EPA-450/3-76-016-a
May 1976
THE IMPACT OF LEAD
ADDITIVE REGULATIONS
ON THE PETROLEUM REFINING
INDUSTRY: VOLUME I -
PROJECT SUMMARY
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Air and Waste Management
Office of Air Quality Planning and Standards
Research Triangle Park, North Carolina 27711
-------
EPA COMMENT
"The Impact of Lead Additive Regulations
on the Petroleum Refining Industry"
EPA-450/3-76-016-a
May 1976
In 1974, the Environmental Protection Agency commissioned Arthur D.
Little, Inc. to mathematically model the petroleum refining industry in
the United States and to predict up to 1985 the impacts on the industry
of the entry into the market of unleaded gasoline and the phase-down of
total lead use in the gasoline pool. When the study was initiated,
Arthur D. Little was given certain baseline assumptions by EPA. These
assumptions, which included projections of crude slate, crude supply,
product demand, growth rates and gasoline pool characteristics, were
made based on the information available at that time. Because of
uncertainties with regard to such fundamental questions as future motor
vehicle design, emission standards, petroleum supplies and demands, and
other factors, the assumptions made for this study generally reflected a
somewhat conservative view.
The Environmental Petroleum Agency strongly believes that this
study by Arthur D. Little represents a significant step forward in
analyses of the refining industry. However, in reviewing the final
report, EPA identified certain aspects of the report which should be
further clarified to ensure proper interpretation.
First, for the purposes of this study, it was assumed that essentially
all gasoline would be the unleaded grade in 1985. Although factors such
as average car life and off-highway gasoline use indicate some leaded
gasoline will still be required in 1985, there is much uncertainty
surrounding this issue, and the conservative decision was made to assume
all unleaded gasoline in 1985.
Second, an average product demand growth rate of two percent per
year through 1985 was assumed. This does not completely coincide with
some opinions concerning improved engine efficiencies in the future.
However, the decision was made again on the side of conservatism.
Third, ADI used 1975 dollars in their calculations, whereas other
recent studies ' have generally used 1974 dollars. ADL s assumption
yields final investment figures 10 to 15 percent higher than the others.
-------
Fourth, it was assumed that unleaded gasoline would be manufactured
at about 92 Research Octane Number (and at an 84 Motor Octane Number
minimum), instead of the mandated 91 RON, to provide a margin of safety.
Some investigators contend that this is a cost of doing business not
ascribable to the lead regulations.
Finally, ADL has taken a relatively pessimistic view of the costs
of upgrading existing catalytic reformers. The conclusion was based on
extensive industry contact. Although EPA does not totally agree with
this conclusion, we support ADL's decision.
In light of the above, the reader is cautioned to view the final
results of the report in the context of the assumptions that were made.
References
1. EPA-230/3-76-004, Economic Impact Of EPA's Regulations on the
Petroleum Refining Industry, April 1976.
2. Draft Report, The Economic Impact of Environmental Regulations
on the Petroleum Industry - Phase II Study, Battelle Columbus
Laboratories for the American Petroleum Institute, June 11, 1976.
-------
EPA-450/3-76-016-a
THE IMPACT OF LEAD
ADDITIVE REGULATIONS
ON THE PETROLEUM REFINING
INDUSTRY: VOLUME I -
PROJECT SUMMARY
by
Arthur D. Little, Inc.
Acorn Park
Cambridge, Massachusetts 02140
Contract No. 68-02-1332, Task Order No. 7
EPA Task Officer: Richard K. Burr
Prepared for
ENVIRONMENTAL PROTECTION AGENCY
Office of Air and Waste Management
Office of Air Quality Planning and Standards
Research Triangle Park, North Carolina 27711
Mav 1976
-------
This report is issued by the Environmental Protection Agency to report
technical data of interest to a limited number of readers. Copies are
available free of charge to Federal employees, current contractors and
grantees , and nonprofit organizations - in limited quantities - from the
Library Services Office (MD35) , Research Triangle Park, North Carolina
27711; or, for a fee, from the National Technical Information Service,
5285 Port Royal Road, Springfield, Virginia 22161.
This report was furnished to the Environmental Protection Agency by Arthur
D. Little, Inc., Cambridge, Massachusetts 02140, in fulfillment of Contract
No. 68-02-1332, Task Order No. 7. The contents of this report are reproduced
herein as received from Arthur D. Little, Inc. The opinions, findings,
and conclusions expressed are those of the author and not necessarily
those of the Environmental Protection Agency. Mention of company or
product names is not to be considered as an endorsement by the Environmen-
tal Protection Agency.
Publication No. EPA-450/3-76-016-a
11
-------
ABSTRACT
The report assesses the impact on the U. S. petroleum refining industry
of two EPA regulations promulgated to control the level of lead additives
in motor gasoline. The first of these regulations requires the avail-
ability of low octane, unleaded gasoline for vehicles equipped with lead
sensitive catalytic converters. For health reasons, the second regulation
requires a gradual phase-down of the lead content of the total gasoline
pool (including higher octane gasoline to satisfy the remaining higher
compression ratio engines). The report assumes essentially a 100 percent
need for unleaded gasoline by 1985. Computer models representative of
specific refineries in six geographical regions of the U. S. were
developed as the basis for determining the impact on the existing refining
industry. New refinery construction during the period under analysis
(1975-1985) was considered by development of separate computer models
rather than expansion of existing refineries. These models were utilized
to assess investment and energy requirements to meet each lead regulation.
A sensitivity study was made of the impact on the refining industry of
manufacturing a higher octane unleaded gasoline than currently mandated.
Other sensitivity studies evaluated the effects of a higher demand for
unleaded gasoline than now forecast and of variations in the type of
imported crude oil available in the future for domestic refining.
iii
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TABLE OF CONTENTS
Volume I
Page
I. EXECUTIVE SUMMARY 1
A. INTRODUCTION 1
B. SCOPE AND APPROACH 2
C. CONCLUSIONS 6
1. Calibration Summary 6
2. Qualitative Study Results 8
3. Economic Penalties 8
4. Crude Oil and Energy Penalties 14
5. Sensitivity Studies 14
6. Other Major Implications 16
D. RECOMMENDATIONS FOR FURTHER ACTION ; 20
II. STUDY BASIS 21
A. APPROACH 21
B. CASE DEFINITIONS 24
C. PLANNING ASSUMPTIONS 29
1. Crude Slate Projections 29
2. U.S. Supply/Demand Projections 32
a. Uniform Product Growth at 2% Per Annum . 34
b. Non-Uniform Petroleum Product Growth Rates 34
c. Gasoline Grade Distribution 36
3. Key Product Specifications 36
a. Motor Gasoline Specifications 38
b. Sulfur Content of Residual Fuel Oils 41
IV
-------
TABLE OF CONTENTS - Volume I (cont.)
Page
4. Processing and Blending Routes 45
5. Calibration of Cluster Models 51
6. Existing and Grassroots Refineries 54
7. Economic Basis for Study 57
8. Scale Up to National Capacity 63
III. STUDY RESULTS 67
A. BACKGROUND DISCUSSION 67
B. MANUFACTURE OF UNLEADED GASOLINE 69
1. 1985 Results 69
2. 1980 Results 73
3. 1977 Results 74
C. INTRODUCTION OF LEAD PHASE DOWN 75
D. SUMMARY OF ECONOMIC PENALTIES 75
E. SUMMARY OF CRUDE OIL AND ENERGY PENALTIES 80
IV. SENSITIVITY STUDY RESULTS 83
A. INCREASED OCTANE REQUIREMENT FOR UNLEADED GASOLINE 83
B. INCREASED GASOLINE DEMAND WITH UNLEADED GASOLINE 85
C. LOWER GASOLINE GROWTH RATE 85
D. IMPORTED CRUDE OIL TYPE 85
E. TARGET RESIDUAL FUEL OIL SULFUR LEVELS 87
V. DISCUSSION 88
VI. REFERENCES 90
v
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LIST OF TABLES
Volume I
Page
TABLE 1. Economic Impact of Lead Additive Regulations . . 10
TABLE 2. Crude Oil and Energy Penalties for Lead Additive
Regulations 15
TABLE 3. Results of Sensitivity Studies for Lead Additive
Regulations 17
TABLE 4. Parametric Studies 26
TABLE 5. U.S. Refinery Crude Run 31
TABLE 6. Gasoline Grade Requirements by Percent 37
TABLE 7. Motor Gasoline Survey Data 39
TABLE 8. Motor Gasoline Survey, Winter 1974-75 Average Data for
Unleaded Gasoline in Each District 40
TABLE 9. Availability of Residual Fuel Oil by Sulfur Level, 1973.. 44
TABLE 10. Grassroots Refinery Fuel Oil Sulfur Projection - 1985
Scenario A - East of Rockies Only 46
TABLE 11. Catalytic Reforming Yield Data 48
TABLE 12. Illustrative Blending Octane Number Comparison 50
TABLE 13. Refineries Simulated by Cluster Models 52
TABLE 14. Calibration Results for Large Midwest Cluster 55
TABLE 15. Onsite Process Unit Costs 58
TABLE 16. Offsite and Other Associated Costs of Refineries Used
in Estimating Cost of Grass Roots Refineries 60
TABLE 17. Grass Roots Refinery Capital Investment 61
TABLE 18. Model Scale-Up Comparison, 1973 65
TABLE 19. Composition of Gasoline Pool Before and After Introduction
of Unleaded Gasoline - 1985 ... ....:... 70
TABLE 20. Total U.S. Gasoline Production - 1985 72
TABLE 21. Total U.S. Capital Requirements for Lead Additive
Regulations 76
VI
-------
LIST OF TABLES - (con't)
Volume I
TABLE 22. Breakdown of Capital Requirements to Manufacture
Unleaded Gasoline 78
TABLE 23. U.S. Economic Penalties to Manufacture Unleaded Gasoline 79
TABLE 24. Total U.S. Economic Penalties for Lead Phase Down 81
TABLE 25. Total U.S. Energy Penalties for Lead Additive Regulations 82
TABLE 26. Effect of Manufacturing Unleaded Gasoline in 1985 to
a Specification of 93 RON and 85 MON 84
TABLE 27. Effect of a Possible Increase in Gasoline Demand 86
Vll
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LIST OF FIGURES
Volume I
FIGURE 1. Agreement of Model Prediction with 1973 B.O.M.
Total Refinery Raw Material Intake Data 7
FIGURE 2. Capital Investment Required by 1985 to Manufacture
Unleaded Gasoline k 12
FIGURE 3. Economic Penalties for the Manufacture of Unleaded
Gasoline 13
FIGURE 4. Impact of the Introduction of Lead Phase Down on the
Timing of Capital Investment Requirements to Manufacture
Unleaded Gasoline 19
FIGURE 5. Historic Trend of Heavy Fuel Oil Sulfur Content as
Produced and Marketed in U. S 43
Vlll
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Volume II
APPENDIX A
CRUDE SLATES
Page
A. METHODOLOGY ,*>:- A-l
B. MODEL CRUDE SLATES A-2
C. CRUDE MIX FOR TOTAL U.S. A-10
APPENDIX B
U.S. SUPPLY/DEMAND PROJECTIONS
A. DEMAND ASSUMPTIONS FOR MODEL RUNS B-l
B. DETAILED U.S. PRODUCT DEMAND FORECAST B-7
1. Methodology B-7
2. Product Forecast B-12
APPENDIX C
PRODUCT SPECIFICATIONS
APPENDIX D
BASE LEVEL OF CLUSTER REFINERY FUEL SULFUR CONTENT
A. METHODOLOGY OF CALCULATIONS D-2
1. Fuel Oil Sulfur Content by State D-2
2. Combustion Unit Size D-2
B. RESULTS , D-3
C. CLUSTER MODEL REFINERY FUEL SPECIFICATION D-6
IX
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TABLE OF CONTENTS - Volume II (cont.)
APPENDIX E
CAPITAL INVESTMENT FOR PROCESS UNIT SEVERITY
UPGRADING AND UTILIZATION OF CAPACITY ALREADY CONSTRUCTED
Page
A. CATALYTIC REFORMING E-2
B. HYDROCRACKING ... E-8
C. ALKYLATION E-16
D. ISOMERIZATION E_19
APPENDIX F
DEVELOPMENT OF CLUSTER MODELS
A. SELECTION OF CLUSTER MODELS F-2
B. COMPARISON OF CLUSTER MODEL TO PAD DISTRICT F-5
APPENDIX G
SCALE UP OF CLUSTER RESULTS -
DERIVATION OF PRODUCT DEMANDS FOR GRASS ROOTS REFINERIES
A. INTRODUCTION G-l
B. 1973 CALIBRATION SCALE UP G-l
C. DERIVATION OF MODEL FIXED INPUTS AND OUTPUTS FOR FUTURE YEARS . G-6
D. SCALE UP OF RESULTS FOR FUTURE YEARS G-10
1. 1977 Scale Up G-10
2. 1985 Scale Up"..'...' G-12
3. 1980 Scale Up G-15
E. SCALE UP OF CAPITAL INVESTMENTS G-l7
x
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TABLE OF CONTENTS - Volume II (cont.)
APPENDIX H
TECHNICAL DOCUMENTATION
Page
A. CRUDE OIL PROPERTIES H-l
B. PROCESS DATA H-2
C. GASOLINE BLENDING QUALITIES H-5
D. SULFUR DISTRIBUTION H-5
E. OPERATING COSTS H-6
F. CAPITAL INVESTMENTS H-6
APPENDIX I
MODEL CALIBRATION
A. BASIC DATA FOR CALIBRATION 1-1
1. Refinery Input/Output 1-1
& jf
2. Processing Configurations *. . 1-10
3. Product Data 1-18
A. Calibration Economic Data - 1-21
B. CALIBRATION RESULTS FOR CLUSTER MODELS 1-22
APPENDIX J
STUDY RESULTS
A. MASS AND SULFUR BALANCE J-l
1. Crude-Specific Streams J-2
2. Cluster Specific Streams J-3
3. Miscellaneous Streams J-4
XI
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TABLE OF CONTENTS - Volume II (cont.)
APPENDIX K .
CONVERSION FACTORS AND NOMENCLATURE
XII
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VOLUME II
LIST OF TABLES
APPENDIX A
Page
TABLE A-l. Bureau of Mines Receipts of Crude by Origin 1973 ........ A~3
TABLE A-2. ADL Model Crude Slates and Sulfur Contents
for 1973 ................... ............................. A~4
TABLE A-3. Model Crude Slates - Small Midcontinent ................. A-5
TABLE A-4. Model Crude Slates - Large Midwest ...................... A- 7
TABLE A-5. Model Crude Slates - Texas Gulf ......................... A-8
TABLE A-6. Model Crude Slates - East Coast ......................... A- 9
TABLE A-7. Model Crude Slates - West Coast ..................... .... A- 11
TABLE A-8. Model Crude Slates - Louisiana Gulf ..................... A-12
TABLE A-9. Scale Up of Model Crude Slates, Scenario A .............. A-14
TABLE A-10. Total Crude Run to Grass Roots Refineries ............... A-15
TABLE A-ll. Distribution of Sweet and Sour Crude Run ................ A-16
APPENDIX B
TABLE B-l. Projections of Major Product Demand in Total U.S.
Assumed in Making Model Runs ............................ B-3
TABLE B-2. A Comparison of Projected "Simulated" Demand
for Major Products with Results of Detailed Forecast .... B-5
TABLE B-3. A Comparison of Projected Total Petroleum Product
Demand in "Simulated" Demand Case With Detailed
Forecast ................................................ B-6
TABLE B-4. Projection of U.S. Primary Energy Supplies
with Oil as the Balancing Fuel .......................... B_9
TABLE B-5.
Forecast of U.S. Product Demand B-ll
Xlll
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APPENDIX C
TABLE C-l. Product Specifications, Gasoline C-2
TABLE C-2. Other Product Specifications C-4
APPENDIX D
TABLE D-l. Refinery Fuel Sulfur Regulations by State D-4
TABLE D-2. Refinery Fuel Sulfur Regulations by PAD D-5
TABLE D-3. Refinery Fuel Sulfur Regulations Applicable to
Individual Refineries in Cluster Models D-7
TABLE D-4. Base Level of Cluster Refinery Fuel
Sulfur Content Used in Model Runs D-9
APPENDIX E
TABLE E-l. Catalytic Reforming Capacity Availability E-4
TABLE E-2. Catalytic Reformer Investment for Capacity
Utilization and Severity Upgrading E-6
TABLE E-3. Costs of Additional Reformer Capacity E-7
TABLE E-4. Cost of Severity Upgrading E-9
TABLE E-5. Hydrocracking Capacity Availability E-ll
TABLE E-6. Hydrocracking Investment for Capacity Utilization,
New Capacity, and Severity Flexibility E-12
TABLE E-7. Costs of Additional Hydrocracking Capacity E-13
TABLE E-8. Cost of Hydrocracker Severity Flexibility E-15
TABLE E-9. Alkylation and Isomerization Capacity Availability E-17
TABLE E-10. Utilization of Existing Alkylation Capacity E-18
TABLE E-ll. Isomerization Investment for Capacity Utilization
and Once Through Upgrading E-20
TABLE E-12. Costs of Additional Isomerization Capacity E-21
TABLE E-13. Cost of Once Through Isomerization Upgrading E-23
xiv
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APPENDIX F
Page
TABLE F-l. Texas Gulf Cluster Processing Configuration F-6
TABLE F-2. Louisiana Gulf Cluster Processing Configuration F-7
TABLE F-3. Large Midwest Cluster Process Configuration F~8
TABLE F-4. Small Midcontinent Cluster Processing Configuration F~9
TABLE F-5. East Coast Cluster Processing Configuration F-10
TABLE F-6. West Coast Cluster Processing Configuration f-ll
TABLE F-7. Suiranary of Major Refinery Processing Units F-12
TABLE F-8. Comparison of Product Output of East Coast
Cluster to PAD District I, 1973 F~14
TABLE F-9. Comparison of Product Output of Midcontinent Clusters
to PAD District II, 1973 F-15
TABLE F-10. Comparison of Product Output of Gulf Coast Clusters
to PAD District III, 1973 F-16
TABLE F-ll. Comparison of Product Output of West Coast Cluster
to PAD District V, 1973 F-17
TABLE F-12. Comparison of Crude Input of East Coast Cluster
to PAD District I, 1973 F-18
TABLE F-13. Comparison of Crude Input to Midcontinent Cluster
to PAD District II, 1973 F-19
TABLE F-14. Comparison of Crude Input of Gulf Coast Clusters
to PAD District III, 1973 F-20
TABLE F-15. Comparison of Crude Input to West Coast Cluster
PAD District V, 1973 F-21
xv
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APPENDIX G Page
TABLE G-l. ADL Model Input/Outturn Data for Calibration - 1973 G-2
TABLE G-2. Comparison of 1973 B.O.M. Data and Scale Up of 1973
Calibration Input/Outturn G-3
TABLE G-3. L.P. Model Input/Outturns 1977 G-7
TABLE G-4. L.P. Model Input/Outturns 1980 . G-8
TABLE G-5. L.P. Model Input/Outturns - 1985 G-9
TABLE G-6. Scale Up Input/Outturns 1977 G-H
TABLE G-7. Atypical Refinery Intake/Outturn Summary G-13
TABLE G-8. Scale Up Input/Output - 1985 , G-l4
TABLE G-9. Scale Up Input/Output - 1980 G-16
APPENDIX H
TABLE H-l. Crude and Natural Gasoline Yields; Crude Properties H-8
TABLE H-2. Yield Data-Reforming of SR Naphtha H-9
TABLE H-3. Yield Data-Reforming of Conversion Naphtha H-12
TABLE H-4. Yield Data-Catalytic Cracking H-13
TABLE H-5. Yield Data-Hydrocracking H-14
TABLE H-6. Yield Data-Coking H-15
TABLE H-7. Yield Data-Visbreaking H-16
TABLE H-8. Yield Data-Desulfurization H-17
TABLE H-9. Yield Data-Miscellaneous Process Units H-18
TABLE H-10. Hydrogen Consumption Data - Desulfurization of Crude-
Specific Streams H-19
TABLE H-ll. Hydrogen Consumption Data - Hydrocracking and
Desulfurization of Model-Specific Streams H-20
TABLE H-12. Sulfur Removal H-21
TABLE H-13. Stream Qualities - Domestic Crudes E-22
xvi
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APPENDIX H - (cont.)
