New Obama gas initiative could force rise in gas prices

In a year that has seen gas prices shooting upward already, a new EPA policy that makes fuel more expensive will not find a warm embrace with the public. Nevertheless, the Obama administration will announce today a new set of emission regulations that will in essence force all 50 states to comply with California’s standards for sulfur and other components of refined fuel. The White House claims this won’t add any cost to gasoline, but the oil industry strenuously disagrees:

The oil industry, Republicans and some Democrats had pressed the EPA to delay the rule, citing higher costs. An oil industry study says the rule could increase gasoline prices by 6 to 9 cents per gallon. …

But the head of American Fuel and Petrochemical Manufacturers, Charles Drevna, said in an interview Thursday that the refiners’ group was still unclear on the motives behind the agency’s regulation, since refining companies have already spent $10 billion to reduce sulfur by 90 percent. The additional cuts, while smaller, will cost just as much, Drevna said, and the energy needed for the additional refining could actually increase carbon pollution by 1 to 2 percent.

“I haven’t seen an EPA rule on fuels that has come out since 1995 that hasn’t said it would cost only a penny or two more,” Drevna said.

The auto industry might be an ally for the White House in this case:

The so-called Tier 3 standards would reduce sulfur in gasoline by more than 60 percent and reduce nitrogen oxides by 80 percent, by expanding across the country a standard already in place in California. For states, the regulation will make it easier to comply with health-based standards for the main ingredient in smog and soot. For automakers, the regulation allows them to sell the same autos in all 50 states.

The 6-9-cent range comes from an API study on the impact on refineries in the US, but the EPA says that study misses the point that almost all of these refineries already meet the standards — and that some which don’t in all cases produce gasoline for California which does:

A senior administration official said Thursday that only 16 of 111 refineries would need to invest in major equipment to meet the new standards, which could be final by the end of this year. Of the remaining refineries, 29 already are meeting the standards because they are selling cleaner fuel in California or other countries, and 66 would have to make modifications.

That’s still a lot of refitting, and part of the reason why gas prices jumped so high this year has been maintenance down time.  The US operates near full capacity at all times to keep up with demand, one of the problems created by opposition to building new refineries, which would already have this technology in place.  If 66 refineries need “modifications” and another 16 need major overhauls to comply within four years, that means that 74% of our refineries will be experiencing additional down time during that period.  That sounds like a recipe for shortages and price shocks.  And so far, prices haven’t come down a lot after the round of supply issues of this year.