It was billed as the biggest, most expensive change to gasoline in the history of the automobile -- a reformulation that would reduce smog but could cost the industry $14 billion and raise pump prices as much as 22 cents a gallon.
But the shouts of oil companies and motorists expected to be heard Jan. 1, when the federal Clean Air Act requires the sale of cleaner-burning gasoline in smoggy cities like Baltimore, may turn into shrugs.
The reformulated gas, which is projected to cut auto emissions by 15 percent, is selling for only about a nickel more per gallon than conventional gas, adding about a half-dollar to the cost of an average fill-up.
And while many refiners are currently selling the new gas at a loss, industry executives and analysts say that oil companies spent less than expected on new machinery and tanks to make and store the extra grades of gasolines.
Baltimore-based Crown Central Petroleum Corp., for example, which must sell reformulated gas in about half of the 355 Crown gas stations in the Mid-Atlantic and Southeast, says it is already selling the reformulated gas in many of its affected stations -- including its 100 Maryland stations -- with little consumer resistance or even notice.
Although Baltimore-area gasoline prices have risen by about 14 cents since last January, demand for gasoline is up about 2 percent, said Paul Ebner, vice president of marketing.
"I talk to a lot of consumers. They figure the price goes up and the price goes down" by several cents every few months for competitive reasons, he said.
Because so many companies and stations have jumped the New Year's deadline for reformulated gasoline, Mr. Ebner said that he believes the worst of the effects of the new gasoline requirements are over.
"You've already seen almost all the price increases you are going to see" as a result of the reformulation mandated by the 1990 amendments to the Clean Air Act, he said.
Although reformulated gas is a money loser right now, Crown is hopeful that the new law will turn into a plus for the company, which has operated in the red since 1991.
Crown is currently buying reformulated gasoline from other refiners, but Mr. Ebner said the company won't have to make expensive changes if it decides to make the new gas itself.
Because Crown's biggest refinery, in the Houston suburbs, is comparatively up-to-date, the company estimates it may only have to spend about $6 million on equipment to reduce benzene levels in the gasoline. "Our investment at the refinery will be much less than what others have spent," Mr. Ebner said.
L "This could potentially improve our profitability," he said.
That's not to say it hasn't been a huge headache, though, he said.
"It is a logistical nightmare" for Crown, which has 230 employees at its headquarters in downtown Baltimore, he said.
Two years ago, the Environmental Protection Agency ordered gas stations in about 40 cities, including Baltimore, to start selling high-oxygen gasoline each winter to reduce carbon monoxide pollution, tripling the number of grades the refiners had to produce, store and track.
The rules that go into effect next week quadruple that number, as refiners will have to produce and store high- and low-oxygen versions, as well as high and low-vapor pressure versions of conventional and reformulated gasoline.
The federal law requires the new reformulated gasoline be sold in the nation's nine smoggiest regions: the areas around Baltimore, Chicago, Houston, Los Angeles, Milwaukee, New York, Philadelphia, San Diego and Hartford, Conn.
Maryland counties
In Maryland, the federal law requires reformulated gas to be sold in Baltimore City as well as Baltimore, Anne Arundel, Carroll, Cecil, Harford and Howard counties.
Several other Maryland counties have opted to require the reformulated gasolines, including Calvert, Charles, Frederick, Kent, Montgomery, Prince George's, and Queen Anne's.
In addition, about 40 other communities, ranging from Texas to Maine and including Washington, D.C., and parts of Virginia decided to use the reformulated gasoline, too.
That means about a third of the 300 million gallons of gasoline sold in the United States daily must be made of a less-polluting mix of oil and methanol derivatives.
And that has been revolutionary -- and painful -- for the oil industry.
"This is the biggest change ever made in the gasoline market," explained Ed Murphy, vice president of the American Petroleum Institute, an industry-funded group.
The new rules have created some turmoil. Fears of price spikes have driven some communities, which had voluntarily joined the RFG market, including about two dozen towns in Pennsylvania, to pull out of the reformulated market.