Page
TABLE H-14. Stream Qualities - Foreign Crudes and Natural
Gasoline H-25
TABLE H-15. Stream Qualities - Miscellaneous Streams H-28
TABLE H-16. Stream Qualities - Variable Sulfur Streams H-30
TABLE H-17. Sulfur Distribution - Coker and Visbreaker H-31
TABLE H-18. Sulfur Distribution - Catalytic Cracking H-32
TABLE H-19. Alternate Yield Data - High and Low Severity Reforming
of SR Naphtha H-33
TABLE H-20. Alternate Yield Data - High and Low Pressure Reforming
of Conversion Naphtha H-36
TABLE H-21. Operating Cost Consumptions - Reforming H-37
TABLE H-22. Operating Cost Consumptions - Catalytic Cracking H-38
TABLE H-23. Operating Cost Consumptions - Hydrocracking H-39
TABLE H-24. Operating Cost Consumptions - Desulfurization H-40
TABLE H-25. Operating Cost Consumptions - Miscellaneous Process
Units H-41
TABLE H-26. Operating Costs Coefficients H-42
TABLE H-27. Process Unit Capital Investment Estimates H-43
TABLE H-28. Offsite and Other Associated Costs of Refineries Used
in Estimating Cost of Grassroots Refineries H-44
APPENDIX I
TABLE 1-1. Bureau of Mines Refinery Input/Output Data for
Cluster Models: 1973 1-2
TABLE 1-2. Bureau of Mines Receipts of Crude by Origin 1973 1-3
TABLE 1-3. Bureau of Mines Refinery Fuel Consumption for
Cluster Models 1973 1-4
xvii
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APPENDIX I - (cont.)
Page
TABLE 1-4. Bureau of Mines Refinery Fuel Consumption for Cluster
Models 1973 1-5
TABLE 1-5. ADL Model Input/Outturn Data for Calibration 1-7
TABLE 1-6. Conversion of BOM Input/Outturn Data to ADL Model
Format 1-8
TABLE 1-7. ADL Model Crude Slates and Sulfur Contents for
Refinery Clusters 1-11
TABLE 1-8. Texas Gulf Cluster Processing Configuration 1-12
TABLE 1-9. Louisiana Gulf Cluster Processing Configuration 1-13
TABLE 1-10. Large Midwest Cluster Process Configuration 1-14
TABLE 1-11. Small Midcontinent Cluster Processing Configuration .... 1-15
TABLE 1-12. West Coast Cluster Model Processing Configuration 1-16
TABLE 1-13. East-Coast Cluster Processing Configuration 1-17
TABLE 1-14. Cluster Model Gasoline Production and Properties
1973 '. . . 1-19
TABLE 1-15. Key Product Specifications 1-20
TABLE 1-16. Cluster Model Processing Data - 1973 1-23
TABLE 1-17. Louisiana Gulf Cluster Model 1-32
TABLE 1-18. Texas Gulf Cluster Model 1-33
TABLE 1-19. Large Midwest Cluster Model 1-34
TABLE 1-20. Small Midcontinent Cluster Model 1-35
TABLE 1-21. West Coast Cluster Model 1-36
TABLE 1-22. East Coast Cluster Model 1-37
TABLE 1-23. Louisiana Gulf Calibration 1-39
TABLE 1-24. Texas Gulf Calibration 1-40
TABLE 1-25. Small Midcontinent Calibration 1-41
xvi 11
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APPENDIX I - (cont.)
Page
TABLE 1-26. Large Midwest Calibration 1-42
TABLE 1-27. West Coast Calibration 1-43
TABLE 1-28. East Coast .Calibration 1-44
APPENDIX J
TABLE J-l. Economic Penalty for the Manufacture of Lead-Free
Gasoline - 1977 J-5
TABLE J-2. Economic Penalty for the Manufacture of Lead-Free
Gasoline - 1980 J-6
TABLE J-3. Economic Penalty for the Manufacture of Lead-Free
Gasoline - 1985 J-7
TABLE J-4. Economic Penalty for the Introduction of Lead
Phasedown - 1977 J-8
TABLE J-5. Economic Penalty for Introduction of Lead Phasedown -
1980 J-9
TABLE J-6. Energy Penalty for the Manufacture of Lead-Free
Gasoline - 1977 J-10
TABLE J-7. Energy Penalty for the Manufacture of Lead-Free
Gasoline - 1980 J-ll
TABLE J-8. Energy Penalty for the Manufacture of Lead-Free
Gasoline - 1985 J-12
TABLE J-9. Energy Penalty for the Introduction of Lead Phasedown -
1977 J-13
TABLE J-10. Energy Penalty for the Introduction of Lead Phasedown -
1980 J-14
TABLE J-ll. Capital Investment Requirements
for Lead Regulations J-15
TABLE J-12. Operating Costs Required to.Meet Lead Regulations ..... J-16 .
TABLE J-13. Basis for Cluster Capital Investment Requirements J-17
TABLE J-14.. L.P. Model Results - Capital Investment Requirements
and Operating Costs -r East Coast J-18
xix
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APPENDIX J - (cont.)
Page
TABLE J-15. L.P. Model Results - Capital Investment Requirements
and Operating Costs - East Coast J-19
TABLE J-16. L.P. Model Results - Capital Investment Requirements
and Operating Costs - Large Midwest J-20
TABLE J-17. L.P. Model Results - Capital Investment Requirements
and Operating Costs - Large Midwest J-21
TABLE J-18. L.P. Model Results - Capital Investment Requirements
and Operating Costs - Small Midcontinent J-22
TABLE J-19. L.P. Model Results - Capital Investment Requirements
and Operating Costs - Small Midcontinent J-23
TABLE J-20. L.P. Model Results - Capital Investment Requirements
and Operating Costs - Louisiana Gulf J-24
TABLE J-21. L.P. Model Results - Capital Investment Requirements
and Operating Costs - Louisiana Gulf J-25
TABLE J-22. L.P. Model Results - Capital Investment Requirements
and Operating Costs - Texas Gulf J-26
TABLE J-23. L.P. Model Results - Capital Investment Requirements
and Operating Costs - Texas Gulf J-27
TABLE J-24. L.P. Model Results - Capital Investment Requirements
and Operating Costs - West Coast J-28
TABLE J-25. L.P. Model Results - Capital Investment Requirements
and Operating Costs - West Coast J-29
TABLE J-26. L.P. Model Results - Capital Investment Requirements
and Operating Costs - Grassroots Refinery -
East of Rockies J-30
TABLE J-27. L.P. Model Results - Capital Investment Requirements
and Operating Costs - Grassroots Refinery -
West of Rockies J-31
TABLE J-28. L.P. Model Results - Fixed Inputs and-Outputs -
East Coast ......,; J-32
TABLE J-29. L.P. Model Results - Fixed Inputs and Outputs -
Large Midwest J-33
xx
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APPENDIX J - (cont.)
Page
TABLE J-30. L.P. Model Results - Fixed Inputs and Outputs -
Small Midcontinent J-34
TABLE J-31. L.P. Model Results - Fixed Inputs and Outputs -
Louisiana Gulf J-35
TABLE J-32. L.P. Model Results - Fixed Inputs and Outputs -
Texas Gulf J-36
TABLE J-33. L.P. Model Results - Fixed Inputs and Outputs -
West Coast . J-37
TABLE J-34. L.P. Model Results - Inputs and Fixed Outputs -
Grassroots Refineries J-38
TABLE J-35. L.P. Model Results - Processing and Variable Outputs -
East Coast Cluster J-39
TABLE J-36. L.P. Model Results - Processing and Variable Outputs -
Large Midwest J-40
TABLE J-37. L.P. Model Results - Processing and Variable Outputs -
Small Midcontinent Cluster J-41
TABLE J-38. L.P. Model Results - Processing arid Variable Outputs -
Louisiana Gulf Cluster J-42
TABLE J-39. L.P. Model Results - Processing and Variable Outputs -
Texas Gulf Cluster J-43
TABLE J-40. L.P. Model Results - Processing and Variable Outputs -
West Coast Cluster J-44
TABLE J-41. L.P. Model Results - Processing and Variable Outputs -
Grassroots Refineries, 1985 J-45
TABLE J-42. L.P. Model Results - Gasoline Blending - East Coast ... J-46
TABLE J-43. L.P. Model Results - Gasoline Blending - East Coast ... J-47
TABLE J-44. L.P. Model Results - Gasoline Blending -
Large Midwest J-48
TABLE J-45. L.P. Model Results - Gasoline Blending -
Large Midwest J-49
xxi
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APPENDIX J - (cont.)
Page
TABLE J-46. L.P. Model Results - Gasoline Blending -
Small Midcontinent J-50
TABLE J-47. L.P. Model Results - Gasoline Blending -
Small Midcontinent J-51
TABLE J-48. L.P. Model Results - Gasoline Blending -
Louisiana Gulf J-52
TABLE J-49. L.P. Model Results - Gasoline Blending -
Louisiana Gulf J-53
TABLE J-50. L.P. Model Results - Gasoline Blending -
Texas Gulf J-54
TABLE J-51. L.P. Model Results - Gasoline Blending -
Texas Gulf J-55
TABLE J-52. L.P. Model Results - Gasoline Blending -
West Coast J-56
TABLE J-53. L.P. Model Results - Gasoline Blending -
West Coast J-57
TABLE J-54. L.P. Model Results Summary - Gasoline Blending -
Grassroots Refineries - East Coast Sweet Crude J-58
TABLE J-55. L.P. Model Results Summary - Gasoline Blending
Grassroots Refineries - East Coast Sweet Crude J-59
TABLE J-56. L.P. Model Results Summary - Gasoline Blending -
Grassroots Refineries - East Coast Sour Crude J-60
TABLE J-57. L.P. Model Results Summary - Gasoline Blending
Grassroots Refineries - East Coast Sour Crude J-61
TABLE J-58. L.P. Model Results Summary - Gasoline Blending
Grassroots Refineries - West Coast - Alaskan North SI. J-62
TABLE J-59. L.P. Model Results Summary - Gasoline Blending
Grassroots Refineries - West Coast - Alaskan North SI. J-63
TABLE J-60. L.P. Model Results - Residual Fuel Oil Sulfur
Levels - 1977 J-64
xxn
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APPENDIX J - (cont.)
TABLE J-61. L.P. Model Results - Residual Fuel Oil Sulfur
Levels - 1980 J-65
TABLE J-62. L.P. Model Results - Residual Fuel Oil Sulfur
Levels - 1985 J-66
TABLE J-63. L.P. Model Results - Refinery Fuel Sulfur
Levels - 1977 J-67
TABLE J-64. L.P. Model Results - Refinery Fuel Sulfur
Levels - 1980 J-68
TABLE J-65. L.P. Model Results - Refinery Fuel Sulfur
Levels - 1985 J-69
TABLE J-66. Sample Calculations for Mass and Sulfur Balance -
Texas Gulf 1985, Scenario B/C - Stream Values -
Gas Oil 375-650°F J-73
TABLE J-67. Sample Calculations for Mass and Sulfur Balance -
Texas Gulf 1985 B/C - Desulfurization of
Light Gas Oil J-74
TABLE J-68. Sample Calculations for Mass and Sulfur Balance -
Texas Gulf 1985, Scenario B/C - Feed Sulfur Levels ... J-75
TABLE J-69. Sample Calculations for Mass and Sulfur Balance
Texas Gulf 1985, Scenario B/C - Stream Qualities -
Cluster Specific Streams J-76
TABLE J-70. Sample Calculations for Mass and Sulfur Balance -
Texas Gulf 1985, Scenario B/C - Stream Qualities -
Cluster Specific Streams J-77
TABLE J-71. Specific Gravities and Densities for the Miscellaneous
Streams J-78
TABLE J-72. Mass and Sulfur Balance - Texas Gulf Cluster 1985,
Scenario B/C J-79
xxiii
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APPENDIX K.
TABLE K-l.
TABLE K-2.
TABLE K-3.
TABLE K-4.
TABLE K-5.
TABLE K-6.
Page
K-l
Weight Conversions
Volume Conversions K-2
Gravity, Weight and Volume Conversions for Petroleum
Products
Representative Weights of Petroleum Products
Heating Values of Crude Petroleum and Petroleum
Products
Nomenclature
K-3
K-4
K-5
K-6
xxiv
-------
VOLUME II
LIST OF FIGURES
APPENDIX F
Page
FIGURE F-l. Geographic Regions Considered in Development of
Cluster Models F-3
APPENDIX I
FIGURE 1-1. Louisiana Gulf Cluster Model Calibration 1-25
FIGURE 1-2. Texas Gulf Cluster Model Calibration 1-26
FIGURE 1-3. Small Midcontinent Cluster Model Calibration 1-27
FIGURE 1-4. Large Midwest Cluster Model Calibration 1-28
FIGURE 1-5. West Coast Cluster Model Calibration 1-29
FIGURE 1-6. East Coast Cluster Model Calibration 1-30
APPENDIX J
FIGURE J-l. East of Rockies Grassroots 1985 - Scenario A J-70
FIGURE J-2. West of Rockies Grassroots 1985 - Scenario A J-71
FIGURE J-3. Texas Gulf Cluster 1985 Sulfur and Material Balance J-72
XXV
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I. EXECUTIVE SUMMARY
A. INTRODUCTION
This report summarizes a study performed for the Environmental Protec-
tion Agency, which was part of a three-phase program undertaken in parallel
using a similar conceptual approach and data base. The other two studies are
entitled, "The Impact of Producing Low-Sulfur, Unleaded Motor Gasoline on
the Petroleum Refining Industry" and the "The Impact of SO Emissions Control
X
on the Petroleum Refining Industry," published as EPA report numbers
EPA-H50/3-76-015a,b and EPA-600/2-76-l6la,b, respectively. Significant
synergy of data gathering,scenario development, computer simulation time and
subsequent analysis was achieved by performing the three separate studies
as part of an integrated work program. However, the combined cost imple-
menting all three regulations cannot be obtained by direct summation of
the result of the three individual reports.
Initial work on this program began in late 1973. An interim Phase I
report was published in May, 1974, entitled "Impact of Motor Gasoline Lead
Additive Regulations on Petroleum Refineries and Energy Resources - 1974 -
1980, Phase I", EPA report number 450/3-74-032a. In this Phase I study,
the U.S. refining industry was simulated as a single composite model which
allowed a rapid overview analysis, but lacked in the desired level of pre-
cision.
Accordingly, a more detailed simulation of the U.S. refining industry
was developed via a "cluster" model approach which was used in this three-
phase effort. This project included,collection and collation of an exten-
sive base of refinery data supplied by the Bureau of Mines and individual
oil companies, which was used to achieve satisfactory calibration of the
cluster jnodels. It is felt that the development and calibration of the
-1-
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cluster models represent a significant achievement in the area of refinery
simulation.
In the present report, several scenarios are developed to describe how
the petroleum refining industry will likely operate for the next decade,
in turn considering manufacture of unleaded gasoline and then the manufacture
of unleaded gasoline with a phased reduction in the lead additive content of
the total gasoline pool. The report then summarizes the detailed planning
assumptions required to execute the program, along with the methodology used
to develop these assumptions. The primary study results are then presented
herein, defining the impact of lead regulations in terms of capital invest-
ment requirements, increased refining costs per gallon of unleaded gasoline,
and energy penalties. A complete presentation of planning assumptions,
calculational methods, and study results is contained in the appendices
of Volume II of this report.
B. SCOPE AND APPROACH
The objective of this study is to determine the impact on the petroleum
refining industry of (a) manufacture of unleaded gasoline to meet projected
demands, with no lead additive restrictions on the total gasoline pool, and
(b) similar manufacture of unleaded gasoline, but with the phased reduction
of lead additive content on the total gasoline pool.
The specific goals of the study are to determine for the period through
1985 the impact of these motor gasoline lead additive regulations in terms of
(a) capital investment requirements; (b) composite increase in refining costs
per gallon of unleaded gasoline, including return on capital , manufacturing
cost, and yield losses; (c) increased crude oil requirements; and (d) net
energy penalties, reflecting increasedcrude requirements less the heating
value of an increase in the production of refinery byproducts such as
liquefied petroleum gases (LPG).
In the study, limitations of present and future refinery configurations
are taken.into consideration. However, considerations outside the scope of
the study include availability of capital requirements, impact upon the
competitive structure of the industry, ability of the construction industry
to meet the associated refinery construction needs, and costs of distribution
-------
and marketing of unleaded or low lead gasoline, The study focused upon
the large, complex refineries processing about threes-fourths of the crude
oil refined in the United States, The impact upon the small refineries
comprising over half of the number of U.S. refineries has not been fully
assessed. On a relative basis, the penalties to the small refiner probably
exceed those reported herein.
In approaching this problem, it was recognized that there are many com-
plex interactions in the petroleum refining industry. Also, there is a
necessity for compromises between various process routes for making unleaded
or low lead gasoline, including consideration of their capital investments
and manufacturing costs. Therefore, a standard analytical tool of the petro-
leum industry was applied to this problem, computer refinery model simulation
with an associated linear programming (L.P.) optimization algorithm. This
provided an assessment of the impact of the motor gasoline, lead additive
regulations with an optimal, minimal cost selection of processing and blend-
ing schemes to achieve this end.
Although this analytical method has been used by the petroleum industry
for more than a decade for studies of individual refineries, its use in
simulation of the entire U.S. refining industry has been limited. Therefore,
one of the requirements of this program was the development of a methodology
for industry-wide simulation, collection and utilization of data base to
confirm the utility of this methodology, and definition of a means to utilize
model results to determine national implications of a proposed policy.
Equally important was the careful assessment of the planning assumptions re-
garding the constraints which may be imposed on the petroleum refining
industry over the next decade. In all of these activities, Arthur D. Little,
Inc., cooperated extensively with representatives of the Environmental
Protection Agency and with members of a task force comprised of representa-
tives of the American Petroleum Institute (API) and the National Petroleum
Refiners Association (NPRA). As a result of these efforts the utility of
the model in faithfully representing the likely behavior of the petroleum
refining industry over the next decade was greatly enhanced.
-3-
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The modeling approach developed in this study provided for a specific
simulation of the existing U.S, refining industry, processing domestic
crude oils, including Alaskan North Slope crude oil, to the extent available.
Any additional crude oil required to meet petroleum product demand was
assumed to be imported. Two simulation models, called "grassroots models,"
were developed to provide for any new refining capacity which would be re-
quired to meet product demands in 1980/1985. The grassroots model for the
western U.S. used North Slope crude oil, whereas a separate grassroots
model for the eastern U.S. used imported oil.
The existing U.S. refining industry was simulated by six individual
computer models, constructed to represent clusters of three refineries
each in six geographical areas of the United States. These cluster models,
therefore, represented refineries typical of the refining industry in terms
of crude oil type, processing configuration, and product slate. They
ranged in crude oil capacity from 48,000 to 350,000 bbls/day. To ensure
that the cluster models adequately represented the industry, an extensive
data base on these 18 refineries was collected and analyzed. Processing
yield and property data were assimilated to ensure adequate representation
of the refinery processes and blending operations. Finally, each cluster
model was calibrated by comparison to the extensive data base.
In addition, a methodology for scaling up the results of the cluster
models to the entire United States was developed, including these 18 cluster
model refineries as well as atypical refineries. In a comparison with 1973
Bureau of Mines data, the most recent year for which complete information
was available, the total petroleum products output and crude oil consump-
tion predicted by the model agreed with Bureau of Mines data within 2%.
This scale up technique allows assessment of the national impact for the
four specific goals of the present program, including an estimate of the
impact on small refiners.
Several planning assumptions were required; each of these required
auxiliary studies of considerable detail, because of the importance of
these planning assumptions to the study results.
Since the impact of motor gasoline lead additive regulations is
dependent on the nature of the crude oil being refined, a separate study
-4-
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was made to determine the types of crude oils to be processed by the U.S.
refining industry over the next decade. Estimates of domestic crude oil
availability were made, including quantity and dispostion of Alaskan North
Slope and offshore fields. Also, estimates of world-wide crude oil pro-
duction and disposition were made, taking into account future product demand
in Europe, Japan and the United States in terms of product type and sulfur
level requirements. Likely production rates from the North Sea, OPEC
countries, and Far East countries, including China, were included in this
analysis, as was the likely availability of non-oil energy sources such as
coal and nuclear power. When more than one future scenario for the next
decade was likely, sensitivity studies were included in the current program
to determine the effect of this uncertainty on the study results.
Since the cost of the motor gasoline lead additive regulations depends
directly upon the demand for unleaded gasoline and indirectly upon the demand
for other petroleum products, a separate forecast was made of petroleum
product supply/demand for the next decade. This forecast included an eval-
uation of the demand for products by individual end-use sector, including
the effects of non-petroleum energy sources, conservation, import levels,
expanded petrochemical demand for certain products, and the future course of
governmental regulation in improving energy self-sufficiency for the U.S.
Because of the uncertainties in this, sensitivity studies were included to
ensure that these uncertainties did not influence study results.
