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The Supply Infrastructure & Economics of an Expanded Motor Vehicle Fuel Market for LPG in the US 1 of 2 1992
LIBRARY COPY Please use BLUE SIGN-OUT CARD THE SUPPLY, INFRASTRUCTURE AND ECONOMICS OF AN EXPANDED MOTOR VEHICLE FUEL MARKET FOR LPG IN THE U.S. October 1992 Prepared For: By: LP-Gas Clean Fuels Coalition R F WEBB CORPORATION 2120 Business Center Drive 2300 M Street NW Suite 130 Washington DC 20037 Irvine, CA 92715 U.S.A. (202) 775-0200 (Voice) (202) 775-0202 (Data/Fax) Contract Officer: Project Manager: Mr. Robert E. Myers Dr. Reginald F. Webb President President TABLE OF CONTENTS CONTENTS EXECUTIVE SUMMARY 1. INTRODUCTION 1.1. Purpose of the Report 4.2 A Summary of Current Propane and Butane (LPG) Supply 1.3. U.S. Consumption of Propane and Butane 1.4 The Scale of LPG Supply and Demand 2. THE LONG RANGE STRATEGY FOR NGLS AS ALTERNATIVE FUELS 3. NEW SOURCES OF NATURAL GAS LIQUID 3.1 Changes Needed to Develop the Required Supply 3.2 Fuel Composition Changes 3.3. New Sources of "Broad Spectrum" LPG from Refineries 3.3.1 Cryogenic Recovery of LPG at Refineries 3.3.2 Butane Displacement from Gasoline 3.3.3 Summary of New Auto-LPG Supplies Available from Refineries 3.4 New Sources of Natural Gas Liquids from Natural Gas Plants 3.4.1 Gas Plant Sources 3.4.2 Growth in Gas Demand as a Source of Natural Gas Liquids 3.4.3 Unprocessed Gas 3.4.4 Increased Recovery of Natural Gas Liquids at Existing Gas Plants 3.4.5 Summary of Potential Natural Gas Liquids Addition from Natural Gas Propane and Butane Supply 3.5 Summary of the Total New Supply of LPG Available in 2010 3.6 Synthetic LPG 3.7. Propane Supply Diversion to the ATF Market 4. LPG SUPPLY AND DEMAND IN 2010 5. LPG STORAGE AND DISTRIBUTION INFRASTRUCTURE 5.1. Bulk and Terminal Storage 5.2 Pipeline Expansion 5.3 Rail Tank Car Movements 5.4 Barge Movement of Propane 5.5 LPG Tank Truck Transportation 5.6 LPG Refueling Stations 5.7. Summary of the Incremental Capital Costs for Auto-LPG Distribution to 2010 5-10 6.3 6.4 BUDGETED COSTS Capital Investment Costs Cost of Auto-Propane Service 6.2.1 Composition of LPG Service Costs 6.2.2 Cost of Transportation and Storage Service 6.2.3 Cost of Refueling Service 6.2.4 Total Cost of Auto-LPG Service Pump Cost of LPG 6.3.1 Forecasting the Wholesale Price of Auto-LPG 6.3.2 Retail Pump Price with Taxes Comparison of Costs REFERENCES APPENDICES 6-1 6-1 6-1 6-2 6-3 6-5 6-6 6-10 6-11 Un b= 3.2 3.3 3.4 3.5 3.6 3.7 41 4.2 4.3 4.4 5.1 5.2 5.3 5.4 5.5 6.1 6.2 6.3 6.4 6.5 6.6 EXHIBITS Natural Gas Plant Liquids Production 1990 U.S. Consumption and Exports of Propane and Butane Potential Composition of "Broad Spectrum" LPG from Refinery Off-Gas Typical Butane/RVP Responses in Gasoline Formulations Additional Annual Refinery Production of LPG Potentially Available by 2010 Base Case Demand Growth Projections for Natural Gas in the U.S. 1990-2010 Supply and Cost Estimates for Auto-LPG Potential N. American LPG Supply to the U.S. Market, 1992-2010 Estimated Supply and Cost of Auto-LPG Auto-LPG Demand 2010 High Level 2010 LPG Supply & Demand by State The North American LPG Transportation Network Natural Gas Supply Regions in North America Total LPG Storage Capacity 1992 Summary of Types of Service Stations Cost Estimates for Typical High Volume LPG Service Station Potential LPG Retail Outlets in U.S. 2010 Incremental Capital Cost of Auto-Propane Distribution to 2010 Cost of LPG Service at Typical Connecticut Service Station Typical Cost of Refueling Service Summary of Cost of Service Estimates for Auto-Propane Crude Oil/LPG Price Relationship Projected Pre-Tax Auto-LPG Cost, 2010 Taxed LPG Price at self-service Retail Stations Forecast Year 2010 —_ ’ @ w 3-17 3-18 4-2 4-3 4-4 4-5 5-3 5-5 5-9 5-11 5-12 6-4 6-5 6-7 6-9 6-11 EXECUTIVE SUMMARY Propane, butane and mixtures of the two hydrocarbons are collectively referred to as liquefied petroleum gas (LPG) and when used in transportation applications as auto-LPG. They are produced both from natural gas and from crude oil. Propane has been used as a motor vehicle fuel for over 60 years in the United States. While current motor vehicle use is modest relative to that of gasoline and diesel fuel, due to the low prices for these oil-based products, the existing U.S. fleet of 300,000 propane vehicles is an order of magnitude greater than the combined fleets operating on natural gas, methanol and electricity. Propane has served as a readily available and convenient substitute for gasoline in a modest size market niche which expanded rapidly during past periods of crude oil curtailment and high gasoline prices. Experience in the Netherlands, Canada and Japan indicates that propane, butane and mixtures of the two, could make major and long lasting contributions toward substituting gasoline and diesel fuel in the highway transport fuel market. In the Netherlands, for example, auto-LPG currently accounts for 20% of the total highway vehicle fuel market. The Department of Energy, in its “Second Interim Report of the Interagency Commission on Alternative Motor Fuels,” presented a National Energy Strategy (NES) scenario in which mass-scale adoption of alternative transportation fuels is achieved by the year 2010. The alternative transportation fuels considered in the scenario are auto-LPG, compressed natural gas (CNG), methanol, ethanol fuels and electric vehicles. In the scenario the auto-LPG market is expanded from its current level of about 0.5 billion gallons per year to 13.7 billion gallons in 2010, fueling some 17 million vehicles, and thereby reducing crude oil imports by about 460,000 BPD". [In October 1992, President Bush signed the Energy Policy Act of 1992 which adopted most of the concepts and goals brought forth in the NES. An addendum is attached which provides detailed information.] ES-1 The present report has been prepared to provide a detailed analysis of the potential North American sources of supply for the targeted 13.7 billion gallons of LPG as well as to provide estimates of the capital that would be required to meet the production, transportation, storage and distribution needs of this target market. The report also provides an analysis of the cost of the new LPG supplies at the production sites and throughout the distribution chain. The principal conclusions are: 1. There is a potential for increasing U.S. propane and butane supply by up to 23.2 billion gallons per year. This would require an estimated investment of $19 billion in new production facilities at natural gas processing plants and crude oil refineries (in 1992 dollars) by the year 2010. 