“Purple Haze” – Proposed Rule 1410

By Brian Mason

Today we’ll talk about the proposed rule 1410 in California to potentially ban the use of hydrofluoric (HF) acid in California refineries. HF alkylation has been used in California since 1966. In 1967 Jimi Hendrix released the single “Purple Haze”, whose lyrics are often disputed as to their meaning. We find this song appropriate because the song is often attributed to the use of “acid,” (a different kind of) which is the focus of today’s blog. Talks of a ban on HF stretch across several decades and have recently resurfaced due to several events in the refining industry. We’ll discuss some background on HF alkylation and some of the testing and mitigation efforts put forth in recent years. If the proposed ban moves forward, initial cost estimates show it is unlikely refiners will be able to comply and continue normal operations.

“Purple Haze all around” – Background

The Alkylation process takes lower grade products from upstream units and upgrades them to produce alkylate for gasoline blending. Alkylate is especially important in California where gasoline specs are some of the most stringent in the world. Only a handful of refineries are equipped to produce gasoline that meets California Air Resources Boards (CARB) high standards. There are two main catalysts that can be used in the refining alkylation process, hydrofluoric and sulfuric acid.  Over half of the refineries (50) in the U.S. with an alkylation unit use HF.  However, HF units in general tend to be smaller than their H2SO4 counterparts.

The Torrance Refinery owned by PBF and Valero’s Wilmington refinery are the only two refineries in California using HF alkylation. Hydrofluoric acid has long carried a stigma because of its potential to form a ground hugging toxic cloud that can lead to death or severe injury if exposed. Because of this, many safeguards and practices are put in place by users of HF to minimize risk. Both HF California refineries have adopted the use of modified hydrofluoric acid (MHF). The refiners adopted the use of MHF in 1997, which uses a proprietary additive that claims to reduce the volatility and mitigate risks to workers and the public in the event of a release.

HF releases in refineries, while not common, can be serious. Torrance has had its share of incidents but the largest HF release in the U.S. occurred in Texas City in 1987. During this event, 65,200 lbs. of HF were released after a crane dropped a piece of equipment onto an HF pipeline. The release sent over 1,000 people to the hospital to be treated for respiratory issues and skin and eye irritation. It’s been claimed that health effects would have been much greater had the initial release not sent the vapor 200 ft in the air before it settled in a nearby neighborhood.  In this case, there were no fatalities but many deaths have occurred in similar and even much smaller releases.

Concerns about the use of HF were first studied in 1986 in a series of tests sponsored by Amoco in the Nevada desert.   After testing it was claimed that a release of 1,000 gallons of HF during a 2 minute period could create a dense cloud that would be dangerous to life as far as 5 miles away. The study showed that 100 percent of the HF released formed a dense toxic vapor that accumulated near the ground. It was later argued that results were skewed because the tests were performed in desert conditions, different than many humid climates where refineries are located. Several other studies have been conducted since and mitigation techniques developed. Many of these techniques use water to knock the vapor cloud out of the air in the event of a release. These techniques have been argued to be ineffective due to the amount of water it would take to control the release.

“Can’t go on like this” – Proposed changes

After a string of fires and an explosion during the years from 2015 to 2017, legislation was proposed to ban MHF alkylation in California. The initial event was an explosion in February 2015 at the Torrance Refinery which injured several workers and launched an investigation by the U.S. Chemical Safety Board.  Multiple deficiencies and lack of risk mitigation of flammable hydrocarbons were cited for the explosion. This, along with an activist group in California strongly pushing for the ban of MHF alkylation, led up to The South Coast Air Quality Management District (AQMD) posting a proposed rule 1410 on their website in early 2017 (as required by state law). Rule 1410 is nothing new; it was originally adopted in 1991 to have HF in oil refineries phased out over the following seven years.  The rule was suspended the next year by the Los Angeles Superior Court. Beginning in 2017 the AQMD has brought the HF ban proposal back to life. The AQMD has held many public meetings highlighting progress towards finalizing rule changes. As of last month four potential options have been identified:

  • Implement enhanced mitigation measures;
  • Implement enhanced mitigation measures with performance standard;
  • Implement enhanced mitigation and phase-out MHF if performance standard can’t be met; or
  • Implement enhanced mitigation measures and phase-out MHF.