The impact of any potential regulation also depends upon certain key
product specifications on the primary product under control as well as
other major refinery products. Present and possible future octane re-
quirements on unleaded gasoline were evaluated. Projections were also
made of the future sulfur level requirements of residual fuel oil. To
assist in this evaluation, field interviews were conducted with East Coast
utilities, accounting for over 90% of the utility fuel oil consumption on
the East Coast. Again, certain sensitivity studies were required to define
the effects of uncertainties in projections on the study results.
Several other significant assumptions were made in the execution of
this program, discussed in detail in the following report.
-5-
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C. CONCLUSIONS
1. Calibration Summary
In order to simulate the existing U.S. petroleum industry, six cluster
models were developed to describe the regional characteristics of the re-
fining industry and the processing configurations typical of the industry.
Each of these six cluster models represented a cluster of three similar,
existing refineries in the United States.
A critical component of the model development was to ensure that these
models effectively represented the refineries as well as the section of the
United States containing the refineries. Therefore, an extensive calibra-
tion effort was undertaken by Arthur D. Little, Inc., in collaboration with
the representatives of the Environmental Protection Agency (EPA) and a task
force of the American Petroleum Institute/National Petroleum Refiners
Association.
Data on raw material intake, fuel consumption, and product outturns for
each of the refinery clusters and for the regions of the U.S. containing
these clusters were furnished by Bureau of Mines. Proprietary operating
data on these refineries were compiled and combined for each cluster by
representatives of the EPA. Processing information was obtained from
sources in the petroleum industry. Using this processing information the
individual cluster models were run on the computer, and compared with the
industry data. This task was continued until each cluster model was
calibrated with the industry data.
The results of these calibrated cluster models were then scaled up to
determine the accuracy with which the refining districts in the U.S. were
described. In Figure 1 is shown the deviation of the model predictions
from the total raw material intake for the several Petroleum Administration
for Defense (PAD) districts in the U.S. As noted therein, the maximum
deviation was 6.8% (PAD V), and the deviation from the total U.S. raw
material intake was 1.0%. PAD IV (less than 5% of U.S. crude oil
capacity) was not simulated by a cluster model, but was included in the
scale up method. Thus, as a result of this extensive calibration effort,
the cluster models demonstrate an excellent ability to simulate the existing
-6-
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P.A.D. Ill
0.1% DEVIATION
P.A.D. II
0.7% DEVIATION
P.A.D. V
6.8% DEVIATION
P.A.D. I .
0.2% DEVIATION
U.S. Total Deviation = 1%
*Not simulated, but included in scale-up
FIGURE 1. AGREEMENT OF MODEL PREDICTION WITH 1973 B.O.M.
TOTAL REFINERY RAW MATERIAL INTAKE DATA
(Area on chart represents percentage of total U.S. refinery
intake by P.A.D. District)
7
-------
U.S. petroleum refining industry, using processing information de-
scribing individual refinery units.
2. Qualitative Study Results
If lead is removed from gasolines traditionally manufactured in the
United States, the resulting gasoline pool would have a research octane
number (RON) of approximately 88 and a motor octane number (MON) of about
80. To provide an unleaded gasoline with a minimum RON of 92 and a minimum
MON of 84, the U.S. refining industry must manufacture gasoline with clear
(unleaded) octane numbers about four numbers higher than when manufacturing
leaded gasoline.
This increased octane is achieved primarily by upgrading existing low
severity (lower octane level) reformers to operate at high severity (higher
octane level) and by building new high severity reformer capacity.
However, there are penalties associated with high severity operation com-
pared to low severity operation. High severity operation does not yield as
much gasoline, so additional crude oil is required to produce a fixed
volume of gasoline. An increase in clear RON is not matched by a number
for number increase in clear MON, so the clear MON specification becomes
limiting. This results in clear RON octane "giveaway", i.e., production
of gasoline with a higher clear RON than required to meet minimum RON
specifications. Finally, the combination of yield loss and the limiting
MON specification markedly increases capital investment and operating costs
to produce a fixed volume of gasoline.
Other octane boosting processes such as isomerization and alkylation
are also used to boost the gasoline pool octane, but these processes
contribute in a smaller fashion.
3. Economic Penalties
There are two promulgated regulations on lead usage addressed in this
study (Federal Register, January 10, 1973; December 6, 1973). One requires
unleaded gasoline to be available for cars requiring it, i.e., those
equipped with catalytic converters for emissions control. The other
requires that the use of lead in the total gasoline pool (leaded and un-
leaded combined) be phased down to no more than 0.5 gm/gal by January 1,
1979.
-8-
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Two external forces, then, are driving the refiner in his usage of
lead additives. The phase down regulation places precisely timed limits on
total lead usage, although there is still flexibility regarding the quantity
of lead the refiner can use in each grade of gasoline. The unleaded gaso-
line regulation is not nearly so precise, depending upon automobile manu-
facturers' use and market demand for automobiles equipped with the catalytic
converter. The study assumed 2 percent unleaded gasoline sales prior to
the 1975 model year introduction, virtually complete use of the converter
starting with the 1975 model year and a transition to a total gasoline
pool consisting solely of unleaded gasoline by 1985.
Obviously, there is an overlap in the two regulations, because the
introduction of converter-equipped cars using unleaded gasoline will in-
fluence the lead level of the total pool by reducing total lead usage. The
present study does not attempt to define the impact of the phase down regu-
lation alone, without the simultaneous introduction of unleaded gasoline.
Instead, the base scenario assumed no lead regulations were imposed
(Scenario A); this was then compared to a Scenario B in which only un-
leaded gasoline regulation was imposed. Finally, the unleaded gasoline
regulation and the phase down regulation were simultaneously imposed
(Scenario C), for comparison to Scenario B (unleaded gasoline regulation
alone imposed). In general, it is not possible to combine these comparative
results to determine the impact of some new combination of these two lead
additive regulations which has not been discussed herein.
The economic impact on the U.S. refining industry of lead additive
regulations is shown in Table 1. By 1985, when the gasoline pool is 100%
unleaded, the capital required to make unleaded gasoline is 5.7 billion
dollars. This capital requirement includes costs for utilization and up-
grading of existing capacity as well as construction of new capacity.
Taking into account the timing of investments and the forecasted inflation
rates in refinery construction, the ultimate capital requirement will be
about 15 billion dollars for unleaded gasoline. The additional refining
cost, including capital charges and manufacturing costs, is 1.7 cents per
gallon of unleaded gasoline, relative to the average pool of leaded gasoline
of Scenario A and first quarter 1975 costs.
-9-
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Table 1. ECONOMIC IMPACT OF LEAD ADDITIVE REGULATIONS
Economic Impact
Cumulative capital required billions
of dollars
Non-inflated (1Q 1975 basis)
Inflated
Total economic penalty
Cents per gallon of unleaded gasoline
(1Q 1975 basis)
Cents per gallon of total gasoline pool
(10. 1975 basis)
Unleaded gasoline3
1977
0.2
0.3
0.13
-
1980
1.8
3.5
0.61
-
1985
5.7
14.9
1.71
-
Unleaded gasoline
with lead
phase downb
1977
1.4
1.9
0.49
1980
1.7
3.3
0.52
aUnleaded gasoline relative to total leaded gasoline pool.
Lead phase down with unleaded gasoline relative to unleaded gasoline without phase down.
-10-
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If the phase down of lead additives in the total gasoline pool is
superimposed upon the introduction of unleaded gasoline, the effect is to
change the schedule of capital investment requirements. In 1977, pro-
duction of unleaded gasoline would require $0.2 billion; superimposing
lead phase down would add an incremental $1.4 billion over Scenario B. By
1980, cumulative investment for unleaded gasoline would be $1.8 billion,
and superimposing lead phase down would add an incremental $1.7 billion.
By 1985 there is no incremental penalty over Scenario B for lead phase
down, since all gasoline produced is unleaded. Thus, total cumulative
investment to manufacture unleaded gasoline will be $5.7 billion by 1985
whether or not lead phase down is introduced. It can therefore be seen
that the primary impact of lead phase down is on the timing of capital
outlays and not on total cumulative investment.
In Figure 2 is shown the components of the cumulative capital require-
ment for unleaded gasoline manufacture by 1985. Approximately 40% of the
investment is required for capacity upgrading and 56% is required for ad-
ditional new capacity in both existing refineries and new grassroots
refineries.
Figure 3 shows the estimates of the economic penalty associated with
the manufacture of unleaded gasoline in 1977, 1980, and 1985, and breaks
down the cost into capital charge, operating costs, and crude and product
penalties. This illustrates a somewhat lower cost in 1977 and 1980 because
unleaded gasoline has been obtained to some extent by selective product
blending. However, by 1985 when 100% unleaded gasoline production was
assumed, the full cost of unleaded gasoline emerges.
These estimates have been based on the scale up of the results from
eight different refinery LP models which blended the unleaded gasoline to
exactly 92/84 RON/MON. They therefore represent estimates of the economic
penalties for manufacturing gasolines with average octane numbers of 92/84
RON/MON, and do not represent the penalties for manufacturing gasolines
with a minimum specification of 92/84 RON/MON. However, such average
specifications well represent the average octane of currently produced
unleaded gasoline.
-11-
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Upgrading and Utilization
Of Existing Capacity
Total = 5.7 Billion Dollars
FIGURE 2 CAPITAL INVESTMENT REQUIRED BY 1985 TO MANUFACTURE
UNLEADED GASOLINE (TOTAL USA)
BILLIONS DOLLARS (1Q 1975 BASIS)
-12-
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2.0 r-
u>
1.5
1.0
c c
g
J--0.0
ll
CO *J Jjj
" S -2
U5
Key:
Capital Charge
Crude and Product Penalties
Operating Costs
0.13
1977
0.61
1980
1.71
1985
FIGURE 3 ECONOMIC PENALTIES FOR THE MANUFACTURE OF UNLEADED GASOLINE
(relative to total leaded gasoline pool)
-------
4. Crude Oil and Energy Penalties
The estimates of the crude oil and net energy penalties due to
imposition of lead additive regulations are shown in Table 2. By 1985 it
is estimated that the U.S. refining industry will have to process ad-
ditional crude oil in excess of 250,000 barrels per day to manufacture un-
leaded gasoline, relative to the production of the leaded pool of Scenario
A. However, the industry would produce more LPG as a result, which would
partially offset this crude oil penalty. The net energy penalty by 1985
is estimated to be 180,000 barrels per calendar day of fuel oil equivalent
for the manufacture of unleaded gasoline, relative to the production of a
leaded pool (Scenario A).
In 1980, the production of unleaded gasoline requires an additional
60,000 BPD of crude oil, relative to production of leaded gasoline. The
superimposition of the lead phase down regulation will require an additional
55,000 BPD of crude run over Scenario B, which assumes only the unleaded
gasoline regulation is in effect. Net energy penalties for these cases
are, respectively, 20,000 BPD and 35,000 BPD. Since the gasoline pool is
100% unleaded in 1985, there are of course no energy penalties for the
superimposed lead phase-down regulation.
5. Sensitivity Studies
A number of sensitivity studies were conducted and two of these indi-
cated potential uncertainties which could significantly increase the cost
of lead regulations above those reported for the base case, described above.
Some observers believe that higher octane gasoline may be needed for
some automobiles fueled by unleaded gasoline as these automobiles accumu-
late mileage. This has been termed "octane requirement increase" (O.R.I.).
The determination of the O.R.I, is beyond the scope of the present study,
but several model runs were undertaken to determine the impact on the
petroleum refining industry should increased octanes be required.
As already mentioned, the RON/MOM specification of 92/84, used for the
base case studies discussed above, adequately represents the unleaded
gasoline currently being produced. As shown in Table 3, a sensitivity
-14-
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Table 2. CRUDE OIL AND ENERGY PENALTIES FOR
LEAD ADDITIVE REGULATIONS
Unleaded gasoline3
Additional crude oil required
thousands barrels per calendar day
Additional LPG produced
thousands barrels per calendar day
Net energy penalty
thousands barrels per calendar day
of fuel oil equivalent
Lead phase down
Additional crude oil required
thousands barrels per calendar day
Additional LPG produced
thousands barrels per calendar day
Net energy penalty
thousands barrels per calendar day
of fuel oil equivalent
1977
19.9
6.0
14
73.7
47.7
38
1980
60.1
56.1
20
54.6
25.5
35
1985
255.5
92.5
180
-
-
aUnleaded gasoline relative to total leaded gasoline pool.
Lead phase down with unleaded gasoline relative to unleaded gasoline without lead phase down.
-15-
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study was directed at assessing the cost of producing unleaded gasoline
with an RON/MON of 93/85. This increased the total capital required for
producing unleaded gasoline by 1.2 billion dollars (20%), on a first
quarter 1975 cost basis. Hence, the total investment requirement was in-
creased to 6.9 billion dollars and the economic penalty to 2.1 cents per
gallon of unleaded gasoline, relative to the leaded pool of Scenario A.
The ultimate investment and economic penalty will be markedly higher,
due to inflation in refinery construction costs, as illustrated in Table
1.
An additional study was conducted with an RON/MON specification of
94/86, but the model experienced great difficulty in producing unleaded
gasoline at this higher octane specification. It is quite possible that
the model may not adequately represent the octane producing capability
of the individual refiner in this range of gasoline specifications,
leading to an understatement of his capabilities. If industry-wide octane
specifications of 94/86 (RON/MON) were needed, further studies of refin-
ing industry capabilities should be undertaken.
Some observers have argued that the necessary use of unleaded gaso-
line to meet automotive emission standards has led to changes in engine
design which provide inferior mileage. This contention has been debated
for some time and cannot be resolved here. However, to analyze the impact
of such a circumstance, a sensitivity study was carried out in which the
unleaded gasoline demand in 1985 was increased by 5% over the baseline
projection. As shown in Table 3, under this condition, the investment
required to produce unleaded gasoline is thereby increased to 7.1 billion
dollars (25% increase) on a first quarter 1975 cost basis, and the
economic penalty is increased to 2.1 cents per gallon unleaded gasoline,
relative to the leaded pool. Again, the ultimate investment and eco-
nomic penalty will be markedly higher, due to the effects of inflation in
refinery construction costs.
-16-
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Table 3. RESULTS OF SENSITIVITY STUDIES FOR LEAD ADDITIVE REGULATIONS
Unleaded gasoline RON/WON
Ex-Refinery gasoline demand, MB/CD
Capital investment
Billions dollars (1Q 1975 basis)
Economic penalty
Cents per gallon of unleaded
gasoline (1Q 1975 basis)
Base Case
92/84
8,041
5.7
1.71
Sensitivity studies3
Higher RON/MON
93/85
8,041
6.9
2.10
Greater demand
92/84
8,427
7.1
2.08b
aUnleaded gasoline relative to total leaded gasoline pool.
Becomes 3.4 cents with increased crude oil to meet incremental gasoline demand.
-17-
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6. Other Major Implications
The choice of six different cluster models to represent the existing
U.S. refining industry was made to provide a reasonable representation
of the different types of refineries operating today. Over 80% of U.S.
refining capacity has been represented in the cluster models. However,
no cluster model was constructed which could be considered representative
of the small refiner (less than 50,000 barrels per day), nor would such
a model be sufficient to a study of the impact on small refiners. These
refiners represent less than 20% of total U.S. refining capacity and any
understatement of their penalties will not significantly affect the over-
all conclusions. However, the lead additive regulations could have a
significant impact on the smaller refiner. He does not have the wide
choice of blending components available to the larger refiners. Also,
because of the economies of scale the unit cost to the small refiner
of meeting lead additive regulations will be higher than those indicated
in this study. This could have a significant impact on the competitive
structure of the refining industry.
Since the total gasoline pool is projected to be unleaded by 1985,
the primary impact of lead phase down in these studies is to accelerate,.
the investment requirements rather than to add to them. In Figure 4 are
shown the capital requirements in each study period for producing un-
leaded gasoline with and without a superimposed lead phase down regu-
lation. The investment credits show in 1985 with lead phase down reflect
this accelerated investment schedule; more investment is required in 1977
and less in 1985.
With the lead phase down schedule assumed in this study (and in
effect in 1974), the 1977 investment requirement is increased from 0.2
billion dollars to 1.4 billion dollars as a result of lead phase down
alone. The bulk of this investment is required for upgrading and
utilization of existing catalytic reforming capacity, but a significant
fraction of this investment has already been made. Hence, these incre-
mental costs due to lead phase down do not solely represent new capital
construction projects required by 1977 but rather total accumulated
-18-
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4.0
3.0
2.0
0 °° 1 n
Q in 1.0
i- f-
I -
12
-1.0
-2.0
Without Lead Phase-Down
Key: Investment Category
New Capacity
Upgrading and Utilization
of Existing Capacity
With Lead Phase-Down
1977
1980
1985
1977
1980
1985
FIGURE 4 IMPACT OF THE INTRODUCTION OF LEAD PHASE-DOWN ON THE
TIMING OF CAPITAL INVESTMENT REQUIREMENTS TO MANUFACTURE
UNLEADED GASOLINE
-------
investments through 1977. No assessment has been made of new construc-
tion projects required by 1977.
Finally, the results of the sensitivity studies should be reempha-
sized, for these indicate a possible increased penalty of 20-25%, should
either increased unleaded gasoline octane or increased gasoline con-
sumption be required.
D. RECOMMENDATIONS FOR FURTHER ACTION
In order to assess more fully the impact of lead additive regu-
lations, three areas are worthy of more consideration than possible
with this study:
1. A more definitive survey should be made of the octane pro-
ducing capability of the existing U.S. refining industry.
This factor is highly important both in assessing the
economic impact of lead additive regulations and in de-
termining the capability of the industry to react to in-
creased octane requirements of unleaded gasoline.
2. The impact of lead additive regulations should be assessed
more fully for the small refiners processing less than 50,000
barrels per day. Such studies should examine the economic
impact on the refiners as well as the likely effect on the
competitive structure of the industry.
3. Studies should be conducted of interactions of lead additive
regulations and other environmental regulations applicable
to the .petroleum industry. The investigation should include
examination of possible processing changes which are re-
quired to meet lead additive regulations but which are pre-
cluded by other environmental regulations.
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II. STUDY BASIS
A. APPROACH
The objective of this study is to determine the impact on the petroleum
refining industry of promulgated Environmental Protection Agency (EPA) regu-
lations requiring the manufacture of unleaded gasoline and the phased
reduction of lead in the gasoline pool, taking into consideration limi-
tations of present refinery configuration and potential grassroots refining
construction. Since the processing interactions in any single refinery are
exceedingly complex, and indeed even more complex for the industry as a
whole, such an assessment of the impact of lead regulations could be
addressed by two possible approaches.
1 2
First, a survey could be conducted by sending out a questionnaire '
to individual refiners across the country, requesting an assessment of their
individual costs for meeting the regulation. The results could then be
composited to define the cost to the industry. Although this is a valid
approach, it is often difficult to determine if the specific regulation is
being interpreted equivalently by all refiners across the country, if they
are using a similar analytical procedure, if they are using the most
efficient means of meeting the regulation, and if they are using a common
basis for cost estimation. This method, however, does have the decided
attribute of allowing each individual refiner to assess his unique problems
in meeting the regulation.
An alternative approach, used in the present study, is to simulate the
U.S. refining industry using computer models. Computer simulation of indi-
vidual refineries is well-known and has been practiced over a decade. Such
a simulation normally utilizes a linear programming (L.P.) model to repre-
sent the individual process units and the process interactions of the
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refinery. In the present study, however, simulation of a single refinery
is not sufficient in that no single refinery can be said to represent the
entire refining industry. Therefore, eight computer models were used simu-
lating individual refineries which, when composited, would be typical of
the industry as a whole.
In the use of any L.P. model it is necessary to define the types of
crude oils available to the model, the individual process yields, the
streams that can be used to connect the processes, and the products pro-
duced from the refinery. The model then uses an optimization algorithm to
select the optimal combination of process units meeting the objective of
the study. If all product prices are given as input to the model, the model
will select that set of product outturns and processing configurations
which will maximize profit derived from the complex. However, this method
of L.P. optimization may not assure that the quantities of products being
produced from the complex meet the product demands of the region being
served by that refinery. If this happened in the actual operation of the
refinery, market forces would increase the prices of those products in short
supply and decrease those in excess supply, so that the entire refinery oper-
ation would be adjusted with the product outturns just meeting the product
demands. In a computer simulation of a refining industry, however, it is
very difficult to predict those product prices which are required to match
the product outturns with the market demands. In the present studies, an
alternate approach was taken, wherein the product outturns from the refinery
were fixed in order to meet the projected product demands imposed upon the
U.S. refining industry. Therefore, the L.P. algorithm selected a set of
processing configurations which allowed this specified product demand to be
met at minimum cost. However, it is necessary that the problem being opti-
mized be carefully constructed such that the real-world constraints on the
industry in meeting these minimum cost objectives would be met, allowing a
realistic simulation of the operation of the industry. The definition and
inclusion of these constraints is an exceedingly important component of a
study of.. the impact of any regulation on the industry. This activity was
greatly benefited by the results of a Federal Energy Administration/National
' ' ' ' 3
Petroleum Refiners Association conference on refining industry modeling.
