House gasoline shortage working group: final report

              Arizona House of
Representatives
House Gasoline Shortage
Working Group
Final Report 1/ 21/ 04
Prepared by
House Majority Research Staff
John Halikowski
Majority Research StaffDirector
Transportation Committee
Elizabeth Baskett
Health Committee
Joy Hicks
Appropriations Committee
Mike Huckins
Government and Retirement Committee
Courtney Riddle
Assistant Committee Analyst
Todd Sanders
Public Institutions Committee
Utilities & Municipalities Committee
Tami Stowe
Environment Committee
Table of
Contents
HOUSE RESEARCH STAFF
HOUSE GASOLINE SHORTAGE WORKING
GROUP
I. EXECUTIVE SUMMARy 2
II. GASOLINE SHORTAGE ANALySIS 3
1. GASOLINE CRISIS TIMELINE .4
2. KEY FINDINGS 5
3. CONCLUSIONS 8
4. SOUTHWEST REGIONAL OBSERVATIONS 10
5. GASOLINE SHORTAGE WAIVER 12
III. AIR QUALITY REGULATIONS AFFECTING GASOLINE. 14
1. FEDERAL 14
2. ARIZONA .14
3. REGIONALAIRQUALITYPLANNING 14
4. STATE IMPLEMENTATION PLAN ( SIP) 15
5. REFORMULATED GASOLINE ( RFG) .15
6. ARIZONA CLEANERBURNING GASOLINE PROGRAM ( CBG) .16
7. ARIZONA'S REVISION TO TIIE SIP PROGRAM .16
8. EPA APPROVAL OF THE CBG PROGRAM 17
IV. GOVERNMENT REGULATORY FUNCTIONS 18
1. FEDERAL 18
2. STATE .20
V. REFINED PETROLEUM PRODUCTS 22
1. REFINERIES .22
2. PIPELINES 23
3. STORAGE & DISTRIBUTION 23
4. RETAIL MARKETING .25
5. TRENDS IN STORAGE & INVENTORIES 26
VI. ARIZONA REFINED PETROLEUM PRODUCTS DISTRIBUTION 28
1. PIPELINES 28
2. TANKFARMS .28
3. TRUCKS 29
4. RETAIL FUELING STATIONS 30
VII. FUTURE TRENDS 31
1. KINDER MORGAN EAST PIPELINE EXPANSION 31
2. PROPOSED RELIEVER PIPELINE ( LONGHORN) 31
3. LONGHORNPIPELINE CURRENT STATUS .32
4. REFINERY .33
VIII. APPENDICES A- L
IX. REPORT RESPONSE ATTACHMENTS SEE ATTACHED
ARIZONA oePT. OF L1eRA~ V
ARCHiVeS I1l'ueuc I1ECOROS
NOV 2 3 2004
STATE DOCUMENTS
HOUSE RESEARCH STAFF
EXECUTIVE SUMMARY
Kinder Morgan Energy Partner's ( Kinder Morgan)
El Paso- to- Phoenix refined petroleum products
pipeline ruptured on July 30, 2003 spilling about
12,000 gallons of gasoline in the Tucson area.
Kinder Morgan officials immediately notified the
u. s. Department of Transportation Office of
Pipeline Safety ( OPS), and the Arizona Corporation
Commission ( ACC). Until lab testing was
concluded, OPS could not have detected stress
corrosion cracking as the cause of the rupture.
Therefore, on August 1, 2003 OPS authorized
pipeline operations to resume at 80% of normal
operation believing a seam failure caused the
rupture. Kinder Morgan chose to operate at 50% of
normal operation. On Aug. 8, 2003 Kinder Morgan
voluntarily shut down the Tucson- to- Phoenix
portion of its El Paso- to- Phoenix pipeline when test
results showed that the integrity of a 12- mile
section ofthe eight- inch pipeline was compromised
by stress corrosion cracking and further testing,
both hydrostatic and spike pressure, was necessary
to determine that the pipeline would have to be
replaced. It should be noted that testing devices
( i. e. " smart pigs) do not exist to detect stress corrosion cracking in eight- inch refined
petroleum product pipelines such as the line from Tucson- to- Phoenix.
By August 17, the media was reporting
many gas stations were closed, and
stations that did have fuel were jammed
with long lines. Refiners and branded
suppliers scrambled to line up supply but
were thwarted by distribution
bottlenecks and shortages of Maricopa
County's summer blend of gasoline,
which is unique in the southwest.
The Tucson- to- Phoenix pipeline resumed operation at 8: 20 a. m. Sunday, August 24, and 98
percent of Valley stations had gas again, compared with 44 percent at one point during the
shortage. ( See Attachments A- D)
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HOUSE RESEARCH STAFF
GASOLINE SHORTAGE ANALYSIS
HOUSE RESEARCH STAFF
GASOLINE SHORTAGE TIMELINE
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HOUSE RESEARCH STAFF
KEY FINDINGS
1. Arizona uses Clean Burning Gasoline ( CBG) formulas that are not used elsewhere in the
Southwest. During the summer months Arizona's fuel blend contains the oxygenate
MTBE.
2. Kinder Morgan is a common carrier and does not make decisions
on what product is sent to what pipeline and when.
3. There are two pipelines transporting gasoline and other refined
petroleum products into the Phoenix area. The West Line transports
70% of the total into Phoenix; the East Line, 30%. The East Line operates at 100%
capacity.
4. Although the East Line was completely shut down between August 8, 2003, and August
24,2003, the West Line continued to deliver refined petroleum products to the Phoenix
tank farm.
5. The Kinder Morgan Tucson- to- Phoenix refined petroleum products pipeline ruptured as a
result of stress corrosion cracking - not simple corrosion ofthe pipe or a seam failure.
6. Kinder Morgan had not previously dealt with a stress corrosion cracking problem, due to
the rare occurrence of this event, on a refined petroleum products pipeline. Thus,
following the rupture on July 30, 2003, Kinder Morgan continued to proceed as if they
were dealing with a seam failure.
7. OPS did not initially detect stress corrosion cracking as the cause of the rupture. OPS
authorized pipeline operations to resume at 80% of normal operation on August 1,2003,
believing a seam failure caused the rupture. Kinder Morgan chose to operate at 50% of
normal operation.
8. Laboratory testing ordered by Kinder Morgan detected stress corrosion cracking as the
cause of the rupture. Kinder Morgan made the decision to close the pipeline for further
testing on August 8, 2003.
9. Stress corrosion cracking in a refined petroleum products pipeline is an extremely unusual
event requiring three factors to be in place for the stress corrosion to occur. The three
factors are:
a. Type and age ofpipeline material, design and maintenance activities.
b. Unique soil composition
c. Stresses
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HOUSE RESEARCH STAFF
10. Testing devices ( i. e. " smart pigs") do not exist to detect stress corrosion cracking in eight­inch
pipelines such as the line from Tucson- to- Phoenix.
11. Although the pipeline break was a contributing factor to the fuel shortage, it appears that
gasoline demand resulting from panic buying was the major cause of the Phoenix Area
gasoline spot shortage between August 17 through August 19, 2003.
12. There are 2.5 million registered vehicles in Maricopa County and the gasoline tank of the
average vehicle is 18 gallons.
13. Maricopa County's average daily gasoline consumption
is 4.3 million gallons per day.
14. Based on discussions with the fuel suppliers, in less
than 48 hours from learning about the situation
regarding the eastern pipeline, the industry brought in
tankers and drivers from as far away as Massachusetts and Iowa to pick up gasoline in El
Paso and Tucson for delivery to Phoenix.
15. Although it was not a Kinder Morgan responsibility, Kinder Morgan altered its loading
racks in Tucson to accommodate Maricopa County gasoline needs. There was no
centralized coordination in scheduling truck loading at Kinder Morgan's tank farm in
Tucson, which caused long waits, and in turn, reduced the number of trips that trucks
could make between Tucson and Phoenix as well as reducing the number of trucks
available for fuel distribution within Maricopa County.
