22 March 2004 00:01 [Source: ICB Americas]
Prior to this year’s IPC, CMR Washington editor Glenn Hess talked with Bob Slaughter, president of NPRA; Bill Klesse, NPRA board chairman and COO of Valero Energy Corp.; and Monte Miller, NPRA Petrochemical Committee chairman and executive vice president, chemicals, Flint Hills Resources LP about some of the most important issues facing NPRA members this year.
Q Critics continue to charge that the nation’s petrochemical manufacturers and petroleum refiners are waiting for the federal government to issue regulations before taking action to protect their facilities against terrorism. What voluntary steps have NPRA and its member companies taken to further strengthen security throughout the industry?
Klesse: Industry’s response to the challenge of maintaining and strengthening facility security has been impressive. Some companies have increased gate guards and security patrols, or installed closed circuit television systems, adopted the latest in biometric identification procedures, expanded the use of background checks of employees and contractors, conducted thorough vehicle and personnel searches, and stepped up regular contact with local and national law enforcement officers and the US Coast Guard, as individual circumstances might warrant. In addition, best practices by security professionals representing each member company are regularly shared through the NPRA Security Committee and at our security conferences.
NPRA and the American Petroleum Institute completed work last year on a security vulnerability assessment (SVA) methodology that refiners and petrochemical manufacturers can use with confidence in their own facilities. The US Department of Homeland Security (DHS) has formally acknowledged the document as one that can be used to satisfy DHS requirements, including those of the US Coast Guard. The methodology is available free of charge to our members.
We are pleased that the DHS has not chosen to take a command-and-control approach to facility security. Rather, each company has the responsibility of conducting its own security vulnerability analyses and acting on its findings. In short, both refiners and petrochemical manufacturers, working closely with national and local homeland security officers, have made it far more difficult for would-be terrorists to fulfill their objectives.
Q The Senate is likely to consider Senator Inhofe’s (R-Okla.) chemical site security legislation this year. Is this measure an improvement over earlier proposals by Senator Corzine (D-N.J.) that sought to put EPA in charge of regulating plant security and require industry to adopt “inherently safer technologies”?
Klesse: The most recent version of the Inhofe chemical security bill, S. 994, is an improvement over the command-and-control regulatory approach taken in Senator Corzine’s legislation. In October 2003, the Senate Environment & Public Works Committee, by voice vote and along party lines, reported a revised S. 994. The compromise measure includes provisions requiring facilities to consider “alternative approaches” to chemical security when developing security plans, and to submit facility security plans (FSPs) to DHS. The Inhofe bill has not reached the floor of the Senate for a final vote. The House of Representatives is still considering the best approach to take on facility security related matters and seems cautious about adding more regulations at this time.
NPRA strongly recommends that any federal regulations regarding chemical and refining facilities rely on voluntary and cooperative activities involving private industry and the US Department of Homeland Security.
Q Are there concerns about the requirement in the Inhofe bill for companies to submit security plans to the US Department of Homeland Security and the provisions relating to product substitution and process changes?
Klesse: NPRA is not convinced DHS needs to have all FSPs submitted to it, and DHS may not have the staff required to process them all. In addition, there are concerns over the ability of DHS to adequately protect these sensitive documents. Our members, of course, will share their plans with DHS as requested.
We are pleased that, in its consideration of S. 994, the Senate Environment & Public Works Committee rejected amendments to expand the role of DHS to include the review and certification of each facility security plan for similar reasons.
Q The House has passed legislation that would create a new national energy policy, but the bill has been stalled in the Senate over the MTBE liability issue. NPRA has said it supports the overall bill with reservations. What benefits would the bill provide for industry?
Slaughter: NPRA supports the enactment of the energy policy bill conference report as approved by the House, including MTBE liability language. There are provisions in the bill that enhance energy supplies and address fairness and equity. One of the major items we support in the bill is the limited liability waiver for MTBE from defective product claims. We support this provision because without it, MTBE producers and refiners would be penalized for doing what Congress required them to do in the Clean Air Act Amendments of 1990. It is clear that Congress understood, during debate on the Senate and House floors, that the 2 percent RFG [reformulated gasoline] oxygenation requirement would require significant MTBE usage for compliance. Companies should not be penalized for complying with the law. In addition to the fairness issue, the provisions establish very narrow liability protections and leave untouched the ability of plaintiffs to bring liability suits that allege negligence. The provision also does not affect recovery for the cost of cleanup.