While activist groups would like to see a full ban of MHF alkylation, refiners are pushing back and lobbying for continued use citing better handling practices, mitigation efforts and lower incident rates over the recent years.

“Don’t know if I’m coming up or down” – Effects of a ban

A full ban of MHF alkylation in California will impact the local economy, potentially putting the two refiners using the process out of business.  The two MHF refiners in California supply ~30% of Southern California’s gasoline. The strict CARB standards placed on California gasoline makes alkylate blending imperative. Modifications to an MHF refinery to use sulfuric acid catalyst would likely call for the construction of an all new alkylation unit. Initial costs estimated by the AQMD for MHF refiners to switch to an alternative were around a $100 million and quickly argued to be to low. These were soon adjusted to more than $300 million.  PBFs more detailed estimates show a cost of more than $600 million for the construction of a new sulfuric acid alky unit. The construction cost of the new unit alone would be more than the price PBF paid for the Torrance Refinery in 2016 at a cost of $537.5 million. It is unlikely that a refiner would be willing to spend capital summing more than the value of its asset. Along with the cost of a new unit, many other costs and factors would be introduced including the constant regeneration of the sulfuric acid catalyst. The site could opt to build a sulfuric acid regeneration unit, given there’s space, or truck fresh and spent acid to and from the refinery to a processing plant. The cost of a sulfuric acid regeneration unit has been estimated to be over $300 million and trucking around sulfuric acid presents safety risks of its own. Without an onsite regeneration process, a sulfuric acid alky would require around 1400 truck shipments a month compared to the current 3-6.

If the AQMD seeks to fully phase out MHF alkys, it is unlikely refiners will be willing to invest over $900 million into new unit cost. With slim margins and already high utilization rates in these refineries, it’s likely they would be closing their doors. Not only will this impact over 1000 jobs per refinery but also the local gasoline markets. With the loss of these two refineries it would leave the southern California market to make up almost a third of its demand. Also, most refiners are not equipped to make gasoline meet these specs so supply could be slim for a while, causing a surge in prices. Initial estimates show there would be a $.25 price increase per gallon in this case, similar to when Torrance Refinery shut down in 2015.

“No, yeah” – Is it safer?

While it is not straightforward what the outcome of the new rule will be, this set off a whirlwind of debate on whether the sulfuric acid alkylation is any safer than MHF alkylation. Many refiners are arguing that safety measures put in place make MHF alkylation as safe or more safe than using sulfuric acid. Some of their reasoning pertains to the regeneration of spent sulfuric acid which is necessary for sulfuric acid alkylation. Regeneration would either require moving spent sulfuric acid around the refinery and another unit be built, or the trucking of acid to an outside treatment facility. This would increase current truck traffic from acid transportation over 400 times the current amount on local streets and highways.

Many activists for the MHF alkylation ban are arguing the validity of studies done on MHF and the implementation methods being used by the refiners.  The claim is that the amount of additive used during the studies to reduce the volatility of HF is significantly greater than the actual amount of additive in MHF being used by refiners.  Because MHF is a proprietary catalyst, it is difficult to refute these claims. It has also been argued that mitigation techniques used during a release, such as dousing the release with water, would be ineffective during an actual event.

“Is it tomorrow” – Conclusion

The AQMD had its last community meeting September 22, 2018 in which they discussed Proposed Rule 1410. While four options have been given, it is unclear which way the group is leaning on the proposal. So far no deadline has been given on when the proposal will go into effect. It has been noted that any MHF ban would be phased in to effect over a period of several years. In the case of an MHF ban in California, two refiners would likely have to make the choice between switching from MHF to sulfuric acid alkylation, which has never been done before in the U.S., or cease operations.

TM&C constantly monitors changes and projected changes in pricing and supply and demand across the globe for all petroleum products.  Our projections take into account changing rules and regulations, technological advancements, production and transportation costs, demographics, changes in consumer behavior, and other factors impacting supply and demand.  We include our independent analyses of these impacts in our semiannual Crude and Refined Products Outlook and our various other studies. This subject is discussed in the release of our 2018 Mid-Year Crude and Refined Products Outlook (C&RPO) issued mid-August.  The next update is set to be release in early February 2019.  For more information on this report or on any of our other analyses or consulting capabilities, please send us an email or give us a call.