Arco Keeping Cap on New Unleaded Fuel
No matter where you went this past September, it seemed impossible to escape actor James Earl Jones’ mellifluous baritone extolling the virtues of Atlantic Richfield Co.’s new lower-emission unleaded gasoline, called EC-1.
In advertisements that saturated radio, television, print media and even bus panels, Arco spent $10 million in only five weeks to make sure that the message got across: It had produced the first commercially marketed gasoline formulated specifically to help reduce smog.
That campaign made Emission Control-1 gasoline one of the most heavily touted new products ever introduced in Southern California.
What is odd is that most of the people who heard or saw those ads cannot even buy the gasoline. Arco chose to market EC-1 as a replacement for its leaded regular gas, aimed only at owners of older cars and trucks--those without catalytic converters--which account for only one out of every five gallons of gasoline bought in the regional market.
And, to make sure that the new fuel is bought only for the older vehicles, Arco put it in pumps with large nozzles that do not fit new cars.
As a result, sales of the new gasoline have not broken any records.
It is not that newer cars cannot use EC-1. Arco has not publicized the fact, but new cars can use EC-1 just as easily as the old ones do, with emissions reductions that are measurable, though not as dramatic as those from older vehicles.
Critics and Arco competitors have suggested that Arco has restricted the marketing of EC-1 because it does not wish to steal market share from its own higher-emission regular unleaded gasoline, which accounts for the majority of Arco’s gasoline sales.
Arco denies that, and the company and its supporters--including regulators who applaud Arco for pioneering lower-emissions gasoline--argue that the marketing decision was made simply because Arco cannot make enough EC-1 to go around. Because of that, they said, Arco chose to market EC-1 where it could do the most good: to vehicles that cause a disproportionate amount of Southern California smog.
In any case, the curious marketing plan for EC-1 suggests that Arco really wanted to win public relations goodwill and to set an example, not to increase sales. And if one accepts Arco’s explanation of its marketing decision, the matter also reveals the limited ability of the current refining system to meet the demand for new, lower-emissions gasolines without substantial investment and years of upgrading.
“It will cost the industry billions to make changes to make sufficient quantities of this stuff,” said George H. Babikian, president of Arco Products Co., Arco’s refining and marketing subsidiary. The next generation of EC gasolines, designed specifically for newer cars, is being tested at laboratories in Texas but will not be ready for at least two years. Refinery changes will take another three to four years, he added.
EC-1’s unveiling in Los Angeles County at a well-attended news conference in late August drew national attention, and local and state officials backed Arco’s claims that EC-1 could result in dramatic air quality improvements if all vehicles that use leaded regular were to convert to EC-1.
As the debate intensified about what is the best fuel to meet proposed clean air standards, EC-1 was hailed as an innovation that would focus talk around reformulated gasoline as a viable alternative to methanol, ethanol and compressed natural gas.
But sales of EC-1 have not set records. The gasoline went on sale Sept. 1 as a replacement for Arco’s leaded regular in Southern California--and the company’s share of the leaded gasoline market promptly dropped.
It has rebounded in subsequent months, though, and Arco’s share of the leaded gasoline market has grown 3% to 5% per month, even though the total leaded market continues to decline.
The company now sells about 22,000 to 23,000 barrels of the gasoline per day, or about a third of the leaded gasoline market in Southern California, Babikian said.
And that may be just fine for the company. EC-1 is made solely at Arco’s Carson refinery, which has a capacity of only 26,000 to 27,000 barrels of EC-1 a day, Babikian said.
When introducing EC-1, Arco was careful to say that it would soon come out with versions of the gasoline for newer cars as well. But it kept quiet about the fact that EC-1 is a perfectly adequate fuel for new cars.
In fact, EC-1 is superior to regular unleaded in a number of ways: It has a higher octane rating, is cleaner burning and--most important--is cheaper to buy at retail.
“If they have the capability to make it but are only selling it to the lowest volume users and making it impossible for others to use, then where is their air pollution concern?” asked Judy Roberson, secretary of the National AM/PM Coalition, an association of Arco franchisees.
