Upgrade.
It’s a word fraught with financial fretting, frequently associated with cost in the world of petroleum equipment. It’s a term tied to unfunded mandates, typically linked to state and federal demands for cleaner air, reduced airborne vapors and environmentally approved blends. To retailers, upgrade means outof- pocket investments with uncertain and, most likely, limited returns on capital outlays. California provides a worrisome example with its controversial use of EVR (Enhanced Vapor Recovery). First enforced in April 2009, this system for recirculating fuel-vapor emissions can run retailers more than twice its Stage II Vapor Control predecessor. The expense of EVR is so high that many California retailers were forced to close their doors rather than upgrade their pumps.
However, turning a blind eye to changing equipment standards can be just as costly. In recent years, the United States has seen a growing demand for fuels involving ethanol and other blends, which while claiming an environmentally friendlier tag also can damage engines and pumps if systems are not sufficiently upgraded.
Also, experts point out that the EPA has several initiatives in the works for which upgrading equipment could actually save operators money, both in the immediate and long-term future.
Toward this end, CSP has consulted several key figures from the petroleum industry to break down how—when it comes to petroleum equipment—what retailers don’t know can hurt them.
Future Fuel vs. Past Pumps
Asked about the biggest equipment issues facing operators today, both manufacturers and trade association members agree: It’s the growing demand for alternative fuels, including ethanol and diesel blends.
Richard Browne, vice president of global marketing for Gilbarco Veeder-Root, Greensboro, N.C., encourages retailers “to understand the growing demand in their markets for alternative fuels, including diesel and ethanol variants, to ensure they don’t lose out on any business.”
The Energy Policy Act of 2005 created a national mandate that required refiners to blend a certain amount of ethanol in with gasoline. At the time, the thinking was that a large percentage of the country would use E10, which sources estimate makes up more than 85% of the fuel sold in America. However, the mandate increased a few years later, making it impossible for refiners to meet the standard by blending just E10. “In other words,” says PMAA president Dan Gilligan, “there’s a lot of economic pressure on refiners to add more ethanol to gasoline, which could have some eventual consequences on retailers in the future.” The push for higher ethanol blends is so strong that the Department of Energy estimates 93% of vehicles could be E15-friendly by the end of 2015.
But there’s a problem, and that’s one of liability. Simply put, very, very few of the 700,000 gas dispensers in use are approved for fuels with an ethanol or alcohol content over 10%. The country’s largest pump makers, Gilbarco Veeder-Root and Dresser Wayne, have come out with dispensers approved for higher levels of ethanol. And the ethanol industry is attempting to develop a market for a blender pump that would allow customers to choose whether they want E10, E15 or E40.
“The problem is, the equipment is substantially more expensive,” and new dispensers could cost 10% to 20% more than the current models, Gilligan says. The American Coalition for Ethanol (ACE) estimates that the cheaper alternative of installing a blender option typically adds $1,500 to $2,500 to the cost of a fuel dispenser. While consumers will ultimately determine the market viability of higher ethanol blends, manufacturers and industry trade associations such as PMAA, NACS and SIGMA have raised concerns over equipment compatibility and consumer liability.
According to Kent Reid, Gilbarco Veeder-Root’s envi-ronmental expert and vice president of strategic development, water is the No. 1 threat. Prior to the addition of ethanol to fuel, when water would make its way into a tank, the water would collect at the bottom. Sensors that had been deployed would detect that water so it could be removed before it had an effect on the station or consumer.
With ethanol, Reid says, this water no longer makes its way to the bottom but is absorbed by the ethanol, making it impossible for current water detection equipment to recognize. In other words, a station operator may actually have water in the tank and not know it. This leads to the problem of phase-separation. Once there’s enough water in the tank that the ethanol is no longer able to absorb it, the ethanol and water will separate from the fuel.
Reid lists three major risks for retailers regarding this issue. First is pumping an ethanol-water blend into a car and damaging the vehicle. Second, even if this ethanol-water mixture isn’t being pumped out, once phase-separation has occurred, the fuel will no longer be up to spec. The third and most costly area of concern is that, while tank systems might be compatible with 10% ethanol, they might not be compatible with the 80% to 90% ethanol that results from phase-separation, which can cause long-term damage to the tank systems.