And some of the fears have been justified, Mr. Murphy said.
Increased demand for methanol, a key additive to oxygenated and reformulated gasoline, has sent the spot price skyrocketing from about 40 cents per gallon to more than $1. And since each gallon of reformulated gas has about a seventh of a gallon of an oxygen-adding chemical, such as derivatives of ethanol and methanol, the pump price rise of a nickel hasn't covered the 15-cent-per-gallon increased cost for refineries forced to buy the additive on the spot market, Mr. Murphy explained.
'Losing money'
"Nobody is making money on the spot prices today. They are losing money," Mr. Murphy said.
For those companies that decided to make the new gas, the new rules have required a significant redesign of everything from refinery equipment to storage tanks.
Conventional gasoline is made by sending crude oil into towers where it is subjected to heat and pressure. There, the different grades and chemicals separate out by their boiling points. The various streams are then piped off to other chambers, where they are combined with chemical catalysts which further separate out chemicals, and "crack" the long complex hydrocarbon molecular chains into smaller, more burnable chunks.
Gasoline is made by mixing about 200 of the oil products and other chemicals.
More processing
To make the reformulated gas mandated by the Clean Air Act, producers must process oil even further, taking all traces of lead and other heavy metals out, for example.
The new gas must also have one-third less benzene and a one-sixth reduction in similarly toxic chemicals.
The reformulated gasoline also includes additives to reduce evaporation during the summer, and carbon monoxide during the winter. The additives aren't expected to harm engine performance, but will reduce mileage by 2 percent to 3 percent
For many companies, the new reformulation requires the addition of new "cracking" chambers, and equipment to separate out more benzene and heavy metals, as well as new tanks to hold the reformulated gasoline. Federal regulators have said they don't want the reformulated product to mix with conventional gasoline.
Diamond Shamrock Inc., a San Antonio-based refiner and marketer, has installed refinery equipment to reduce benzene, and redesigned its testing laboratories, pipelines and storage tanks.
"We put a lot of effort into planning," said Senior Vice President Ed Prater.
"It requires a tremendous amount of record-keeping" to make sure Houston stations get reformulated gas, while nearby cities get cheaper, conventional gas, and to make sure that summer and winter versions don't get mixed up, he said.
But, he added, the company hasn't hired any additional workers, and has found comparatively inexpensive ways to handle the extra grades of fuel.
"This is probably not the biggest hassle" Diamond Shamrock has ever dealt with, he said.
At Mobil Corp., company spokesman Don Turk said it cost the Fairfax, Va.-based oil giant between $100 million and $200 million per refinery to adapt to the new law, and can't tell yet whether the investment was a wise one.
"It has cost us money," he said. "Whether or not we will recover that has yet to be seen."
And Mobil is expecting more costs by the end of the decade, when the law's stricter requirements kick in. Mobil may have to consider closing at least one refinery because of the expense of renovations of meeting the next deadline in the year 2000, he said.
;/ But Mobil isn't opposed to the regulations.
Benefits to customers
"We think there are benefits to the customer. This is the most cost-effective way" to reduce smog, he said.
In the coming months, industry observers predict, drivers and oil companies will accept the regulations, and costs and prices will begin to match.
"It turns out that the amount of money companies spent is somewhat less than the early estimates," said Mark Sieminski, an oil industry analyst for NatWest Securities in Washington, D.C.
"Many of them found ways as a part of their general refinery upkeep to do some of these things in ways that have been less expensive," he said.
'Scare stories'
"There were a lot of scare stories, that it would cost 25 cents a gallon or more. But it looks like the industry geared up more than enough so that there was no shortage," Mr. Sieminski said.
He said he was surprised by the Pennsylvania communities' rejection of the reformulated gasoline, but predicted few other communities would follow suit because he expects the price increase to be moderate -- between 3 cents and 7 cents a gallon.
"I can't imagine most people would notice the difference," Mr. Sieminski said.