2. The investment in new production facilities at natural gas processing plants and crude oil refineries required to produce the 13.7 billion gallon auto-LPG supply by 2010 in the NES scenario reviewed by the Department of Energy is estimated to be $10.5 billion. 3. The incremental LPG supply required to meet the targeted 13.7 billion gallons per year in 2010 could be made available at about 60 cents per gallon based on natural gas priced at $5.04 per Mcf at that time. 4. The additional 13.7 billion gallons of auto-LPG demand would also require better use and selective expansion of the currently underutilized U.S. LPG pipeline, barge and storage systems as well as investment in additional rail and truck tankers, and some 1,525 refueling stations located at existing gasoline and propane distribution outlets. The cost of these investments is estimated at $3.5 billion. 5. The total capital required to produce and market the 13.7 billion gallons in 2010 is therefore estimated at $14 billion ($10.5 billion for additional production facilities and $3.5 billion for additional transportation, storage and distribution facilities). ES-2 10. LPG distribution costs are currently much higher than those for gasoline ona per gallon basis due to the requirements of higher pressure storage, the very seasonal nature of the current market and the need for an attendant to be present at refueling at auto-LPG outlets. The anticipated decrease in demand seasonality (as auto-LPG becomes a larger part of the total LPG market) and the adoption of self-service refueling stations will significantly improve the economics of the LPG market. Auto-LPG motor fuel taxes at the state level vary widely and tend to bea major component of the retail cost. Currently, most states and the federal government tax auto-LPG at the same, or higher, rates per gallon as gasoline. This policy is inconsistent with the stated NES goal of encouraging the use of auto-LPG as a substitute for gasoline and diesel fuel. Since auto- LPG has a lower energy content than gasoline and diesel fuel, a more equitable taxation system would be to tax auto-LPG nationwide on an energy equivalent basis. The average retail price of auto-LPG supplies for the demand given in the 2010 NES scenario would be competitive with the price of gasoline in many regions of the country. The average price calculated for the U.S. in 2010 is about $1.48/galion, on a gasoline equivalent basis, with energy equivalent taxation but dependent on station throughput and the market area. This compares to a gasoline price of $1.53/gallon forecast by the Energy Information Administration for the conditions assumed in the DOE scenario where the auto-LPG and gasoline price forecasts are based on a crude oil price of $34.20 in 2010 and current gasoline taxes (14.1¢/gallon). The report identifies an additional supply of 4.9 billion gallons per year of propane and butane that could be made available from Canada by 2010 as well as a large supply of ethane that could be generated at low cost as a Cco- product in the expanded production of LPG. The report addresses the options available for diverting the butane which will not be used in gasoline manufacture in the future (because of summer vapor pressure legislation) into the auto-LPG market. Expanded use of ethanol as a gasoline extender would also reduce the use of butane and some ES-3 laced hydrocarbons could be used in the expanded pentanes. These displ r adoption of the auto-LPG option. auto-LPG market. and favo G is expected to have little effect on the chemical industry, given the potential ds supplies and with the feedstock 11. The expanded use of auto-LP availability of feedstocks to the petro! that exists for new natural gas liqui flexibility of the petrochemical plants involved. ES-4 1. INTRODUCTION 1.1. Purpose of the Report The Department of Energy, in its "Second Interim Report of the Interagency Commission on Alternative Motor Fuels" of September 1991, presented a scenario for the alternative transportation fuels (ATF) market in the year 2010 that was developed for the U.S. Alternative Fuels Council. In that scenario alternative transportation fuels were assumed to displace 25% of conventional U.S. motor-fuel (gasoline and diesel fuel) by the year 2010. The commercially viable ATFs for the purposes of the scenario were identified as liquefied petroleum gas (LPG, or more specifically auto-LPG, which includes propane, butane and mixtures of the two hydrocarbons), compressed natural gas (CNG), ethanol and methanol used in internal combustion engines (ICE) and battery-powered electric vehicles, including electric-ICE hybrids. The key preconditions for the mass-scale adoption of LPG as a transport fuel (auto-LPG) were identified to be adequate supply and an expanded distribution infrastructure. In discussions with the LPG industry, the potential LPG supply was assumed to allow auto-LPG market expansion to 13.7 billion gallons by 2010. An auto-LPG market of this size would permit the operation of some 17 million vehicles and the displacement of about 460,000 barrels per day of crude oil. The R F Webb Corporation was retained by the U.S. LP-Gas Clean Fuels Coalition to summarize and analyze the incremental availability of auto-LPG to the U.S. market and the costs of the expansion. The specific objectives of the investigation are to: ° re-examine the LPG supply potential for 2010 e define the new infrastructure required to meet the oil displacement goal ° generate system investment and fuel cost estimates. 