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In order to meet the constraints which would be imposed upon the re-
fining industry, comprised of nearly 300 individual refineries spread
throughout the United States, Arthur D. Little Inc. (ADL), representatives
of the EPA, and a task force comprised of representatives of the American
Petroleum Institute and the National Petroleum Refiners Association selected
three refineries in each of six geographic regions to simulate the existing
U.S. refining industry. These six refinery models (cluster models) were
4
constructed and calibrated against the three actual refineries in each
region to ensure that the product blend flexibility and the processing
configuration flexibility did not exceed that available to these refineries.
In simulating these existing refineries over the next decade, the crude run
for the individual cluster models was not allowed to exceed the crude
capacity for those refineries being simulated. All new crude capacity re-
quired to meet increased product demand was met by the construction of new,
grassroots refineries.
In the construction of new grassroots refineries, the refining industry
east of the Rockies was represented by a class of refineries feeding crude
oil typical of imported oil likely to be available in the coming decade.
Another simulation model was developed for grassroots refineries to be
constructed west of the Rockies, feeding Alaskan North Slope crude oil.
The product outturn from all of the existing refineries (cluster models)
and the new refinery installations (grassroots models) was then composited
to ensure that the overall product demand for the United States refining
industry was met.
It is also important that the major products of the models meet appro-
priate quality constraints typical of the product quality demanded by the
marketplace over the next decade. In some cases these product quality defi-
nitions are implicit in the EPA regulation under study, for example the
constraint on the amount of lead additives allowed in the gasoline pool.
In other cases, projections of future product quality requirements are
necessary in order that the study be a realistic representation of the
industry over the next decade. Of. particular importance in this regard is
the sulfur level of the residual fuel oil being produced by the industry.
Separate studies were made of these product qualities to determine the likely
levels associated with the industry over the next decade, discussed in the
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planning assumptions for the study.
The impact upon the refining industry which is evaluated in the present
study includes: the capital investment requirements for the refinery to
meet the lead regulations, the composite capital charge and operating cost
expressed per gallon of unleaded gasoline, the crude oil penalty, and the
net energy penalty associated with the regulation (including byproducts
which have an energy value).
There are other considerations important to the determination of the
impact of the regulation. These other considerations were beyond the scope
of the study and have not been evaluated in detail. For example, the study
determines the capital outlay required to meet the lead regulations by the
industry. However, it is likely that, for many of the small refiners in
the country, the projected capital outlay will require financing that may
not be available to them at the present time. The availability of capital
required by the regulation is specifically beyond the scope of this study,
as was the impact of the regulation on the competitive structure of the in-
dustry. Also, some of the processing requirements needed to meet the regu-
lation require significant construction of heavy-walled vessels. The impact
of the lead regulations upon the construction industry, including the fabri-
cators and vendors, is also not considered to be within the scope of the
present study. The impact of the distribution and marketing requirement of
the promulgated regulations is also not addressed herein.
B. CASE DEFINITIONS
The cluster model approach used in the present study provides a reassess-
ment of two promulgated regulations (Federal Register, January 10, 1973;
December 6, 1973) requiring (1) availability of unleaded gasoline for auto-
mobiles with catalytic converters and (2) a phased reduction of the lead
content of the total gasoline pool (leaded and unleaded) to a level of 0.5
gm/gal by January 1, 1979. This modeling approach was also used in two
related studies of possible regulations requiring reduction of gaseous
sulfur-oxide (SO ) emissions from petroleum refineries and requiring re-
X . ' ' '
duction of the sulfur content of unleaded gasoline. To conduct these studies,
six scenarios were created as possible modes of operation of the refining
industry, each of which were evaluated for 1977, 1980 and 1985. These
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scenaribs are:
Scenario A: Unregulated operation and expansion of refining industry
to meet projected petroleum product demand over the next decade.
Scenario B: Manufacture of unleaded gasoline to meet projected demands,
with no lead restrictions on the total gasoline pool or sulfur restrictions
on unleaded gasoline.
Scenario C: Manufacture of unleaded gasoline to meet projected de-
mands, with phased reduction in the lead additive content of the total
gasoline pool and with no sulfur restrictions on unleaded gasoline.
Scenario D: Manufacture of unleaded gasoline with a maximum of 100
ppm sulfur, while reducing the lead content of the gasoline pool.
Scenario E: Manufacture of unleaded gasoline with a maximum of 50
ppm sulfur, while reducing the lead content of the gasoline pool.
Scenario F: Reduction of refinery gaseous sulfur-oxide emissions by
restrictions on the sulfur content of the refinery fuel, by restriction of
fluid catalytic cracker plant emissions, and by restriction of sulfur re-
covery (Glaus) plant emissions, while meeting all the requirements of
Scenario C.
The complete definition of the computer cases to be run under these
several scenarios requires assumptions of crude intakes to the U.S. refinery
industry, processing configurations, and product outturns and qualities.
However, other planning assumptions which have a possibility of occurring
over the next decade were also considered. Variations in these assumptions
were investigated by a series of parametric runs, wherein the assumptions
were modified, one at a time, to reassess the impact on the industry. The
scope of these parametric studies is summarized in Table 4.
For the study of lead in gasoline (Scenarios A, B, and C) five major
parametric studies were undertaken. A basic premise of the study in the
base case is that unleaded gasoline will be produced by the industry
meeting 92 Research Octane Number (RON) and 84 Motor Octane Number (MON).
These specifications were set one octane number higher than the minimum
required by the EPA regulation to allow for refinery blending margin. To
evaluate the effect of producing even higher octane unleaded gasoline, two
-25-
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Table 4 . PARAMETRIC STUDIES
Lead in gasoline
Low sulfur unleaded gasoline
Refinery sulfur oxide emissions
Unleaded gasoline RON/MON = 93/85
Unleaded gasoline RON/MON = 94/86
Residual fuel oil
sulfur level projection
Variation in product demand
Variation in imported crude slate
Residual fuel oil
Sulfur level projection
Variation.in imported crude
slate
Sulfur distribution around
FCC unit
Method of FCC gasoline
desulfurization
Variation in imported crude
slate
Residual fuel oil, sulfur level
projection
Stack gas scrubbing
-26-
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parametric runs were conducted considering two levels of higher octane for
the unleaded gasoline as summarized in Table 4.
Projections of the future sulfur content of residual fuel oil consumed
in the United States are between 1.1 and 1.4%. As a base planning assumption,
it was considered that the residual fuel oil being consumed in the United
States would have a sulfur content of approximately 1.3%. Since this
requires extensive desulfurization in the new grassroots refinery facili-
ties, an additional parametric run at 1.1% sulfur was conducted to ensure
that study results were not being unduly influenced by this assumption. It
must be emphasized, of course, that the average sulfur level of the fuel oil
consumed by all sectors in the United States is below even 1.1%, because of
significant levels of imports of low-sulfur fuel oil into the United States
over the next decade.
In the base case studies defined by the above scenarios, it was assumed
that all petroleum products would grow at a level of 2% per annum. This is
a reasonable estimate of the growth of all petroleum products. However, it
is likely that each individual product will not grow at 2% per annum, so
parametric runs were undertaken to evaluate the impact of growth rates for
petroleum products other than 2%.
Arthur D. Little, Inc.,, has conducted a worldwide survey of crude oil
production and disposition to the various refining regions. This indicated
that two alternatives might be considered for the imported crude oil into
the East Coast region: (1) the imported oil could be of relatively high-
sulfur content characteristic of Arabian crudes, or (2) the imported oil
may be of relatively lower sulfur level, characteristic of Nigerian crudes.
There is great uncertainty as to the demand and availability of various crude
oils in the United States and the ultimate selection of crude oils would
depend upon this uncertain demand as well as a variety of political factors.
The base case under the above scenarios assumed a predominantly Arabian-
type imported oil. An additional parametric run was made with a lower-
sulfur oil being characteristic of the imported oil.
In the program to evaluate the impact of a reduction of sulfur levels
in unleaded gasoline a similar set of parametric studies were required. As
indicated in Table 4, projections of the refinery residual fuel oil sulfur
-27-
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level and variations in imported crude slate, discussed above, were also
considered.
The attention of the refinery industry to sulfur levels in gasoline in
general has been minimal over the last few decades because of the relative
lack of importance of sulfur level as a product specification. Therefore,
there is limited information available regarding the sulfur level of some
of the high sulfur gasoline blend components from the various refinery
processes under various conditions of operation. One of the most critical
refinery units with regard to the sulfur content of unleaded gasoline is
the fluid catalytic cracker (FCC). Sulfur levels of the products from the
FCC unit were obtained by consideration of available data on the FCC unit,
feeding various types of gas oil and under various types of operating
conditions. However, since there are uncertainties in the sulfur content
of gasoline from FCC units, a parametric run was instituted to evaluate the
impact of higher levels of sulfur in the FCC gasoline than was assumed in
the base case scenarios above. This, then, led to a range of potential
impact on the petroleum industry in consideration of both the base case
sulfur level as well as the new parametric case sulfur level.
Because the interest in the sulfur content of FCC gasoline has been
recent, the most efficient means of desulfurizing FCC gasoline has not been
determined. One attractive method of reducing the sulfur level in the FCC
gasoline is by hydrotreating the FCC feedstock. Another method is to
directly desulfurize FCC gasoline, requiring further reforming of the de-
sulfurized product. However, laboratory data has shown that the sulfur
distribution in FCC gasoline is heavily weighted toward the heavy gasoline
component. This suggests that only the heavy gasoline component need be
directly desulfurized, with the light FCC gasoline component going directly
into the gasoline blend stock. This method of desulfurization of FCC
gasoline could potentially reduce the impact on the refining industry of
meeting the possible sulfur regulation. Consequently, one parametric run
was made to determine the possible savings from this method of desulfurizing
FCC gasoline. .
In the study of the impact of proposed regulations reducing the sulfur
oxide emissions from refineries, several parametric studies were also
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undertaken.. Variations in the sulfur level of imported crude slate and
sulfur level of the product residual fuel oil are clearly of potential
importance in the impact of regulations reducing refinery sulfur oxide
emissions. These parametric studies, discussed above, were included in
this particular task.
It is felt that the most likely means by which the refining industry
will meet possible regulations regarding sulfur oxide emissions is to
control the sulfur level of the refinery fuel system, to desulfurize the
FCC feedstock (thereby reducing FCC regenerator sulfur oxide emissions),
and to add tailgas cleanup processes to the sulfur recovery unit (Glaus
process). However, it is also possible that the emissions from the FCC
unit and the refinery fuel system could be reduced by the utilization of
stack gas scrubbing techniques, under extensive study for possible appli-
cation in the utility industry. Consequently, parametric runs were under-
taken to determine if the total impact of the regulations reducing sulfur
oxide emissions could be diminished by application of the utility-based
stack gas scrubbing techniques.
The present report deals with the impact only of the promulgated
regulations reducing the lead additive content of gasoline. Companion re-
7 8
ports ' have been produced which address the impact of the reduction of
sulfur in unleaded gasoline and the reduction of sulfur oxide emissions from
the refinery. All further discussions in the present report will address
the promulgated lead reduction regulations.
C. PLANNING ASSUMPTIONS
This subsection defines the methodology used in developing planning
assumptions required for the present study, as well as identifying the
primary assumptions used. Because of the amount of detail required in
presenting these planning assumptions, only an outline of this information
will be presented below. Additional detail on all of the topics discussed
is presented in the appendices of Volume II of this report.
1. Crude Slate Projections
Projection of the crude slate available for the domestic U.S. refining
industry depends upon a complex interaction of the production capability
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of domestic U.S. crudes, the demand for petroleum products, the influence
of alternate energy sources within the U.S., the worldwide availability
of crude oils and the demand worldwide for these same international crude
oils. Arthur D. Little, Inc., investigated the worldwide oil supply by
consideration of production potential from the North Sea, OPEC countries,
the United States, South America and the socialist countries. Superimposed
upon this production potential was the investigation of world oil demand
forecasts and product demand forecasts for the major refining and consuming
areas, i.e., the U.S.A., the Caribbean, Western Europe, and Japan. These
product demand forecasts indicated, for example, a significant lightening
of the future product demand barrel in Europe, a similar but less signifi-
cant change in Japan, and virtually no change in the relative proportions of
demand within the United States. This led to a projection that there would
be a tendency for heavier crudes, including Nigerian, to be attracted to
the U.S.A. and lighter crudes, including Algerian, to be attracted to
Europe. Crude oil demand for Japan included both imports from the OPEC
countries as well as probable production of Chinese crude oil. In addition,
the demand for sulfur content of various products was investigated, allow-
ing an assessment of the likely movements of crude oils of various sulfur
levels into the various consuming regions in the world. The assessment
of all these factors in combination allowed projections of the disposition
of the various crude oils to the various refining regions.
Superimposed upon any such projection of the availability of crude oils
to the United States must be an evaluation of the proportion of the U.S.
refineries which can run sweet and sour crudes. Obviously, a refinery
designed for sweet crude operation can be redesigned to allow operation
with sour crudes, but this would be accomplished only if there is
sufficient price driving force between the sweet and sour crudes. For
example, the NPRA has evaluated the availability of refineries which de-
pend upon low-sulfur crude oil and have indicated 9% of the refining capa-
city would be unavailable if the industry were forced to substitute high-
''' ' ' . . ' 9
sulfur crude oil for 20% of the sweet crude they are now running.
After consideration of all of these factors the planning assumption
for the crude oil to be run by the U.S. refining industry over the next
decade is summarized in Table 5. Additional detail on the crude oils run
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Table 5. U.S. REFINERY CRUDE RUN
(millions of barrels per calendar day)
Domestic
Alaskan North Slope
Other
Subtotal domestic
Domestic, percent of total
Imported
Arabian
African
South American
Other
Subtotal imported
Imported, percent of total
Total crude run
1977
-
9.4
9.4
70.7%
2.1
0.8
0.5
0.5
3.9
29.3%
13.3
1980
1.3
9.0
10.3
70.1%
2.7
1.3
0.4
-
4.4
29.9%
14.7
1985
1.5
8.5
10.0
61.0%
4.0
2.0
0.4
-
6.4
39.0%
16.4
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to the refining industry in 1973 as well as the assumptions made in reduc-
ing this number of crude oils to a smaller but still descriptive level is
contained in Appendices F and I. Additional detail on the methodology
utilized to obtain the projected crude run shown in Table 5 is presented
in Appendix A.
In addition to the overall crude slate to be processed by the U.S.
refining industry, a breakdown between the crudes being processed by exist-
ing refineries and those to be processed by new grassroots refineries over
the next decade must be specified. As described below, the existing
U.S. industry is simulated by means of six cluster models. The cluster
models process all available domestic crude over the time span of the next
decade and uses imported crude as required to meet overall product demand.
In the base case, these imported crudes were assumed to be comprised pre-
dominantly of Arabian light crude oil. The grassroots model on the West
Coast processes only Alaskan North Slope crude oil, because projections
indicate an ample supply of North Slope crude oil to meet the demands of
PAD District V. Note, however, that although some published reports
indicate an ample supply of North Slope crude oil for PAD District V (even
leading to planning for a pipeline transport of excess North Slope oil to
the Midcontinent), there is not a consensus among the major U.S. refiners
as to whether the North Slope crude will be sufficient to exceed the
petroleum product demand in District V.
The crude oil to be processed in the new grassroots refineries east of
the Rockies is assumed to be imported oil, predominantly Arabian Light crude
oil. However, as noted above, a parametric run was made to investigate the
impact of importation of lower sulfur crude oils, such as Nigerian-type
oils. This parametric run would also indicate the effect of introduction
of Alaskan North Slope crude oil into the Midcontinent, used in new grass-
roots refinery construction east.of the Rockies.
2. U.S. Supply/Demand Projections
Prior to 1973, forecasting the oil demand in the United States was a
straightforward exercise, involving the application of historically deter-
mined growth rates to base year consumption data. However, the pattern of
continuous growth was interrupted by massive increases in foreign oil prices
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(and later domestic decontrolled prices), the Arab oil embargo, and a period
of economic recession.
The general approach which has been used by ADL in product demand fore-
casting is to conduct an indepth analysis of total energy requirements by
individual end-uses, which are then matched with projections of supplies
of basic energy sources, including oil, gas, coal, nuclear and hydroelectric
power. Because of the stimulus of high oil prices and considerations of
security of supply, non-oil energy supplies are developed as rapidly as
possible, limited only by technical, environmental, governmental, and re-
source considerations on the one hand, and by end-use considerations on
the other, such as the nuclear contribution being limited to the base load
electric power generation. The availability of non-oil energy sources are
also evaluated in the light of the recent declines of United States natural
gas production, potential environmental constraints on exploitation of coal
reserves, inflation-caused reappraisal of the capital intensive new energy
forms such as oil shales, and failure to meet targets for nuclear genera-
tion capacity. Furthermore, the product demands incorporate recent changes
in the structure of energy use within end-use sectors, such as increased
electricity consumption in the domestic sector and an increased use of oil
as petrochemical feed stock. Also included is the effect of energy conser-
vation. Of.course, the impact of energy conservation is difficult to assess
from recent product demand data because of the simultaneous occurrence of
economic recession, mild winters, and high oil prices.
In the current study the demand forecast for the United States refining
industry was obtained by two different approaches. To facilitate the task
of combining the demand forecast with the scale up of the cluster models
(Appendix G), one simplistic forecasting approach was utilized which led
to a growth rate of 2% per annum for all products from the domestic refining
industry. However, to ensure that the study results were not unduly in-
fluenced by this simplistic approach, parametric runs were undertaken to
evaluate the affect of a more sophisticated forecasting technique. Each
of these forecasting techniques will be discussed in summary form here,
while additional information of a detailed nature is presented in Appendix B.
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a. Uniform Product Growth at 2% Per Annum
Since the demand forecasts are intended simply to identify differences
in refining requirements among the six scenarios, the actual demand fore-
cast for each product may be relatively unimportant. Therefore, the
methodology, discussed in additional detail in Appendix B, contains three
key simplifying assumptions: (1) demand for all products grows at one
uniform rate of 2% per annum between 1975 and 1985; (2) demand growth
occurs in equal increments throughout this forecasting period; and
(3) product imports are maintained at 1973 levels.
From the base year, 1973, product demand was forecast to realize zero
growth over 1974 and 1975, and average 2% per annum thereafter. Beyond
1975, published projections of oil demand growth rate range between 1% and
3.5% per annum, depending upon assumptions regarding oil prices, consumer
price sensitivity, conservation incentives, the availability of alternate
energy forms, and U.S. government policy. An estimate of 2% average annual
.growth was selected to reflect generally slower than historical growth rates
resulting from higher oil prices, but assuming some optimism regarding the
future economic growth of the country.
It is not likely that this demand forecast will closely approximate the
real growth of petroleum products over the next decade; however, thi-s was
demonstrated in the present study to be an adequate assumption of this
product growth rate. To arrive at this conclusion, parametric runs were
made utilizing more detailed evaluations of product demand growth, the
methodology for which is discussed below.
b. Non-Uniform Petroleum Product Growth Rates
In this more sophisticated projection of product demand growth rate,
two sets of assumptions were used to develop a definitive range of energy
supply/demand balances. In one case, economic growth was assumed to be
somewhat slower than historical rates, but high enough to permit a rising
standard of living. Higher energy prices alone (but not governmental
action) are assumed to result in consumer energy conservation. Likewise,
higher energy prices provide the incentive for the development of domestic
energy resources. A second case was defined in which economic and total
energy growth fall further off historic rates as a result of both strong
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governmental action and higher energy prices. Government action in the
form of conservation incentives, selective taxes on oil, import tariffs
on oil, etc., is taken to enhance the effects of higher prices in dampen-
ing demand and stimulating the development of domestic resources.
In both of these categories, coal production and consumption, which
have declined in recent years, are expected to be rejuvenated as a result
of higher energy prices. After development of the coal industry, production
capacity will no longer be such a severe limitation on coal consumption
after 1980. Natural gas is assumed to be supply-constrained throughout the
forecast period, as production from the contiguous United States fields
continues to decline and is not offset by volumes from Alaskan sources
until very late in the forecast period. Nuclear power is expected to be
the most rapidly growing primary energy form, showing 25- to 30-fold
increase over the forecast period. Nonconventional energy sources, such as
solar, are not expected to play a significant role during the time frame
of this forecast.
