California Fuel Overview & Emergency Fuels Set-Aside Program

CUEA 2015 Annual Conference

Mather, CA

June 18, 2015

Gordon Schremp

Energy Assessments Division

California Energy Commission

gordon.schremp@energy.ca.gov

California On-road Transportation Fuels

• 14.54 billion gallons of gasoline consumed in 2013

• Base gasoline demand down 13.4 percent between 2003 and 2013

• Ethanol use increasing due to Renewable Fuel Standard

• Ethanol use up to 1.46 billion gallons during 2013

• 148 percent increase since 2003

• Ethanol accounted for 10 percent of total gasoline gallon during 2013

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0

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,000

14,000,000,000

16,000,000,000

18,000,000,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Gal

lon

s

California Gasoline & Ethanol Demand2003 - 2013

Base Gasoline Ethanol

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California On-road Transportation Fuels

• 3.48 billion gallons diesel consumed during 2013

• Base diesel fuel demand unchanged between 2003 and 2013

• Biodiesel use increasing due to Renewable Fuel Standard and the Low Carbon Fuel Standard (LCFS)

• 49 MM gallons during 2013

• Renewable diesel fuel use up to 136 MM gallons during 2013 due to LCFS

• Combined renewable component accounted for 5.3 percent of total diesel gallon

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0

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

3,000,000,000

3,500,000,000

4,000,000,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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California Diesel, Biodiesel & Renewable Diesel Demand 2003 - 2013

Diesel Fuel Renewable Diesel Biodiesel

3

Transportation Fuel Infrastructure Overview

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Fuel Infrastructure – Key Elements

• The California transportation fuel “infrastructure” consists of several interconnected assets operated by a combination of refiner and third-party companies

• Refineries

• Pipelines

• Marine terminals

• Storage tanks

• Rail

• Crude oil and petroleum product infrastructure assets are separate and distinct from one another – not interchangeable

• Unlike with the electricity distribution system, Northern California is not directly connected to Southern California

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Western States More Isolated than Rest of U.S.

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California Fuels Market is Balanced

• California is nearly self-sufficient • Marine imports normally account for less than 5 percent of gasoline supply

• Primary sources of transportation fuels originate from inside the state

• Catastrophic disaster in greater SF Bay Area directly impacts source of fuel supply

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Large net exporting region Large net importing region

Key Elements - Refineries

• 3 primary refinery locations

• 12 refineries produce transportation fuels that meet California standards

• 8 smaller refineries produce asphalt and other petroleum products

• California refineries provide majority of transportation fuel to neighboring states

• Process over 1.6 million barrels per day of crude oil

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Key Elements - Refineries

• Refineries are a primary hub of logistical activity

• Raw materials imported & finished products shipped

• Crude oil receipts during 2014 received by • Marine vessels (foreign) - 787.1 TBD

• Marine vessels (Alaska) – 190.5 TBD

• California source via pipelines – 664.8 TBD

• Rail/truck – 15.7 TBD

• Process units operate continuously at or near maximum capacity, except during periods of planned maintenance or unplanned outages

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Supply in Northern California

• The minority of transportation fuels used in California are produced in Northern California

• California share • CARB Gasoline 39.9 % • CARB Diesel 48.7 % • Jet Fuel 34.4 % • Export Fuel 45.2 %

• Crude oil processing • 754.8 TBD

• Crude marine imports • Foreign – 415.4 TBD • Alaska – 70.9 TBD • North Dakota – 3.4 TBD

• Crude rail imports • Domestic – 3.5 TBD

• Pipeline receipts • San Joaquin Valley – 261.6 TBD

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355.3

50.0

118.2

52.8

94.3

Northern California Refinery ProductionThousands of Barrels Per Day

CARB Gasoline

Export Gasoline

CARB Diesel Fuel

EPA Diesel Fuel

Commercial Jet FuelSource: California Energy Commission - Weekly Refinery Reports

Key Elements – Refineries (cont)

• Output from the refineries is usually placed in intermediate tanks prior to blending the finished products

• The majority of gasoline, diesel and jet fuel is shipped from the refinery by pipeline to over 60 distribution terminals