4.2. Summary of Current Propane and Butane (LPG) Supply Propane and butane are two of the hydrocarbons that occur in various concentrations in both natural gas and in crude oil. The processing of natural gas involves the removal of impurities such as water and hydrogen sulfide and some or all of the constituent ethane, propane, normal and iso-butane as well as the higher boiling liquids (termed “condensate” or "C5 plus’). These extracted hydrocarbons are collectively referred to as natural gas liquids (NGLs). The combination of propane and butanes is referred to as liquefied petroleum gas (LPG) despite the origin of LPG from natural gas. The NGL concentration in natural gas varies from well to well and from region to region, as does the proportion of each of the NGL species contained in the gas. The natural gas liquid content of natural gas greatly differs according to whether gas is produced from a crude oil reservoir as “associated gas" or from a reservoir in which no crude oil is present. This is the so-called "non-associated gas”. Associated gas usually contains 2-3 times the concentration of NGLs that is found in non-associated gas. Some 13.2 trillion cubic feet (Tef) of associated and non-associated gas were processed in the U.S. in 1990 to produce 23.8 billion gallons of NGLs, of which 49.7% were propane and butane (see Exhibit 1.1). The proportion of the available natural gas liquids that is removed from the raw natural gas stream depends upon the physical properties of the gas, the availability of markets for the produced natural gas liquids, the relative prices of natural gas and natural gas liquids and the cost of extracting the natural gas liquids from the natural gas stream. Approximately 38% of natural gas produced in the U.S. is not processed for natural gas liquids removal. Some of this gas, such as coal bed methane gas, has NGL concentrations that are too low to merit processing. Other gas is stripped of the natural gas liquids only to the level needed to meet pipeline "dew point" specifications. This is the case where field processing plants are located beyond economic reach of natural gas liquids markets. In such cases, the natural gas _ liquids are left in the natural gas stream to be sold as natural gas, or to be removed further downstream, at special “straddle plants” that are located within economic reach of natural gas liquids markets. 1-2 The removal of natural gas liquids to meet pipeline dew point specifications is referred to as “non-discretionary” production since the quantity removed is a function of natural gas prices and of pipeline specifications rather than of prices in the natural gas liquids markets. An estimated 30-33% of U.S. gas-sourced propane and butanes are the result of “discretionary” production, where extra volumes of natural gas liquids are recovered in response to satisfactory prices in natural gas liquids markets. Since economics drive this discretionary production, the volume produced is a function of the difference between the value of the natural gas liquids sold into its specific markets and the value of the natural gas (essentially the thermal value) plus extraction costs. Exhibit 1.1 a U.S. GAS PLANT PRODUCTION OF NATURAL GAS LIQUIDS, 1990 a NGL PRODUCTION BILLION GALLONS VOLUME % Total NGL production 23.8 100.0 Propane and Butane Production 11.8 49.7 GAS PLANT PRODUCTION OF COMPONENT NATURAL GAS LIQUIDS a NGL PRODUCTION BILLION GALLONS VOLUME % Ethane 7.25 30.5 Propane 7.25 30.5 Butanes 4.57 19.2 Pentanes Plus 4.70 19.8 GAS PROCESSED 13.2 Tet (11.9 Tef after NGL extraction) oS Source: Energy Information Administration, DOE/EIA-0384 (90), Washington, D.C., May 31, 1991, p.135 a Production of propane and butane from the crude oil stream takes place at crude oil refineries which recover the LPG dissolved in the crude and produce . additional LPG and related light hydrocarbons in the refining processes. For logistic and economic reasons, refineries tend to be located close to markets where the refined products can be readily sold. On average, U.S. sourced light crude oils contain 5% propane and butanes by volume. There is, however, a range of values, depending upon the type and source of the crude oil. For example, North American heavy crude oil has a 1.5% propane and butane content by volume; Arabian light crude oil has 2% and Arabian heavy crude oil has 3.5% LPG. Additional quantities of butane may be added to the crude oil by “spiking” it with butane from gas processing up to the maximum vapor pressure permitted by the pipeline or tanker. This is done in certain remote locations where there are no economic butane transportation facilities and where the butane can neither be flared nor re injected into the reservoir. In the case ot Alaska North Slope crude oil, which is spiked with butane prior to its shipment via the TAPS pipeline and crude oil tankers for processing in Washington state refineries, spiking provides a means to reduce the viscosity of the crude oil (and hence the cost of pipeline transportation) and to market a portion of the LPG which is not re injected into the crude oil reservoir. As noted above, the processing of crude oil at refineries produces quantities of light hydrocarbons in addition to propane and butane. These additional light hydrocarbons may include ethylene, ethane, propylene, and butenes, the proportion of which is dependent on the severity of the processes used. Catalytic cracking processes are the major refinery source of these light hydrocarbons. The extent to which refineries produce these products depends upon the crude oil feed and the refinery configuration. The extent to which these products are sold outside the refinery depends upon available markets and prices, as well as on the intemal value of the products when used to produce gasoline or as a refinery fuel relative to natural gas and other refinery by-products. Butanes and olefins (propylene, butylenes) are the principal light hydrocarbons used in the production of gasoline. Normal butane is blended into gasoline to provide front-end volatility for cold starting and as a low-cost source of gasoline octane. The normal butane content of gasoline varies seasonally: greater 1-4 butane content is permitted during the cooler months of September to May. Summer excess production is sold outside the refinery, whenever a market exists, or is used as refinery fuel when there is no market and storage facilities are limited. Refiners are net purchasers of butane in seasons and locations where vapor pressure restrictions are not a concern. In such cases, refiners are willing to pay up to butane's value in the gasoline stream to acquire it. When this is the case, butane is bid out of the lower value markets, such as the petrochemical feedstock and heating fuel markets. Reduced summer gasoline vapor pressure specifications since 1989 have increased the seasonal surplus of normal butane. Further vapor pressure reductions in 1993 and later years will reinforce this trend. Current indications are that normal butane will eventually be completely backed out of the U.S. summer gasoline market. Part of the surplus will be used to produce iso- butane for use in the production of the gasoline oxygenates MTBE and ETBE that are being forced into the gasoline pool, to improve the environmental