardner, recently thumbed through a sheaf of summer wholesale prices, his mood darkening with each page.</p><p>A few miles down the same highway, gasoline retailers in Miami County, Kan., can buy conventional fuel and pay less.</p><p>“I’ve had people who stopped and asked why their prices were cheaper,” he said. “It used to bother me, but I’m getting used to it.”</p><p>In a recent report for Colorado’s Regional Air Quality Council, a consulting firm examined different summer gasoline blends, including Kansas City’s, that could be used in the Denver area.</p><p>The firm studied prices from 2006 to 2009 and found that the Kansas City area’s wholesale gas cost 6.9 to 20.7 cents a gallon more than conventional gasoline. That was several cents higher than in three other areas the firm studied: Detroit, Chicago and Denver itself.</p><p>The firm warned Colorado officials about Kansas City’s “relatively extreme range of gas prices” — a result, it said, of tighter supplies.</p><p>The Star, using wholesale prices from the Oil Price Information Service, found that Kansas City’s prices this summer jumped a more modest 7 cents a gallon above conventional gasoline, although for several days they were 10 cents higher. </p><p>Costs associated with making boutique fuels also ripple through the supply chain. </p><p>Bruce Heine, a spokesman for Magellan Midstream Partners, which owns the largest wholesale terminal in the Kansas City area, says his company has had to invest in storage tanks and in its distribution system “to accommodate the unique specification for the Kansas City area.”</p><p>Tom Kloza, chief analyst for the Oil Price Information Service, also points to the annual “brown banana enema.” That’s the spring purging of retail fuel tanks and replenishing them with summer fuel. </p><p>The boutique fuel’s highest price spikes in the area this year took place in late spring when the purging took place.</p><p>Experts also say that experience since 2001 shows that summer supply glitches can escalate into shortages. For instance, in 2007 a flood struck the Coffeyville refinery, and QuikTrip felt it.</p><p>Thornbrugh, the spokesman for the chain, said QuikTrip found fuel on the Gulf Coast, but at a much higher cost. </p><p>QuikTrip also sells boutique or reformulated gasoline in Phoenix, Atlanta, St. Louis, Tulsa and Dallas.</p><p>“As long as the refineries that have committed to manufacture KC gasoline are operating normally,” Thornbrugh said, “then all is fine, (but) an operational glitch will quickly send the supply/demand balance out of kilter.”</p><p><span class="subhead">The ethanol equation</span></p><p>The boutique blend was supposed to pack quite an environmental punch. Experts estimated that each day it was used in the summer, six fewer tons of harmful vapors would escape, keeping the Kansas City area in compliance with clean air laws then in effect. </p><p>But along came ethanol.</p><p>Ethanol-laced gasoline again evaporates more. In the Kansas City area, that has wiped out about half of the boutique fuel’s environmental benefit. </p><p>“It basically defeats the purpose,” said Guy Hoffman of the Texas Commission on Environmental Quality. </p><p>Ethanol was a bit player in 2001, and area officials say they had no inkling the biofuel would become so popular. Now they’re second-guessing themselves.</p><p>“We have been concerned about the effect of ethanol,” said Ed Peterson, co-chairman of the Mid America Regional Council’s Air Quality Forum.</p><p>At one time the idea that ethanol causes more vapors threatened its wide use. But the ethanol industry years ago lobbied for a waiver. The U.S. Environmental Protection Agency at first refused, but President George H.W. Bush overrode the agency in 1992.</p><p>Administrations since then have also given the waiver. </p><p>A few years ago the Mid-America Regional Council raised concerns about ethanol in Kansas City’s boutique gasoline. But that triggered a backlash from the ethanol industry, which pushed for a mandate that requires E-10, a gasoline blend containing 10 percent ethanol, to be sold.</p><p>Then-Gov. Matt Blunt was asked to leave the Kansas City area out of the mandate, but he refused. Missouri is now one of only six states with a mandate.</p><p>Kansas doesn’t have a mandate, but federal requirements to produce more of the biofuel across the country have made it widely sold anyway. </p><p>The effects of ethanol can be countered. Regulators required that reformulated gasoline, like that used in St. Louis, be further refined to offset ethanol’s evaporation. And Texas officials made sure their boutique blend was further refined, too.</p><p>Kansas City area officials could have required a similar step but didn’t. Contacted recently, state and local officials couldn’t give a reason why it wasn’t done. </p><p>The Renewable Fuels Association contends that concerns about ethanol are overstated. It says that ethanol cuts smog-causing carbon monoxide emissions from tailpipes, thus offsetting the evaporation of gasoline’s lighter components.</p><p>But others reject that view, saying more smog is caused by gasoline vapors than carbon monoxide.</p><p> The issue has resurfaced with regulatory approval to soon allow the use of E-15, gasoline with 15 percent ethanol, across the country.</p><p><span class="subhead">What to do now</span></p><p>Last summer, monitoring stations in the Kansas City area found that concentrations of ozone, a key component of smog, had exceeded federal standards for 14 days. And air-quality regulations could become much tougher.</p><p>Federal regulations would make it hard to go back to conventional fuel.</p><p>Vapor-recovery equipment is arguably a better choice than boutique fuel, but gas station operators rejected that option a decade ago and would likely still blanch at its cost</p><p>Some say it’s time for Kansas City to try again for reformulated fuel.</p><p>That, however, would take congressional action to overcome the oil industry’s successful lawsuit that prevented the area from using reformulated fuel in the first place. </p><p>If Congress did act, the Mid-America Regional Council and state officials could request approval to use the fuel in the area. The EPA would then have to sign off on it before it took effect.</p><p>In fact, the time has come, say many experts, to consider one or two blends for the entire country. </p><p> “You’re talking common sense,” said Thornbrugh, the QuikTrip spokesman. “It would help take out the peaks and valleys of prices.”</p><p> Michael Mansfield, chief executive of Mansfield Oil, which distributes fuel in all 50 states, said fewer blends would be an obvious fix. </p><p>“I never understood why that doesn’t happen,” he said in an interview at the Las Vegas conference.</p><p>Lewis Adam, president of Admo Energy which helps gas stations purchase fuel, said that though some just blame environmentalists for the number of fuels, oil companies like the complexity. </p><p>“They love to be considered free-enterprise folks, but they love regulations” that allow the fuels, he said. </p><p>Bill Adkins, president of Vitol Aviation Co., a worldwide company that provides crude oil to refineries, agrees with those who say that a smaller number of blends would help ease supply concerns.</p><p>“It would be easier, but it wouldn’t be as profitable.”
Source: Kansas City Star
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