NPRA ’11: US petrochemicals facing new regulatory challenges

26 March 2011 18:00  [Source: ICIS news]

US petchem officials feel besieged as they meet in San AntonioWASHINGTON (ICIS)--As US petrochemical industry executives gather in San Antonio, Texas for the 36th annual International Petrochemical Conference (IPC), they face an increasingly hostile US regulatory environment that could choke off  investments even as new growth potential appears.

In chemical facility security, in new federal climate control mandates and in a major rewrite of the principal US law for chemical controls, the industry is facing a multi-front regulatory challenge.

Regulatory permitting issues are a major issue, said Jim Cooper, vice president for petrochemicals at the National Petrochemical & Refiners Association (NPRA), sponsor of the IPC. The conference runs 27-29 March.

“Whether it’s current permitting problems or new requirements on the horizon, permitting is going to be huge,” Cooper said, warning that the domestic petrochemicals sector may be facing decline as a consequence.

“You haven’t seen any petrochemical plants springing up here in the US in the last couple of decades,” he said, adding: “There hasn’t been any greenfield petchem construction in the last 30 years.”

“While world capacity has expanded, US petrochemicals have been flat, and in some areas they’re in a slow decline.”

The increasing level of regulatory hurdles “doesn’t mean that there won’t be opportunities here”, Cooper said, “and we think there will be opportunities.”

“But being able to navigate the maze of permitting, it affects your return on your investment,” he said. “So under the current landscape and the uncertainties involved, we don’t see a lot of movement to build anything new until those issues get resolved.”

One of the issues that needs resolution, Cooper said, is permanent codification of federal regulations governing antiterrorism security at US chemical plants, storage facilities and transit points.

The existing Chemical Facility Antiterrorism Standards (CFATS) were put in place by Congress in 2007, but only for a three-year period. They were supposed to be revisited and given permanent status by Congress before their sunset expiration date in late 2009, but the federal legislature failed to act and instead extended CFATS for a year. 

Last year Congress again kicked the can down the road, extending the current rules into 2011 in the hope that this year a final, long-term codification could be effected. Legislation to do just that - extend the existing CFATS rules for up to seven years - has recently been put forward in the US House and Senate, but there are some in both chambers who want the rules tightened significantly.

The regulations provide that the Department of Homeland Security (DHS) sets risk-based security standards for chemical facilities deemed possible targets for terrorists. Plant owners or operators decide what specific security measures to implement to meet those federal criteria.

But the Obama administration and some in Congress want the department to have more authority, including power to impose inherently safer technology (IST) measures at specific plants, in theory to reduce a site’s attractiveness as a target by limiting the volume or altering the nature of feedstocks, and/or by forcing changes in production processes or even end products.

“That is our big concern,” Cooper said, “the federal government being authorised to dictate engineering decisions at a chemical facility.”

“It’s inappropriate and not a role the government should play, and if it passes it would have huge impact on the industry,” he added.

Faced with an IST mandate in the US market, “integrated companies and multinationals would not be left with a lot of business choices if they want to be profitable”, Cooper said.

They would go elsewhere.

However, there is growing sentiment in Congress that the existing CFATS rules - which lack any sort of IST requirement - should be extended as is for several years at least. That would give DHS regulators time to fully implement the current rules, and give legislators a longer track record of application by which to judge the programme’s effectiveness.

Even as the CFATS saga continues, US petrochemical producers face a broader regulatory sea-change in renewal and modernisation of the Toxic Substances Control Act (TSCA).

Enacted in 1976 and largely untouched by Congress in the 35 years since, TSCA is long past due for a tune up.

“Potential TSCA reform is a big issue,” Cooper noted. “It is one of the few environmental laws that directly affects a company’s ability to sell into the marketplace.”

Some in Congress want to see TSCA recast as a US version of the EU’s programme for the registration, evaluation and restriction of chemicals (Reach). Bills introduced in Congress last year would have reached that end, at least in the eyes of petchem producers.

“The legislation [to reform TSCA] that we saw last year was a jolt,” Cooper said. “It would have been crippling to our industry.”

But that was last year. In the US national elections in November 2010, Republicans scored major wins in the US House and in the Senate. They hold the majority in the House and narrowed the Democrat lead in the Senate.

“The environment now is a bit more congenial,” Cooper said. Republican members see the need to reform TSCA, but they oppose a “US Reach” approach.

“I don’t think a US Reach bill would get much traction in this Congress,” Cooper said. “It didn’t get much traction in the last Congress when Democrats had majority control in both houses, so there is even less of a chance now.”

Potential changes for CFATS and TSCA represent areas of uncertainty for petrochemical producers. So too does the Environmental Protection Agency’s (EPA) developing plan for limits on greenhouse gas (GHG) emissions by electric utilities, petchem producers, downstream chemical makers and a broad range of other manufacturers.

Those GHG limitations regulations only came into force in January this year, and their full implementation remains in doubt. The regulations - which impose carbon limits that Congress rejected last year - are being challenged in Congress and by multiple federal lawsuits brought by industry and state governments.

Even if the EPA GHG rules ultimately are revoked, they along with uncertainty over CFATS and TSCA reforms blow a chilling wind on new petrochemical developments or expansion and upgrade projects for existing facilities - and at a time when new feedstock supplies might otherwise drive expansion.

“There is a lot of excitement about shale gas development,” Cooper noted, “which affects some of the most basic feedstocks for almost all of manufacturing.”

“If we do it right, if we allow shale gas to be developed, there’s a good chance the entire supply chain could see advantages, all the way down to finished goods.”

Shale gas exploration and development has increased exponentially over the last eight to ten years as advances in hydraulic fracturing (“fracking”) have made once unrecoverable shale gas and oil deposits available.

But fracking is coming under increasing environmental attention at federal, state and local levels, raising the possibility of restrictions on shale development.

“This is a good opportunity to really save manufacturing here in the US, let alone just the petrochemicals sector,” Cooper said. “But if that is brought to a crawl, then we may miss out on that opportunity.”

As many as 2,900 registered participants are expected to attend this year's IPC, which runs from Sunday through Tuesday. That attendance level would be about 15% higher than the 2010 IPC, according to NPRA.

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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