ConocoPhillips Ruffles Feathers Over RVP

Marketers bristle at plan to impose fines for high-Reid vapor pressure gas at retail

Carole Donoghue, Petroleum Editor

HOUSTON -- ConocoPhillips has told its branded jobbers that it intends to start fining them if tests turn up high Reid vapor pressure (RVP) gasoline in their station tanks, a plan that has irked some of its long-time wholesalers.

"This is a very heavy-handed approach," said one jobber. "If they fine the jobber, he'll just pass it on to the dealer, and then the dealer will not want to buy so much midgrade and premium in future."

The U.S. Environmental Protection Agency (EPA) regulates the vapor pressure of gasoline sold at retail during the summer ozone season (June 1 to September 15) to reduce evaporative emissions from gasoline that contribute to ground-level ozone and diminish the effects of ozone-related health problems.

Starting with the 2012 summer volatility control season, ConocoPhillips said it will launch a new fuel testing initiative because of "the significant numbers of recurrent noncompliant results" found in tests run from the 2009 through 2011 volatility seasons.

In future, if a site fails a product quality test, it will have to undergo a series of retests for up to two years to assure compliance, ConocoPhillips said in a certified letter to jobbers obtained by CSP Daily News.

For each additional test, the jobber will have to pay a $500 charge. If the marketer refuses to allow the refiner's representatives to take samples of his fuel, his refusal will be treated as a noncompliant test result and he will be fined $500.

According to Houston-based ConocoPhillips, federal and state laws, as well as its own branded supply contracts, mandate that products meet certain specs and prohibit sales of nonconforming fuel. Failure to comply can lead to civil and criminal penalties, along with termination of the marketer's supply contract.

"Unless you know the product is in compliance, you should discontinue sales immediately, take corrective action, and verify compliance," said the letter, signed by Randy Fralix, ConocoPhillips' wholesale general manager, and Rod Palmer, manager of West Coast sales.

But some marketers say ConocoPhillips' problems with RVP compliance may be due, in part, to its failure to promote its premium-grade fuel in the same way as other majors, such as Shell.

ConocoPhillips jobbers supply a large number of low-volume sites. Dealers are required to offer all three grades of fuel, even though midgrade and premium sales are sluggish for many of them

"We have no problem turning tanks containing unleaded regular, but some dealers can't sell the higher grades quickly enough so, when the magic EPA turnover date arrives, they're out of compliance," said one southern jobber. "It's a Catch-22 for jobbers and dealers."

The simple solution would be for Conoco to start the transition to low RVP gasoline sooner in its own tanks, rather than waiting until the last minute, he said. "Trust me, EPA won't object to lower RVP gas at any time. ConocoPhillips is the refiner, it can do it if it wants to, rather than just pushing the issue down the line."

Some other suppliers who want to avoid being left with noncompliant product will even offer wholesalers a "fire sale price," knocking as much as three cents per gallon off all grades of gasoline in order to move noncompliant inventory in time, said another wholesaler

So why doesn't ConocoPhillips start turning its own tanks around earlier? It may be against the company's economic interests to do so, suggested the jobber. Refiners can add cheaper octane-boosting chemicals to winter gasoline without having to worry about RVP standards. Summer gasoline requires the use of more expensive octane-boosters.

ConocoPhillips declined to give a percentage on how many of the noncompliant fuel samples came from premium tanks.

As for the possibility of turning its own tanks over sooner, the refiner said the RVP turnover is driven mostly by pipeline and terminal schedules to meet specific dates in the state and federal regulations.

It denied that it turns over inventories at the last possible moment for economic reasons. "It's not really an economic decision but driven by when the refiners produce lower RVP, when the pipelines schedule it, and when product inventory must meet the lower RVP at the terminals and at retail," said a company official.