16. Based on information from the
industry, the racks at Tucson were
full throughout the day and up
until midnight. Between midnight
and 6: 00 am, the racks were often
empty. Our research has not
shown any evidence that any
centralized entity scheduled the
trucks at the Tucson rack to
maximize rack availability on a
24- hour basis.
17. Although the Arizona Department of Commerce had developed an " Arizona Fuel
Emergency Plan" in 1990, to deal with spot gasoline shortages, the Plan was not utilized.
The Plan was updated in August 2003 following the conclusion ofthe shortage.
18. Overall, more gasoline
was imported into the
Phoenix Area in
August of 2003 than in
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HOUSE RESEARCH STAFF
August of 2002.
19. During the shortage, Arizona petitioned the Environmental Protection Agency ( EPA) for
an enforcement discretion waiver relaxing the AZCBG requirement in an attempt to
increase the supply of fuel for Maricopa County. Our research indicates that due to the
ambiguous wording contained in the waiver issued by the EPA on August 19, 2003, it
appears the waiver had little or no impact on the amount of available gasoline supply since
suppliers reported they chose not to risk costly federal regulatory sanctions by using
conventional gasoline.
20. It is less expensive to transport product on the East Line. Like any other business, the oil
industry is sensitive to all costs of delivering the product to the retailer. Consequently, the
cost of shipping product plays a part in the decision ofwhich pipeline to use.
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HOUSE RESEARCH STAFF
CONCLUSIONS
1. The demand spike resulted from the following
factors:
a. Reports of a pipeline break in the Tucson
area.
b. Diminished gasoline availability to
suppliers shipping the majority of their
product on the East Line.
c. Upward gasoline price signals leading to
increased fuel purchases.
d. Retail gasoline stations that were at the low
end of their supply cycles ran out of
gasoline, leading to a second wave of fuel
purchases.
e. Reports of shortages began to cause a
general panic that resulted in gasoline lines
and station closures.
f. Exponential increase in demand as people
engaged in extraordinary behaviors to keep
gasoline tanks full.
g. Inventory and delivery infrastructure to
retail outlets were not able to meet extreme
demand.
2. Based on our understanding of the retail gasoline industry
inventory practices, retailers and suppliers do not store
sufficient inventory to meet a five hundred percent
increase in daily retail gasoline demand.
3. Kinder Morgan's pipeline expansion plans for the East
Pipeline will provide adequate gasoline supply for the
future.
4. Establishing a " strategic petroleum reserve" is an
expensive and perhaps environmentally unsound solution
for a problem that is not likely to recur.
5. Based on gasoline supply and demand projections, including the Kinder Morgan pipeline
expansion, available evidence suggests that gasoline supply in Arizona will be sufficient to
satisfy demand.
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HOUSE RESEARCH STAFF
6. Building a refinery in Arizona will require adequate crude oil supplies requiring a new
pipeline to transport oil to the refinery.
7. A refinery will result in increased refining capacity in the western region and Arizona in
particular. However, based on our understanding of this market, refineries do not
generally store refined products, and as a result, a gasoline refinery in Arizona does not
guarantee an increase in Arizona gasoline inventory.
8. Government officials were hindered in obtaining complete data on gasoline inventories
during the shortage due to lack of statutory authority protecting proprietary industry
information. The Petroleum Industry Reporting Act ( PIRA), enacted by the state of
California, has allowed state officials to gain a complete and accurate understanding ofthe
petroleum industry while protecting propriety corporate information. Similar legislation
on a smaller scale should be considered by Arizona.
9. Communication systems between government agencies and industry at all levels should
be examined for ways to improve information sharing in order to avoid a similar shortage
in the future.
10. It is inaccurate to say that the petroleum industry in Arizona is " broken." The Arizona
market, like all gasoline markets across the nation, operates a ' Just- in- time" inventory
strategy that includes marginal reserves and tight supply margins. The market is not
equipped to handle extreme demand spikes resulting in five times the normal daily
gasoline demand.
11. Further analysis should also be conducted to assess the fuel formulations Arizona will
utilize in the future.
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HOUSE RESEARCH STAFF
SOUTHWEST REGIONAL OBSERVATIONS
Source: GulfCoast to California Pipeline Feasibility Study 2003.
1. Construction and operation of a refined petroleum products pipeline between the Gulf
Coast and California does not appear to be a viable option to increase gasoline and
blending component supplies to California in the near future.
2. There do not appear to be adequate supplies of gasoline or gasoline blending components
of sufficient quality available in the Gulf Coast to provide the volumes necessary to merit
construction ofa pipeline.
3. California's need for diesel fuel imports is also not expected to become large enough to
warrant a pipeline. Therefore, pursuit of a Gulf Coast- to- California pipeline by the State of
California is not recommended at this time.
4. Expansion of pipeline capacity between Texas and Arizona would increase the ability to
supply the Phoenix/ Tucson markets from the Gulf Coast. This would provide an
opportunity for California refiners to supply less to this market.
5. California should support the proposed
capacity expansion of the existing Kinder
Morgan pipeline from EI Paso- to­Phoenix,
although California's financial
participation in this project is not
recommended or seen as needed.
6. If a new refined petroleum products pipeline was constructed between Phoenix and Las
Vegas, a portion ofthe Las Vegas market could be supplied from refineries located on the
Gulf Coast. This assumes that the Longhorn Pipeline is operational and that the pipeline
capacity between EI Paso and Phoenix has been increased to permit additional petroleum
product shipments to Las Vegas. The State of California should, therefore, support the
construction of a new product pipeline from Phoenix- to- Las Vegas to enable petroleum
product deliveries from Texas. Again, financial participation by California in such a
project is not deemed necessary or prudent.
7. Completion of the Longhorn Pipeline will be an important step toward enabling greater
reliance on Gulf Coast refineries for increased ( direct or indirect) supply of motor fuels to
California. The State of California should encourage the completion and operation of this
pipeline.
8. Further analysis should be conducted to quantify better the potential loss of refinery
production capacity in Western Texas and New Mexico and the implications for the
potential to indirectly increase gasoline supplies for California.
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HOUSE RESEARCH STAFF
9. Further analysis should also be conducted to assess the impacts of Arizona adopting
California Phase 3 RFG as an additional fuel option and the implications for the potential
to indirectly increase gasoline supplies for California.
10. Federal government agencies with lead permit authority for interstate refined petroleum
products pipeline projects ( such as the Department of Transportation and the
Environmental Protection Agency) should examine the feasibility of streamlining their
review and approval processes to reduce the time required to issue the necessary permits.
Lengthy permit processes are one of the main factors that discourage successful initiation
of needed pipeline projects.
11. Gasoline demand in Western Texas, New Mexico and Arizona is expected to continue
growing at a rate equivalent to population growth, at least 2.5 percent per year. This
continued growth equates to between 10 and 20 BPD of additional gasoline demand per
year. The majority of this incremental demand is located in the Phoenix/ Tucson markets.
Thus, more supply capacity will be needed; in any case, to serve the growing demand of
this region.
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HOUSE RESEARCH STAFF
CLEANER BURNING GASOLINE ( CBG) SHORTAGE WAIVER ­ENFORCEMENT
DISCRETION - AUGUST 19, 2003
DEQ requested on August 19, 2003, that the EPA exercise its enforcement discretion to not
take action against any refiner, importer, or seller of
conventional gasoline sold or intended for sale in the
ozone nonattainment area for a 30- day period. On
August 20, 2003, the EPA granted the enforcement
discretion with the condition that regulated parties take
all reasonable steps to produce and supply CBG or the
cleanest gasoline possible to the ozone nonattainment
area. The enforcement discretion was effective
immediately and was set to continue through
September 19, 2003 or at a shorter timeframe, if
appropriate.
