America’s oil refiners are preparing to intensify efforts to press the federal government to drop mandates to encourage the development of advanced biofuels and counter the Obama administration’s “war on fossil fuels.”
The Renewable Portfolio Standard requires that 36 billion gallons of renewable fuel be blended with petroleum-based products by 2022 under the Bush-era Energy Independence and Security Act of 2007.
Five years can be a very long time in US energy politics, said Charles Drevna, president of the American Fuel & Petrochemical Manufacturers, whose members include oil supermajors such as Shell, BP and Chevron.
“RFS2 was really conceived at a different time in the nation’s history even though it was only a few years ago. There was a thought permeating through Congress that we were eventually going to run out of natural resources.
Policy Tools not keeping Pace with Shifting Market Dynamics
“Since then, as a nation we fully understand we’re not an energy poor nation, we’re an energy rich nation with the advent of fracking and horizontal drilling.
“We’ve had this 4-5 year experiment going on which we believe has proved to be a failure.”
The RFS2 demonstrates how quickly the dynamics of the energy industry can outgrow policy, said Drevna, in an exclusive interview with Breaking Energy.
“Policymakers haven’t kept pace [with change in the energy industry] and that’s always a problem when you have new technology and entrepreneurship being developed but when you’re forced to apply mandates and uneconomic solutions once they’re passed they’re very difficult to get amended.
“One of our major goals at AFPM is to have Congress and whatever administration it is to take a long hard look at the RFS and come to the epiphany that if we want to limit our reliance on foreign sources of crude oil the best way to do it is to develop our own resources and forget this totally anti-consumer anti-environment anti-common sense approach to national security which is mandating biofuels and renewables.”
At the end of May, Drevna warned the House Committee on Oversight and Government Reform: “The policies of the administration and EPA continue to support a war on fossil fuels that ultimately harms consumers, workers, the economy and our country’s national security.”
AFPM is a 110-year-old trade association which represents 98% of US oil refiners that process 18 million barrels of oil a day with a combined annual revenue of $725 billion.
In April, the US Energy Information Agency forecast that US gasoline demand this summer – usually a peak period – is expected to be the lowest in 11 years, partly due to rising gasoline prices at the pump and more fuel efficient vehicles.
Next month, Sunoco’s Philadelphia refinery will become the latest in a number of refinery closures which have resulted in a 4% decline in refining capacity in the US since last year.
Overall, gasoline demand in the US declined since the 2008 spike at $147 a barrel and flattened since the subsequent global economic recession, said Drevna.
Biofuels Seen as a Small but Growing Threat
Although advanced biofuels are at de minimis levels of production this year, Raymond James equity research analysts forecast 800 million gallons of production by the end of 2013.
Meanwhile, the 133.93 billion gallons of gasoline consumed in the US last year contained about 12.87 billion gallons of ethanol, accounting for 9% of each gallon pumped into tanks.
Advanced biofuel and ethanol production are unlikely to make too much of a dent in the US liquid fuel market which is expected to sell 186 billion gallons of gasoline and diesel this year.
But AFPM sees mandates on alternative sources of liquid fuels for transportation and chemicals as a direct threat to the industry – and the American economy.
“We don’t think [biofuels] should be mandated whether it’s corn ethanol, biofuels or biodiesel until such time as those products are as efficient, reliable and abundant as gasoline and diesel produced from petroleum,” said Drevna. “Until they are able to compete head to head then let the free market decide, let the consumer decide.
…E15 goes way beyond what makes sense.” – Drevna
“The RFS was based on ideology and political science rather than reality and real science. We believe it needs to be significantly modified to prevent harm to American consumers and the economy.”
But the RFS2 has not been without its problems. Earlier this year, the EPA had to revise down its quota for cellulosic ethanol from 500 million gallons to 10.5 million gallons as advanced biofuels are still at zero commercial production. But refiners were still fined $6.8 million by the EPA – part of what Drevna said was a “hidden tax” for the consumer as costs were transferred to the consumer.
US ethanol producers last year reached saturation point of production for its domestic market as a 10% blendstock in gasoline. EPA’s decision to raise the maximum percentage blend to 15% is potentially dangerous, said Drevna.
A recent Coordinating Research Council (CRC) study found that there are at least 5 million vehicles on American roads which are at risk of failure with 15% ethanol blended fuel.
“We don’t think the EPA has the authority to bifurcate the fuel system. How much corn are we going to use to blend when we have enough oil under our own feet and off our own shores? We’re not anti-ethanol but E15 goes way beyond what makes sense.”