PHILADELPHIA -- Dale Brooks's current mission for Chevron Corp. is to persuade Congress not to adopt a specific formulation for gasoline in the final version of the new Clean Air Act. Joe Kelly's job is to figure out what to do if Brooks fails.
Brooks is a lobbyist in the oil company's Washington office. He is a leader of the oil industry's last-minute effort to push for a bill that would set standards that limit smog-forming vehicle emissions but let the oil and auto industries decide how those standards should be met.
Kelly is the supervisor of planning and analysis at Chevron's refinery here. On the assumption that Congress will require oil companies to add some ingredients to their gasoline and remove others, he is running endless computer printouts to calculate the effect on Chevron's products and markets. Kelly and his colleagues at Chevron's other refineries are trying to make nine-digit decisions in an atmosphere of political, scientific and commercial uncertainty.
Most of the uncertainties, Kelly said, arise from a basic law of physics: A barrel of crude oil, sent through the refining process, yields a certain amount of product that can be made into gasoline, a certain amount that is usable for jet fuel and a certain amount usable as heating oil or heavy fuel oil. Reducing the amount of gasoline produced reduces the amount of other products, too.
The problem for oil companies, Kelly said, is that adding nonpetroleum ingredients such as ethanol to gasoline, as the new law will probably require, would mean producers would need to refine less crude, thereby reducing their output of the other products as well.
So far, there are more questions than answers.
For example, if refiners reduce the amount of gasoline they produce, does that mean more jet fuel and heating oil will have to be imported? If so, where from?
Can refiners tinker with the blend of crudes they process to change the components of their output? If they do that, how much will they have to invest to modify their refineries to take different types of crude, which vary greatly in density and sulfur content?
If the gasoline has to meet specific formulations only in the nine smoggiest areas, as proposed, will it be possible to separate that gasoline from the gasoline distributed to other markets? If not, will the refiners produce all their gasoline to meet the formula for the nine areas? If they do that, where will the supply of additives come from?
"There are two big challenges for the refiners," Kelly said. "Can we actually produce the new formula? And can we rebalance the market for our nongasoline products?"
These products, such as jet fuel and heating oil, constitute about half of every barrel of oil refined, varying with the type of refinery and the blend of crude oil. If Congress requires refiners to mix their gasoline with substantial amounts of nonpetroleum additives such as ethanol, Kelly said, many refiners will reduce the amount of crude they process -- thus inevitably reducing the amount of nongasoline products available.
"In this environment," Kelly said, "some business decisions will turn out to be not the right ones. Who's going to pay for it? You."
Industry officials have estimated that the proposed legislation would add about 10 cents to the retail price of a gallon of gasoline, but they acknowledge that nobody really knows what the cost will be.
Chevron, based in San Francisco, is a $32 billion giant of the oil, coal, natural gas and chemical industries.
In some ways, Brooks said, the company's diversity insulates it from some potential consequences of the pending legislation. The company's coal reserves, for example, contain large amounts of less-polluting low-sulfur coal, for which demand is expected to surge as utilities shift to more environmentally safe ways of producing electricity. An anticipated surge in demand for natural gas to power fleet vehicles and electric generating plants would benefit Chevron, which is among the nation's biggest producers of the relatively clean-burning fuel.
But Chevron is also this country's biggest refiner, operating eight "gasoline factories," as it calls them, in six states. Chevron's 1989 revenue from domestic sales of gasoline and other refined products was $13.2 billion. Chevron and its affiliates sell more than 2.4 million barrels of refined products every day, about 16 percent of total U.S. refinery output.
Any change in the law that would require Chevron to modify its refineries, find new suppliers of crude oil or restructure its distribution network would reverberate throughout the company.
"Everybody who's got a gasoline network out there is going to have to do something to the refineries," Brooks said. "The cost depends on what you have to do. It could cost us several hundred million dollars to a few billion, depending on what we're faced with."