The Department of Weights and Measures ( ADWM)
immediately notified the regulatory industry with the
following statement:
In order to proactively address the recent gas supply
issues facing Maricopa County, Governor Janet
Napolitano petitioned the Us. Environmental
Protection Agency ( EPA) for a waiver allowing the
transport, delivery, and sale of gasoline other than
Arizona Cleaner Burning Gasoline ( AZCBG) to the
retail outlets in the ozone non- attainment area. EPA granted the waiver today.
The notification continued to describe that the EPA would exercise enforcement discretion
regarding violations of the SIP and that ADWM would also exercise enforcement discretion
regarding state statutes and administrative rules governing CBG. The Department also
reminded the regulated industry that the EPA asked all parties to take reasonable steps to
produce and supply CBG or the cleanest gasoline possible in Maricopa County.
On August 22, 2003, ADWM posted a Conventional Fuel- Enforcement Discretion Plan. The
plan described that the fuel quality standard would be the same standard as the remainder of
the state ( ASTM D- 4814). Additionally, the plan set forth reporting requirements, set a
compliance date and allowed for co- mingling of CBG and conventional gasoline at the
terminal and retail storage tanks, if the retail storage tanks are returned to CBG standards by
the compliance date. According to the Department of Weights and Measures, there was no
co- mingling ofCBG and conventional fuel at the terminals.
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HOUSE RESEARCH STAFF
Additionally, due to the general nature of the EPA's enforcement discretion wording, the
majority of suppliers to the Phoenix market chose not to offer conventional gasoline for fear of
legal liability. As a result, it appears that the enforcement discretion granted by the EPA had
very little or no impact on the supply of fuel in the Phoenix metro area during the pipeline
disruption.
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HOUSE RESEARCH STAFF
AIR QUALITY REGULATIONS AFFECTING
GASOLINE
FEDERAL
Federal regulation of air pollution dates as far back as 1955. The U. S. Environmental
Protection Agency ( EPA) has the responsibility for regulating certain major sources and area
sources under the Clean Air Act, 42, U. S. c. § 7401 et seq ( CAA) and the Clean Air Act
Amendments of 1990. The 1990 CAA Amendments direct the EPA to impose the use of
Reformulated Gasoline ( RFG or Phase I RFG) in areas with high levels of smog- forming
pollutants ( volatile organic compounds and nitrogen oxides) and toxics ( such as benzene) and
is instrumental in reducing smog- forming pollutants and toxics annually. These areas are
referred to as '' Nonattainment Areas." Currently, Arizona's nonattainment area is referred to
as Area A and includes all of Maricopa County as well as parts ofPinal and Yavapai Counties.
The area has approximately 3 million residents.
ARIZONA
Arizona's control of air pollution began in 1962, with legislation authorizing the Arizona
Department of Health Services ( DHS) to conduct air pollution studies in order to qualifY for
federal grants. However, once the
Arizona Department of
Environmental Quality ( ADEQ) was
established in 1986, all
environmental management
responsibilities were transferred from
DHS to ADEQ. Air pollution control
jurisdiction in Arizona is shared
between ADEQ and counties with
pollution control programs. The
authority for air pollution control
regulation at the county level is
vested in the County Boards of Supervisors ( BOS) and in the control officers who are
designated officials in each county.
REGIONAL AIR QUALITY PLANNING
The Maricopa Association of Governments ( MAG) was established in 1978 and codified by
the Legislature in 1992 to serve as the Regional Air Quality Planning Agency for the
nonattainment area, which at that time only consisted of Maricopa County. The urbanized
area of Maricopa County was designated nonattainment status due to failure to comply with
the federal health- based air quality standards by the CAA deadlines. The CAA Amendments
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of 1990 required each area designated nonattainment for the CO, ozone or PM10 standards
prior to the Amendments ( enacted November 15, 1990) to be designated nonattainment for
such standards. Therefore, at the time of the CAA 1990 Amendments, the Maricopa County
area was classified as moderate for CO, ozone, and PM- l O. The Maricopa nonattainment area
became reclassified, however, as serious for CO and PM- I0 in 1996, and serious for ozone in
1997 due to the failure to meet attainment standard deadlines.
To date, ADEQ, MAG and local jurisdictions in the Maricopa County area have adopted and
implemented a broad range of CO, ozone and PM- I0 control measures to combat air
pollution, including a CBG program, summertime Reid vapor pressure ( RVP) limit of 7.0
pounds per square inch ( psi), an enhanced vehicle inspection and maintenance ( lIM) program,
Stage II vapor recovery, an employer trip reduction program, transportation control measures
and stationary and area source controls.
STATE IMPLEMENTATION PLAN ( SIP)
The SIP is a cumulative record of all air pollution strategies, control measures, statutes, rules
and ordinances implemented under the CAA by government agencies within Arizona. The
first Arizona SIP was submitted in 1972. Due to so many changes to federal, state and local
air quality programs in recent years, there is no single definitive document that contains all of
the SIP requirements. Revisions to Arizona's SIP must be submitted to the EPA by the
Director ofDEQ on behalf of the governor. Once approved by the EPA and published in the
Federal Register, the provisions contained in the SIP revision become enforceable by the
federal government as well as appropriate governmental entities within Arizona.
REFORMULATED GASOLINE ( RFG) PROGRAM- Federal/ State Options
Beginning in the 1997 ozone season, Arizona opted into the Federal Reformulated Gasoline
( RFG) program. Opting into the Federal RFG
program ( RFG or Phase I RFG) enabled the
implementation of a control measure that had
immediate air quality benefits for the 1997­ozone
season. The request by Governor
Symington to opt into the Federal RFG
program was contingent, however, on the
EPA's assurance that Arizona would be able to
exit the program in 1998 and implement its
own State- enforced program. The CAA allows nonattainment areas to substitute state RFG
programs for the Federal RFG program, contingent upon the EPA's approval. Therefore, the
State worked on developing its own reformulated gasoline program for the summer of 1999
and beyond, because of the mounting evidence that a State program would offer greater
environmental benefits at an earlier time period than would be achieved if Arizona remained
in the Federal RFG program.
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ARIZONA CLEANER BURNING GASOLINE ( CBG) PROGRAM
In 1997, many issues played a key role in
the decision surrounding what type of
gasoline to require, such as cost of
production, cost to consumer, supply and
transport issues and environmental
benefits. Based upon these considerations and heavy debate, the Legislature passed Laws
1997, Chapter 117 ( HB 2307). The CBG program was implemented in 2- stages. In other
words, gasoline for use in motor vehicles within Area A had short- term and long- term fuel
options. The short- term fuel provision ( from June to September 1998) had to meet standards
similar to Federal Phase I RFG or California's Phase 2 RFG. The long- tenn choice, beginning
May 1, 1999, was to meet similar standards to either the Federal Phase II RFG or the
California Phase 2 RFG. By this time, gasoline- control requirements for Area A included all
areas within Maricopa County.
Arizona Cleaner Burning Gasoline ( CBG) is the name chosen for the Arizona version of
reformulated gasoline also referred to as Arizona's boutique blend. The DEQ requested that
the Arizona CBG program interim rule be adopted on September 12, 1997, and was submitted
to the EPA as a SIP revision. The EPA approved the interim CBG program on February 10,
1998. Upon approval, Arizona began the rulemaking process for a permanent rule. The
Governors Regulatory Review Council ( GRRC) adopted the permanent rule ( Arizona
Administrative Register, ( AAR)) on September 9, 1998. Arizona's CBG program is now an
integral part of Maricopa County's control strategies for CO, ozone and PM- lO and part ofa
larger strategy to reduce emissions in Area A.