NPRA also supports elimination of the 2 percent oxygen content requirement for RFG. Refiners need additional flexibility to meet changing fuel specifications. And finally, we strongly support the decision not to include mandatory greenhouse gas reporting requirements in the final bill.
Q What reservations does NPRA have about the energy bill?
Slaughter: NPRA only supports the passage of real, comprehensive energy legislation such as H.R. 6., which included the limited MTBE liability language and addressed natural gas supply issues. The fuels and natural gas provisions of the bill are the most significant to NPRA members. NPRA continues to oppose mandates and bans in gasoline because it is bad public policy to further complicate the manufacture of America’s premier transportation fuel. We support repeal of the 2 percent oxygenate requirement for RFG as well as limited liability protection for MTBE from defective products suits. In the issue of natural gas production, there is little in the legislation that corrects the supply/demand imbalance in the short term. NPRA is pleased, however, that Congress (in H.R. 6) has recognized the problem, taken positive steps to improve the situation in the mid- and longer-term, and stands ready to revisit the situation.
We are very disappointed with the Senate’s new “energy lite” bill, S.2095, which largely parallels the fuels language contained in H.R. 6, but deletes a key provision supported by fuel manufacturers and suppliers—limited liability relief for MTBE. The liability provision is both reasonable and fair. It was carefully crafted to leave in place legal actions based on liability, trespass and many other traditional causes of action. It does not affect recovery of the cost of clean up. Eliminating the provision from the Senate bill is only a temporary victory for those who would reach back and rewrite history to penalize fuel manufacturers for obeying the law and producing cleaner-burning fuels as mandated by Congress and the EPA.
Stripping MTBE and ethanol liability protection from the fuels title is an ill-advised policy decision for several reasons. First, it ignores the legislative history and intent of the Clean Air Act. Secondly, it overlooks MTBE’s major contribution to air quality improvements across the nation, including areas with the highest levels of mobile source pollution. Finally, it punishes good faith efforts by refiners and additive manufacturers to comply with a fuel formula that was mandated by Congress and implemented and approved by EPA. NPRA will continue to work hard with the Senate, House and industry to include equitable, limited liability relief in any energy legislation as the debate on this issue continues.
Q While provisions in the energy bill may boost the domestic natural gas supply over time, is subsequent legislation needed to address the immediate problems of sharply higher prices and market volatility? What steps should be taken to increase US gas supplies?
Miller: In 2003, two reports—the findings of the House Speaker’s Task Force for Affordable Natural Gas and the National Petroleum Council’s (NPC) Natural Gas Study—clearly stated the need and established a blueprint for immediate action to increase the ability of US natural gas producers and pipelines to deliver adequate supplies of natural gas at affordable prices to industry, agriculture and individual consumers. NPRA believes that as a good first step, Congress needs to pass real, comprehensive energy legislation such as the conference report H.R. 6.
NPRA suggests that it is only a good first step because while there are longer-term provisions which would increase natural gas supply, there is unfortunately little in the legislation that will impact the supply/demand equation for natural gas in the near term. The nation may have been lulled into complacency because favorable weather in the late summer and early fall of 2003 led to what some believed would be an increase in gas storage levels. Now the harsh winter of 2004 and the corresponding high demand and rising prices for natural gas have put to rest any perception that the natural gas crisis may be easing.
Clearly, natural gas supplies are tight and prices are correspondingly high because supply has not kept pace with demand. Rising demand for domestic natural gas because of its environmental benefits is facing off against a North American production base that has been artificially restricted because of contradictory policy initiatives. These policies have promoted the use of cleaner burning gas while failing to ensure adequate, affordable supplies of natural gas. This is not a resource problem. The US has an abundant supply of domestic gas, but flawed government policies and regulatory red tape prohibit its development in many areas. In short, there is no OPEC to blame for our failed natural gas policies.
Short supplies and accompanying high natural gas prices could prove devastating to the health of US industries, their significant contributions to national, state and local economies and the continued existence of thousands of jobs. Early in 2004, the Department of the Interior took a constructive step and issued a rule providing new incentives to boost domestic natural gas production in the hard-to-reach, deepwater areas of the Gulf of Mexico. The rule is expected to save consumers some $570 million a year and create as many as 26,000 jobs.
