You can sum-up our remarks today with one short and very true statement: no one has made a compelling argument for nationwide sulfur reductions of the magnitude sought by EPA and in the time frame the agency wants to impose. Certainly no one has demonstrated that we should mortgage some of our remaining energy security in order to satisfy an immediate desire for rock-bottom nationwide gasoline sulfur levels. Further, no one has considered what the impact of very low gasoline sulfur levels, very low diesel sulfur levels and a potential national MTBE phase out-- all in the same time frame--will have on the viability of the industry and the ability of U.S. refiners to supply gasoline to U.S. consumers. Because all this is true, NPRA will continue its efforts to advance the industry recommendation, which remains the best means of reducing sulfur in gasoline without unreasonable risk to the security of our gasoline supply.

The industry recommendation would have achieved sulfur reductions of 50 percent and would have built-in a study to consider whether additional reductions would be needed later to reflect the needs of innovative automobile technologies. We do not believe that Tier II vehicle technology requires this severe gasoline sulfur reduction.

The industry devoted considerable time and effort to understand the relationship between gasoline sulfur levels and catalytic converter technology. Our research demonstrated that it is possible to implement a regional plan without significant adverse impact. The data said that relatively inexpensive changes in catalyst placement and metal loading could enable differential nationwide gasoline sulfur levels without harm to the environment. Addressing both parts of the auto/fuels system in this manner would be cheaper than relying on gasoline sulfur reductions alone, and the motoring public would benefit as a result.

The automobile industry responds that the necessary improvements in catalytic converter technology are both commercially and technologically impossible. Apparently, these changes are far more difficult to achieve than the significant advances in automotive technology which are touted daily in many showrooms across the nation. Given this experience, we anxiously await demonstration of the futuristic technologies which the autos say they can and will develop but which supposedly require the swift and deep reductions in sulfur which EPA has proposed.

The auto makers and refiners have shared customers, and both have an obligation to provide an acceptable product to the motoring public. The car and fuel must get the public where it wants to go, with satisfactory technology, and at an acceptable price. We think that our friends in the auto industry and EPA as public stewards have let our customers down by failing to provide a better proposal for gasoline sulfur reductions which emphasizes lower costs and burden sharing.

We devoted our full attention to this regulation because the stakes are high. Refineries are running at extremely high percentages of total capacity. This situation does not leave room for miscalculation. The California gasoline market recently experienced price and supply impacts when unforeseen outages occurred in a system in which refineries run at full capacity to produce supplies of a specialized environmental grade of gasoline. It takes weeks to replace supplies of specialty gasoline in a market stretched as tight as the California market has been. The EPA proposal which we are discussing today could in time impose that situation on the larger national market with similar results.

NPRA notes that the proposed rule attempts to soften and delay the blow for "challenged" refineries by setting different dates for full compliance with the California-like standards. We think that the EPA would have done better by designing a less draconian rule which does not threaten the existence of those refiners in the first place.

It is no secret that gasoline sulfur reduction is just one of several challenges facing the refining industry in the next few years. EPA’s advance notice of proposed rule-making on diesel sulfur confirms that we can expect large mandated reductions in diesel sulfur levels in much of the same time-frame as the proposed rule. In addition, California’s phase-out of MTBE could spread across much of the rest of the country, threatening use of a blendstock that is currently responsible for providing significant volume and octane support. We note that two bills requiring an end to MTBE use throughout the country were introduced in the House last week.

The fact that government oxygenate mandates promoted the industry’s reliance on MTBE provides considerable irony, but no relief from the fact that refiners don’t know how to replace crucial MTBE volume and octane without adequate lead time. We do hope that federal regulators and the Congress will ignore the advice of those who are already peddling unsubstantiated MTBE replacement nostrums. We can at least try not to exchange today’s problems for future ones.