performance of gasoline fueled vehicles and to substitute a low volatility source of octane (MTBE, ETBE) for the octane lost in the butane backout. The high valued gasoline market has been the major North American outlet for normal butane during the 1970s and 1980s. Elsewhere in the world, and in North America prior to 1973, the major butane outlets were in the lower value heating, transportation and petrochemical markets where butane must compete with propane. gasoline (termed alkylate). Refinery demand for iso-butane normally exceeds refinery-based supply. The difference is made up by purchasing iso-butane produced at natural gas processing plants and by isomerization of normal butane. Iso-butane Is priced beyond the economic reach of the heating and transportation markets because of its continuing high value as a gasoline alkylate feedstock and in the manufacture of the oxygenates MTBE and ETBE. The major markets for propane are as heating and transportation fuels and as a petrochemical feedstock in competition with ethane and crude oil-based feedstocks. Prices in the petrochemical market tend to be volatile, given the ability of a significant portion of the U.S. petrochemical producers to quickly change 1-5 feedstocks in response to changes in feedstock and product prices, frequently driven by the propane volumes exported to the U.S. from Middle East producers. In addition to the primary refinery propane and butane streams, refineries also typically produce a number of light hydrocarbons (mixtures of methane, ethane, ethylene, some propane and propylene produced in refinery cracking and reforming units), which, in the absence of alternative markets, are used as refinery fuels. The processing of these hydrocarbons to recover usable LPGs and ethane, and their replacement by natural gas as a refinery fuel, represents a significant potential new supply for motor vehicle and petrochemical applications. In 1990 U.S. refineries produced 7.8 billion gallons of propane and butane for sale outside the refinery. This corresponds to about 4% of the volume of crude oil processed and is significantly higher than the 2.4-2.5% that was marketed by refineries a decade earlier. This change reflects the impact of changes in refinery configurations and crude oil feedstock slates as well as in the values obtained for propane and butane in and out of the refinery. _ The demand for propane and butane in the U.S. currently exceeds the supply obtainable from domestic natural gas plants and crude oil refineries. Imports at 11- 42% of demand are currently required to balance the total U.S. LPG market. Traditionally, 70% of these imports are supplied by pipeline and rail tanker movements from Canada so that in total, the North American market for LPG is 86- 87% self-sufficient. Offshore imports vary significantly with short term changes in the U.S. market and, in particular, with fluctuations in the price-sensitive petrochemical market. A massive infrastructure has been developed in North America for the importation of NGLs, for the handling, storage, transportation and marketing of the domestic and imported products. The center of the storage and transportation system is the U.S. Gulf Coast. The Gulf Coast facilities were developed to accommodate supplies produced from natural gas and crude oil production in Texas and contiguous states as well as to take advantage of large salt domes available there and of pipeline corridors with access to the major population areas of the U.S. Midwest and Northeast. The scale of these facilities and of the North American market for LPG of U.S. and foreign origin has led to the U.S. Gulf Coast being the hub of the world market and world trade in LPG. World prices for LPG tend to track the posted price in the Gulf Coast area which itself tracks the international price of crude oil. This situation may change somewhat in the future as more LPG is extracted from natural gas. Substantial LPG volumes are already extracted from natural gas but significant volumes of ethane, propane and butane are also left in natural gas streams at many locations because of the limited size of markets that are economically accessible to these plants. Refinery fuel gas streams are another as yet partially tapped NGL and LPG resource. The development of a transportation fuel market for LPG (or NGLs) in these untapped and partially tapped areas would have a significant impact on the total petrochemical markets. 1.3. U.S. Consumption of Propane and Butane Unusual weather affected the 1990 market for LPG so the following discussion uses the more typical 1989 demand data. Propane and butane consumption in the United States is dominated by three markets which together accounted for 82% of total domestic consumption in 1989 (Exhibit 1.2): ° Residential and commercial heating (predominantly propane) ° Petrochemical feedstocks (predominantly propane) ® Refinery feedstock (butane). Farm use, utility and synthetic gas and enhanced oil recovery (solvent flood) together accounted for about 13% of domestic consumption in 1989. Exports and motor vehicle fuel accounted for the remainder (2.1% and 2.3% respectively) of the 1-7 18.2 billion gallons of LPG used in the U.S. in 1989. About 10 billion of the 18 billion gallons used in the domestic market were sold by distributors. The residential, commercial, industrial, farm and utility gas markets are expected to remain essentially at their current levels throughout the period to the year 2010, given the limited opportunities for growth in the heating markets and continued competition from the well developed natural gas delivery system. Propane and butane generally have delivered prices significantly above that for pipelined natural gas; their markets, therefore, tend to be in geographic areas and in applications where pipelined natural gas cannot compete. This eliminates propane and butane from the major heating market areas and drives the use of propane into the rural heating markets. Exhibit 1.2 a U.S. CONSUMPTION AND EXPORTS OF PROPANE AND BUTANE, 1989 BILLIONS OF GALLONS i USE CONSUMPTION PERCENT I Residential and Commercial Heating 6.77 36.5 Refinery and Other Industrial Uses 2.54 13.7 Farm Use 1.56 8.4 Transportation Fuel 0.43 23 Utility Gas 0.08 0.4 Petrochemical Feedstock 5.95 32.0 Enhanced Oil Recovery 0.84 45 Exports 0.39 21 TOTAL 18.6 100.0 a - Source: National Propane Gas Association nr The future refinery market for butane is uncertain. Volumes of normal butane