CBG contains the same ingredients as gasoline sold elsewhere, but it has been oxygenated and
reformulated in order to improve air quality within the nonattainment area on a year- round
basis. While oxygenating means adding an oxygenate, such as Ethanol or Methyl Tertiary
Butyl Ether ( MTBE), to the gasoline, reformulating means the CBG has been chemically
altered, by reducing the volumes of certain ingredients, such as sulfur and by modifying
distillation curves for performance.
ARIZONA'S REVISION TO THE SIP · APPROVED CBG PROGRAM
Arizona has adopted four bills amending the State's statutory fuel requirements since the
adoption of the original CBG program in HB 2307. In accordance with these legislative
changes, DEQ and the Department of Weights and Measures has made revisions to the fuel
regulations contained in the Arizona Administrative Register ( AAR), Title 20, Chapter 2,
Article 7. Additionally, DEQ has provided and submitted these revisions to the EPA for SIP
approval. With this action, DEQ requested that the EPA approve the cumulative changes of
all these legislative and administrative revisions ( Arizona's SIP Revisions to the CBG
program).
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The following bills and administrative fuel regulations outline the cumulative changes to the
SIP- approved CBG program since 1998:
• HB 2347, fuel reformulation requirements, ( 1998), required wintertime
gasoline to have an oxygen content not less than 10% by volume of ethanol.
• SB 1427, air quality measures, ( 1998), modified the definition of Area A to
include additional areas of Maricopa County, as well as portions of Yavapai and
Pinal Counties.
• AAR 2672, September 25, 1998, amended permanent CBG program.
• HB 2189, environment corrections, ( 1999), returned the area of applicability of
the CBG program to include all of Maricopa County, as well as portions of
Yavapai and Pinal Counties beginning January 1, 2001.
• AAR 4214, November 5, 1999, incorporated the regulatory changes made by the
EPA ( 62 FR 68196) and changed wintertime CBG.
• SB 1504, 2000 clean air act, ( 2000), removed the minimum oxygen content
requirement for summertime gasoline ( MTBE).
• AAR 1025, March 2, 2001, phase out MTBE.
It should be noted that all of the SIP revisions were implemented at the time of their
enactments, with the exception of the MTBE phase out. This provision could not be
implemented until the EPA permanently waived the 2% minimum oxygenate in Area A, due
to the federal requirement that all nonattainment areas, within the United States, add at a
minimum 2% oxygenate to gasoline. This is referred to as a federal trump. In other words, in
the United States, state nonattainment areas can exceed federal regulations, but they cannot
implement less stringent regulations that correspond with federal regulations.
EPA PROPOSES TO APPROVE THE CBG PROGRAM SIP REVISION
DEQ has submitted four separate SIP submittals, from February 1999 to September 2001, to
Arizona's CBG program for EPA approval. Under the revised SIP, the wintertime
oxygenated fuels program will change to comply with standards for California Phase 2
reformulated gasoline. Ten percent by volume Ethanol will also be required in all wintertime
fuel. The SIP revision also includes a summertime program, which gives refiners the choice
between two types of fuel ( gasoline that meets the standards for RFG Phase II or California
RFG Phase 2) and the removal ofthe 2% oxygen requirement ( MTBE) in summertime fuel.
On September 5, 2003, the EPA proposed to approve the revisions to the Arizona CBG
program in the SIP. The approval was subject to a 30- day comment period. After the 30- day
comment period, EPA must address the comments they have received and publish the final
rule.
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GOVERNMENT REGULATORY FUNCTIONS
FEDERAL
UNITED STATES DEPARTMENT OF TRANSPORTATION
The U. S. Department of Transportation ( USDOT) establishes the Nation's overall
transportation policy. Under its umbrella there are 11 administrations whose jurisdictions
include highway planning, development, and construction; motor carrier safety; urban mass
transit; railroads; aviation; and the safety of waterways, ports, highways, and oil and gas
pipelines.
U. S. Department of Transportation
I SECRETARY I
IDEPUTY SECRETARY I
ASSOCIATE Dfl> UTY SECRETARY!
OFF1C: E OFllirERM: ODAlISM
I I I I I I I I
omCEOFDRUG OFFICE OF omCEOF OFFICE OF TIlE
ANDALCOIIDL EXECUTIVE omCEOF CBOONATRRDAOCFT DISSAMDAVLALlIATNADaED IlITELLDJENCE omCEoF CHIEF POLICYAND SECRETARIAT CIVIL RIGHTS APPEJ( l. S BUSINESS .'. lID PUBLIC . AFF. AIRS INFORMATION
COMPLIANCE
UTILIZATION SECT. JRITil omCER
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I ~ SISTANT r II ~ SISTANT I ~ SISTANT ASSIST. ANT ~ SISTANT OFFIGEOF
I
GEHERAL SECRErARY FOR SECRErARY FOR SECRErARY FOR SECRErARYFOR SECRET. ARYWR INSPECTOR
COUNSEL TRANSPORTATION =~~~ P: O~~~ HIEJi' GOVERNl\ 1ElITAL ADWNlSTRATlON GEHERAL
POLICY AFFAmS FINANCIAL omCER AFFAmS
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I. FEDERAL , II. FEDERAL , II. FEDERAL III NATIONAL III FEDERAL II
AViATION InGHlNAY RAll. ROAD HIGHINAY TRANSIT
ADWNlSTRATION ADWNlSTRATION ADWNlSTRATION ~~ ADWNlSTRATION
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IS~ t~~ CEII. ~ rll.~~~ AND, II' BUPLWOF011; ERAL~ TOR; 1 DEVELOPMENr ADhONISTRATION PROGR. JI. MS TR.. ANSPORTATIO C. ARRIERSAliETY
CORPORATION }. DMn{ C)' I'F:... Jl.. TION STATISTICS ADNillISTRATION
OFFICE OF PIPELINE SAFETY
The Office of Pipeline Safety's ( OPS) under the direction of USDOT mission is to ensure the
To ensure
so
nation's
18
The mission of the Environmental Protection Agency ( EPA) is to protect
human health and to safeguard the natural environment-- air, water, and land­-
upon which life depends.
HOUSE RESEARCH STAFF
safety, security, and environmental protection of the Nation's pipeline transportation system.
The Office establishes and enforces safety and environmental standards for transportation of
gas and hazardous liquids by pipeline. Through OPS administered grants- in- aid, OPS cannot
pay more than 50 percent of the costs for OPS certified intrastate pipeline safety programs
within states that voluntarily assume regulatory jurisdiction of intrastate pipelines.
Additionally, ACC acts as an agent of OPS on interstate pipeline safety programs. ( See
Attachment E)
ENVIRONMENTAL PROTECTION AGENCY
Air and
Radiation
The activities of the Office of Air and Radiation, under EPA include the following:
developing national programs, policies, regulations, and standards for air quality, emission
standards for stationary and mobile sources, and emission standards for hazardous air
pollutants; conducting research and providing information on indoor air pollutants to the
public; providing technical direction, support, and evaluation of regional air activities;
providing training in the field of air pollution control; providing technical assistance to States
and agencies having radiation protection programs, including radon mitigation programs and a
national surveillance and inspection program for measuring radiation levels in the
environment; and providing technical support and policy direction to international efforts to
reduce global and transboundary air pollution and its effects.
FEDERAL ENERGY REGULATORY COMMISSION
What are the Federal Energy Regulatory Commission's ( FERC) responsibilities for
regulating oil?
• Regulate the transportation ( from one state to another and from any other
place in the U. S. to and from a foreign country, but only for the pipeline transported in
the U. S.) of crude petroleum, refined petroleum products ( gasoline, fuel oil, diesel
fuel, kerosene, jet fuel, etc.) and liquefied petroleum products ( butane, isobutene,
ethane, propane, etc.) by common carrier pipelines.
• Oil pipeline carriers under FERC jurisdiction are required to file documents called
tariffs, which contain the rates, charges, and rules for transporting the oil by pipeline.