Arco sells both EC-1 and its regular unleaded gasoline to dealers for the same price. Dealers are motivated to hold the price for EC-1 at a lower level, Roberson said, partly to retain the former leaded gasoline customers and partly as a loss leader to bring new customers into the stations.
Still, regular unleaded may retail for as much as 5 cents per gallon more than EC-1.
Motorists who figure this out could conceivably use a funnel to overcome the larger nozzle. So far, state and local officials and dealers doubt that this is occurring. Curiously, they were not sure whether using a funnel to pump EC-1 into a newer car would violate any laws.
Tampering with the nozzle restricting device in a car’s fuel pipe would violate the law, as would misusing or circumventing the vapor recovery system on a pump nozzle.
But simply using a funnel to pump unleaded gas such as EC-1 into a car with a catalytic converter? “It would not be a violation of federal regulations,” said Barry Nussbaum, acting director of the field operations division of the Environmental Protection Agency.
In any case, it is unlikely that a dealer would stand for such fueling practices, since dealers can be fined for allowing misfueling.
For its part, Arco says it is swallowing the cost of making EC-1 so that it can be priced competitively. EC-1 costs 1 or 2 cents a gallon more to make than regular leaded gasoline, Babikian said.
If Arco were to open up sales of EC-1, it could probably be priced as high as unleaded regular. “They are obviously eating a higher production cost,” said one observer.
“The reason we have limited it to (leaded regular customers) is that we can only make a certain amount of it, and for us to come out with EC-1 and have sales increases we couldn’t satisfy, . . . we’d have to raise the price or ration it, and that would defeat the purpose,” Babikian said.
Arco argues that it would have to make costly improvements to its refinery to satisfy a huge demand.
The current batches of EC-1 are made by removing certain chemicals from the fuel and placing them in other grades of gasoline.
“It’s important to note that with EC-1, nothing really went away,” said James Kulakowski, a refining planning engineer with Unocal Corp., an Arco competitor. “They changed the way they blended their gasoline, but what’s not in EC-1 is now in some other grade of gasoline.”
To make EC-1, Arco made changes that could serve as models for other reformulated gasolines:
* Reid Vapor Pressure, a measure of how easily gasoline evaporates, was lowered to 8 pounds per square inch from the current state standard of 9 psi. That was accomplished mainly by removing butane.
* Benzene, a carcinogenic chemical that also contributes to smog formation, was reduced to 1% from the industry standard of 2%.
* Aromatics and olefins, heavy chemicals that react with sunlight to create smog when they pass through an engine unburned, were reduced by up to one-third.
“The key criterion for the industry is cost,” said David Hawkins, a senior attorney with the environmentalist Natural Resources Defense Council in Washington, which has lobbied Congress on clean air issues. “There are a certain number of chemicals in a barrel of crude oil, and you want to use all of them. What doesn’t end up in gasoline ends up in some other product they may want to sell or distribute.”
Even so, the result could be a net reduction in emissions. An aromatic that goes into a car with a catalytic converter is less likely to end up as smog than the same chemical in leaded gasoline that passes through a car without a catalytic converter.
To make more EC-1 than it does now, Arco would have to remove more chemicals than it can currently redirect, observers said.
That would mean a net reduction in any chemical from the entire gasoline pool and would require a change in the refining process or an investment in new equipment.
Arco is looking ahead to such changes in anticipation of increased production of EC-1-type gasolines, Babikian said. At the Carson refinery, a new unit to process gasoline components has just been finished and another new unit is under construction to make methyl tertiary butyl ether, a key component of EC-1. They will cost a total of about $75 million, Babikian said.
In addition, Arco Products is asking its corporate parent for more than $1 billion in the next five years to upgrade refineries to make reformulated gasoline. The problem is that tests are under way to devise the exact formulations of later-generation EC gasolines more suited to newer cars than EC-1.
And final modifications to refineries may depend on eventual state and federal clean air rules.
Whatever the actual sales effects of EC-1, officials laud Arco for bringing it out. “What Arco has done, I think, is a really good thing,” said Richard D. Wilson, who oversees vehicle emissions for the Environmental Protection Agency. “I think everyone agrees its just the first step along the path.”