that are currently being used to provide front-end volatility and low cost octane will be reduced as refiners respond to more stringent gasoline vapor pressure specifications and clean air legislation. Some of the decline in butane use will be offset by a demand from domestic MTBE and ETBE producers. However, the facilities for producing oxygenates require significant investments in normal butane isomerization and iso-butane dehydrogenation facilities in addition to the MTBE and ETBE facilities themselves. There are significant economic advantages in locating MTBE and ETBE facilities in offshore areas with large natural gas and LPG resources that are currently being flared in the absence of market access. Waterborne exports of MTBE and ETBE provide the owners of resources with access to economic markets as an alternative to the wasteful flaring of natural gas and NGLs. The U.S. auto-LPG market currently accounts for only 2.3% of total LPG disposition. This market is at its lowest level in 30 years. Use today compares unfavorably with the peak volumes achieved in 1969 and 1983 when motor vehicle use represented 7-8% of total LPG disposition. In U.S., the motor vehicle fuel is predominantly propane (95% or higher). In Europe and Asia, however, auto-LPG consists of mixtures of propane and butane with the proportion of each being determined by supply, price and ambient temperature considerations. Current consumption of auto-propane (or auto-LPG) in the United States represents a displacement of only 0.15% of the gasoline used in the U.S. In the Netherlands, in contrast, consumption of auto-LPG has reached 20% of the combined volume of gasoline and diesel fuel used in that country. The premium markets for LPG in the United States, those for residential, farm, commercial and industrial heating, and as a transportation fuel or in the manufacture of gasoline, do not absorb total North American LPG production. The surplus remaining after the needs of these markets are met is cleared in the petrochemical market, where LPG is used predominantly in the manufacture of the commodity olefins ethylene and propylene. Over time, the U.S. olefin industry has 1-9 built a huge and flexible capacity that absorbs the North American LPG surplus and imports a portion of its LPG requirements from overseas. Concurrently, the industry has created a market for about one third of the ethane content of North American natural gas production -- that is, the fraction that can economically be extracted and transported to the cracking plants located in Texas and Louisiana in the U.S. and in Alberta in Canada. A section of the U.S. olefin industry is based on naphtha and gas oil feedstocks to produce ethylene, propylene and other olefins, such as butadiene. Another section has the flexibility to use LPG or other feedstocks. Concern has been expressed by some members of the petrochemical industry not integrated to NGL production that large-scale development of the motor vehicle market for propane would reduce petrochemical industry access to low cost domestic supplies of that commodity. However, the existing olefin plant flexibility is frequently called upon to exploit changes in feedstock availability and costs. This flexibility would permit a reduction in the proportion of propane utilized in the future if propane volumes were required for the motor fuel market. Only 47% of current ethylene capacity is dependent on NGLs. Ethane use in these plants could be significantly increased. About 35% of current ethylene capacity has been built to use either NGLs or the heavier feedstocks naphtha and gas oil. The remaining capacity is devoted to naphtha or gas oil cracking. Significant supplies of feedstocks, other than North American-sourced natural gas liquids, could also be provided. Future olefin plant modifications and additions could be tailored to crack these feedstocks and thereby reduce the petrochemical demand for LPG. Furthermore, significant quantities of currently unrecovered refinery-sourced propylene could be recovered for use in the petrochemical industry or converted into auto-propane. 1.4 The Scale of LPG Supply and Demand LPG is a very significant component of U.S. energy supply and demand, exceeded in volume only by petroleum products, natural gas, electricity and coal. The volume of LPG currently used in the U.S. in all applications is 20% of the volume of gasoline used and is somewhat greater than the volume of jet fuel, distillate fuel or residual fuel uses. 1-10 According to the National Propane Gas Association, the distribution of LPG to over 20 million customers in the United States involves a complex infrastructure of over 70,000 miles of cross-country pipelines, 22,000 railway tank cars, a fleet of 60 barges and tankers, 26,000 transport and delivery trucks, 250 primary storage facilities with a capacity of almost 11 billion gallons of LPG (220 days’ supply), 9,000 bulk storage and distribution terminals and 25,000 retail outlets. Expansion of this infrastructure to accommodate an annual throughput of 30-32 billion gallons to supply the conventional LPG market and the targeted motor vehicle fuel market of 13.7 billion gallons in 2010 would require a significant but not linear increase in the $8 billion capital invested in the current distribution infrastructure, since the year- round motor vehicle fuel throughput increment could make use of facilities that are currently supplying peak heating season loads. 1-11 2. THE LONG RANGE STRATEGY FOR NGLs AS ALTERNATIVE FUELS The National Energy Strategy target of replacing 2.5 million barrels per day of crude oil by alternative transportation fuels in the year 2010 requires the substantial development of the motor vehicle fuel market for propane, natural gas and biomass- based fuels, augmented by electricity generated in plants not dependent on petroleum. The proposed auto-LPG strategy for the period up to 2010 is based on domestic natural gas expansion, since the additional volumes of LPG that will be required will come from new and existing natural gas streams as well as from currently untapped refinery fuel gas sources that would be replaced by natural gas. The large number of refineries and gas plants that are dispersed throughout the United States and Canada are capable of providing a larger volume of LPG than the targeted 13.7 billion gallons. In fact, there is an estimated additional supply of 28 billion gallons per year of LPG in the U.S. and Canada that could be