These costs could include everything from investments to modify refineries to the money needed to purchase the additives that would be used to make alternative fuels.
Both House and Senate versions of the clean air bill would make it illegal to sell gasoline that did not meet the federal specifications. Chevron's alternatives, Brooks said, are "to comply with the law or back out of the market." The company doesn't want to abandon any market, he said, because "we like to sell gasoline to our customers," but it is worried that multimillion-dollar investments in refinery modifications will be wasted if the new gasoline formula fails to meet its clean-air targets.
The oil industry hopes to persuade the members of the House-Senate conference committee meeting to reconcile the two versions of the bill not to specify a gasoline formula. This is because, according to industry officials, all refineries are different, different types of crude oil produce different mixes of products, and emissions vary with climate, season and altitude. Oil lobbyists argue that Congress should set standards for tailpipe emissions and for pollutants emitted by fuel evaporation, but should leave it up to a joint oil-auto industry research program to determine the mix of fuel components and engineering changes to cars that make compliance possible.
Unless the conferees make major changes, however, the bill sent to the White House this year will prescribe what the American Petroleum Institute derides as "government gas."
Both House and Senate versions would require gasoline sold in the nine smoggiest areas -- which do not include the Washington area, but comprise about 25 percent of the U.S. gasoline market -- to emit 15 percent less ozone-forming pollution and 15 percent less toxic pollutants than conventional gasoline, beginning in 1992. The permitted content of carcinogenic hydrocarbons known as "aromatics" -- including benzene -- would be cut well below the current average, and the oxygen content of gasoline would have to be increased, probably through the addition of ethanol. The House version of the legislation gives refiners some flexibility to deviate from the recipe if they can produce some other fuel mixture that meets the emissions requirements.
Chevron sells gasoline, under its own brand or others, in seven of the nine areas, company officials said. The Philadelphia refinery, which Chevron acquired when it took over Gulf Oil Co., produces more than 3 million gallons a day from a blend of West African crude oils.
Kelly's working hypothesis is that the product to be marketed under the new law, instead of being 100 percent gasoline, will be 85 percent gasoline and 15 percent some oxygenating additive such as ethanol, made from grain, or a compound called methyl tertiary butyl ether, or MTBE. He also assumes that the country's demand for fuel remains relatively flat.
"If we continue to burn the same amount of fuel, 15 percent will be material not currently in the gasoline pool," Kelly said. "You can cut your crude run to make less gasoline, but where are you going to make up the difference in jet fuel, heating oil and bunker fuel," of which correspondingly less amounts would be produced. "The market for this stuff is in balance, there's a demand for it."
He said it could be supplied by foreign refiners, but if they increase refinery runs to meet this U.S. demand, "What are they going to do with their extra gasoline? There's no market for it."
Refining is essentially a heating process that separates crude oil into different compounds, lighter ones such as gasoline rising to the top, the heaviest such as bunker fuel, used for ships, settling to the bottom. Since the type of crude and the equipment of the individual refinery -- not the marketing objectives of the oil company -- determine what products are derived from a barrel of crude, changing the mix requires substantial investment.
Chevron is planning to spend $1 billion to enable its Richmond, Calif., refinery to run more of California's low-cost heavy crudes, a decision it made separately from meeting requirements of the Clean Air Act. It is too early for Chevron, or most any oil company, to estimate how much it might spend modifying refineries since so many questions still remain that could affect that decision.
One of the biggest decisions he faces, Kelly said, is where to get the oxygen additives the refinery will need and where to blend them with the gasoline. Chevron does not manufacture the additives. Should it begin to do so?
An MTBE plant capable of producing 12,500 gallons a day would cost $250 million. If ethanol is used, where will it come from? Probably Brazil, where it is made from sugar cane, Kelly said, but even if it were available in sufficient quantities, how will he get it to the refinery? Build a pipeline or storage tanks? And if Chevron decides to build, where should the new facility be?
"We haven't even begun to answer those questions," he said.