• Tanker trucks then transport fuel to retail & non-retail stations

• Several truck trips during 2013 • Gasoline – 40.28 MM gal/day

• 5,035 tanker deliveries/day

• Diesel fuel – 9.68 MM gal/day

• 1,210 tanker deliveries/day

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Bay Area Gas Stations – Average Sales

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Key Elements – Pipelines

• Pipelines are used throughout the distribution infrastructure to interconnect key elements

• Intra-state pipelines are used to convey petroleum products within California’s borders

• Interstate pipelines are used to export transportation fuels to Arizona and Nevada

• NV – Over 90% of supply

• AZ – Over 50% of supply

• As is the case with refineries, pipeline systems normally operate on a continuous basis

• Pipelines can only operate if transportation fuels are available to push liquid through the system

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Key Elements - Pipelines (cont)

• The pipeline infrastructure in California is controlled by a combination of common carrier and private companies

• Kinder Morgan is the sole common carrier of petroleum product pipelines in the State and transports the majority of fuels through its system every day

• Other companies, such as Chevron, ExxonMobil, Shell, and Tesoro operate proprietary systems or segments that handle the balance of transportation fuels

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Bay Area – Kinder Morgan Lines

• The sole source of fuels for Bay Area airports

• Trans-bay crossing to Brisbane and SFO

• Distribution to Brisbane and San Jose terminals augments supply from truck racks linked to Bay Area refineries

• 75 to 85 percent of gasoline and diesel fuel is distributed through pipelines from refineries to distribution terminals

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Bay Area – Kinder Morgan North Lines

• The Chico terminal is the northernmost extent of petroleum product pipeline system in California

• Pipeline continues to Reno (Sparks), Nevada

• Deliveries to Roseville for railroad use

• Separate pipeline delivers military jet fuel to Travis AFB (not shown on map) from Concord pump station

• Separate spur line to Beale AFB

• Sacramento Airport now receives commercial jet fuel via pipeline connection

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Bay Area – Kinder Morgan Fresno Line

• The Fresno terminal is the southernmost extent of the petroleum product pipeline system originating from the Concord pump station

• Lemoore naval air station receives military jet fuel on a separate extension originating from the Fresno terminal (line segment not shown on this map)

• Fresno terminal can also receive fuel from pipeline segment originating from the ALON USA refinery in Bakersfield that is currently idle

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Key Elements – Marine Facilities

• Marine facilities are located in sheltered harbors with adequate draught to accommodate typical sizes of petroleum product tankers and crude oil vessels

• Wharves usually have adjacent storage tanks that are used to temporarily hold petroleum products prior to transfer to a subsequent location

• Most refiners operate a proprietary dock • Third party storage provides access to majors and independents

• Kinder Morgan • Pacific Atlantic • NuStar • Petro-Diamond

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Rail Logistics – Other Uses

• Refiners use rail cars to routinely ship propane and seasonally send out and receive butane

• Rail cars are also used to deliver refinery feedstock such as gas oils and sulfuric acid for alkylation units

• More recently, California refiners have started using rail cars to import crude oil from Canada and domestic sources outside the state due to changing trends of increasing oil production and discounted prices

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6,296,754

26,415,608

521,948

1,156,898

660,553

122,898 1,460,108 455,410

2013 California Rail Imports (Barrels)

Crude Oil

Ethanol

Biodiesel

Propane

Refinery Feedstocks

Gasoline, Diesel & Jet Fuel

Gasoline Blending Components

Other Unidentified Petroleum Products

Source: California Energy Commission

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Ethanol accounted for 71.2

percent of volume during

2013, crude oil 17.0 percent.

Crude Oil Sources – Northern Calif. Refineries

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• Northern California refineries processed 754.8 thousand barrels per day of crude oil during 2014

• 261.6 TBD pipeline shipments

• 35 percent of crude oil received

• Northern California refineries processed 45.5 percent of total crude oil

• Increased crude-by-rail likely to back out marine receipts of similar quality

• Rail capability increases flexibility to enhance supply options & reduces risk of crude oil receipt curtailment

California Refineries – Crude Oil Sources

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Declining CA & Alaska sources replaced by additional foreign imports.

