BACKGROUND
Federal reformulated gasoline (RFG) is currently required to be used in four southern New Hampshire counties Hillsborough, Strafford, Rockingham, and Merrimack. Conventional gasoline is used in the remainder of New Hampshire. Conventional gasoline is used in Maine except in the summer ozone season when 7.8 RVP conventional gasoline is required in Maine's southern counties. The RFG gasoline which is supplied to New Hampshire uses predominately MTBE as the oxygenate to meet the requirements of federal law and regulations that require a minimum of 2% oxygen by weight. Over the past few years, attention has focused on alternatives that may be used in lieu of MTBE. The focus of many discussions by policymakers and regulators in New Hampshire and Maine has been to determine whether ethanol is a viable alternative.
ETHANOL - AVAILABILITY
Last summer, the Coalition of Northeastern Governors hosted a forum on ethanol blending in gasoline in the Northeast and Mid-Atlantic. Because ethanol is not widely available in the Northeast, the forum presented information regarding the economic issues associated with its use in gasoline and the associated development of a regional infrastructure which would be necessary in order to ensure long term production capability. Additionally, the forum discussed issues regarding cellulosic biomass ethanol technology, which is of interest in New Hampshire and Maine because of its potential to be produced from biomass waste, including agricultural, wood and municipal solid waste.
Currently, the Agricultural Products Utilization Commission in Maine has issued a request for proposal to study the feasibility of building and financially sustaining a biomass-ethanol plant in northern Maine. What is important to note from both of these ongoing efforts, is that there is very little, if any, current production capacity for ethanol in either New Hampshire or Maine. API undertook an analysis of the cost and benefits of state-level oxygenate mandates to expand ethanol production in January 1999. This study provides an overview regarding federal ethanol subsidies, and the market structure of the industry. It indicates that the total capitalization of a 15 million gallon per year ethanol plant is roughly $30 million. Thus the capital necessary for the start-up of an ethanol plant would be significant here in northern New England. (I have attached a copy of the study to this statement.)
Recent testimony before this Committee's Subcommittee of Clean Air, Wetlands, Private Property and Nuclear Safety by Jason Grumet, Executive Director of the Northeast States for Coordinated Air Use Management (NESCAUM) acknowledged that the Northeast and northern New England do not currently have an available supply of ethanol. He said, " it is possible to ship massive quantities of ethanol to the Northeast by barge, rail and truck. The question remains at what cost." Recently, Comm. Arthur Rocque, Connecticut Department of Environmental Protection has acknowledged that it is not prudent for the State of Connecticut to ban the use of MTBE effective October 2003, and bases his concern on a study evaluating ethanol as an alternative to MTBE which has been conducted by NESCAUM, and the New England Water Pollution Control Commission (NEIWPCC). In fact, Comm. Rocque indicates that to the State of Connecticut, banning MTBE would pose undesirable options to the State including: "the delivery of special or non-complaint (sic) gasoline or an increase in the price of gasoline conservatively estimated in the range of 3-11 cents per gallon." Comm. Rocque has indicated that the Department of Environmental Protection in Connecticut is prepared to recommend changing the date during the next legislative session.
ETHANOL - INFRASTRUCTURE
New Hampshire receives its gasoline from marine barge shipments which come into terminals in Portsmouth and Newington, and from trucks which may pick-up products from terminals in Portland, Maine, Boston harbor, Springfield, Massachusetts and even as far away as Albany, New York. Gasoline containing ethanol needs to be transported and stored differently than does gasoline which contains ethers. Ethanol must be transported and stored separately from the gasoline until the point where it is loaded into the truck at the terminal rack, for delivery to retail locations. Terminals which are located in New Hampshire, Massachusetts, or Maine, which would be supplying gasoline with ethanol, would need to build new storage tanks and retrofit terminals with new blending equipment in order to supply the product. Many of our terminals may have difficulties in receiving siting approvals for such additional storage capacity; space constraints may prove to be a significant challenge in expanding existing petroleum terminals.
Exacerbating the separation and segregation requirements, are the number of fuels required in the northern New England area. New Hampshire requires two different fuels, Maine requires two different fuels also. Recently, some proposals have seemed to address only MTBE used in RFG rather than all fuels, which would result in an even greater strain on the gasoline infrastructure. If ethanol were required to be used to comply with the federal oxygenate mandate in reformulated gasoline, then the terminals servicing New Hampshire marketers would in turn have to carry even more types of gasoline. Our refinery and distribution system is currently stretched to the breaking point. There are over 45 different types of gasoline required nationwide, so any additional requirements for gasoline would pose significant challenges for the industry.
Other infrastructure issues also arise with the consideration of gasoline containing ethanol, including possible changes that might be needed to either underground or aboveground storage tank systems. For example, some fiberglass reinforced plastic tanks may not be compatible with ethanol, and there are questions whether premature failure of leak monitoring systems, and other parts of the fuel dispensing equipment at a gasoline station may occur.
Ethanol is predominately produced in the Midwest and would have to be transported into the Northeast. Until such time as any ethanol is produced in the New England area, the alternative for transporting ethanol from the Midwest include barge, tanker, rail or truck. Infrastructure for this type of transportation will need to be developed prior to any ability to move significant quantities of ethanol to Northeast terminals for blending.
Finally also it is important to note that gasoline containing ethanol cannot be co-mingled with gasoline containing ethers. Terminals and gasoline stations would not be able to intermingle the two products in its tanks. Thus proposals which attempt to phase-down the use of MTBE or ethers in gasoline, without removing the federal oxygenate mandate, are not feasible.
CONCLUSION
In conclusion, I appreciate the opportunity to present information to you today; API is committed to working with Congress, the Administration, and state policymakers and regulators to develop appropriate energy policies for our future. Thank you very much.