The demand for energy was developed by breaking down the total energy
consumption into demand by various end-use sectors (e.g., transportation,
industrial, residential/commercial, etc.). At the end-use sector level,
the historical growth trends in energy consumption were identified and then
modified in line with the basic assumptions described above. The modifi-
cation of historic growth rates took into account our expectations of the
impact of consumer conservation, government policy, energy prices, and
macro-economic conditions.
The breakdown of oil demand by product was accomplished by examining
the oil consumption patterns of specific end-use sectors. To project
future oil consumption patterns in the transportation sector, for example,
separate forecasts were developed for automotive, rail, marine, and air
transport, and the fuels were projected accordingly, taking into account
any efficiency improvements expected.
. The product forecast from this analysis is shown in detail in Appendix
B. Imported petroleum products were assumed to be held constant in the
results of both of these demand forecasts at the 1973 level, as a result of
governmental policy considerations. It is therefore possible to compare
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product imports with the domestic U.S. demand to arrive at the domestic re-
finery demand for the next decade. These refinery production expectations
were used in the LP model studies.
c. Gasoline Grade Distribution
For both of these demand forecasts, it is necessary to project the
gasoline grade requirements over the next decade, under the scenarios
pertaining to lead regulations. By consideration of the expected growth
rate of introduction of new cars (requiring unleaded gasoline), new car
imports, and automotive distribution by weight, the grade distribution
under these scenarios was projected as defined in Table 6.
3. Key Product Specifications
The definition of future product specifications is quite important to
the successful operation of the cluster and grassroots models. For example,
in the study of lead regulations on gasoline, if hydrotreating of fluid
catalytic cracker (FCC) feed stock is used, the sulfur levels of all of the
FCC products would be diminished, including the sulfur level of blending
components in the fuel oil pool. To actually represent the cost of lead
reduction, therefore, a specification must be placed to prevent the fuel
oil pool sulfur level from changing. Hence, in any study of the impact of
a regulation on the refining industry, accurate definition of the product
specifications for the major petroleum products must be considered in
order that the computer model operate in a fashion which would be realistic
in terms of petroleum industry flexibility or market demand.
The importance of economic factors in the determination of petroleum
product specifications is well known. For example, there is usually a
price premium associated with the lower sulfur levels of heavy fuel oil.
In addition, there are performance requirements for certain product speci-
fications, such as the distillation and volatility characteristics of motor
gasoline. In recent years, however, the impact of governmental regulations
on the specifications for petroleum products has become increasingly pro-
nounced, such as a regulation which would specify .the lead level of motor
gasoline. Hence, an assessment is required of the likely future course of
governmental regulations on major products over the next decade.
36-
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Table 6. GASOLINE GRADE REQUIREMENTS BY PERCENT
Grade Distribution %
A. No lead regulations
Premium (100 RON)
Regular (94 RON)
Unleaded (92 RON)
B. Unleaded with no lead phasedown
Percent of pool
Premium
Regular
Unleaded
C. Unleaded with lead phasedown3
Promulgated lead
phasedown pool
average, grams/gal.
Allowable grams of
lead per gallon of leaded gasoline
1977
PAD I II III IV V
27 16 25 13 38
65 76 68 80 52
8 8 7 7 10
15 5 13 3 22
54 63 56 66 42
31 32 31 31 36
1.0
1.74
1980
I II III IV V
33 22 31 19 44
64 75 67 79 52
33224
41315
37 39 38 40 31
59 60 59 59 64
0.5
1.66
I
1985
1 II III IV V
40 29 38 26 50
58 69 60 72 48
22 2 22
00000
00000
100 100 100 100 100
b
b
U.S
1977
24
68
8
12
56
32
1.0
1.74
. average
1980 1985
30 37
68 61
3 2
3 0
37 0
60 100
0.5 b
1.66 b
I
U)
asame distribution pattern used as in unleaded (Item B.)
b100% unleaded gasoline
-------
Complete identification of product specifications in the computer model
is contained in Appendix C. The highlights of the analysis and the principal
product specifications used are summarized here.
a. Motor Gasoline Specifications
Among the most important product specifications for motor gasoline in
such a study is the octane number of the several grades of motor gasoline to
be produced from the refining industry. Survey data on the three grades of
motor gasoline is shown in Table 7. In the modeling studies of the present
investigation, the projected research and motor octane numbers for regular,
premium and unleaded gasoline, respectively, over the remainder of the
decade varied by region (Appendix C), but were approximately 93/85, 99/91,
and 92/84. Some studies ' may be interpreted to indicate that the un-
leaded gasoline octane numbers shown in Table 7 will be increased over the
next decade. Hence, two additional parametric runs were conducted, wherein
the research and motor octane numbers of the unleaded gasoline pool were
93/85 and 94/86, respectively.
In Table 8 are shown selected results of a survey on unleaded gasoline,
broken down by district. It is apparent that the 92/84 specification on
the research and motor octane numbers used in this study describes a large
fraction of the United States marketing area, particularly since MON is
the limiting specification. The average sensitivity is somewhat larger
than used in the present study. This will make the study results conserva-
tive in principle; in practice, it will have no effect due to MON being the
limiting specification.
The Reid vapor pressure of the gasoline pool, as shown in Table 7, varies
significantly between summer operation arid winter operation. Previous
12
studies have, shown that the summer/winter operation can be effectively
simulated by means of an average Reid vapor pressure, reflective of both
summer and winter operations. Consequently, in the present program all
gasoline specifications were set at 10.5 Ibs. RVP.
13
It has also been reported that realistic; distillation specifications
on motor gasoline must be used in computer simulations to ensure that the
model adequately represents the refining industry. Table 7 provides
historical data on distillation specifications for comparison with those placed
-38-
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Table 7. MOTOR GASOLINE SURVEY DATA
Research octane no.
Motor octane no.
Lead, g/gal
Reid vapor pressure, Ib.
Distillation, °F
20% evaporation
30% evaporation
50% evaporation
Grades of motor gasoline
Regular
Winter
1974-1975
93.4
86.1
1.58
12.0
129
152
202
Summer
1974
93.4
85.9
1.90
9.6
142
164
211
Premium
Winter
1974-1975
98.9
91.6
2.10
11.8
134
161
210
Summer
1974
98.9
91.5
2.32
9.7
146
172
217
Unleaded
Winter
1974-1975
92.3
84.0
0.02
10.9
139
166
214
Source: U.S. Dept. of Interior, Bureau of Mines, Petroleum Products Survey Motor Gasolines,
Summer 1974 and Energy Research & Development Administration,
BER C/PPS-75/1 - Motor Gasolines, Winter 1974-75.
-39-
-------
Table 8. MOTOR GASOLINE SURVEY, WINTER 1974-75
AVERAGE DATA FOR UNLEADED GASOLINE IN EACH DISTRICT
District name
Northeast
Mid-Atlantic Coast
Southeast
Appalachian
Michigan
North Illinois
Central Mississippi
Lower Mississippi
North Plains
Central Plains
South Plains
South Texas
South Mountain States
North Mountain States
Pacific Northwest
North California
South California
Average
Gr.r
ASTM
D287
°API
59.2
60.2
59.8
60.6
61.7
61.2
62.5
61.2
63.3
65.1
63.9
60.6
61.9
63.8
61.8
56.9
59.0
61.3
Sulf.,
ASTM
D1266
wt. %
0.029
.027
.024
.022
.033
.026
.024
.034
.052
.037
.033
.019
.038
.033
.010
.016
.044
.029
Octane number
RON
ASTM
D2699
92.8
92.5
92.5
92.9
91.9
92.3
92.0
92.5
92.0
92.0
92.0
92.0
91.5
91.5
92.7
93.2
92.5
92.3
MON
ASTM
D2700
83.9
83.8
83.7
84.5
83.9
84.3
83.8
83.8
84.3
84.3
84.6
83.7
83.4
83.6
84.7
83.9
83.5
84.0
R +M
2
88.4
88.2
88.1
88.7
87.9
88.3
87.9
88.2
88.2
88.2
88.3
87.9
87.5
87.6
88.7
88.6
88.0
88.2
RVP,
ASTM
D323
Ib
11.0
11.4
11.0
11.8
12.1
12.2
10.9
11.5
11.1
10.8
10.8
11.1
9.7
10.0
11.0
9.4
9.7
10.9
Source: Energy Research & Development Administration, BER C/PPS75/1 Motor Gasoline,
Winter 1974-1975.
-40-
-------
on gasoline products as follows. For premium gasoline the 150°F distilla-
tion temperature is reached between 20 and 28% distilled overhead,
and the 210°F distillation temperature is reached between 42 and 54% dis-
tilled overhead. With regular and unleaded grades the 150°F distillation
point is reached between 20 and 30% distilled overhead, whereas the 210°F
specifications were identical to those of the premium grade gasoline.
b. Sulfur Content of Residual Fuel Oils
As indicated above, one of the key product specifications required
to ensure that the model approximates realistic operation is the sulfur
level of the residual fuel oil. This specification is important because
the minimum cost approach of the LP model is to produce higher sulfur
fuel oils rather than adding desulfurization and Glaus plant investment.
This subsection summarizes the methodology and results of our forecast for
the U.S. fuel oil demand-of differing sulfur contents. Of particular
emphasis here is the sulfur level of residual fuel oils produced from
domestic U.S. refineries, in contrast to the sulfur level of total U.S.
residual fuel oil demand, which is influenced by imported fuel oils.
To determine the allowable sulfur content of fuel oil to be burned
as refinery fuel (and not marketed) for each of the cluster models, an
evaluation was made of the existing state regulations on allowable SO
X
emissions. This analysis included an investigation of the regulations
applicable to the particular refineries being simulated in the cluster
models as well as those for the PAD district the model was intended
to simulate. From this analysis of regulations, sulfur specifications
were determined for refinery fuel for each cluster model, ranging from
0.6% to 1.5% depending on the geographical location of the cluster model
simulation. A complete discussion of the methodology and results of this
analysis is presented in Appendix D.
The remainder of this section deals with the si*lfur specification of
residual fuel oils manufactured and marketed in the U.S. (as distinguished
from fuel oils burned within, the refinery or imported for domestic sales).
The forecast of the sulfur level of residual fuel oils manufactured
and marketed in the U.S. was based upon an analysis of the current air
-41-
-------
quality regulations required by federal, state, and city agencies; the
current status of these regulations, with particular attention to variances
being granted; the likely future trend of environmental regulation; and the
overall economic environment. In the course of this program, discussions
have been held with federal, state, and city environmental protection
authorities. A program of interviews with East Coast electric utility
companies, accounting for over 90% of the total fuel oil consumed by
East Coast utilities, was also conducted.
The current inflationary tendency in the United States and the U.S.
policy of energy independence could be contributory factors to the re-
laxation of air pollution regulations, particularly if the use of domestic
coal is to be emphasized. Tendencies to use higher sulfur fuel oils when
meteorological conditions are favorable and lower sulfur oils when
meteorological conditions are adverse will also play a potential role in
the average sulfur level of the fuel oil burned in the U.S. during the next
decade. On the other hand, environmental regulations now in effect will
not be rapidly changed. Most of the existing variances are temporary and
there will still be areas in the United States which are unlikely to grant
or renew exemptions.
The historic trend of the sulfur content of heavy fuel oils manufactur-
ed and marketed in the United States is shown in Figure 5. It is apparent
that the sulfur content of the lighter grade fuel oils has diminished
considerably in the last five years. However, the trend of the heavier
grade fuel oils.is less evident. Table 9 shows the availability of residual
fuel oil by sulfur level for the year 1973 and it is apparent that the re-
finery residual fuel oil production in each of the PAD districts has been
at relatively high sulfur levels, between about 1 and 1.5% on average.
However, considerable quantities of imported low sulfur oil is marketed,
which allows the burning of fuel oil that will meet the statewide sulfur
regulations discussed ^Ln Appendix D.
Our projections of future sulfur levels for U.S. fuel demand stem from
the foregoing discussion and also draw upon more detailed information about
likely developments in individual states. From a consideration of such
factors it was projected that the sulfur content of the U.S. residual fuel
oil demand would be between 1.1 and 1.4%.
-42-
-------
Grade 4 Burner Fuel Oils
1.4
c 1.2
o>
u
£ 1.0
S> 0.8
i
0.6
/
/
X
X
^-4
s
>
^,
\
s
' ,
J
/
1962 1964 1966 1968 1970 1972 1974
Grade 5 (Light) Burner Fuel Oils
1962 1964 1966 1968 1970 1972 1974
Grade 5 (Heavy) Burner Fuel Oils
1962 1964 1966 1968 1970 1972 1974
£ 1.8
1.4
Grade 6 Burner Fuel Oils
1962 1964 1966 1968 1970 1972 1974
Source: U.S. Dept. of Interior, Bureau of Mines, Petroleum Products Survey, Burner Fuel Oils, 1974
FIGURES HISTORIC TREND OF HEAVY FUEL OIL SULFUR CONTENT AS PRODUCED
AND MARKETED IN U.S.
-43-
-------
Table 9. AVAILABILITY OF RESIDUAL FUEL OIL BY SULFUR LEVEL, 1973
(Thousands of Barrels)
P.A.D. District
1
II
III
IV
V
U.S. Total
Fuel oil source
Refinery production
imports
Refinery production
imports
Refinery production
imports
Refinery products
Imports
Refinery production
Imports
Refinery production
Imports
Sulfur content, wt%
0-0.5
11,743
232,889
985
1,654
12,790
201
824
0
70,348
9,542
96,690
244,286
0.51-1.00
15,834
130,258
30,368
1,964
26,462
2,303
2,451
0
7,385
32
82,500
134,557
1.01-2.00
16,112
74,732
25,952
1,719
9,927
547
3,323
0
47,528
1,464
102,842
78,860
over 2.00
8,569
160,814
13,815
770
39,276
1,408
3,266
0
7,639
221
72,565
163,212
Total
52,258
598,912
71,120
6,107
88,455
4,459
9,864
0
132,900
11,259
354,597
620,736
Source: U.S. Dept of Interior, Bureau of Mines, Availability of Heavy Fuel Oils by Sulfur Level, Dec, 1973.
-------
For purposes of this study we assumed an overall U.S. average sulfur
content for residual fuel of 1.3 wt.%, representing maximum sulfur levels
of 1.4 wt.% east of the Rockies and 0.9 wt.% west of the Rockies.
A parametric analysis assumed a U.S. average residual fuel sulfur content of
1.1 wt.%, the weighted average of 1.2 wt.% sulfur east of the Rockies and
0.75 wt.% west of the Rockies.
The importance of testing the sensitivity of study results to the
overall U.S. average residual fuel sulfur level is highlighted in Table 10
for the East of Rockies grassroots, Scenario A. It can be seen that the
impact on the industry simulation for variations between 1.4% (base case)
and 1.2% (parametric run) sulfur level of the East of Rockies residual
fuel oil pool is quite marked. As shown in that table, the imported residual
fuel oil and the production from existing refineries must be added to the
production from new East of Rockies grassroots refineries in 1985 to
match the total residual fuel oil sulfur content on the East Coast. Be-
cause of the leverage effect of the small volume of residual fuel oil pro-
duced from grassroots.refineries versus the volume available from imports
and existing refineries, the variation in sulfur content of residual fuel
oil produced in East of Rockies grassroots refineries is from about 0.6 wt.%
to 1.8 wt.% depending upon whether the East of Rockies pool is at 1.2 wt.%
or 1.4 wt% (corresponding to overall U.S. pool averages of 1.1 wt.% and
1.3 wt%, respectively). Obviously the cost of desulfurization capability
in the grassroots refineries varies accordingly.
Other specifications on the residual fuel oil produced from the U.S.
refining industry in addition to the sulfur content were, of course, re-
quired. These specifications are summarized in Appendix C.
4. Processing and Blending Routes
The computer simulation of the U.S. refining industry utilized cluster
models, chosen to represent the existing refinery structure, and grassroots
models, chosen to represent either new grassroots refinery constructions
or major expansions of existing refineries. The cluster models were allowed
to add new downstream process equipment of reasonable economic size.
Accordingly, these models had essentially the same processing and blending
capabilities during the study period.
-45-
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Table 10. GRASSROOTS REFINERY FUEL OIL SULFUR PROJECTION - 1985
SCENARIO A - EAST OF ROCKIES ONLY
Total East-of-Rockiesa
. Sulfur content
(wt%)
1.2
1.4
Fuel oil
(MBPD)
2,852
2,852
Imports
Sulfur content
(wt%)
1.28
1.28
Fuel oil
(MBPD)
1,797.7
1,797.7
Existing refineries'1
Sulfur content
(wt%)
1.44
1.44
Fuel oil
(MB/CD)
561.3
561.3
Grassroots refineries'5
Sulfur content
(wt%)
0.63
1.78
Fuel oil
(MBPD)
493
493
aFuel oil produced in refineries plus imports
''Fuel oil produced and marketed in U.S.
-------
The unit yields and product properties were obtained from a variety of
petroleum sources, including the petroleum literature and process licensors.
The ability of the cluster models to represent actual refineries when using
these unit yields and product properties was confirmed in calibration
studies, discussed below. These same unit yields and product properties
were also used in the grassroots refinery simulations. A complete discussion
of the unit yields and product properties available in the computer program
is contained in Appendix H.
Hydrogen generation in the cluster models was obtained solely from
refinery gas or imported natural gas. In the grassroots refinery, the
first option was also allowed, as well as the ability to generate hydrogen
from petroleum naphtha.
Coking capacity for the cluster refineries was maintained at a level
similar to that derived during the calibration runs. No coker capacity "
was allowed to be constructed in the East Coast grassroots refinery, because
of market demand considerations. Visbreaking and solvent deasphalting were
not allowed in the grassroots models.
In the cluster refineries desulfurization of atmospheric bottoms and
vacuum bottoms was not allowed, because the cluster refineries were in-
tended to be descriptive of the current operation of certain existing
refineries. In the grassroots refineries, both atmospheric and vacuum
bottoms desulfurization were allowed.
The properties of the products from the fluid catalytic cracking (FCC)
unit are important to the assessment of the impact of EPA. lead regulations
since catalytic cracked gasoline represents a significant portion of the
gasoline pool. The FCC unit in addition provides feed to the alkylation
unit which is. a source of high clear octane components. Additional detail
on the product properties for the FCC unit as well as the many other units
used in the models are discussed in Appendix H.
Another unit, critical to the success of a study of motor gasoline
properties is the catalytic reforming unit. Table 11 summarizes yields
of the Louisiana light naphtha cut at 90, 95 and 100 RON severity re-
forming and shows the reformate yield loss associated with operating the
-47-
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Table 11. CATALYTIC REFORMING YIELD DATA
Louisiana crude
(350 PSI separator pressure)
Yield, LV fraction
Propane
I so butane
Normal butane
Reformate
90 RON
.0437
.0192
.0336
.8449
95 RON
.064
.027
.043
.800
100 RON
.090
.035
.054
.745
-48-
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unit for a high octane component. A significant amount of effort was
expended in the development and confirmation of the yields and properties
of this particular unit. Yields for low pressure operation, high pressure
operation, and an average operation of reformers across the industry were
simulated in detail for several different cases to ensure that the assumptions
made in the yield patterns of this critical unit did not significantly detract
from the assessment of the impact of the lead additive regulations. A detailed
discussion of the reformer evaluations is contained in Appendix H.
Another factor critical to the success of the impact study is the
blending octane numbers of reformate, FCC gasoline, etc., for the variety
of feedstocks, operating conditions, and gasoline pool compositions used
in the study. Because of their importance, blending numbers used in this
study were circulated to representatives of the API/NPRA Task Force assist-
ing in the study. In general there was good agreement between the blending
numbers utilized in the present study and the suggestions made by members
of this task force, as summarized in Table 12. Since any errors in the
motor octane number blending characteristics of these streams, in particular,
would have a pronounced impact on the results of the study, parametric runs
were instituted to determine the result of higher octane numbers required
for the unleaded gasoline than 92/84 (RON/MON).
In the model, two distinct hydrogen systems were employed. A high
purity hydrogen system was fed by steam-methane reforming and was delivered
to high pressure desulfurization and hydrocracking units. The low purity
hydrogen system was produced from catalytic reformer units and was dis-
tributed to low pressure desulfurization units. Allowances were provided
for interchanges from the high purity hydrogen system to the low purity
hydrogen system. In addition normal allowances for solution losses and
flaring circumstances were also provided. Careful analysis of this hydrogen
distribution system indicates that it is a reasonable simulation of refinery
systems and will be an adequate description for the purposes of the study.
