The MTBE Mess: Let's Move On
Patricia A. Woertz, President
Chevron Products Company
World Fuels Conference
Also see a press release regarding this speech.
It's great to be here at the World Fuels Conference among so many leading members of what we might call our U.S. transportation fuels "family" – elected officials, regulators, the oxygenate suppliers, the environmental community and my own petroleum industry.
As all of us are painfully aware, sometimes we've agreed and sometimes disagreed – very strongly – over our nation's fuels policy.
In 1995, at this very same conference, Dave O'Reilly – then president of Chevron Products – expressed deep concern about that policy. Reflecting on the Clean Air Act Amendments of 1990, Dave said it had taken five full years for the impact of the changes to be felt, and the picture he painted was not pretty.
"We've got a consumer-acceptance problem," Dave concluded. "All of us – Congress, the EPA, the environmental lobby, the oxygenate lobby, the oil industry – we all must share responsibility for this state of affairs. In creating America's fuels policy, we forgot the driving public, and we've all been preoccupied with our own particular interests."
Are you thinking what I am? Dave O'Reilly's words sound almost eerie because they're so appropriate for today as well. It's five years later and we're still bickering about setting the right course for America's fuels policy. And nothing seems to be a hotter flash point than the current mess over mandated oxygen. The fact is, five years after Dave's talk, we – the oil industry, the oxygenate industry, environmentalists, regulators, even Congress – are still behaving like a dysfunctional family.
Our neighbors – the driving public – are sick of our constant quarrelling. They're tired of listening to these late night fights. The current MTBE (methyl tertiary butyl ether) debate has crystallized their feelings, and they want us to move on to solutions. That's especially true in California, where Chevron has been a leader in developing clean-burning fuels, and we are going to be a leader in getting MTBE out of them. The good news is that we can. The urgency is that we must. California Governor Gray Davis has set a year-end, 2002, deadline for the complete phase out of MTBE.
So far – no matter what the scare headlines say – the actual environmental harm caused by MTBE has been slight. One of our local San Francisco area newspapers ran an article labeled, "The MTBE Nightmare." Well, I'm sorry, MTBE is a major policy issue. But so far as we know – as the best available science tells us – it is not a public health hazard, and it is far from being a nightmare. But it is an environmental concern – and our customers want it out. Moreover, if we act quickly – specifically if we act in California now – we can make sure we don't have a serious problem for our drinking water. And we can rebuild relations with those very patient neighbors, the gasoline-consuming public.
The challenge before us this: Do we have enough courage and commitment? Enough courage to be open, to admit and learn from mistakes and enough commitment to move beyond self-interest to solutions together, like a healthy family? I know a lot of family fights start with the words, "If you'd only have listened to me!" In this instance, the initial warning words were uttered by my own oil industry, loud and clear. We fought the oxygen requirement in 1990 because we didn't think then – and we don't think now – that it should be government's job to make fuel recipes. But we lost, or, maybe like parents in a family with teenagers, we gave up too easily.
Faced with an oxygen mandate, we settled on MTBE, for most reformulated gasoline. In its effects on octane, distillation, and dilution – the three key attributes of blending agents – MTBE was a winner all the way. It boosted octane, it's a great vaporizer, and it helped reduce benzene and sulfur. Yes, it was cheaper too – although my company alone, like many others, spent hundreds of millions in the early 1990s, building plants to make MTBE. But, faced with a legal requirement to get oxygen into gasoline, refiners really couldn't beat MTBE. So we used it.
We thought our massive tank integrity programs had licked our problems with underground leaks. And I'm not just talking about the EPA's Underground Storage Tank program. At Chevron, we'd had an official Tank Integrity Program since the early 1980s. And, of course, we had blended MTBE in small amounts since the '70s, taking advantage of its excellent properties to offset the octane lost by lead phase out. We had also used it successfully in winter months to reduce carbon monoxide.
Then came the 1990 Clean Air Act Amendments. We thought we knew MTBE, but the quantities involved were utterly unprecedented. Before, where it was used, MTBE made up about 2 percent of gasoline volume. In RFG-mandated areas, that zoomed to 11 percent – five times as much. MTBE became the second most prevalent chemical in the United States. Almost overnight – in California – reformulated gasoline with MTBE shot from basically zero to almost 100 percent of gasoline sold. To meet deadlines, refiners across the state had to rush to add it to both winter and summer gas stocks.