NPRA believes that the rule will help sustain a reliable supply of natural gas, but clearly much more is needed. We remain firm in our belief that a frank and public debate on the future of natural gas and natural gas supplies accompanied by quick action to increase supply is needed as soon as possible, both as part of the pending energy bill and separate legislation to encourage natural gas production.
Q A federal appeals court late last year blocked the Bush administration from implementing changes to the routine maintenance, repair and replacement rule under the New Source Review (NSR) program until a legal challenge is resolved. Critics contend the new rule would lead to more air pollution. Are they wrong? How does NPRA view the administration’s NSR reform efforts?
Slaughter: NPRA applauds the Administration for moving forward with reform of the New Source Review (NSR) regulations. We believe that these NSR reforms represent an important and well-considered step that will help maintain a healthy and diverse US refining and petrochemical industry. They are common sense, environmentally friendly changes that will update the NSR program and help eliminate widespread confusion about what it requires. The Administration’s action will also increase national energy security and protect the environment. This is because it will help sustain the manufacture of crucial petroleum and petrochemical products, such as clean fuels here in the US, while encouraging investment in modern, efficient environmental process and control technologies at domestic facilities.
EPA also has a new final rule to clarify the definition of routine maintenance, repair and replacement (RMRR), which is an essential component affecting activities under NSR. NPRA believes that the current process is broken and adversely affects our members’ need to maintain safe, efficient and reliable operations while fulfilling our commitment to continued environmental improvement. The new RMRR rule will help correct this situation. NPRA will be an active participant in defending legal legislative challenges to the NSR reforms.
Q Companies must begin meeting new federal standards for low-sulfur gasoline and diesel that will be implemented over the 2004-2010 period. What are some of the impacts these new regulations will have on refiners?
Slaughter: NPRA supports the orderly evolution and use of cleaner-burning fuels to address health and environmental concerns while providing adequate gasoline supplies to the motoring public. However, this can only be achieved if energy and environmental policymaking is integrated and the costs and benefits of new regulatory requirements are carefully weighed in the context of their impact on energy supplies. NPRA continues to urge policymakers and stakeholders to focus on the supply side of the energy equation and not to take adequate energy supply for granted, as we believe has been the case in recent years.
The nation’s domestic refiners are currently engaged in implementing regulations calling for drastic reductions in the sulfur content of gasoline and diesel fuel. Those regulations will cost the industry nearly $20 billion to implement.
The refining industry is still concerned, however, that despite the efforts currently in progress and those to be taken over the next few years by the refining industry, unresolved downstream implementation issues (pipeline, terminal and retail distribution) remain and could adversely impact total supply. NPRA members and other downstream companies are continuing their efforts to work with EPA to address and eliminate or minimize these potential problems.
NPRA’s concerns about the supply impacts of the highway diesel sulfur rule, however, remain. Unfortunately, new non-road diesel sulfur rules, expected to be promulgated by EPA next month, however designed, cannot alleviate the potential diesel supply problems and will place additional burden on an already strained supply situation.
Q The European Union has proposed a new regulatory system for testing chemicals called “REACH.” Are companies in the US concerned about the workability of this proposal and the likelihood that the regulation will make sales of domestic chemicals more difficult in Europe?
Miller: The European Commission (EU) has proposed a new regulation on chemicals that is considered by many, including NPRA, to be burdensome, costly and impractical. The regulation entitled Registration, Evaluation and Authorization of Chemicals, or REACH, seeks considerably more information than is required to assure that chemicals are produced and used as safely as possible. It also imposes a high cost on industry and governments in implementing the system.
REACH offers a one-size-fits-all solution that fails to consider the unique applications and diverse practices of industry and its customers. It requires disclosure of proprietary information on very specific applications to government and the public. It suggests that any adverse impact from a chemical substance, including a substance in a finished good or article, is sufficient to subject the manufacturer or importer to liability. And it discriminates against imported chemicals. NPRA believes that the regulation is severely flawed, and that the EU should redraft the proposal to allow a more flexible and international approach to this issue.
NPRA board chairman, Chief Operating Officer, Valero Energy Corporation.
For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.
Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.