Crude Oil Pipeline Projects

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No crude oil pipelines into California…one project being examined.

Interdependencies

• Most California refineries have cogeneration capability

• But depend on other outside services to sustain operations • Source water for process steam

• Wastewater discharge handling requirements

• Natural gas to augment still gas fuel production

• Hydrogen from merchant producers to enable operations of desulphurization processing equipment

• Acid deliveries for operation of alkylation facilities

• Retail fuel stations provide majority of gasoline and diesel fuel to the public

• Retail stations need electricity to operate dispensers

• Even with back-up power, stations need telecommunication capability to process transactions

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Energy Emergency Response Phases

• Readiness – normal monitoring mode

• Verification – enables collection of information on a daily basis

• Must announce this to media

• Pre-Emergency – consider voluntary actions

• Fuel demand reduction

• Emergency • Formal declaration

• Energy situation very drastic requiring extensive government measures

• Emergency Order #6, formal Fuel Set-Aside Program initiated

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Emergency Order #6

• Authorizes the Energy Commission to hold “control and coordination” of petroleum and petroleum products in California

• Formal Fuel Set-Aside Program (FSAP)

• Emergency responders - life and property

• The Energy Commission coordinates with the California Office of Emergency Services (OES) to ensure critical fuel supplies get to where they are needed most during a declared emergency

• Non-emergency FSAP activities handled by the CEC at their Sacramento headquarters

• Liquid transportation fuels, not electricity or natural gas • Gasoline & diesel fuel

• Jet A and military jet fuel

• Alternative fuels – ethanol & biodiesel

• Propane

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FSAP – Emergency Responders

• FSAP has two components – emergency and non-emergency • Emergency-related transportation fuel requests

• Emergency-related transportation fuels requests • CEC personnel stationed at OES

• Filling mission tasks for transportation fuels through OES Web EOC system

• Non-emergency-related transportation fuels requests • CEC personnel stationed at the Energy Commission

• Fuel requests for other reasons

• Economic harm

• Community hardship

• Requests could over-whelm the system

• Priority would be given to emergency-related requests if supplies are constrained

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Catastrophic Earthquake

• Unprecedented event - not experienced in our lifetimes

• Business-as-usual will not suffice

• Large portion of fuel supply will be lost or unavailable

• Demand outside the impacted region will experience varying degrees of panic-buying

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Transportation Fuel Adequacy

• There will not be sufficient transportation fuel supplies to meet demand following a catastrophic earthquake

• Steps will need to be undertaken to increase fuel supply

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Brooklyn gas lines during aftermath of Superstorm Sandy – Photo Credit: thehotzoneusa.com

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Transportation Fuel Adequacy

• Options available to increase supply but require cooperation and pro-active actions to pave the way

• Waiver of fuel specifications

• California has its own gasoline & diesel fuel regulations – require waiver by the California Air Resources Board – gasoline and diesel fuel

• U.S. EPA would also have to waive federal Reformulated Gasoline regulations

• Waiver of non-taxable diesel fuel regulations

• Allow dyed diesel to be used

• Consider waiver of Jones Act to increase delivery capability of waterborne transportation fuels

• Waiver of driver-hours restrictions for delivery tanker trucks will be automatic after declaration of emergency

• To the extent feasible, all of these regulatory capabilities should be worked out in advance – including Nevada and Arizona

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Alternative Sources of Re-supply

• Besides waiving specifications, what other options might be pursued to increase resupply to California?

• Identification of potential liquid fuel supply redundancy (LFSR) locations and partners outside the impacted zone

• Intent of LFSR concept to pre-arrange emergency fuel supply for California National Guard mission tasks immediately following catastrophic event

• Working with the California National Guard, OES, DGS, and Valero

• Conducted two meetings with all parties

• Site visit to Valero’s Wilmington refinery confirming compatibility with CaNG fueling assets and distribution terminal fueling connections

• Nearing completion of emergency fueling contractual instrument

• Next steps to expand relationship and capability with other refineries in California

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Alternative Sources of Re-supply

• Other areas of activity to pursue

• FEMA efforts to create “hub-and-spoke” importation and re-distribution of transportation fuels

• Utilize marine assets – tankers and barges

• Questions concerning availability and timing of response

• Potential re-tasking of existing rail receipt terminals • Can rail terminals be repurposed to receive rail cars of gasoline and diesel

fuel rather than ethanol and crude oil?