Now, I don't know if you remember the classic old movie, "Cheaper by the Dozen." They show it on television from time to time. In the film, dad – Clifton Webb – frequently called "family meetings," rapping his gavel and getting all 12 kids together for a confab. They'd hash out disagreements and assess each kid's performance in school, sports or whatever. They'd talk about how the various youngsters could do better and reflect on each one's progress.
But our fuels family didn't have time for reflection. We were required to make oxygenated winter gasoline by late 1992 – less than two years after the 1990 mandates were passed. And our family made a mistake that Clifton Webb and Myrna Loy – with 12 kids – would never make. We did not pay enough attention to those all-important neighbors, the folks next door.
We forgot Dave O'Reilly's warning. We overlooked the insecurity that characterizes most peoples' lives. People view public institutions with distrust – and in one way or another all of us in this room are part of that. In short, a large part of today's public expects the worst. And, collectively and unintentionally, we served up a perfect meal to feed their cynicism. On top of everything else, now they had to worry about something as basic as their drinking water.
In California, 70 percent of the market required oxygen because of overlapping federal rules. So we were soon pumping a billion gallons of RFG with MTBE a month. By 1996, "cleaner burning gasoline" with MTBE fueled most of California's 24 million cars. And that's about the time problems started showing up in Santa Monica and South Lake Tahoe. Between 1997 and 1999, Tahoe's urbanized south shore lost more than a quarter of its drinking water supply due to MTBE concerns. In Santa Monica, seven of the city's 11 water wells had to be shut-in, including the largest source of drinking water. Remember, it didn't take much... just 15 parts per billion of MTBE can be tasted or smelled.
For the state as a whole, the present picture is troubling. Yes, we helped clean up the air. But – as we all learned in the past year – oxygen wasn't necessary to do that. In California, Chevron has produced nearly 1 billion gallons of oxy-free gasoline. And every gallon, without oxygen, met our state's tough air standards.
Let say that again – nearly 1 billion gallons that still clean the air, and which have less potential to contaminate groundwater – without any oxygenates at all. And all we're asking Congress – all we're begging Congress – is let us do more of that. I will happily walk away from our MTBE investment today if it allows California gasoline to be made without mandated oxygen.
Could what happened in California, in places like Tahoe and Santa Monica and other towns, happen elsewhere? Here's my answer: It has, it is and it will.
Right now, as we all know, besides California, reformulated gasoline – or RFG – is required in all or part of Connecticut. It's required in Delaware, Illinois, Indiana, Kentucky, and Massachusetts. It's mandated in Maryland. New Hampshire, New Jersey, New York, Rhode Island, Texas, Virginia and Wisconsin all require RFG. It's even required in my home state, Pennsylvania.
Many communities in these states face the same issues we in California faced a few years ago. Their customers are angry too. The "Ban MTBE" bandwagon has already rolled into state legislatures in New Jersey, Maine, and New Hampshire. New Jersey, in fact, recently got the okay to stop using extra MTBE in winter gasoline. The state found other ways to reduce winter carbon monoxide.
These states and other parts of the country – and the world, for that matter – may still see oxygen mandates as the route to clean air. But they can learn and benefit from our California experience. And they have a deep stake in its outcome.
For better or worse, California often finds itself on the leading edge of issues. So pressing for action in California now can help not just a single state, but the entire nation. What happens in California can smooth the transition for all Americans to a new generation of fuels.
RFG remains the fuel of the future. Because, make no mistake, RFG has helped clean the air in the country's worst smog areas. Oxygen may not help cut smog, but let's give RFG credit where credit is due for reducing ozone. Still, a growing body of data shows that oxygen by itself is not needed in the battle for clean air. Indeed, scientists at the National Research Council found that oxygenates in RFG may actually worsen ozone levels. Even the EPA's own "Blue Ribbon Panel" on MTBE questioned the need for the oxygen mandate in meeting air quality needs.
So now the spotlight focuses on oxygenates' current rising star, ethanol. It has some pluses, but some big downsides as well. By its nature, ethanol evaporates more rapidly – and that makes ozone worse. And ethanol has a quirky need to be alone – to separate in the presence of water. That means we refiners have to blend gasoline at terminals, not at refineries.
In California alone, mandating an Ethanol-for-MTBE switch would put an extra 200 gasoline trucks on state roads every day. Then there's cost. The California Energy Commission says a mandated ethanol switch will tack as much as 7.5 cents onto the cost of a gallon of gasoline.