If additional purification of the low purity hydrogen system is required
cryogenic units can be added without having a major impact on the overall
capital investment penalty associated with the potential regulations.
-49-
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Table 12. ILLUSTRATIVE BLENDING OCTANE NUMBER COMPARISON
(Clear Motor Octane Number)
Stream
90 Sev. reformate
100 Sev. reformate
FCC gasoline (full range)
Alkylate
ADL model
80.1
86.0
80.0
89.8
Ethyl
81-82
87-88
80
-
DuPont
82
87
79-80
-
Marathon
-
-
82-83
92-93
Citgo
-
87.1
79.9
88.7
-50-
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5. Calibration of Cluster Models
The U.S. refining industry is composed of nearly 300 individual re-
fineries scattered throughout the country, each characterized by a unique
capacity, processing configuration, and product distribution. There are,
however, logical regional groupings of major refineries with similar crude
supply patterns, processing configurations, and product outputs. Therefore
the cluster model approach was developed for this study, in which the
existing U.S. refinery industry was simulated by the average operation of
three similar refineries located in each of six selected regions. The
selection of the three refineries as well as the six selected regions was
accomplished with the assistance of the API/NPRA Task Force cooperating in
this study. The most important criteria guiding the selection of these
cluster models were: (1) each cluster model was to represent, as closely
as possible, a realistic mode of operation, in that processing units were
to be of normal commercial size and that plants would be allowed normal
flexibility in regard to raw material selection and product mix, (2) the
cluster model crude slate, processing configurations, and product outputs
were to bracket, as best as possible, those variations peculiar to each
geographic region.
The final selection of refineries to be represented by the cluster
models is shown in Table 13.
PAD District I was simulated by three refineries in the Philadelphia-
New Jersey area with capacities ranging from 160,000 to 255,000 bbls/day.
PAD District II was characterized by two refinery clusters, one repre-
sented by the Large Midwest cluster model simulating the Indiana/Illinois/
Kentucky district and processing high sulfur crudes. The Small Midcontinent
cluster was also used to represent PAD II, simulating refineries in the
Oklahoma/Kansas/Missouri district. This Small Midcontinent model was also
used to represent small refiners in PAD Districts other than PAD District
II, as described in Appendix G. PAD District III, which represents about
40% of the U.S. refining capacity, was simulated by two models because of
its overall importance and because differing types of refinery configurations
could be identified. The Texas Gulf cluster was typified by a crude
capacity exceeding 300,000 bbls/day and heavy involvement in petrochemicals,
lubes and other specialty products. The Louisiana Gulf Coast cluster
-51-
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Table 13. REFINERIES SIMULATED BY CLUSTER MODELS
PAD district
Cluster identification
Refineries simulated
1973
Crude capacity,
MB/CD
III
East Coast
Large Midwest
Small Midcontinent
Texas Gulf
Louisiana Gulf
West Coast
Arco Philadelphia, Pa.
Sun Oil - Marcus Hook Pa.
Exxon Linden, New Jersey
Mobil - Joliet, Illinois
Union Lemont, Illinois
Arco East Chicago, Illinois
Skelly El Dorado, Kansas
Gulf Oil -Toledo, Ohio
Champlin - Enid, Oklahoma
Exxon Baytown, Texas
Gulf Oil - Port Arthur, Texas
Mobil Beaumont, Texas
Gulf Oil - Alliance, La.
Shell Oil - Norco, La.
Cities Service Lake Charles, La
Mobil - Torrance, California
Arco Carson, California
Socal - El Segundo, California
160.0
163.0
255.0
160.0
140.0
135.0
67.0
48.8
48.0
350.0
312.1
335.0
174.0
240.0
240.0
123.5
165.0
220.0
-52-
-------
represented refineries between 174,000 and 240,000 bbls/day and processed
a single source of sweet crude. PAD District V was simulated by a West
Coast cluster model and was represented by refineries in the Southern
California area. PAD District IV was not explicitly simulated because it
represents less than 5% of the total U.S. refining capacity. It was in-
cluded in the scale up, however, as discussed in Appendix G.
Additional detail on the development of the cluster model concept is
contained in Appendix F.
Upon completion of the development of the cluster refinery modeling
concept, an extensive calibration effort was undertaken by ADL with the
assistance of the Bureau of Mines, Environmental Protection Agency, and
the API/NPRA Task Force. A complete discussion of the calibration effort
is contained in Appendix I. Only the highlights of this effort will be
summarized here.
The annual refining surveys published in the Oil and Gas Journal were
used as the basic reference source for determining the cluster model
processing configurations, allowing simulation of those refineries listed
0 in Table 13. This source also provided the processing unit capacity avail-
able in these cluster refineries, used to limit the available capacity in
the cluster models.
The 1973 annual input and output data was furnished by the Bureau of
Mines for the aggregate of the three specific refineries comprising each
individual cluster model (Table 13). These data included the following:
(1) crude oil and other raw materials fed to the refineries, broken down
by individual state of origin for domestic crudes and by country of origin
for foreign sources; (2) statistics on fuel consumed .for all purposes in
the refineries; and (3) all petroleum products manufactured by refineries
for the year.
Each individual oil company furnished EPA the following proprietary
data for 1973: (1) gasoline grade distribution and the associated octane
levels and lead levels for each grade, (2) total gasoline volumes and
average sulfur contents, (3) crude slates and sulfur levels, and (4) in-
takes and operating conditions on selected units. The EPA averaged these
-53-
-------
data to obtain information representing the cluster models, and supplied
these data to ADL.
As summarized in Appendix I, four main areas were considered to compare
the degree of calibration to the cluster models. These were: (1) overall
refinery material balance (i.e., volume of the crude intake required to
balance specified product demands and internal fuel requirements), (2) re-
finery energy consumption, (3) processing configuration, throughputs and
operating severities, and (4) key product properties (e.g., gasoline clear
pool octanes, lead levels, etc.).
A selected result showing a portion of the calibration results for the
Large Midwest cluster is presented in Table 14. Shown here is the crude
intake, as specified by the Bureau of Mines data and industry data to pro-
vide a given product outturn, as well as a result of the computer model
simulation. Also shown is the energy consumption required for this crude
intake and product outturn, and a summary of the principle refinery process
operations. It is apparent that the agreement of the model prediction and
the data base for this Large Midwest cluster is excellent. Additional de-
tail on other clusters as well as other calibration criteria are contained
in the discussion of Appendix I.
6. Existing and Grassroots Refineries
The existing U.S. refining industry was simulated by means of the
six cluster models, as discussed above. New grassroots capacity was
required when atmospheric distillation requirements exceeded 90% of the
calendar day capacity listed in the Oil and Gas Journal for the specific
refineries being simulated by these cluster models. In practice, operation
at 100% of the calendar day capacity cannot be achieved due to unscheduled
refinery turnarounds, limitations on secondary processing capacity imposed
by product specifications, variations in crude slate, crude supply restric-
tions, regional and logistical constraints, and imbalances between individ-
ual product output and market demand. The industry has historically achieved
14
about 90% of calendar day capacity , so this limitation was used to provide
a conservative assessment of when new capacity is required, thereby providing
a conservative assessment of the penalties associated with the EPA regu-
lation. However, since all penalties are reported as differences between
-54-
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Table 14. CALIBRATION RESULTS FOR LARGE MIDWEST CLUSTER
Material balances
Total crude intake MB/CD
Energy consumption
Purchased natural gas MB/CD (F.O.E.)
Total fuel consumption MB/CD (F.O.E.)3
Electricity MKWH/D
Processing summary
Catalytic reforming Intake MB/CD
severity RON
Catalytic cracking Intake MB/CD
conversion % vol.
Alkylation Production MB/CD
Coking Intake MB/CD
BOM Data
146.1
.2
8.1
843
Oil and gas
capacity MB/SD
32.7
-
55.0
-
13.4
15.8
Industry
data
145.5
-
-
-
Industry
data
27.8
90.7
51.2
74.9
11.4
13.6
Model
run
145.5
.2
8.4
545
Model
run
27.6
90.0
48.7
74.3
12.0
14.1
aExcludes catalyst coke
-55-
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the various scenarios considered, a precise figure of calendar day utili-
zation is unnecessary.
To meet increased product demand and provide additional crude required
to manufacture low lead and unleaded gasoline, an increase in crude run to
each cluster is required as the decade proceeds. The existing refining
industry (cluster model) is allowed to expand down-stream processing
capacity as required to meet these constraints. However, when the crude
run reaches the limitation of the atmospheric distillation capacity,
the expansion of the cluster model is no longer allowed, and new grassroots
facilities must be constructed.
The grassroots models used in this study represent either new, basic
grassroots refineries to be built in the United States over the next decade
or major expansions in crude distillation capacity in existing refineries.
Those major expansions of existing refining capacity which have taken
place within the last few years are often noted by new atmospheric distilla-
tion capacity, new tankage requirements, and frequently new or greatly
expanded production of refinery products which have otherwise been only a
minor component of total product outturn. An example of such major new
expansion is the production of large quantities of low sulfur fuel oil.
In any event, this type of new major refinery expansion frequently exhibits
relatively little interaction with existing refinery processing units, and
little additional flexibility for product blending over that of a refinery
built on a segregated grassroots basis. Therefore, any requirements for
distillation capacity in the industry were simulated by addition of new
grassroots capacity. The product outturn and therefore the crude run
required for this new grassroots capacity was chosen to be sufficient to
balance the product demand and product quality requirements for the United
States as a whole. New grassroots construction was simplified by considera-
tion only of a location typified as "east of the Rockies" and another
location typified as "west of the Rockies," each location with its own
crude slate as discussed in Appendix A. ,
The yields and product qualities for new capacity additions were
identical to those provided, in the cluster model operation, with the exception
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of catalytic reforming, wherein all new capacity was assumed to utilize a
yield structure and investment representative of low pressure, bimetallic
reformers.
The refinery fuel system for both the cluster models and the grassroots
models was constrained to meet environmental regulations typical of the
refining regions in which these models operated. A complete discussion
of the allowable refinery fuel sulfur level and the methodology by which it
was determined is contained in Appendix D.
7. Economic Basis for Study
The estimation of capital investment and operating costs for petroleum
processing units is difficult at the present time because of the rapid rate
of inflation and the long elapsed time that it takes to build a large and
. complex petroleum refinery. Investment estimates were obtained by using
data from a variety of literature sources, such as the Oil and Gas Journal,
and by extensive discussions with process licensors and contractors. In
order to minimize the effect of future cost escalations on the cost
estimations, the investment estimates were made on a 1975 first quarter'
basis. This investment estimate will be applicable for refineries which
were conceived, designed, equipment ordered, and constructed all within
the first quarter of 1975. Escalation of these costs are reported separately
in order to allow recalculation of these ultimate investments on other
inflation schedules if so desired.
Onsite capital investments were estimated by compositing the informa-
tion available from these several sources. The onsite process unit esti-
mates used in this study are typified in Table 15. Additional detail of
the specific information on capital investments is contained in Appendix H.
The primary purpose of the economic study was to determine the capital
investment and operating costs associated with the lead additive regulation
under study. Consequently economic penalties for the cluster models were
determined by comparing, for example, Scenario B versus Scenario A. There-
fore, only' the incremental downstream capacity required for Scenario B ver-
sus Scenario A was determined and costed. As part of this analysis, charges
were assessed for the utilization of spare, idle capacity which was available
in 1974 but was incrementally consumed at a faster rate for Scenario B than
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Table 15. ONSITE PROCESS UNIT COSTS
Process unit
Atmospheric distillation
Vacuum distillation
Catalytic cracking
Catalytic reforming (low pressure)
Alkylation (product basis)
Isomerization once through
Isomerization recycle
Hydrocracking (high severity)
Naphtha hydrotreating
FCC/coker gasoline hydrotreating
Light distillate hydrotreating
Heavy distillate hydrotreating
Vacuum gas oil desulfurization (also FCC feed)
Atmospheric residual desulfurization
Vacuum residual desulfurization
Coking delayed
Hydrogen generation - Methane S/MMSCF/SD
- Naphtha S/MMSCF/SD
Sulfur recovery (95% removal) - $/short tons/SD
"Sulfur recovery (99.95% removal) - $/short tons/SD
Size basis, MB/SD
100
40
40
20
10
10
10
25
20
15
30
30
25
50
15
'10
50
50
100
100
Investment, S/B/SD
1975, 1st quarter
165
185
925
800
1,400
620
1,240
1,400
235
320
230
250
370
775
1,500
930
230a
260a
25,000
50,000
a$/MSCF/SD
-58-
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for Scenario A. Any processing unit severity upgrading thafe was required
was also costed. For example, if the severity of the catalytic reforming
unit required was 100 RON in Scenario B but was only 90 RON in Scenario A,
then the incremental cost was charged to Scenario B for upgrading this
existing catalytic reformer capacity. To determine whether or not the
catalytic reformer severity needed to be upgraded, discussions were held with
industry sources, who estimated that approximately 25% of the existing
catalytic reformer capacity was already capable of 100 RON severity
operation. Therefore the remaining 75% of catalytic reformers which were
not capable of this mode of operation required an upgrading cost if 100 RON
severity were required. Additional discussions of the method of calculation
for spare capacity utilization and severity upgrading for all the refinery
processing units is contained in Appendix E.
Associated with the onsite costs of incremental downstream capacity
in the cluster models is the cost requirement for offsite investment and
working capital. As discussed in Appendix E, these costs were taken as a
constant 40% of the onsite costs for the cluster models.
For the grassroots models the complete refinery was costed as required
for each scenario. For example, the capital cost for the grassroots
refinery in Scenario C was then compared to that of Scenario A to determine
the incremental costs associated with the lead additive regulations. In
this case the onsite process costs were determined in a fashion analogous
to that discussed for the cluster model. However, the offsite costs were
determined by the Nelson complexity factor approach and a separate
assessment of working capital requirements was made, at approximately 70%
of the total onsite capital investment. A summary of the items included
is shown in Table 16. The net effect of this method of calculation was that
offsite and associated costs (including working capital) were approximately
200-300% of onsite costs. For these grassroots refineries the complete
onsite plus offsite refinery costs range from about $2900 per barrel per
day for a low sulfur crude up to about $3500 per barrel per day for a high
sulfur crude, on a 1975 first quarter basis. An illustration of the
investment requirements for a grassroots refinery of the present study is
shown in Table 17.
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O
I
Table 16. OFFSITE AND OTHER ASSOCIATED COSTS OF REFINERIES USED IN
ESTIMATING COST OF GRASS ROOTS REFINERIES
1st Quarter 1975 Basis
(% onsite cost)
Type of cost
Mainly complexity-related offsites, %
Utilities, safety, fire and chemical handling
Buildings
Piping, product handling
Site preparation, blending, roads and others
Subtotal, complexity -related
Other offsites, %
Includes tankage, ecology and land
Total offsites
Associated costs
Chemicals and catalysts
Marine or equivalent facilities
Working capital
Other
Includes training, spares, autos, telephone.
domestic water, cafeteria and recreation
Total associated
Refinery complexity8
3
61.0
14.0
40.0
23.0
138.0
87.0
225.0
6.0
20.0
70.0
20.0
116.0
4
51.4
9.8
26.0
15.8
103.0
67.0
170.0
5.0
15.5
70.0
20.0
110.5
5
46.2
8.2
21.4
13.1
88.9
59.0
147.9
4.5
12.8
70.0
20.0
107.3
6
41.0
6.6
16.8
10.3
74.7
51.0
125.7
4.0
10.0
70.0
20.0
104.0
7
39.2
6.2
15.6
9.4
70.4
48.0
118.4
3.8
8.8
70.0
20.0
102.6
8
36.9
5.6
14.1
8.3
64.9
44.2
109.1
3.5
7.8
70.0
20.0
101.3
9
35.7
5.2
13.2
7.6
61.7
42.0
103.7
3.3
6.8
70.0
20.0
100.1
10
34.0
4.7
12.0
6.7
57.4
39.0
96.4
3.0
5.8
70.0
20.0
98.8
See reference #17.
-------
Table 17. GRASS ROOTS REFINERY CAPITAL INVESTMENT
Location:
Crude processed:
Refinery complexity:
East of Rockies
Arabian Light
7.01
Scenario: C
Process unit
Atmospheric distillation
Vacuum distillation
Catalytic reforming
Catalytic cracking
Hydrocracking
Isomerization-recycle
Alkylation (product basis)
Hydrogen manufacture
(MMSCF/SD)
Desulfurization
Full range naphtha
Straight run distillate
Vacuum residue
Sulfur recovery and amine
treat (short tons/SD)
Throughput
(MB/SO)
231.7
100.1
52.2
47.4
26.6
11.5
14.9
62.1
62.9
26.4
21.1
366
Total onsite investment
Offsite and associated costs at 151.0% onsite
investment
Working capital at 70.0% onsite investment
Total cost
lnvestment/8/SD
Onsite investment
(millions of dollars)
28.1
12.5
36.5
42.0
32.2
13.8
17.8
13.3
9.4
6.7
27.0
9.4
248.7
375.6
174.1
798.4
3,446
-61-
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Operating costs were determined by a direct assessment, on a unit-by-
unit basis, of either the additional downstream processing requirements of
the cluster models or the complete refinery requirements for the grassroots
models. Catalysts and chemicals, cooling water and electricity were deter-
mined from the processing unit intakes themselves and tetraethyl lead was
determined as required to meet the gasoline blend requirements. Maintenance
and manpower assessments were determined on an off-line basis, i.e., they
were not determined by the computer model directly. Manpower requirements
were determined both for severity upgrading and for new unit construction
by examination of operating requirements of the particular units under
consideration. Maintenance costs were assessed at a level of 3% of onsite
investments and 1.5% of offsite investments.
In addition a capital charge was assessed for new investment in any
processing unit, either in a cluster model or a grassroots model. The
capital charge was taken to be 25% of the total capital investment, which
is approximately 12% rate of return, on an after tax, discounted cash
flow basis. The same capital charge was applied to both the downstream
capacity additions in the cluster model and new grassroots facilities
in a grassroots model, on the philosophy that the amortization for both
types of investments must be approximately equivalent in the present
economic climate. A typical level of cash operating expenses (exclusive
of capital charge)for the grassroots refinery was approximately
80c per barrel of crude capacity.
An assessment of cost escalations over the next decade was made to
reflect the actual capital investment which may be required in the time
interval in which the actual refinery construction will take place. Such
an escalation of costs can result from increases in the costs of refinery
equipment which outpace the general inflationary trend in the United States.
As a basis for this cost escalation, an approach similar to the usual con-
struction S-curve escalation analysis was conducted, in which the annual
escalation for the years 1975-1985 were taken to be 20%, 17%, 15%, 10%,
10%, 10%, 9%, 9%, 8%, 8%, 8%. C.learly, assessments of the rate of cost
escalation for the coming decade are highly intuitive and will depend upon
a variety of factors, such as further increases in foreign oil prices, general
inflationary tendencies in the United States, and many others which are
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difficult to predict with any degree of precision. Indeed, cost escalation
now appears to be flat through 1975. Therefore, the impact of the regulation
on the refining industry will be summarized in the following body of the re-
port both on a 1975 first quarter basis and on as escalated basis, with the
above assumed escalation schedule.
8. Scale Up to National Capacity
In the cluster model approach, the U.S. refining industry has been
simulated by six individual cluster models, each cluster representing three
existing refineries in different regions of the United States. To represent
the impact on the U.S. refining industry, it is necessary to scale up the
results of the cluster model analysis to a regional and a national basis.
From this estimate of the total production capability of the existing U.S.
refining industry, requirements of the new grassroots models are obtained
by subtracting existing capability from the total product demand of the
U.S. refining industry. Appendix G discusses the scale up method and the
derivation of product demands for grassroots refineries in detail.
The general method employed in scaling up data from the cluster runs
to the existing U.S. refining industry is to compare the gasoline outturn
of the region being simulated by the cluster model to that of the cluster
model itself. For example, the East Coast cluster represents the refineries
in PAD District I, so a scale up factor in 1973 of 7.127 is used, since
this is the ratio of gasoline production of District I to the gasoline
production of the East Coast cluster. However, the cluster model used for
PAD I is known to be typical only of the major gasoline producing refineries
in that region. Therefore, there is, by definition, a quantity of atypical
refining capacity which is not represented by the yields used in the East
Coast cluster model. Hence an estimate was made also of the atypical re-
fining capacity in PAD I, to be included as a component of the scale up of
the East Coast cluster model results to PAD I.