extracted, given appropriate market opportunities. The difference between the target volume and estimated total potential new supply provides an opportunity to select processes and locations, thereby minimizing the cost and risk of attaining the 2010 target. In addition to opportunities for developing currently underutilized sources of propane and butane, there are opportunities to replace these products in certain of their non-strategic applications by natural gas and natural gas-sourced ethane. Such opportunities not only could provide additional LPG supplies for transportation and heating applications, but could also serve to make better use of domestic natural gas resources, increase the revenues to gas producers and encourage exploration for, and development of, this important domestic resource. Additional supplies of ethane could be developed if the distribution system and market were expanded. The new ethane supply can be found in the marketing of ethane now recovered in cryogenic processes used primarily for the recovery of propane and butane from natural gas where ethane is reinjected into the natural gas stream for lack of a market. The development of the ethane market would stimulate investments in high NGL recovery gas plants (cryogenic process plants) and would also improve the efficiency of propane extraction. 2-1 Ethane and increased volumes of propane and related light hydrocarbons - may also be recovered from refinery gas streams ("off gases") using cryogenic processes when the netback to refiners on the NGLs is attractive. Development of the LPG distribution system to handle ethane alone or NGL mixes containing ethane, propane and butane could provide the means to distribute a major portion of the additional 19 billion gallons of ethane that is potentially available in North America beyond the limited volumes now recovered and distributed to petrochemical plants located locally in Texas, Louisiana and Alberta. While the current ethane market is limited to that as an ethylene feedstock, primarily in Texas and Alberta, ethane has certain attractive properties as a motor vehicle fuel such as high octane number, high energy density (relative to natural gas) and excellent air quality credentials (low ozone formation, for example). Ethane could also substitute for LPG in heating applications and for propane and/or butane in ethylene cracking plants. The displacement of propane and butane by ethane would have the added advantage of increasing natural gas use, given that the new ethane supplies would essentially be natural gas-based, or be from refinery fuel gas streams replaced by natural gas. The potential additional ethane supplies would allow crude oil substitution beyond the 2010 target of 0.5 million barrels per day that has been established for LPG in the NES scenario. Some of this supply could be brought on stream by 2010. Beyond 2010, ethane and the additional propane and butane supplies could serve to increase the post-2010 displacement to 1.3 million barrels per day, of which about 450,000 barrels per day would be from new ethane supplies. Since domestic natural gas is the major source of potential new propane, butane and ethane supplies, the development of these hydrocarbons as alternative transportation fuels would serve to reinforce the broader natural gas-based alternative transportation fuel strategy of the NES. Moreover, the complementary nature of the supply relationship amongst natural gas and propane, butane and ethane is matched by a complementary nature of their end use technologies. There are marked similarities between natural gas and NGL engine technologies because of the fundamentally similar behavior of gaseous fuels. Propane, butane and ethane could further contribute to the oil substitution NES strategy by enhancing the use of coal and coal-based methane. Coal-based resources could be converted into synthetic natural gas liquids by processes that have been demonstrated at the laboratory level, although they are not yet of commercial interest in North America because of the low cost and abundance of natural gas-based products. Synthetic NGL also forms part of a coal utilization strategy for ATFs that could be undertaken in conjunction with a coal-to-methanol ATF strategy, providing that the greenhouse gas and global warming issues involved in the use of U.S. coal resources are resolved. A further link to coal is possible. Ethane and perhaps propane can be used to upgrade the thermal energy in coal-based methane which could be used as a "synthetic" or "blended" CNG. The coal based methane could be synthetic (derived from coal) or coal-bed methane. The natural gas liquids alternative fuels strategy could also contribute to the biomass targets of the NES. Gasolines formulated with biomass-sourced ethanol must be stripped of butane to meet future evaporative emission requirements and vapor pressure standards. Displacement of butane from gasoline without recapture as MTBE or ETBE could release up to 5.2 billion gallons per year of butane to the alternative transportation fuel market. The high cost of U.S-sourced MTBE and ETBE relative to that potentially available from overseas sources with abundant supplies of low value natural gas and butane indicate, strong economic reasons to use the domestic butane directly as an engine fuel and to import oxygenates from areas that can only flare natural gas and butane for lack of economic outlets. The LPG/NGL ATF strategy provides a logical path to the eventual displacement of up to 1.5 million barrels per day of crude oil from the U.S. transportation sector and reinforces other ATF strategies based on the use of domestic natural gas, biomass and coal. ° 2-3 3. NEW SOURCES OF NATURAL GAS LIQUIDS 3.1 Changes Needed to Develop the Required Supply Changes in legislated fuel specifications and new production and distribution facilities are essential preconditions for attaining the NES auto-LPG target of a 13.7 billion gallon market by 2010. This chapter summarizes the changes in fuel composition and production technologies that are required to reach the target volume. 