There's another problem. With our highways in the poor condition they are, a lot of people are angry that we subsidize ethanol at the rate of 54 cents a gallon – money that comes right out of America's Highway Trust. That's a direct takeaway from the quality of our national infrastructure, and a hidden cost to the consumer.
So I say, please, Washington lawmakers, whatever you decide on ethanol, let's recognize that it is time to stop mixing agriculture policy with fuels policy. Our driving public – our neighbors – deserve better government than that.
I have a final concern about ethanol – and it is not really a technical one. It has to do with unintended consequences. Now we all recognize unintended consequences as a favorite tool of story tellers since Aesop. They're based on real life. And after what's happened with MTBE, after what all of us have been through, I wonder and worry about ethanol's unintended consequences.
What do we really know about ethanol? Are we sure, absolutely, that it has a clean bill of health? How can we be certain, if we use it in huge quantities, that we won't have problems? How can we know, just because our intentions are good, that the results will be too?
I believe the answers to these questions can be found in our experience with MTBE. What we've learned since 1990 is that there is no single silver bullet for clean air. And that really leaves only one choice – only one way to move on from the MTBE mess.
We've got to compromise. We've got to give to get. We need to come together for one of those family meetings. Dad's rapping his gavel and all of us – politicians, regulators, the oil business, the oxygenate makers and the environmentalists – we all need to gather in the parlor.
Senator Dianne Feinstein has shown us the way. Over the past several months, she has held the kind of family meetings I described earlier. My company, and others, have taken part. The talks may not have led to specific action, but they have been frank, open and honest. They've given us a forum to express our concerns and feelings. Most important, they've marked the beginnings of a dialogue among members of our fuels family. It's clear the debate's not over, and likely won't be in time for California, which needs a solution now.
Senator Feinstein and Congressman Brian Bilbray, have led the legislative way also. They've proposed what I believe is the best approach for California with a bill that would amend the Clean Air Act to allow our state to shape its own reformulated gasoline.
Critics say nobody should touch the act – but I'm not talking about an overhaul. In fact, the act has been changed a dozen times in the last 10 years – and it still stands firm as a cornerstone of U.S. environmental policy. So this is just another small and very badly-needed improvement to fix a situation we didn't foresee in 1990. Without backing off one inch on air quality, we can end the overlapping federal requirements that don't help the air – and be free to start moving on.
Obviously, there are some people in this room who don't like this message. 'No mandate, no market,' they say. Let's be clear. This is not a "Death to Ethanol" measure. Nobody wants that. Certainly not the refiners. We want flexibility. We want free market processes. We want to make fuels our customers like at a fair price.
Given those things, we see a big market for ethanol. According to a recent study, if Feinstein/Bilbray is passed, gasoline refiners will still use 675 million gallons of ethanol a year. For all the reasons cited earlier, we in California think Feinstein/Bilbray offers a solid compromise and the best solution for our state.
Fifty-one of our 52-member California House delegation have endorsed and co-sponsored this legislation. That's about an eighth of the House – that body's largest single voting block – and that alone says a lot about the need to get moving.
Now, in case you think I sound a bit nave, let me say that I don't expect a few meetings to end the squabbling in our fuels family. But California and the rest of the country – all those driving public neighbors of ours – need and want action now.
It took an average of four years to set up our California refineries to make RFG with MTBE. Governor Davis' original deadline is just three years and three months from today. The good news is I know it can be done and still meet California's tough air rules.
So let's move on, beyond MTBE. And let's get started now. Our entire country has a stake in this. We've got to protect our environment while continuing to produce one of our economy's most important single products: gasoline.
Our fuels family has a lot at stake too. Our credibility and perhaps our future self-determination are on the line. It doesn't matter whether you're a politician, an oil company, a regulator, an environmentalist or an oxygenator. Getting between the driving public and their cars is every bit as risky as telling your neighbors how to raise their kids. And public tolerance is wearing thin.
So let's keep the pressure on for Feinstein/Bilbray, because California urgently needs a solution. And let's keep these family meetings going too – and maybe even get together before dad – or mom – raps that gavel and demands that we account for ourselves.
Time is running short. In the refining business, three years and three months can pass in the blink of an eye. But it is not too late – not if we choose cooperation over conflict; not if we choose the public's interests – our customers' interests – over our own; and not if we choose action – action today – first in California, and then in the rest of the nation.
Updated: September 1999