• Which locations may be feasible candidates and what effort/equipment modifications would be required?

• Identification of potential rail sites that could be proactively developed for use during a catastrophic event

• Would target rail transloading potential

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Transportation Fuel Demand

• Loss of production from Northern or Southern California refineries and/or ability to ship refined products from their facilities will significantly curtail or halt petroleum product pipeline deliveries to areas outside the impacted region

• Media and consumers will quickly arrive at this conclusion

• Inaction could result in supply shortages – all motorists “topping off” their tanks equates to about three days-worth of gasoline production/demand – would drain the distribution system

• This scenario will not be isolated to California • Nevada pipeline deliveries will be curtailed, UNEV pipeline will not be able

to completely make up the shortfall

• Arizona supplies will also be reduced with additional supplies from the East Line lagging by several days and likely insufficient to replace all of the volume reduced on the West Line

• These two states will also need to take similar steps to curtail demand

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Transportation Fuel Demand

• Demand needs to be controlled/curtailed • Odd-even rationing is an effective tool – statewide implementation

• Would require pre-planning and should be deployed shortly after the incident

• Security would likely be required in urban areas

• Most California retail stations are self-serve and would need oversight to ensure compliance

• Traffic control

• Adequate manpower

• New rule-making?

• New legislation?

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Plate inspection in odd-even line – Photo Credit: Norman Lono, NY Daily News

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How Could This Activity Be Handled?

• Emergency response plan for Bay Area Catastrophic Earthquake being updated by OES & FEMA

• Fuel delivery Course of Action development has revealed a possible way forward

• Development of a Fuels Task Force • Consisting of representatives from various federal, state, local, and

selected private entities

• Responsibilities grouped by core activities • Increasing fuel supply availability & distribution capability

• Waivers

• Decreasing/moderating fuel demand • Odd-even rationing

• Situational awareness • Status of refineries, fuels receiving & distribution system, and marine tanker availability

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How Could This Activity Be Handled?

• Fuel waivers – need to increase availability of fuel that can be delivered from outside and inside the state

• Federal reformulated gasoline, ultra-low sulfur diesel fuel (ULSD)

o U.S. EPA, Department of Energy

• California reformulated gasoline & ULSD

o California Air Resources Board

• Red dye diesel fuel

o Internal Revenue Service, Franchise Tax Board

• Nevada & Arizona boutique gasoline regulations

o Local state government agencies

• Reid vapor pressure – waiver of summer RVP limits to allow “winter” specifications during “summer” season – March through October

• U.S. EPA, California Air Resources Board

• Can increase gasoline production capability by 5 to 8 percent

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How Could This Activity Be Handled?

• Domestic marine tanker use waivers (Jones Act) – need to increase availability of marine vessels that can be used to move fuel or divert foreign cargoes of transportation fuels

• Maritime Administration

• Department of Transportation

• Department of Energy

• Department of Defense

• Customs and Border Protection

• Department of Homeland Security

• Control of vessel movements – prioritize fuel deliveries

• Department of Homeland Security

• U.S. Coast Guard

• Captain of the Port

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Potential Pro-active Readiness Objectives

• Develop Fuel Task Force (FTF) structure documentation

• Identify appropriate agencies and responsibilities

• Obtain agreements for participation • Points of contact and back-up

• Create templates for waivers/actions in advance • Several fuels waivers already have been issued – can be tailored to meet

needs of California, Nevada, and Arizona

• Same for Jones Act

• Review Odd-Even fuel distribution plans from other areas/events

o New York state plan very robust

• Conduct tabletop exercises to improve communication and identify gaps in knowledge or process

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Questions?

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gordon.schremp@energy.ca.gov 916-654-4887

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