The requirements for filing oil tariffs are found in 18 Code of Federal Regulations
( CFR) Part 341.
FERC has no jurisdiction over construction or maintenance ofproduction wells, oil pipelines,
refineries, or storage facilities. The Environmental Protection Agency has jurisdiction over
oil spills.
19
HOUSE RESEARCH STAFF
ARIZONA
DEPARTMENT OF COMMERCE
The Department of Commerce Energy Office administers various federal funds including
those from the Department of Energy and the Department of Health and Human Services.
The office has three program operating components: energy conservation and engineering,
education and community outreach and energy policy. In 1990, the Department of Commerce
Energy Office also developed an Arizona Fuel Emergency Plan followed by the Arizona
Motor Fuel Emergency Response Plan of 2003 to develop strategies designed to mitigate the
effects of spot fuel shortages.
CORPORATION COMMISSION
The Arizona Corporation Commission ( ACe) was established by Article 15 of the Arizona
Constitution and consists of five statewide elected commissioners, serving 4- year terms. The
commission has three primary responsibilities. The Corporations Division provides public
access to corporate annual reports, articles of incorporation, and corporate status change
documents. The Securities Division regulates securities dealers and investment advisors. The
Utilities Division monitors approximately 500 public service corporations operating in
Arizona and establishes public utility rates. Other functions of the Commission include
inspecting gas pipelines and railroad tracks. The Pipeline Safety Program enforces state
pipeline safety regulations applicable to intrastate pipelines, and provides guidance to
intrastate pipeline operators to ensure safe operation of pipeline facilities. Acting as agent for
OPS, the Pipeline Safety Program also inspects and reports on interstate pipelines as
authorized by OPS. The ACC has no independent regulatory authority over interstate
pipelines.
DEPARTMENT OF ENVIRONMENTAL QUALITY
The Department of Environmental Quality's ( ADEQ) purpose is to protect human health and
the environment by enforcing standards of quality for Arizona's air, water and land. The Air
Quality Program controls present and future sources of air pollution as well as ensures
compliance with Federal and State environmental laws. Activities include planning and
program development, monitoring and research, industrial emissions permitting, compliance
enforcement and vehicle emissions inspections. During the recent gas crisis, ADEQ worked
with the EPA to obtain a waiver to produce conventional gasoline in the valley. The
Department has also been heavily involved in the proposal to build a refinery in the Phoenix­Metro
area.
DEPARTMENT OF WEIGHTS AND MEASURES
The Department of Weights and Measures ( Department) regulates the determination and
representation ofweight and measurement in the marketplace, maintains two environmentally
related gasoline inspection programs - the Stage II Vapor Recovery program and the Cleaner
Burning Gasoline ( CBI) program. The Department has administered the fuel quality program
20
HOUSE RESEARCH STAFF
since 1989 when oxygenated fuel was mandated. The Department opened its own fuel- testing
laboratory capable of testing for all perimeters listed under ASTM D4814. The Department
now employs a contracted laboratory to analyze 2000 samples per year obtained from the
terminals and retail sites by Department staff. Additionally, in cooperation with ADEQ, the
Department has had to develop regulations governing fuel and fuel quality.
According to Department records, there are 994 gas pump locations in Area A and 1,023 gas
pump locations throughout the rest of the State. The Department is responsible for regulating
the proper measurement ( fuel volume) of motor fuels ( gasoline, diesel, propane, etc).
Inspectors examine fueling dispensers at each service station in Arizona approximately once
every three years, unless there is a complaint, and then an Inspector is sent to the site within
seven days. Last fiscal year the Department inspected over 21,900 dispensing devices.
21
HOUSE RESEARCH STAFF
REFINED PETROLEUM PRODUCTS
Refiner, Supplier & Retailer ( See Attachment F)
REFINERIES
What ( omes from a Barrel of ( rude
Average U. s. Refinery Output in 1995
coke, Dlpholt,
lubricunts, WDxes
• 48% Gasoline
• 20% Distillate
lJIJl 9.2% Jet Fllel
lJIJl 5.2% Residual
16% Other
Gasoline destined for delivery in Arizona may come from
fifteen different refineries. Most of these refineries are
located in Southern California. Others are located in the
San Francisco Bay Area, Washington State, New Mexico
and West Texas.
Every refinery has unique characteristics and capabilities for
processing crude oil and for making refined products. Most
refineries were initially built to process a specific slate of
crude oils, usually from the company's
upstream division or from a nearby oil
field.
The economics of refinery operation is
largely dependent on three variables:
the cost of crude oil, the cost of
operating the refinery, and the market
price the seller can obtain for the
product. In addition to the refinery's
capabilities for processing crude oil,
the " crack spread" - the difference
between the price a refiner can obtain
for a refined product and the cost of
crude oil - will determine the types of crude oil a refiner will purchase and the products that
the refiner will produce.
I RefilHlry Flow ( hlllft I
Jet fUlll
Housin9
MIlRvfRtlrls
Waxing
Ma< klllllY
Fadorl'$
Roads
The United States has the largest
refining capacity of any nation in
the world- approximately 20 percent
of the total global refining capacity.
Almost all of the gasoline consumed
in the United States - approximately
96 percent - is produced in
domestic refineries; the remainder is
imported from locations such as the
Caribbean and Europe.
22
Major Ke'rJnE~ a Products Pipelines
HOUSE RESEARCH STAFF
PIPELINES
The United States has a 200,000- mile petroleum pipeline network that delivers the products
that are integral parts ofAmerica's economy.
The United States has the largest network of energy pipelines, both oil and natural gas, of any
nation in the world. The oil pipeline network alone in the U. S. is more than 10 times larger
than that in Europe.
There are approximately 95,000 miles nationwide of refined product pipelines. Refined
products pipelines are found in almost every state in the U. S., with the exception ofsome New
England states.
These refined
products pipelines
vary in size from
relatively small 8 to
12 inch diameter
lines up to 42 inches
in diameter. The
network of oil and
natural gas pipelines
that serve the U. S. is
not a single entity.
Some large oil
companies like
Shell, British
Petroleum ( BP) and
Exxon Mobil
operate pipeline
systems that serve large regions ofthe country or move petroleum from one region to another.
Another large group of pipeline systems is owned and operated by companies that are only
pipeline operators - such as Kinder Morgan, and that are not involved in other aspects of the
oil industry.
STORAGE AND DISTRIBUTION
Once crude oil is refined, the products are stored in tanks at the refinery or shipped to
other distribution facilities, called wholesale terminals. It is estimated there are more than
1,300 wholesale terminals in service. A terminal may have as much as 2 million gallons of
storage capacity. Although major oil companies own several of these terminals, about 75
percent are owned by independent petroleum companies, distributors ( jobbers), and
terminal/ supply service companies.
23
HOUSE RESEARCH STAFF
Most of the volume of petroleum products is transported from refineries to wholesale
terminals through pipelines. Most oil pipelines are operated as " common carriers," which
means that the pipeline owner does not take title to the oil being shipped but simply provides
the transportation service. As common carriers, pipelines must be accessible to all oil that
meets the pipeline's shipping specifications, regardless of the ownership. Further, they are
subject to government regulation concerning rates and operating practices. Less than six % of
petroleum products is moved from refineries by truck, and only half that amount, just over
three percent, is moved by rail.
Some 184 companies operate pipelines that are
regulated by the Federal Energy Regulatory
Commission ( FERC) for the purpose of rates. A small
percentage of pipelines are operated as proprietary
pipelines.
Proprietary pipelines transport crude oil or products for
their owners or their affiliates. The owners of these
pipelines can set their own rates; however, if they
begin shipping substantial quantities of product for the
use of third parties, the FERC can require that they
become common carriers and be subject to the FERC's
rate making authority.