PAD II is represented by two cluster models. It has been assumed in
scale up that the Small Midcontinent cluster represents operations of the
Oklahoma/Kansas/Missouri district and that the balance of District II is
represented by the Large Midwest cluster. Similarly, in PAD III, it has
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been assumed that the Louisiana Gulf cluster represents the Louisiana
Gulf refining district and the Texas Gulf cluster represents the balance
of PAD III.
The West Coast cluster is assumed to represent the operation of PAD V.
PAD IV was not represented by a specific cluster model so that the total
refining capacity of PAD IV was similarly included as an atypical factor
in the scale up analysis.
The results of the application of this scale up method, when composited
for the total U.S. refining industry are shown in Table 18 for 1973. Here
the crude consumption by the cluster models agrees with the Bureau of Mines
data to within about 2% and the total refinery intake agrees to within about
1%.
The major refinery products agree with the Bureau of Mines data within
about 5%, with the exception of LPG (which was a swing product in the
computer runs) which deviates from the Bureau of Mines data by about 15%.
The total product outturn agrees with the Bureau of Mines data to within
about 2%. Therefore, it is felt that the model scale up method is cali-
brated well with the Bureau of Mines data for the purposes of the present
study, which emphasizes total energy penalties of the refinery and addresses
itself to gasoline production capability. For other types of studies, the
scale up method could be further refined, if so desired, to provide a closer
match of the other minor products from the refining industry.
Model results for the study years of 1977, 1980, and 1985 were scaled
up using the atypical refining concept described above. In 1977 scale up
factors were based on meeting gasoline demand for the total U.S. For 1980
and 1985, however, the scale up factor approach was based on total crude run
in each cluster and the effective crude oil distillation capacity for the
region being simulated by that cluster. The scale up factors used were
calculated by making the crude run in each region equal to the effective
crude oil distillation capacity for that region, defined as 90% of the
calendar day rated capacity. .
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Table 18. MODEL SCALE-UP COMPARISON, 1973
U.S. total input/output data, thousands of barrels
Refinery intakes/outturns
Intakes:
Crude oil
Butanes
Natural gasoline
Other
Total intake
Outturns:
LPG
Gasoline
Naphtha
BTX
Distillate fuel oil
Residual fuel oil
Other
Total outturn
Cluster
model
results
12,713.6
254.2
365.2
167.6
13,500.6
401.2
6,572.1
227.5
164.5
3,157.9
956.0
1,886.7
13,365.9
Bureau of
Mines data
12,430.7
219.8
439.2
281.3
13,371.0
349.8
6,572.2
234.7
156.7
2,992.8
971.5
1,849.7
13,127.4
Deviation of
model from
B.O.M. data (%)
2.3
15.6
16.8
-
1.0
14.7
0
3.1
5.0
5.5
1.6
-
1.8
-65-
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As discussed in Appendix B, the import levels of products were held
constant at the 1973 level for the coming decade. Therefore, after scaling
up of the cluster results, adding atypical factors, and adding import levels,
the product outturn from the grassroots refineries could be obtained by
difference from the forecast total petroleum products demand. The results
showed that by 1980 seven new grassroots refineries would be required in
PAD Districts I through IV and two new refineries would be required to meet
PAD District V product demands at approximately 200,000 BPD each. By 1985,
a total of fifteen new refineries were required for PAD Districts I through
IV and a total of three refineries were needed for PAD V.
The utilization of such scaleup factors allowed a direct assessment of
the total energy penalties associated with each of the scenarios under
discussion, as well as an assessment of the operating costs required to
meet the lead additive regulations. However, capital investments were
not determined solely by a direct utilization of the scaleup approach,
because this approach does not weight sufficiently heavily the capital
requirements of the small refineries simulated by the Small Midcontinent
cluster. Therefore, an additional factor was utilized in a scaleup for
capital costs, as discussed in detail in Appendix G. Such an approach
adequately includes the dollar cost to the small refiner as a component
of the overall cost to the industry, because his percentage of the total
cost is relatively small. However, it does not adequately address the
total impact on the small refiner nor the possible impact on the competitive
structure of the petroleum industry.
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III. STUDY RESULTS
A. BACKGROUND DISCUSSION
There are two promulgated regulations on lead usage addressed in this
study (Federal Register, January 10, 1973; December 6, 1973). One re-
quires unleaded gasoline to be available for cars requiring it, i.e., those
equipped with catalytic converters for emissions control. The other re-
quires that the use of lead additives in the total gasoline pool (leaded and
unleaded combined) be phased down to no more than 0.5 gm/gal by January 1,
1979.
Two external forces, then, are driving the refiner in his usage of
lead additives. The phase down regulation places precisely timed limits
on total lead usage, although there is still flexibility regarding the
i
quantity of lead the refiner can use in each grade of gasoline. The unleaded
gasoline regulation is not nearly so precise, depending upon automobile
manufacturers' use and market demand for automobiles equipped with the
catalytic converter. The study assumed 2% unleaded gasoline sales prior
to the 1975 model year introduction, virtually complete use of the converter
starting with the 1975 model year, and a transition to a total gasoline
pool consisting solely of unleaded gasoline by 1985.
If lead is removed from gasolines traditionally manufactured in the
United States, the resulting gasoline pool would have a research octane
number (RON) of approximately 88 and a motor octane number (MON) of about 80.
To provide an unleaded gasoline with a minimum RON of 92 and a minimum MON
of 84, as required in the present study, the U. S. refining industry must
manufacture gasoline with clear (unleaded) octane numbers about four
numbers higher than when manufacturing leaded gasoline. The lead phase down
schedule will similarly require the manufacture of higher octane gasoline.
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Production of those gasoline blending components whose clear octane
numbers are highest must therefore be increased. Those hydrocarbons that
exhibit high clear octane numbers are either aromatic hydrocarbons (benzene,
toluene, etc.) or isoparaffinic hydrocarbons (isooctane, isopentane, etc.).
The manufacture of unleaded gasoline can therefore be achieved by
increasing the percentage of aromatics in gasoline (sometimes called
the aromatic route) or increasing the percentage of isoparaffins in
gasoline (sometimes called the aliphatic route) or by a combination of both.
Increased production of aromatic compounds is achieved by operating
catalytic reformers at higher severities and building new high severity
reformer capacity. However, high severity operation does not yield as
much gasoline, so additional crude oil is required to produce a fixed
volume of gasoline. An increase in clear RON is not matched by a number
for number increase in clear MON, so the clear MON specification becomes
limiting. This results in clear RON octane "giveaway", i.e., production
of gasoline with a higher clear RON than required to meet minimum RON
specifications. Also, the combination of yield loss and the limiting
MON specification markedly increases capital investment and operating costs
to produce a fixed volume of gasoline. Extraction of reformate to recover
aromatics for gasoline blending, analogous to the production of aromatic
petrochemicals, is not a satisfactory means of octane enhancement because
of the large by-product volumes of low octane raffinate to be disposed of.
Increased production of isoparaffins is achieved by the isomerization
of light straight run naphthas (usually containing C and C paraffins)
or by alkylation (combining isobutane with propylene and butanes into higher
carbon atom isoparaffins).
The detailed results showing processing configurations, gasoline
blends, costs, etc., that are required to manufacture unleaded gasoline
with and without lead phase down can be found in Appendix J. This study
does not attempt to define the impact of the lead phase down regulation
alone, without the simultaneous introduction of unleaded gasoline. Instead,
the base scenario assumed no lead regulations were imposed (Scenario A);
this was then compared to a Scenario B in which only the unleaded gasoline
regulation was imposed. Finally, the unleaded gasoline regulation and
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the phase down regulation were simultaneously imposed (Scenario C) for
comparison to Scenario B (unleaded gasoline regulation alone imposed).
In general, it is not possible to combine these comparative results to
determine the impact of some new combination of these two lead additive
regulations which has not been discussed herein.
"B. MANUFACTURE OF UNLEADED GASOLINE
1. 1985 Results
Production of 100% unleaded gasoline has been assumed by 1985, at
which point Scenarios B and C become identical. In all the cluster models,
the processing changes that occurred to produce unleaded gasoline were
very similar. Virtually all the light straight run naphtha in the C to
160°F boiling range (containing mainly C and C, hydrocarbons) was isomerized
J D
either in once-through units or recycle units. Catalytic reformers were
operated at the maximum severity of 100 RON allowed in the models and new
capacity was also built. Had higher severity reforming been allowed in the
model, it is possible that isomerization capacity would have been lower.
New alkylation units were built. Hydrocracking units were operated at the
same throughput as the base case (Scenario A producing leaded gasolines)
or in some cases-at lower throughput. No new catalytic cracking capacity
was built, although some changes in conversion levels occurred.
The composition of the gasoline pool based on model results before
and after significant introduction of unleaded gasoline (Scenarios A and B,
respectively) is shown in Table 19 for 1985. In all models, Scenario A
was required to make 2% of the gasoline pool an unleaded product while in
Scenario B the entire pool was unleaded. As a result of the processing
changes discussed above, manufacture of 100% unleaded gasoline had a
significant effect on the pool composition. None of the models included
isomerate in the leaded gasoline pool. In Scenario B, 5 to 13% of total
gasoline volume was comprised of isomerate, while alkylate was increased
in all models to between 9 and 16% of total volume. Reformer severity was
increased to the maximum allowable 100 RON for all existing clusters, and
between 96 and 99 RON for the grassroots models. These results indicate
that the production of unleaded gasoline was accomplished by a combination
of the aromatic and aliphatic routes mentioned earlier. Aromatic hydrocarbons
-69-
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the phase down regulation were simultaneously imposed (Scenario C) for
comparison to Scenario B (unleaded gasoline regulation alone imposed).
In general, it is not possible to combine these comparative results to
determine the impact of some new combination of these two lead additive
regulations which has not been discussed herein.
"B. MANUFACTURE OF UNLEADED GASOLINE
1. 1985 Results
Production of 100% unleaded gasoline has been assumed by 1985, at
which point Scenarios B and C become identical. In all the cluster models,
the processing changes that occurred to produce unleaded gasoline were
very similar. Virtually all the light straight run naphtha in the C^ to
160°F boiling range (containing mainly C and C hydrocarbons) was isomerized
either in once-through units or recycle units. Catalytic reformers were
operated at the maximum severity of 100 RON allowed in the models and new
capacity was also built. Had higher severity reforming been allowed in the
model, it is possible that isomerization capacity would have been lower.
New alkylation units were built. Hydrocracking units were operated at the
same throughput as the base case (Scenario A producing leaded gasolines)
or in some cases-at lower throughput. No new catalytic cracking capacity
was built, although some changes In conversion levels occurred.
The composition of the gasoline pool based on model results before
and after significant introduction of unleaded gasoline (Scenarios A and B,
respectively) is shown in Table 19 for 1985. In all models, Scenario A
was required to make 2% of the gasoline pool an unleaded product while in
Scenario B the entire pool was unleaded. As a result of the processing
changes discussed above, manufacture of 100% unleaded gasoline had a
significant effect on the pool composition. None of the models included
isomerate in the leaded gasoline pool. In Scenario B, 5 to 13% of total
gasoline volume was comprised of isomerate, while alkylate was increased
in all models to between 9 and 16% of total volume. Reformer severity was
increased to the maximum allowable 100 RON for all existing clusters, and
between 96 and 99 RON for the grassroots models. These results indicate
that the. production of unleaded gasoline was accomplished by a combination
of the aromatic and aliphatic routes mentioned earlier. Aromatic hydrocarbons
-69-
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Table 19. COMPOSITION OF GASOLINE POOL BEFORE AND AFTER INTRODUCTION
OF UNLEADED GASOLINE - 1985
Scenario3
Isomerate - LV%
Reformate - LV%
Alkylate - LV.%
Other - LV%
Total
Reformate severity
RON
Cluster model
East
Coast
A B
7
34 31
9 12
57 50
100 100
92 100
Large
Midwest
A B
9
30 30
14 16
56 45
100 100
91 100
Small
Midcontinent
A B
13
16 22
14 16
70 49
100 100
96 100
Louisiana
Gulf
A B
7
22 25
14 16
64 52
100 100
90 100
Texas
Gulf
A B
10
30 29
9 12
61 49
100 100
91 100
\ West
Coast
A B
7
22 26
9 11
69 56
100 100
92 100
East of Rockies, Grass Roots
Sour
Crude
A B
10
36 37
10 14
54 39
100 100
90 96
Sweet
Crude
A B
g
47 48
6 9
47 34
100 100
90 97
West of Rockies
Grass
Roots
A B
5
42 40
8 11
50 44
100 100
90 99
I
~J
o
aScenario A is the base case (leaded gasoline)
Scenarios B and C are identical in 1985 (100% unleaded gasoline)
-------
were increased by operating catalytic reformers to produce about 100 RON
reformate while isoparaffinic components were increased by the introduction
of isomerate into the gasoline pool and by blending larger volumes of
alkylate.
In all cluster models representing existing refineries, there was a
significant reduction in the volume of gasoline produced (between 1.8% and
3.5%) compared with Scenario A. This volume loss is made up by the grass-
roots models, as shown in Table 20. Unleaded gasoline was produced at
exactly the minimum motor octane specification of 84 in all cases. The
research octane number of the .unleaded gasoline was always higher than the
minimum specification of 92 by 0.8 to 2.0 numbers, depending on the cluster
model.
As contained in Appendix J, in the East Coast cluster model, total
gasoline production was reduced by 3.5% and the unleaded gasoline was
produced at a research octane number which was 1.8 numbers above the
minimum specification of 92. New isomerization, alkylation and catalytic
reforming capacity additions were required.
In the Large Midwest cluster model, total gasoline production was
reduced by 2.5% and the unleaded gasoline was manufactured at a research
octane number which was 2.0 numbers above the minimum specification. New
isomerization, aklylation and catalytic reforming capacity additions were
required.
In the Small Midcontinent cluster model, total gasoline production was
reduced by 3.3% and the unleaded gasoline was manufactured at a research
octane number which was 0.8 numbers above the minimum specification. New
isomerization, alkylation and catalytic reforming capacity additions were
required.
In the Texas Gulf cluster model, total gasoline production was
reduced by 3.1% and the unleaded gasoline was produced at a research octane
number which was.1.2 numbers above the minimum specification. New iso-
merization, alkylation and catalytic reforming capacity additions were
required.
-71-
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Table 20. TOTAL U.S. GASOLINE PRODUCTION - 1985
(MB/CD)
Scenario A
Scenario B
Difference
Production from
existing refineries3
6,587.1
6,407.0
180.1
Production from
grassroots refineries
1,453.5
1,633.6
(180.1)
Total
Production
8,040.6
8i040.6
0.0
Includes 226.8 MB/CD of gasoline produced from atypical refineries.
Scenarios B and C are identical in 1985 (100% unleaded gasoline).
-72-
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In the Louisiana Gulf cluster model, total gasoline production was
reduced by 3.3% and the unleaded gasoline was manufactured at a research
octane number which was 1.6 numbers above the minimum specification. New
isomerization and reforming capacity additions were required.
In the West Coast cluster model, total gasoline production was reduced
by 1.8% and the unleaded gasoline was produced at a research octane number
1.3 numbers above the minimum specification. New isomerization capacity
was required.
The grassroots models were used to make up the loss of gasoline in
existing refineries represented by the cluster models. New isomerization,
alkylation and catalytic reforming additions were required to manufacture
unleaded gasoline and hydrocracking requirements were lower than for
Scenario A. Unleaded gasoline was manufactured to a research octane
number which was 1.2 numbers above the minimum specification of 92 in
the West of the Rockies model and 1.4 numbers higher in the East of the
Rockies model.
2. 1980 Results
Before executing the 1980 model runs, certain restrictions were placed
on the processing options available in the cluster models. Processing
schemes which would be inconsistent with the 1985 results were not allowed.
For example, if a cluster model did not build new capacity of a particular
process in 1985, it was not allowed to do so in 1980.
Production of unleaded gasoline is approximately 60% of the total
gasoline produced in 1980. The processing changes that are required by
1985 to manufacture unleaded gasoline are also required in 1980 but to a
lesser extent. Gasoline production is reduced by 0.5% to 1.8% depending
on the cluster model. Unleaded gasoline was also manufactured in 1980 to
exactly the minimum motor octane specification of 84 but was always above
the minimum research octane specification of 9,2.
In the East Coast cluster model, total gasoline production was reduced
by 1.5% and unleaded gasoline research octane was 1.5 numbers above the
minimum specification of 92. New isomerization and alkylation capacity
-73-
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additions were required. Catalytic reformers were operated at an average
severity of 95.6 RON.
In the Large Midwest cluster model, total gasoline production was
reduced by 0.7% and the unleaded gasoline was 2.1 numbers above the minimum
specification. New catalytic reforming capacity was required and catalytic
reformers were operated at an average severity of 97.5 RON.
In the Small Midcontinent cluster model", total gasoline production
was reduced by.1.0% and unleaded gasoline research octane was 0.3 numbers
above the minimum specification. New catalytic reforming and alkylation
capacity additions were required and catalytic reformers were operated at
an average severity of 96.9 RON.
In the Texas Gulf cluster model, the total gasoline production was
reduced by 0.5% and unleaded gasoline research octane was 1.1 numbers above
the minimum specification. New isomerization and catalytic reforming
capacity additions were required and catalytic reformers were operated at
a severity of 97.9 RON.
In the Louisiana Gulf cluster, total gasoline production was reduced
by 0.6% and the unleaded gasoline research octane was 1.2 numbers above
the minimum specification. Catalytic reformers were operated at an average
severity of 93.2 RON.
In the West Coast cluster model, total gasoline production was reduced
by 1.8% and unleaded gasoline research octane was 0.8 numbers above the
minimum specification of 92. New alkylation capacity was required and
catalytic reformers were operated at an average severity of 94.2 RON.
As in 1985, the grassroots models were used to make up the loss of
gasoline from the cluster models. The grassroots processing configurations
in 1980 were similar to those in the 1985 cases.
3. 1977 Results
Production of unleaded gasoline is approximately 30% of the total
gasoline pool in 1977. Very little additional processing was required in
the cluster models in 1977. Catalytic reformers were operated on average
at slightly higher severities (up to 2.9 RON) than in the base case
Scenario A. Unleaded gasoline was produced with research octane numbers
-74-
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above the minimum specification of 92 in only the Large Midwest and Texas
Gulf cluster models. In all cases, unleaded gasoline exactly met the
minimum motor octane specification of 84.
C. INTRODUCTION OF LEAD PHASE DOWN
After determining the requirements to manufacture unleaded gasoline in
1977, 1980, and 1985 the impact of simultaneously reducing the allowable
lead levels in leaded gasolines was then studied.
Average lead levels of the total gasoline pool before the intro-
duction of lead phase down (Scenario B) were 1.44 cc/G in 1977 and 1.0
cc/G in 1980.
With lead phase down, the average lead content of the total gasoline
produced was controlled to a maximum of 1.0 grams per gallon (g/G) in 1977 and
to a maximum of 0.5 grams per gallon in 1980. The model actually contains
blending numbers based on cubic centimeters per gallon (cc/G) and maxima
were set at 0.94 cc/G and 0.47 cc/G.
The major impact of lead phase down was a significant increase in the
need for catalytic reforming capacity and in the severity of catalytic
reforming operations in 1977 and 1980. In most cluster models there was a
small increase in the requirement for other octane producing processes.
The net effect of lead phase down, then, is to speed up the timing of
new processing capacity needs that ultimately would be required for the
manufacture of 100% unleaded gasoline by 1985.
D. SUMMARY OF ECONOMIC PENALTIES
The capital investment requirements to manufacture unleaded gasoline,
with and without lead phase down, are given in Table 21.
In order to manufacture unleaded gasoline, a capital requirement of
5.7 billion dollars by 1985 (based on first quarter 1975 costs) is noted.
This capital requirement includes costs for utilization and upgrading of
existing capacity as well as construction of new capacity. An estimate
has also been made of the final investment required based on the timing of
the investments and forecasted inflation rates, leading to an ultimate
capital investment requirement of 14.9 billion dollars by 1985.
-75-
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Table 21. TOTAL U.S. CAPITAL REQUIREMENTS FOR LEAD ADDITIVE REGULATIONS
(millions of dollars)
Unleaded gasoline9
Non-inflated
(1st qtr 1975 basis)
1977
1980
1 985
Total
Inflated
1977
1980
1985
Total
Unleaded gasoline with
lead phasedown
Non-inflated
(1st qtr 1975 basis)
1977
1980
1985
Total
East
Coast
-
55
394
449
-
107
1,174
1,281
129
45
(174)
0
Large
Midwest
-
351
607
958
-
686
1,808
2,494
316
(108)
(208)
0
Small
Midcontinent
29
175
330
534
41
342
983
1,366
45
151
(196)
0
Louisiana
Gulf
-
24
465
489
-
47
1,385
1,432
89
151
(240)
0
Texas
Gulf
131
482
309
922
184
942
921
2,047
647
(292)
(355)
0
Grassroots
East of
Rockies
-
406
1,265
1,671
-
. 793
3,768
4,561
-
374
(374)
0
Subtotal
PAD I-IV
160
1,493
3,370
5,023
225
2,917
10,039
13,181
1,226
321
(1,547)
0
West
Coast
53
78
388
519
74
152
1,156
1,382
132
(27)
(105)
0
Grassroots
West of
Rockies
-
47
89
136
-
92
265
357
-
44
(44)
0
Subtotal
PADV
53
125
477
655
74
244
1,421
1,739
132
17
(149)
0
Total
U.S. A.
