WASHINGTON -- The proliferation of special gasoline blends in the United States has put stress on the gasoline supply system and has raised costs, affecting operations at refineries, pipelines and storage terminals, as well as raising wholesale prices, according to a new study by the Government Accountability Office (GAO).
The GAO found that, in addition to conventional gasoline, there were at least 11 distinct blends in use during Summer 2004 in parts of 34 states, covering about one-sixth of all U.S. counties. In Summer 2001, blends accounted for slightly [image-nocss] more than half of the total gasoline volume consumed, with the rest accounted for by conventional gasoline. Considering different octanes and other factors, there were at least 45 different blends of gasoline produced and handled by pipelines in the United States in 2004.
Once produced, the blends must be kept separate throughout shipping and delivery, reducing the capacity of pipelines and storage terminal facilities, which were originally designed to handle fewer products. This reduces efficiency and raises costs, the GAO said.
The U.S. Environmental Protection Agency's (EPA) approvals of individual states' applications to adopt blends have been made independently over time without consideration of the other fuels already in use in the region. The use of blends may continue to expand given that the EPA recently finalized a more stringent federal standard for ozone and, as a result, another 138 U.S. counties are now out of compliance with the national air quality standard. To meet the new standard, it is likely that many more locations will apply to use blends, said the report. The EPA has generally approved such applications and does not have authority to deny an application to use a blend as long as that blend meets the criteria established in the 1990 Clean Air Act amendments.
There has been congressional debate regarding the EPA's authority during consideration of recent energy legislation, but the agency's authority had not changed as of May 2005, it told the GAO.
The use of blends reduces vehicle emissions by varying degrees. California's blend offers the greatest reductions, the report said. The EPA estimates that California's blend reduces VOCs by 25% to 29% and NOx by about 6% compared with conventional gasoline, while also reducing emissions of toxic chemicals and other substances. The EPA estimates that most common blendone of the least stringent, used mainly in the Gulf Coast regionreduces VOCs by about 12% to 16% and NOx by less than 1% compared with conventional gasoline.
The extent of reductions remains unclear, however, the report said, because these estimates are based, in part, on data regarding how blends affect emissions from older vehicles, and these data have not been comprehensively validated through testing on current vehicle types with newer emissions controls. Improvements in automobile technology in newer vehicles now automatically reduce emissions of carbon monoxide and other pollutants and, for these vehicles, may have negated many of the benefits of adding oxygenates to gasoline. Some studies have also found that use of ethanol can increase emissions of pollutants that can increase ozone levels.
The EPA and other experts have concluded that improvements in air quality seen in some parts of the country are at least partly attributable to the use of blends; however, studies on the impact of individual emissions reduction effortssuch as blendsare limited and incomplete, in part because of difficulty isolating the effect of blends from other factors such as weather and emissions from other sources, said the report.
The proliferation of blends has limited the number of suppliers of some of these fuels, posing challenges when traditional supplies are disrupted, such as during a refinery outage or pipeline delay, the report said. In the past, local supply disruptions could be addressed relatively quickly by bringing fuel from nearby locations; now, however, additional supplies of blends may be hundreds of miles away.
The GAO evaluated pretax, wholesale gasoline price data for 100 cities and generally observed that the highest prices tended to be found in cities that use a blend that is not widely available in the region or that costs significantly more to make than other blends. It also found high prices in cities that are far away from major refining areas or other sources of fuel.
Of the 100 cities examined, most of the 20 cities with the highest prices used blends. The other cities with the highest prices used conventional gasoline year-round, but these are long distances from major refining centers or are located on or near a single smaller pipeline. From December 2000 through October 2004, average prices in the 20 highest-price cities were between 14 and 41 cents per gallon higher than in the city with the lowest price. Further, five of the 10 cities with the highest average prices were in California, which uses a unique gasoline that only a few refiners outside of the state make and is expensive to refine.
In contrast, the lowest prices were typically found in cities that are close to major refining centers or that used gasoline widely available in their region. Among the 20 cities with the lowest prices, eight used conventional gasolinethe most widely available gasoline blendand nine used 7.8 reid vapor pressure (RVP) gasolinethe most widely used blend, largely used in areas close to the Gulf Coast refining center. The other three cities with the lowest pricesHouston, Birmingham and Atlantaused less common special blends but are all close to the largest refining area, the Gulf Coast and, therefore, have many more potential supply options than more isolated cities do. It also found that prices tended to be more volatile in cities that used blends. Specifically, 18 of the 20 cities with the most volatile prices used blends, while 17 of 20 cities with the lowest volatility used either conventional or 7.8 RVP gasoline.
While prices for blends tend to be higher than for conventional gasoline, the GAO said available data did not allow it to attempt to isolate the effects of blends on gasoline prices or to definitively establish a causal link between blends and price volatility. Specifically, it did not have sufficient data to control for all other potential contributing factorssuch as the distance from cities to the sources of gasoline supply or specific features of these cities that might influence prices regardless of the blend used; however, there is a consensus among studies the GAO reviewed and the experts it spoke with that the increased complexity and higher refining, transportation and storage costs associated with supplying blends have contributed to higher gasoline prices overall and for specific blends either because of more frequent or severe supply disruptions or because higher costs are likely passed on at least in part to consumers.
The GAO added that its findings are generally consistent with results of government, academic and private studies, which found that the gasoline supply system is increasingly stressed and also found isolated pockets of higher or more volatile prices in cities that require blends not widely used.
To provide better information about the emissions and air-quality impact of using blends, the GAO recommended that the EPA comprehensively study how special gasoline blends affect the emissions from current vehicles and use the results of this work to make appropriate modifications to the models that states use to estimate the emissions and air-quality benefits of using them. To identify how to balance the environmental benefits of using blends with the impact that the use of these fuels has on the supply infrastructure and prices, it recommended that EPA work with the states, the U.S. Department of Energy (DOE), and other relevant parties to develop a plan to balance these factors. The GAO further recommended that, if warranted by the results of this study, that the EPA work with the DOE and others to identify what statutory and other changes are required to achieve this balance and report these to Congress and to request that Congress provide the needed authority to the appropriate federal agency or agencies.
To view the full GAO report, "Gasoline Markets: Special Gasoline Blends Reduce Emissions & Improve Air Quality, But Complicate Supply & Contribute to Higher Prices," click here.
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