3.2 Fuel Composition Changes North American auto-LPG vehicles currently operate predominantly on a propane fuel which meets legislated specifications that restrict the permissible quantities of other, non-propane components, particularly propylene, as well as hydrocarbons heavier than propane, such as butane. Outside North America, however, auto-LPG tends to be made up of mixtures of refinery-sourced propane and butane, the composition of which varies significantly between countries and by season, according to ambient temperatures (cold start in winter requiring high propane content) and seasonal variations in supply and prices (increased summer butane supply and generally lower butane prices outside North America). Although the propylene content of auto-LPG is normally controlled at a maximum of 5 per cent by volume in all North American jurisdictions, this limit is normally exceeded outside North America when refinery- sourced propane is used. The California Air Resources Board (CARB) has recently tested propane vehicle fuels with 10% propylene content and found them to be acceptable from a vehicle exhaust emission viewpoint. CARB has therefore proposed an auto-LPG specification with a minimum 80% propane content, a maximum 10% propylene content and a maximum of 2.5% butanes and other heavier hydrocarbons. This standard is being implemented in California for a trial period of two years. Following the experience in other countries and in California, North American auto-propane specifications could be changed to permit a wider range of 3-1 components, particularly if specifications were written in terms of vehicle performance and emissions considerations, rather than in terms of composition limits, as set out in the current ASME specification. The European Economic Community, for example, has established a performance specification for auto-LPG and current U.S. gasoline specifications are largely performance-based. Establishment of a performance-based auto-LPG specification in the U.S. would permit using butane as a motor fuel component, thereby almost doubling the motor fuel supply potential of auto-LPG. The recovery of LPG from refinery off-gases (and from the production of synthetic crude in Canada) by cryogenic processes could produce a mixture of ethane, ethylene, propane, propylene, butanes and butylenes which could be used to produce an “ethane” stream and a broad-spectrum "LPG" stream. The typical composition of refinery-based "broad spectrum” LPG is given in Exhibit 3.1 together with the current HD-5 specification for auto-LPG and the specification proposed by the California Air Resources Board. The illustrated LPG composition meets the maximum vapor pressure specified for storage and transportation of propane. As well, the octane value matches that of regular gasoline. Vehicle emission test data are not available. The LPG composition shown in Exhibit 3.1 represents a worst-quality case. It would be advisable to obtain performance data to determine its suitability for direct use as an ATF, or whether it would require further processing or blending with a more conventional grade of LPG, including the high quality olefin-free LPG available from natural gas plants. The available quantity of this "broad spectrum" LPG could be sufficient to justify separation to recover the high value propylene and butylene components sought by the petrochemical industry and an HD-5 specification grade of propane. The potential supply of this "broad spectrum” LPG from U.S. refineries in 2010 is estimated at 4.8 billion gallons (0.2 billion gallons of ethane, 1.9 billion gallons of propane, 0.4 billion gallons of propylene, 1.7 billion gallons of butane, 0.2 billion gallons of butylenes and 0.3 billion gallons of pentanes plus). The propane and butane components of this stream represents 13% of total potential additional North American propane and butane supply. Additional product from Canadian 3-2 refineries and heavy oil processing (synthetic crude) plants could raise this volume to 4.3 billion gallons by 2010, or 15% of the total potential North American incremental annual propane and butane production of 28 billion gallons from natural gas processing plants and crude oil refineries. The composition of the propane and butane available from the remaining 85% of the incremental LPG production is not in question since it is at least equivalent to the standard auto-LPG now being used successfully in Europe. Different winter and summer grades of auto-LPG could be produced by blending the components and/or product selection. The addition of ethane, for example, could improve vehicle winter cold starting in a high butane-content fuel. The scheduling of grades for winter and summer use in different regions of the country would be no more complex than that now in place for gasoline. Exhibit 3.1 nn —. TTT POTENTIAL COMPOSITION OF "BROAD SPECTRUM” LPG FROM REFINERY OFF-GAS VOLUME % al BROAD SPECTRUM LPG HD-5 STANDARD PROPOSED CARB nn —. Ethane 46 Propane 39.5 Propane (inferred) 92.5 min 80.0 min Propylene 9.0 Propylene * 5.0 max * 10.0 max Butanes 36.2 Butanes plus 2.5 max * 2.5 max Butylenes 3.7 Pentanes plus 7.1 nn. TTS NOTES: * ASTMB 1835-89 a eee 3-3 The goal of adopting auto-LPG (as distinct from auto-propane) as a motor vehicle fuel should be included in the vehicle and engine development program to accelerate the adoption of currently unused sources of auto-LPG supplies. The European Committee on Alternative Fuels has established, as its most important task, the development of a system "that detects the composition of LPG and automatically corrects it in the [in-vehicle] LPG system." Liquid fuel injection LPG engines are under development. This technology would allow the use of "broad spectrum” LPGs and the development of high performance LPG formulations using additives. 3.3. New Sources of "Broad Spectrum” LPG from Refineries 3.3.1 Cryogenic Recovery of LPG at Refineries The 190 refineries in the U.S. currently process about 13.5 million barrels per day of crude oil and recover for sale about 7.8 billion gallons per year of propane and butane. As noted above, significant quantities of LPG and related olefins contained in refinery fuel gas streams are currently being used only as a source of hydrogen or as a refinery fuel. The installation of cryogenic units at refineries could provide a major new source of "broad spectrum" LPG and could also recover substantial volumes of ethane and ethylene, should these be required as petrochemical feedstocks to replace propane diverted to auto-LPG applications. Typically, a refinery with a 100,000 barre! per day crude throughput produces about 2,100 barrels per day of broad spectrum LPG. At an average 350.4 days of operation, this would provide 30.9 million gallons of the broad spectrum LPG suitable for transportation in road and rail tankers