Although different refineries have different operating
characteristics, with limited exception, the basic
gasoline produced at any particular refinery will be
chemically identical to the gasoline produced at any
other refinery. A brand of gasoline is created when the
refined gasoline is mixed with a company's proprietary blend of chemical additives at the
terminal, which usually occurs as the tanker trucks are being filled for their deliveries to
service stations.
Because all gasoline must meet the applicable minimum federal standards, most gasoline is
identical even after the proprietary chemical additives are mixed. " Branded gasoline" is sold
by the refiner with the understanding that it may be resold under the trademark or trade name
owned by the refiner.
" Unbranded gasoline" cannot be
resold under the trade name.
Branded gasoline is distributed from
refineries and terminals to retail
outlets, either directly to the service
station or through bulk plants. Bulk
plants are like terminals, but they
are used by jobbers to store product
for distribution to retailers.
24
HOUSE RESEARCH STAFF
Jobbers purchase and transport gasoline from refiners and sell or distribute it to gasoline
retailers or, in some cases, directly to a number of small dealers with one or two trucks as
distributors. A jobber may distribute several brands of gasoline, and may own or lease several
retail outlets selling different brands, including unbranded gasoline. Jobbers who contract with
a company to distribute a particular brand of gasoline are often required to obtain that gasoline
from a particular terminal. Refiners and jobbers distribute the gasoline to retail outlets by
trucks that generally carry about 7,700 gallons offuel each.
RETAIL MARKETING
Service stations, which first appeared around 1910, remain the predominant retail
establishments for marketing gasoline. Currently there are over 175,000 retail gasoline outlets
in the United States. Today, there is an increasing variety of service station formats and
ownership. ( See Attachments G & H)
Station Formats & Ownership:
• A company- owned, company- operated station
operated by salaried or commissioned
personnel of the refining company.
Although there are some company­operated
stations that are supplied by a
jobber on contract with a refining
company, they are few- in- number and
almost all of these stations are
supplied by the refining companies
directly.
• A lessee- dealer is a person who leases
the station and land, including tanks, pumps, signs, and other equipment, from a refiner
and is supplied directly by the refiner or an affiliate or subsidiary company of the refiner.
The lessee- dealer is required by contract to buy gasoline from the refiner at the price set by
the refiner, the " dealer tank wagon" ( DTW) price. This price will generally be higher than
the rack price charged to jobbers ( see below), as it will include a charge for promotional
support provided by the refiner. The refiner also sets the lease rate and other operating
standards and may also offer certain discounts, all of which affect operating costs and
ultimately the retail price charged by the lessee dealer.
• An open dealer is a person who owns ( or leases from a third party who is not a refiner) the
station or land of a retail outlet and has use of tanks, pumps, signs, and other equipment.
An open dealer sells gasoline under the brand of a refiner. An open dealer may have a
supply agreement with a refiner or may be supplied by a jobber under contract with a
refiner. The open dealer may, upon expiration of a contract, switch to another source of
supply, including a different brand.
25
HOUSE RESEARCH STAFF
• A jobber purchases branded or unbranded gasoline at a tenninal owned or supplied by a
refinery, commonly called the " rack," and distributes it to either his or her own service
stations or to service stations owned by others or both. Many jobbers have tenn contracts
with refiners for purchases of specific amounts of branded gasoline.
• An independent dealer purchases unbranded gasoline, either on the spot market or at a
refiner's rack. Independent dealers generally do not have long- term contracts with any
particular brand; they generally shop around for the lowest unbranded rack price. They
may also use a jobber to execute delivery ofthe gasoline purchased at the rack.
TRENDS IN STORAGE AND INVENTORIES
As the number ofrefineries has decreased, gasoline storage capacity and gasoline stockpiles at
refineries also have decreased. In 1981, the aggregate storage capacity at the 324 refineries in
the country was approximately 167 million barrels. By 2001, as the number of refineries was
reduced by half, storage capacity for gasoline at refineries declined by 14 percent, to 143
million barrels.
In the past several years,
most refiners have
aggressively reduced
amounts of gasoline held in
inventory. During the 1990s,
a number of industries
adopted ' just- in- time"
inventory practices to
reduce operational costs and
become more efficient. As
the Wall Street Journal
recently reported, " New
software in use at most . .
major energy compames
allows employees to keep closer watch over how much oil or gas is sitting in tank fanns, vast
pipelines and neighborhood gas stations. By squeezing inventories to the minimum, the
companies reduce storage costs and improve cash flow." Exxon Mobil, the largest oil
company, has established a goal of reducing its crude oil and refined products in inventory by
15 percent. BP claims it has reduced its inventories by 7 percent since 1997. Prior to its merger
with Texaco, Chevron had reduced its inventories of mid- and premium- grade gasoline by
nearly two- thirds over the previous decade.
Total gasoline stocks - meaning the total amount of gasoline and blending components in
storage at refineries and tenninals and in pipelines - have similarly fallen over the past two
decades by about 20 percent, from approximately 250 million barrels in 1981 to around 200
million barrels at present. In 1981 the amount of gasoline in storage equated to approximately
40 days of consumption; by 2001, the amount in storage had declined to around 25 days of
consumption. Nationally, current stock levels represent only about 3 days worth of supply at
the nation's current consumption rate of 8.5 million barrels of gasoline per day over the
26
HOUSE RESEARCH STAFF
minimum amount of stocks considered necessary to effectively and efficiently distribute
gasoline, which the EIA terms the " Lower Operational Inventory Level."
As previously discussed most of the terminal storage capacity is not located at refineries.
Independents, jobbers, and terminal/ supply service
companies operate almost three times as many facilities
as do the refiners. Of current stocks, approximately 40
percent is stored in bulk terminals, about one- third is
stored at refineries, and the remainder, just over one­quarter
( 28 percent) is found in pipelines. The Census
Bureau reports that total storage capacity for refined
petroleum products, including gasoline, declined almost
27 percent between 1987 and 1997, while demand
during the period increased almost 12 percent. In the Gulf Coast region, which has the most
refining capacity, gasoline storage is concentrated at the refineries. This is true as well for the
Rocky Mountain and West Coast regions, neither of which are significant importers of
gasoline. In the East Coast and Midwest regions, gasoline is stored primarily in bulk terminals
closer to the market areas. In these regions, gasoline imports from other regions or nations are
necessary to meet demand.
The costs of storing gasoline in inventory will vary, depending on market conditions, such as
the type of storage required, the type of product being stored, and overall supply and demand
considerations. Generally, long- term storage costs can become significant. On an average
basis, it costs approximately $ 2 per barrel to hold gasoline in inventory at a refinery storage
facility for a year and approximately $ 6 per barrel for a company to rent a storage facility for
the same length of time. Thus, storing gasoline in rented tank space costs roughly 1 cent per
gallon per month.
27
HOUSE RESEARCH STAFF
ARIZONA REFINED PETROLEUM
PRODUCTS DISTRIBUTION
ARIZONA PIPELINES
There is approximately 1.5 billion gallons ofArizona CBG piped or transported into Maricopa
County each year. It is a complex
system ofpiping that interconnects all
of the facilities in the Tank Farm
Complex, allowing products to be
delivered or transported. The majority
of Arizona's gasoline supplies are
transported into the state by two
pipelines owned by Kinder Morgan.
The Western Pipeline runs from
California to Phoenix and supplies
70% of Arizona's REFINED
petroleum product needs. The Eastern
Pipeline runs from El Paso- to-
Tucson, and then from Tucson- to- Phoenix. The Eastern Pipeline supplies about 30% of
Arizona's refined petroleum product needs. Combined, the pipelines supply approximately 7.3
million gallons of petroleum products to the valley per
day. It takes seven days to transport gasoline via pipeline
from Watson, California to Phoenix. It takes six days for
gasoline to arrive in Phoenix by the pipeline from El Paso.