213
1,618
3,847
5,678
299
3,161
11,460
14,920
1,358
338
(1,696)
0
Unleaded gasoline relative to total leaded gasoline pool.
^
Lead phase down with unleaded gasoline relative to unleaded gasoline without lead phase down.
-------
When the phase down of lead additives in the total gasoline pool is
superimposed upon the introduction of unleaded gasoline, the effect is
to change the schedule of capital investment requirements. In 1977,
production of unleaded gasoline would require $0.2 billion; superimposing
lead phase down would add an incremental $1.4 billion over Scenario B.
By 1980, cumulative investment for unleaded gasoline would be $1.8 billion,
and superimposing lead phase down would add an incremental $1.7 billion.
By 1985 there is no incremental cumulative penalty over Scenario B for lead
phase down, since all gasoline produced is unleaded. The investment credit
shown in the 1985 study (noncumulative) reflects the accelerated investment
requirement; more investment is required for Scenario C relative to Scenario
B in 1977 and less in 1985. Thus, total cumulative investment to manufac-
ture unleaded gasoline will be $5.7 billion by 1985 whether or not lead
phase down is introduced. It can therefore be seen that the primary impact
of lead phase down is on the timing of capital outlays and not on total
cumulative investment.
Table 22 gives a breakdown of the capital requirements in two cate-
gories: 44% of the total capital is required for utilization and upgrading
of existing capacity and 56% is required for addition of new capacity.
Appendix E explains the methodology for estimating these cost elements.
Of particular importance in deciding the upgrading costs for catalytic
reformers were the assumptions regarding the capability of existing units
to operate at high severities. It was assumed that 25% of existing reformers
were capable of operating at 100 RON severity and would not require any
upgrading costs. This assumption is discussed later in additional detail.
The estimated total economic penalty to the U. S. refining industry
for the manufacture of unleaded gasoline is given in Table 23. This
indicates a penalty of 1.71 cents per gallon of unleaded gasoline by
1985, on a first quarter 1975 basis. Investment related costs (capital
charge) are a significant proportion (70%) of the total cost in 1985.
Considering the. effect of inflation of construction costs, the ultimate
penalty will be higher.
-77-
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Table 22. BREAKDOWN OF CAPITAL REQUIREMENTS TO MANUFACTURE UNLEADED GASOLINE
millions of dollars (1Q 1975 basis)
i
-j
CD
Upgrading and utilization
of existing capacity
New capacity
Total
1977
No lead
phase down3
213
-
213
Lead
phase down
1,199
160
1,359
1980
No lead
phase down3
1,067
551
1,618
Lead
phase down
(302)
640
338
1985
No lead
phase down3
1,213
2,634
3,847
Lead
phase down
(897)
(800)
(1,697)
Total
2,493
3,185
5,678
Unleaded gasoline relative to total leaded gasoline pool.
Load phase down with unleaded gasoline relative to unleaded gasoline without lead phase down
-------
Table 23. U.S. ECONOMIC PENALTIES TO MANUFACTURE UNLEADED GASOLINE
Capital charge
Crude oil penalties
LPG credits
Lead .credits
Operating costs
Total
Cents per gallon of unleaded gasoline3
(IQ 1975 basis)
1977
0.16
0.28
(0.06)
(0.28)
0.03
0.13
1980
0.70
0.41
(0.27)
(0.46)
0.23
0.61
1985
1.19
0.98
(0.25)
(0.52)
0.31
1.71
aUnleaded gasoline relative to total leaded gasoline pool.
25% of capital investment required.
-79-
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The economic penalty for the simultaneous introduction of lead phase
down is given in Table 24, which indicates a penalty of 0.5 cents per
gallon of total gasoline produced in 1977 and 1980. The capital charge
used in the derivation of this penalty has been based on the difference
in total capital investment requirements for manufacturing unleaded gasoline
with and without lead phase down. Of course, by 1985, the additional
capital investment that is shown to be required for lead phase down in
1980 will ultimately also be required for the manufacture of unleaded
gasoline.
E. SUMMARY OF CRUDE AND ENERGY PENALTIES
The estimated crude oil and energy penalties for the total U. S.
refining industry are given in Table 25. For the manufacture of unleaded
gasoline, there is an increased crude oil requirement of 255 MB/CD by
1985. This is offset to some extent by the additional production of
93 MB/CD of LPG but there is a final net energy penalty of 180 MB/CD of
fuel oil equivalent.
Superimposition of lead phase down increases the crude oil requirements
by 74 MB/CD and 55 MB/CD in 1977 and 1980, respectively. It also increases
the net energy penalty by 38 MB/CD and 35 MB/CD of fuel oil equivalent in
1977 and 1980, respectively. Since the gasoline pool is 100% unleaded in
1985, there are, of course, no energy penalties for the superimposed lead
phase down regulation in comparing Scenario C with Scenario B.
-80-
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Table 24. TOTAL U.S. ECONOMIC PENALTIES FOR LEAD PHASE DOWN
Capital charge
Crude oil penalties
LPG credits
Lead credits
Operating costs
Tptal
Cents per gallon of total gasoline pool3
(1Q 1975 basis)
1977
0.33
0.34
(0.15)
(0.11)
0.08
0.49
1980
0.39
0.24
(0.08)
(0.10)
0.07
0.52
3Lead phase down with unleaded gasoline relative to unleaded gasoline without phase down.
325% of capital investment required.
-81-
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Table 25. TOTAL U.S. ENERGY PENALTIES FOR LEAD ADDITIVE REGULATIONS
Basis
Additional crude oil processed
MB/CD
Additional LPG produced
MB/CD
Additional purchased power
required MKWH/CD
Energy penalty
109 BTU/CD
Crude oil
LPG
Purchased power
Total - 109 BTU/CD
Total - MB/CD of fuel oil
equivalent
Unleaded gasoline manufacture3
1977
19.9
6.0
194
110
(25)
2
87
14
1980
60.1
56.1
1,604
336
(225)
16
127
20
1985
255.5
92.5
7,347
.1,430
(371)
73
1,132
180
Lead phase down
1977
73.7
47.7
1,776
413
(190)
18
241
38
1980
54.6
25.5
1,933
306
(102)
19
223
35
aUnleaded gasoline relative to total leaded gasoline pool.
bLead phase down with unleaded gasoline relative to unleaded gasoline without lead phase down.
-82-
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IV. SENSITIVITY STUDY RESULTS
A. INCREASED OCTANE REQUIREMENT FOR UNLEADED GASOLINE
As discussed in Section II, some observers have indicated that ultimate
octane .requirements for unleaded gasoline may be higher than has been
assumed in this study. A limited sensitivity analysis examined the impact
of manufacturing unleaded gasoline to minimum octane number specifications
of 93 RON and 85 MON.
The analysis was based on the West Coast cluster model to represent
the effect on PAD V and on the Large Midwest cluster model to represent
the effect on PADs I-III, and was done for 1985.
The scaled-up results of the analysis are given in Table 26. These
indicate that the capital investment requirements for the total U. S.
refining industry increase from 5.7 to 6.9 billion dollars and the economic
penalty increases from 1.71 to 2.10 cents per gallon of unleaded gasoline.
The impact of increasing the gasoline octane was much greater in the West
Coast cluster model than in the Large Midwest cluster model. This signi-
ficant increase in the PAD V penalties is largely a result of a 9.5%
loss of gasoline production in the West Coast cluster model when producing
85 MON unleaded gasoline. This loss of gasoline is assumed to be made up
with grassroots capacity which results in a considerable increase in the
capital investment requirements and economic penalties.
Sensitivity runs were also completed in these two cluster models with
octane specifications of 94 RON and 86 MON. The models experienced great
difficulty in being able to produce gasolines to these octane levels. It
may be that the processing options available to the model did not have
sufficient flexibility to study the manufacture of these higher octane
gasolines, although catalytic reforming at a severity of 103 RON was
allowed. Should it be necessary in the future to assess the penalty for
-83-
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Table 26. EFFECT OF MANUFACTURING UNLEADED GASOLINE IN 1985 TO A
SPECIFICATION OF 93 RON AND 85 MONa
Capital investment
Millions dollars (1st qtr
1975 basis)
Economic penalty
Cents per gallon of unleaded
gasoline
Base case
92 RON/84 MOW
PAD I-IV
5,023
1.76
PADV
655
1.41
Total
5,678
1.71
Sensitivity study
93 RON/85 MON
PAD I-IV
5,827
2.09
PADV
1,058
2.17
Total
6,885
2.10
aUnleaded gasoline relative to total leaded gasoline pool.
-84-
-------
the industry-wide production of unleaded gasoline of 94 RON and 86 MON,
further studies of refining industry capabilities should be undertaken.
B. INCREASED GASOLINE DEMAND WITH UNLEADED GASOLINE
Some observers have argued that the necessary use of unleaded gaso-
line to meet automotive emission standards has led to changes in engine
design which provide inferior mileage. This contention has been de-
bated for some time and cannot be resolved here. However, to analyze
the impact of such a circumstance, a sensitivity study was carried out
in which the unleaded gasoline demand in 1985 was increased by 5% over
the baseline projection. The base case assumed a total ex-refinery
gasoline demand of 8014 MB/CD in 1985 and the sensitivity study in-
creased this demand to 8427 MB/CD.
The results of the sensitivity study are shown in Table 27. Capital
investment requirements increase from 5.7 to 7.1 billion dollars. The
additional cost to manufacture unleaded gasoline increases from 1.71
cents per gallon to 2.08 cents per gallon of unleaded gasoline. The
additional manufacturing costs of utilizing unleaded gasoline would be
3.4 cents per gallon of gasoline if the increased crude oil require-
ments to meet the 5% increase in gasoline demand were taken into account.
C. LOWER GASOLINE GROWTH RATE
The demand growth assumptions used in this study are based on a 2%
annual growth rate of all petroleum products from 1975 to 1985. This
sensitivity analysis examined the effect of assuming a lower demand
growth rate of 1.5% per annum for gasoline, resulting, for example,
from the further penetration into the automotive market of smaller cars
with better mileage.
The results of the sensitivity analysis showed a reduction in the
1985 total capital investment requirements to manufacture unleaded
gasoline of only 70 million dollars (IQ 1975 basis).
D. IMPORTED CRUDE OIL TYPE
The grassroots model for the East of the Rockies simulation in 1985
was run with 100% sour crude oil (Arabian Light) and 100% sweet crude
-85-
-------
Table 27. EFFECT OF A POSSIBLE INCREASE IN GASOLINE DEMAND
Base case
Sensitivity study
Ex-refinery gasoline demand3
MB/CD
Capital investment
Millions dollars (1st qtr
1975 basis)
Economic penalty
Cents per gallon of unleaded
gasoline
8,041
5,678
1.71
8,427
7,109
2.08C
Includes 226.8 MB/CD of gasoline produced from atypical refineries.
bUnleaded gasoline relative to total leaded gasoline pool.
cBecomes 3.4 cents with increased crude oil to meet incremental gasoline demand.
-86-
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oil (Nigerian/Algerian mix). The results of the base study assumed that
one-third of new refineries East of the Rockies would be sweet crude oil
refineries and two-thirds would be sour crude oil refineries.
As a result of the sensitivity analysis, it can be concluded that
assuming 100% sweet or sour crude oil has no significant effect on the
penalties estimated.
E. TARGET RESIDUAL FUEL OIL SULFUR LEVELS
The base study assumed that by 1985 residual fuel oils from U.S.
refineries would meet maximum sulfur levels of 1.4 wt. % in the East of
the Rockies model and 0.9 wt. % in the West of the Rockies model. The
grassroots refinery models were used to balance both fuel oil volume
and fuel oil sulfur level. Only a small change in the assumptions with
regard to sulfur levels in total U.S. residual fuel oil production would
have a significant impact on the sulfur level required of residual fuel
oil in the grassroots models (see Table 10). This is because of the
leverage effect of the small volume of residual fuel oil produced in the
grassroots models compared to the total U.S. residual fuel oil production.
A sensitivity analysis examined the impact of meeting maximum sulfur
levels of total residual fuel oil production of 1.2 wt. % East of the
Rockies and 0.75 wt. % West of the Rockies. There was no significant
change in the penalties for manufacturing unleaded gasoline.
-87-
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V. DISCUSSION
Of the cumulative capital requirement by 1985 for the manufacture of
unleaded gasoline, some 40% or 2.3 billion dollars was needed for upgrading
the severity of existing process units. In turn, this severity upgrading
cost is principally the cost of upgrading catalytic reformers to operate
at 100 RON severity. In calculating the capital investment for reformer
upgrading, it was estimated that 75% of existing catalytic reformers were
not capable of low pressure operation at _100 RON severity, and that the
capital investment required to upgrade these units is equivalent to the
cost of building a new high pressure catalytic reformer (Appendix E). This
assessment was based on discussions with industry sources. In practice,
the cost of upgrading existing reformers will vary widely, depending upon
the constraints of each individual refinery. Since this upgrading cost
is so large relative to the total impact of lead removal, more definition
is needed of this severity upgrading issue to assess fully the impact on
the U. S. refining industry. It is felt that the capital investment
estimates made in this study for severity upgrading have a degree of
uncertainty that is not contained in the estimates for the building of new
process capacity. A closer examination of the severity upgrading issue
could increase or decrease the estimated 2.3 billion dollars by 30%.
With the assumed lead phase down schedule, there will be a signifi-
cant impact on the severity at which catalytic reformers must operate by
1977. To determine the number and size of new capital construction projects
required to meet the lead phase down regulations will similarly require a
more detailed assessment of the catalytic reforming upgrading issue.
One of the key assumptions in simulating the gasoline producing capa-
bilities of existing refineries is the motor octane blending numbers of
the components contained in gasolines. In practice, the blending numbers
are inherent to the particular processing configurations and gasoline blend
-------
composition in any particular refinery. As discussed in Section II, the
blending numbers used in this study were based on a concensus of blending
number values from different sources. In retrospect, it is felt that the
clear motor octane numbers assumed for catalytic reformate are very
slightly on the low side and therefore the penalties assessed in this
study should be considered to be conservative.
The simulation of the small refiner has not been covered in great
depth in this study. An adjustment was made to the penalties calculated
to take account of the higher costs the small refiner would face because
of economies of scale, but no allowances were made for restricted blending
capability. The small refiner represents a sufficiently small fraction
of refining capacity that any understatement of his costs will not affect
the overall conclusions. However, it should be pointed out that the small
refiner would incur much higher relative penalties than indicated in this
study, which could have a significant impact on his competitive position
in the industry.
-89-
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VI. REFERENCES
1. "U.S. Domestic Petroleum Refining Industry's Capability to Manufacture
Low-Sulfur, Unleaded Motor Gasoline", NPRA Special Report No. 4,
August 30 (1974).
2. Oil and Gas Journal, 72, No. 36, p. 48, September 9 (1974).
3. Transcript of FEA & NPRA Refinery Studies Conference on Methods for
Evaluating Policy Impact on the Refinery Industry, Arlington, Va.,
September 4-5 (1974).
4. Johnson, W. A. and .J.R. Kittrell, Transcript of FEA/NPRA Refinery Studies
Conference, p. 170, Arlington, Va., Sept. 4-5 (1974).
5. Oil and Gas Journal, 73, No. 45, 159 (1975).
6. Oil and Gas Journal, 73_, No. 42, 25 (1975).
7. "The Impact of Producing Low-Sulfur, Unleaded Motor Gasoline on the
Petroleum Refining Industry", EPA-XXX/X-XX-XXX, December (1975).
8. "The Impact of SO Emissions Control on ..the Petroleum Refining Industry",
EPA-YYY/Y-YY-YYY,December (1975).
9. Oil and Gas Journal, ]±, No. 21, p. 76, May 21 (1973).
10. Stahman, Ralph C., "Octane Requirement Increase with Unleaded Fuel",
U.S. EPA Office of Air and Waste Management, Ann Arbor, Michigan, July
19 (1975).
11. "Octane Requirements of 1975 Model Year Automobiles Fueled with
Unleaded Gasoline", Technology Assessment and Evaluation Branch, Emission
Control Technology Division, Office of Mobile Source Air Pollution
Control, EPA, August (1975).
12. "Impact of Motor Gasoline Lead Additive Regulations on Petroleum Re-
fineries and Energy Resources - 1974-1980, Phase I", EPA-450/3-74-032-a,
May (1974). .
13. Unzelman, G.H., G.W. Michalski, and W.W. Sabin, Transcript of FEA/NPRA
Refinery Studies Conference, p. 236, Arlington, Va., Sept. 4-5 (1974).
-90-
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14. Peer, E. L. and F. V. Marsik, "Trends in Refinery Capacity and
Utilization", Office of Oil and Gas, Federal Energy Administration,
June (1975).
15. Ruling, G. P., J. D. McKinney, and T. C. Readal, Oil and Gas Journal,
73, No. 20, May 19 (1975).
16. Blazek, J. J., Oil and Gas Journal, 69, No. 45, November 8 (1971).
17. Nelson, W. L., Oil and Gas Journal, 72, No. 27, July 8 (1974).
-91-
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TECHNICAL REPORT DATA
(Please read Instructions on the reverse before completing)
1. REPORT NO.
EPA-450/3-76-016a
3. RECIPIENT'S ACCESSION-NO.
4. TITLE AND SUBTITLE
The Impact of Lead Additives Regulations on the
Petroleum Refining Industry
Volume I - Project Summary
5. REPORT DATE
May 1976
6. PERFORMING ORGANIZATION CODE
7. AUTHOR(S)
N. Godley, S. G. Johnson, W, A. Johnson, J. R. Kittrel
T. G. Pollitt
8. PERFORMING ORGANIZATION REPORT NO.
9. PERFORMING ORGANIZATION NAME AND ADDRESS
Arthur D. Little, Incorporated
Acorn Park
Cambridge, Massachusetts 02140
10. PROGRAM ELEMENT NO.
11. CONTRACT/GRANT NO.
68-02-1332
Task No. 7
12. SPONSORING AGENCY NAME AND ADDRESS
U. S. Environmental Protection Agency
Research Triangle Park, North Carolina
13. TYPE OF REPORT AND PERIOD COVERED
Final Report
27711
14. SPONSORING AGENCY CODE
15. SUPPLEMENTARY NOTES
16. ABSTRACT
The report assesses, the impact on the U. S. petroleum refining industry of two
EPA regulations promulgated to control the level of lead additives in motor
gasoline. The first of these regulations requires the availability of low octane,
unleaded gasoline for vehicles equipped with lead sensitive catalytic converters.
For health reasons, the second regulation requires a gradual phase-down of the
lead content of the total gasoline pool (including higher octane gasoline to
satisfy the remaining higher compression ratio engines). The report assumes
essentially a 100 percent need for unleaded gasoline by 1985. Computer models
representative of specific refineries in six geographical regions of the U. S.
were developed as the basis for determining the impact on the existing refining
industry. New refinery construction during the period under analysis (1975-1985)
was considered by development of separate computer models rather than expansion
of existing refineries. These models were utilized to assess investment and
energy requirements to meet each lead regulation. A sensitivity study was made
of the impact on the refining industry of manufacturing a higher octane unleaded
gasoline than currently mandated. Other sensitivity studies evaluated the effects
of a higher demand for unleaded gasoline than now forecast and of variations in the
type of imported crude oil available in the future for domestic refining.
17.
KEY WORDS AND DOCUMENT ANALYSIS
DESCRIPTORS
b.IDENTIFIERS/OPEN ENDED TERMS
c. COSATI Field/Group
Gasoline
Gasoline Engine
Tetraethy Lead
Octane Number
Refineries
Unleaded Gasoline
Lead Phase-Down
Motor Gasoline Additives
Catalytic Converter
13, 08
18. DISTRIBUTION STATEMENT
Unlimited
19. SECURITY CLASS (This Report/
Unclassified
21. NO. OF PAGES
120
20. SECURITY CLASS (This pat;ei
Unclassified
22. PRICE
EPA Form 2220-1 (9-73)
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