“Ultimately, compared to the risks, this cost [of upgrading equipment] is relatively low,” Reid says. “If you damage vehicles, have a tank of fuel that you have to dispose of or you have a tank failure, those are all very costly to the retailer.” While there’s more interest in higher ethanol blends along the corn belt than in metropolitan areas, it’s crucial for all retailers to stay aware of new mandates for alternative fuels.
Likewise, industry lobbyists have revived efforts in favor of the Renewal Fuels Marketing Act, which would protect retailers from Clean Air Act violations and certain liabilities tied to consumer misfueling a nonapproved engine.
That said, regardless of whether a station is using E10 or moving toward higher ethanol blends, the financial risks of being noncompliant with current laws and standards (fines up to $37,500 for Clean Air Act violations) far outweigh the costs of upgrading.
Savings of Double-Wall UST
The possible switch to higher ethanol blends could also have an effect on underground storage tanks (USTs) and whether or not retailers currently using single-wall systems will need to upgrade to double-wall systems. “If E15 is approved, marketers may be forced to put it in, either to be competitive in the field or because the government will require it,” says Bob Renkes, executive vice president of the Petroleum Equipment Institute (PEI), Tulsa, Okla. Should this occur, Renkes believes retailers will have to determine whether their current USTs are compatible with the new fuel, or to switch to double-wall or even aboveground storage tanks.
The issue of investing in doublewall tanks is not new. Congress’ 2005 Energy Policy Act included a provision requiring that, when USTs within 1,000 feet of a water system are replaced, it must be with a double-wall system. Failure to comply can cost up to $11,000 a day in fines.
Also, the EPA has indicated it intends to modify the 1988 Underground Storage Tank Regulations, expected sometime this year. These changes could include additional incentives for retailers using double- wall systems, such as fewer record-keeping requirements, no line leak-detector requirement for double-wall piping with certain interstitial monitoring, and more frequent leak-detection testing for single-wall systems.
However, moving to double-wall can prove to be quite costly. Doublewall systems typically cost about 30% more than their single-walled predecessors, meaning, at a typical station with three 10,000-gallon tanks, retailers will pay $15,000 to $30,000 above the cost of a single-walled, unmonitored tank.
“It’s something that always has to weigh into a retailer’s mind: when they’re going to change their underground system and what the various considerations would be,” says Gilligan. “In some cases, they may opt to use a liner or stretch the life of an underground system to add a few more years because of the cost of putting in a double-wall system.”
Of course, the cost of equipment upgrades should also be viewed in the context of wear-and-tear of existing storage tanks. Cleanup costs vary based on numerous factors, including but not limited to the extent of contamination, state cleanup standards and the presence of methyl tertiarybutyl ether (MTBE). The EPA estimates the average cost of a cleanup to be $125,000—but warns this expense could rise to more than $1 million should the leak affect groundwater.
“A lot of retailers sleep better at night when they know that their system has the safeguards of a doublewall system,” Gilligan says. Retailers must consider this peace of mind, along with insurance breaks, when weighing the cost of upgrading USTs.
Light at End of Stage II Tunnel
Stage II Vapor Control has long been a costly thorn in the side of petroleum marketers. Put into law with the Clean Air Act of 1990, PMAA estimates it now costs retailers $3,000 to $8,000 a year to maintain one Stage II system at one pump. Although Stage II was intended to be enforced only until we saw widespread use of onboard canisters in automobiles, 20 years have passed since the Clean Air Act, and Congress and the EPA have not defined just what qualifies “widespread use.” It has been very frustrating for retailers, PMAA says, especially with up to 80% of cars using onboard canisters and states such as Florida, Maine and Vermont going as far as to repeal Stage II.
Still, there is reason to be hopeful. “We seem to be seeing the light at the end of the tunnel in regards to Stage II Vapor Controls,” says Gilligan. The EPA is very close to providing a definition of “widespread use,” which should provide a more specific target for the end of Stage II and its expensive systems.
PEI’s Renkes believes the EPA will define “widespread use” sometime in 2013 and that the states will begin to permit decommissioning the following year. Anticipating such a move, PEI has included a chapter on the decommissioning of Stage II equipment in its most recent Recommended Practices on Installation and Testing of Vapor Recovery Systems (RP300).
So what does all this mean for retailers? “It’s a big deal,” Gilligan says. “Retailers have been waiting very patiently for the number of cars in the U.S. to reach what’s considered widespread use. At this point, it’s time to start dismantling Stage II, and retailers will be so happy when that happens.”
Renkes agrees: “Once Stage II equipment desolates itself, retailers will see huge savings.”
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