There are four major storage points in the system: the
pipeline, the tank farms, the service stations and all of our
individual vehicles combined. The largest of those four is
our vehicles. The other three work from a ' Just- in- time" inventory system. While there are a
few days of inventory in the combined system, fuel is delivered from the tank farm to the
stations by tanker trucks at the same time that fuel from the pipeline flows into the tank farm.
TANK FARM - PHOENIX
The pipeline system delivers products to the Tank Farm at a
high rate of flow. ( The incoming flow rate may be up to
5000 gpm.) A number of different companies and agencies
store and distribute products from adjoining facilities. A
piping manifold system provides for the distribution of
products among the individual facilities. The central
manifold is located in the Kinder Morgan Pipelines yard in
28
HOUSE RESEARCH STAFF
the middle of the Tank Farm area. There are truck loading racks at each facility in the
complex. Product is transferred at high flow rates to/ from tank trucks at these racks.
The Kinder Morgan Phoenix Tank Farm
is located southwest of the intersection
of 51 st Avenue and Van Buren Street.
There are approximately 80 storage
tanks at this facility. The tank farm
serves as the primary distribution point
for refined petroleum products in the
Phoenix area.
To ensure that the fuel contains the right amount of oxygenate ( MTBE or Ethanol), the
Department of Weights and Measures requires the tank farm to have a Quality Assurance
Program not unlike that ofthe pipeline. The terminal is required to take random samples from
trucks at the loading rack to help insure that the level of oxygenate at the rack will meet State
requirements.
TRUCKS
,/
(: l_/~~-~ Ul
(~ ky'iHrni)
A limited amount ofproduct arrives by rail or by tank truck. Large
quantities of products, primarily flammable and combustible
liquids, are stored at this location and distributed to service stations
and other users by tank truck or through additional underground
pipelines. In
addition to owning
and operating the
incoming pipelines,
Kinder Morgan is
also one of five
terminal owners
within the facility.
The four other
owners are: BP, Caljet, Chevron and Unical.
Tanker trucks typically carry gasoline only the
last few miles of the trip to individual service
stations. Carrying a full load, a typical tanker
truck would be able to carry about 8,000
gallons of gasoline. The average size of one
underground tank at a retail outlet is about
8,000 gallons. Under normal conditions, a local
truck can deliver five or six loads in a 12- hour shift. But when scores of trucks had to go to
Tucson, where there are fewer than 10 loading positions instead of the more than 30 in
Phoenix, the result was that each truck could get only one load per shift.
29
HOUSE RESEARCH STAFF
RETAIL FUELING STATIONS
( See Attachments I & J)
There are over 150 marketers, distributors and
jobbers in Arizona. According to the Department of
Weights and Measures ( DWM), there are
approximately 1,000 gas pump locations in Area A
and 1,023 gas pump locations throughout the rest of
the state. The Department is responsible for
regulating the proper measurement ( fuel volume) of
motor fuels ( gasoline, diesel, propane, etc).
Inspectors examine fueling dispensers at each service station in Arizona approximately once
every three years, unless there is a complaint,
and then an Inspector is sent to the site within
seven days. Last fiscal year the Department
inspected over 21,900 dispensing devices.
Depending on the type of retail outlet, sales
volume and delivery schedules, the retail outlet
may carry from two to five days worth of
inventory in its underground tanks given normal
usage patterns.
30
HOUSE RESEARCH STAFF
FUTURE TRENDS
Supply & Demand ( See Attachments K & L)
UPGRADE/ EXPANSION OF KINDER MORGAN EAST PIPELINE
The East Pipeline is scheduled to be upgraded from the existing 8- inch pipe to 12- inch. The
proposed expansion will be completed in phases. Phase I will replace 84 miles of existing 8­inch
Tucson to Phoenix pipeline with 12- inch line and will upgrade 160 miles of the EI Paso
to Tucson pipeline from 12- inch to 16- inch line. According to Kinder Morgan, Phase I will
increase the current East Line capacity into Phoenix by 83 percent or from 54,000 BPD to
99,000 BPD of total petroleum products. Phase II will eventually replace the remaining 144
mile 12- inch EI Paso to Phoenix line with 16- inch line, thus increase the valley's supply by
about 123 percent ( 99,000 BPD to 120,600 BPD). The last phase will be an upgrade with the
Toltec Booster, resulting in an extra 35,000 BPD into the Phoenix area ( 120,600 BPD to
155,600 BPD). Should all three expansion phases take place, the East Pipeline capacity
coming into Phoenix will increase by 188 percent. SOlffce: Kinder- Morgan Energy Partners
PROPOSED EASTERN RELIEVER PIPELINE ( LONGHORN)
The proposed Longhorn Partners Pipeline ( LPP) project would convert the former Exxon
Pipeline Company
pipeline, transporting
crude oil from Crane to
Baytown, Texas, to a
refined products
pipeline transporting
primarily gasoline and
diesel fuel from
Houston to the EI Paso
Gateway Market. The
purpose of the
Longhorn system is to
provide refined petroleum products to third party common party carrier pipelines accessing
markets in west Texas, New Mexico, and Arizona. Source: Office ofPipeline Safety
Gulf Coast refiners have been unable to get their products to markets with high demand - not
just West Texas but also New Mexico, Arizona, and towns along the U. S./ Mexico border.
One section of the Longhorn Pipeline - stretching 450 miles from Houston to Crane - has
existed for years, carrying crude oil from West Texas to the Gulf Coast. Two new sections
have been added, including a nine- mile section in Houston and a 250- mile section in West
Texas.
31
HOUSE RESEARCH STAFF
In EI Paso, The terminal will be the point of origin for the
three lateral pipelines: an 8Yz inch- diameter pipeline to the
Chevron Pipeline and 8Yz inch- diameter and 12Yz inch­diameter
pipelines to the Kinder Morgan Pipeline. These
interconnections with other pipelines will take much of the
gasoline and diesel fuel into Arizona and New Mexico.
This will even benefit consumers and businesses in
California by reducing the amount of fuel that State must
export to Arizona. Source: Gulf Coast to California Pipeline
Feasibility Study CA Energy Commission Final Report 2003
LONGHORN PIPELINE · CURRENT STATUS
August 21, 2003 - Source: Business Journal
The California Energy Commission recommends against building a pipeline to bring gasoline
and other petroleum products to
California from refineries in Texas and
the Gulf Coast. The Commission
determined that the Gulf Coast area
would not have enough supplies of the
type of gasoline used in California to
merit construction ofthe pipeline.
The Commission does recommend that
the Longhorn pipeline -- now proposed
for construction between Houston and
EI Paso, Texas -- be completed. Once
the Longhorn project is in place, the
study encourages increasing the
capacity of the pipeline from EI Paso to
Phoenix. Source: Gulf Coast to California
Pipeline Feasibility Study CA Energy
Commission Final Report 2003
The Longhorn Pipeline Project has been delayed until adequate financing can be secured to
complete the final portion of the construction and purchase sufficient quantities of refined
petroleum products to provide the initial fill of the pipeline prior to the commencement of
operations. No firm completion date has been announced by the company, Longhorn Partners
Pipeline, LP, as ofthis writing.
32
HOUSE RESEARCH STAFF
REFINERY · SHOULD ARIZONA HAVE A REFINERY?
Another option for Arizona to consider is the construction of our own refinery. As of recently,
Arizona Clean Fuels has proposed building a freestanding refinery on the far side of the
Estrella Mountains about 20
miles southwest of Phoenix. The
Mobile refinery is projected to
cost around $ 2 Billion and if
completed, would employ over
400 people. Based on estimates
provided by Arizona Clean
Fuels, the refinery is projected to
produce approximately one- half
of the gasoline, diesel and jet
fuel demand for the state. In
addition to the Mobile refinery
debate, a Yuma site is now being
considered.
In order for the refinery to become a reality, there are numerous environmental, state and
federal regulations to overcome. There will likely be other obstacles to face, including
building a pipeline to transport the crude oil to the refinery and overcoming public opposition
to such a concept. Source: Arizona Clean Fuels
Avondale
Arizona
Clea, n
Fuels
Tempe
\---- ® >-------
Guadalupe
Chandler
33
East Line Deliveries
HOUSE RESEARCH STAFF
o
10
50
60
40
E1Trucking
III
. Turbine
Q..).
o Transmix
... III
. Q
o Diesel -~ 30
• Conventional
'" 0
I! ICBG
c
III
III :: s
0 ... c..
20
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
days
ATTACHMENT A
West Line Deliveries in August
HOUSE RESEARCH STAFF
250
200
III
E... 150
III ­..
c o
III
' t: l
t:::
III
III g 100
.... c.:
50
o
. Turbine
DTransmix
o Diesel
• Conventional
IICBG
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
days
ATTACHMENT B
250
200
e. l./. l 150
lI: l -. c o
l/ l
" C
l::
lI: l
l/ l 5 100
... s.::.::
50
o
CBG Delieveries from KM in August
HOUSE RESEARCH STAFF
DCBG - West
III CBG- Trucking
lEI CBG - East
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
days
ATTACHMENT C
HOUSE RESEARCH STAFF
August Total Deliveries to Phoenix
o
50
250
300
200
EEl Trucking
Cil
. Turbine
' t: l
t:::
OTransmix
I'll
III :: s
o Diesel
0
J:: 150
• Conventional
l-t:::
I! iilCBG
- III
Q....).. I'll
III
100
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
Augu~
ATTACHMENT D
LL
LL
~
( f)
I o
a:
~
( f)
w a:
w
( f)
::: J o
I
HOUSE RESEARCH STAFF
KINDER MORGAN REFINED PRODUCTS PIPELINES
Product Types Delivered to Phoenix through Kinder- Morgan Pipelines
Total Barrels per day = 175,000
Diesel
20%
( 35,000 BPD)
Jet Fuel
18%
( 31,500 BPD) __---- 1
Conventional
10%
( 17,500 BPD)
ATTACHMENT F
CBG
52%
( 91,000 BPD)
HOUSE RESEARCH STAFF
PHOENIX GASOLINE PRICES
2.20
2.07
1.94
1.81
1.68
1.55
1.42
1.29
1.16
1.03
0.90
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ATTACHMENT G
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HOUSE RESEARCH STAFF
ARIZONA GASOLINE
Arizona Gasoline Consumption 1960 - 2000
( gallons per day)
9,000,000
8,000,000
7,000,000
6,000,000
>.
ltl
C 5,000,000 - III
s::::
0~
4,000,000
C)
3,000,000
2,000,000
1,000,000
0
./
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;/'
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,
/:
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~
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~~~~~~~~~~~~~~~~ w~*~~~~~~~~~~~
~~~~~~~~~~~ 0000~~~~~~~~~~~~~~~
ATTACHMENT I
HOUSE RESEARCH STAFF
ARIZONA GASOLINE
Arizona Gasoline Consumption 1960 - 2000
( thousand barrels per year)
80,000
70,000
60,000
I.
ell
Q) >_ 50,000
.!! l
Q)
I.
I.
~ 40,000
' 0 r::
ell
~ 30,000
0
. r:::
I-
20,000
10,000
a
~~~~~~~~~~~~~~~~~~*~~~~~~~~~~~~
~ 0~~~~~~~~~~ 0~~~~~~~~~~~~~~~~~~
ATTACHMENTJ
HOUSE RESEARCH STAFF
MARICOPA COUNTY GASOLINE DEMAND
Forecast of Maricopa County Demand
( based on estimated HURF revenues FY 04 - 13)
2,000,000,000
800,000,000
1,800,000,000 j------- r= 1-- 1
1,600,000,000 -{-- ----- f"""""""""
1,400,000,000 +:-----~
.. 1,200,000,000
ell
~
~ 1,000,000,000
E
co
e"
600,000,000
400,000,000
200,000,000
o
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
ATTACHMENT K
HOUSE RESEARCH STAFF
MARICOPA COUNTY GASOLINE SUPPLY & DEMAND
Forecasted Supply and Demand for Maricopa County
( 1 = phase 1 expansion) ( 2 = phase 2) ( 3 = phase 3)
160,000
140,000
120,000
>- 100,000
C'll
" C
"-
Q)
c. 80,000
Ul
f! " ­C'll
m 60,000
40,000
20,000
o
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
ATTACHMENT L
_ Demand
-+- Supply
Hazardous Liquid Pipeline
Inspections ( Audits)
Oct. 11- 21 OOdays)
Pipeline Safety Code
Compliance Audit
ofthe Sante Fe Pacific
Pipeline ( SFPP), AZ
Division.
No probable non­compliance
noted.
Sept. 16- 0ct. 11
( 26 days)
Pipeline Safety Code
Compliance Audit of
the SFPP.
Four probable non­compliance
items
noted.
Sept. & Oct.
Pipeline Safety
Code Compliance
of Kinder Morgan
Energy Partners
Six probable non­compliance
items
nntpd
On December 28, 1999
USDOT refused to
renew Arizona's
interstate agent
agreements. A temporary
agent letter for
participation in the System
Integrity Inspection
program and any other
needed interstate related
, items, was of£;-:, e"' r.:::, ed"".'--_--'
Annual ACC Work Plan Proposal
submitted to USDOT for approval.
The ACC's proposal included an
inspection of the pipeline unit not
inspected in calendar year 2001 from the
Colorado River to the Phoenix area on
the Kinder Morgan hazardous liquid
pipeline. The approved work plan sent
back by USDOT, to the ACC, excluded
a Kinder Morgan pipeline inspection.
Have documenation ofworkplan
proposal and approved workplan.
January 21 The ACC filed a Motion for Oral Hearing and a
supporting Memorandum. The purpose of the Motion was to
request a hearing for the reconsideration of the USDOT
decision to terminate the ACC's Interstate Agency Agreement.
August 28 The ACC was given written authorization for
interstate inspection and accident investigation activities
associated with Kinder Morgan Energy ( liquid). According to
the ACC, there wasn't enough time to pull an Audit together
for that year.
April 18 and 19 ( 2 days)
Specialized Pipeline Safety
Compliance Audit of the Santa Fe
Pipeline ( Tucson facilities only),
One probable non- compliance noted.
February 17- 21 ( 5 days)
Construction Evaluation of SFPP six
& eight inch bypass pipelines due to
pipeline failure invov1ing SFPP's six
inch pipleline crossing the
Salt River at 51 5t Ave.
No probable compliance noted.
Sept. 18- Nov. 8 ( until completion)
Construction Inspection of Santa Fe
Pipeline Company, monitored from
9/ 18- until completion on 11/ 8.
No probable non- compliance noted.
February 12
Specialized Inspection
of SFPP. Consisted of
observing personnel along
with personnel from Clock
Spring Company, installed 16
clock springs on the pipeline
at MP 260.69 where the smart
pig had identified pits in the
pipeline.
Sept. 9- 25 09days)
Pipeline Safety Code
Compliance Audit of SFPP.
Nine probable non­compliance
items noted.
March 23- ApriI29 ( 38 days)
A Joint Office of Pipeline
Safety and Arizona
Corporation Commission
Field and Records
inspection of Kinder
Morgan
o audit documentation at th
Arizona Corporation
Commission.
Oct. 1- 5 ( 5 days)
Pipeline Safety Code
Compliance Audit of
Kinder Morgan. Two
probable non­compliance
items noted.
Pipeline Safety
Code Compliance
Audit of Kinder
Morgan has been
completed, but no
results ofthe audit
have been filed
with the ACe.