and pipelines (1.4 million gallons of ethane, 12.2 million gallons of propane, 2.8 million gallons of propylene, 11.2 million gallons of butane, 1.1 million gallons of butylenes and 2.2 million gallons of pentanes plus). The energy shrinkage through LPG recovery would be replaced by natural gas at a rate of 96.2 cubic feet of natural gas for each gallon of LPG recovered. Based on a 2010 crude oil throughput of 14.9 million barrels per day in U.S. refineries, up to 4.8 billion gallons of this broad spectrum LPG could be made available at an average plant gate cost estimated at 59¢ per gallon, assuming a gas 3-4 a replacement cost of $5.04 per Mct in 2010. The investment required in the U.S. to produce the added volume of LPG is estimated at $2.235 billion (see Appendix) - about 47¢ per annual gallon of production. The annual volume of natural gas required to replace the extracted energy is estimated at 460 billion cubic feet. The production and processing of this new volume of natural gas to remove NGLs would also add to the potential LPG supply. The use of heavier crudes in 2010 than those currently being used would increase the total LPG production from refineries. Itis anticipated, however, that this would be offset by the use of ethanol and/or MTBE to a level which could displace 8 volume % of refinery gasoline production. The volume of hydrocarbons recovered from U.S. refinery fuel gas streams could be increased by 50% if ethane recovery were optimized. The volume of broad spectrum LPG available to the U.S. would be increased if Canadian refineries also included cryogenic processing. The LPG available from the 24 Canadian refineries with access to natural gas, which could be substituted for refinery-sourced fuel gas, would be 668 million gallons. This would increase total cryogenic broad spectrum LPG North American production to 5.5 billion gallons in 2010. Heavy oil and bitumen are processed in Canada to produce synthetic crude oil. The process is severe and large volumes of light hydrocarbons are produced. These are currently being used as fuel in the syncrude plants. Cryogenic processing of the synthetic crude overheads has been examined as a source of LPG and related olefins. At current synthetic crude oil throughput levels some 270 million gallons of a broad spectrum LPG could be recovered (15 million gallons of ethane, 122 million gallons of propane, 74 million gallons of propylene, 32 million gallons of butane, 13 million gallons of butylenes and 12 million gallons of pentanes plus) at an estimated plant gate cost of about 54¢ per gallon, assuming replacement gas priced at $5.04 per Mcf. The required investment would be $80 million (about 30¢ per annual gallon of LPG production). A similar cryogenic process could be used to recover LPG from the overheads and fuel gas produced in refinery residuals coking processes. No estimate has been made of the potential volumes and cost of this LPG recovery option. The total addition to U.S. LPG supplies by 2010 from the small increase in crude processed and cryogenic recovery is estimated at 5.25 billion gallons (0.2 billion gallons of ethane, 2.1 billion gallons of propane, 0.5 billion gallons of propylene, 1.98 billion gallons of butane, 0.2 billion gallons of butylene and 0.4 billion gallons of pentanes plus). Canadian refinery LPG supply could be expanded and exported to the U.S. This would provide a total North American added LPG supply of almost 6 billion gallons in the year 2010. Although the price required to stimulate investments in enhanced recovery of the broad spectrum LPG is unknown, it appears that the supply price, including a 15% pretax return on investment, would be about 59¢ per gallon in 2010, assuming natural gas priced at $5.04 per Mcf and crude oil at $34.20 per barrel, compared to an estimated wholesale price for conventional quality LPG of 49¢ per gallon available on the U.S. Gulf Coast at that time. 3.3.2 Butane Displacement from Gasoline The Clean Air Act of 1990 established oxygen levels and Reid Vapor Pressure (RVP) performance specifications for reformulated gasoline sold after 1994 in the most severely affected ozone and carbon monoxide non-compliance areas. The regulations require a 2.7 weight % of oxygen content in gasoline sold in CO non-attainment areas and 2.0 weight % of oxygen in ozone non-attainment areas. EPA has established regulations on gasoline volatility which require that, starting in the summer of 1992 (May through September), gasoline vapor pressure must not exceed an RVP of 7.8 or 9.0 pounds per square inch (psi) depending on the state and the month. Refiners have tended to meet tighter RVP specifications for gasoline by reducing the amount of normal butane in the gasoline and replacing it with MTBE. ‘Thus, typical gasolines of the pre-1990 era with an RVP of 11 psi contained about 6.5 volume % of butane. With a summer RVP of 9 psi the summer butane content 3-6 has been reduced to 2.9 volume %. Anticipated future RVP reductions are expected to require the total elimination of butane from gasoline. Exhibit 3.2. provides a summary of the effect of oxygen addition on the butane content and RVP of gasoline. Exhibit 3.2 nn. TTT TYPICAL BUTANE/RVP RESPONSES IN GASOLINE FORMULATIONS El RVP BUTANE MTBE/TAME ETHANOL OXYGEN (psi) (Vol. %) (Vol. %) (Vol. %) (Wt. %) a 11.0 6.5 0.0 0.0 0.0 10.0 45 1.0 0.0 0.2 9.0 29 1.0 0.0 0.2 77 2.0 7.0 2.0 2.0 8.6 0.0 1.0 5.0 2.0 a eee Source: R F Webb Corporation, 1992 a ee Addition of ethanol to gasoline facilitates the attainment of the oxygen content requirement for gasolines and has been shown to reduce vehicle carbon monoxide emissions in winter months. Addition of ethanol reduces the volume of butane that can be incorporated into gasoline if the low RVP requirements are to be met. The addition of MTBE and TAME, on the other hand, does not force butane displacement. The increased use of ethanol as a gasoline extender is one of the ways that could be used to attain the oil displacement target of the National Energy Strategy. Expanded use of ethanol would accelerate the timing of total butane phase out as a gasoline component, but the displacement would occur in any event, because of the low established RVP targets. There are two options for using the displaced butane: ° as a component in auto-LPG ° conversion to MTBE (in a three step chemical manufacturing process). The displacement of all butane from gasoline by 2010 would add almost 4.8 billion gallons of LPG to the U.S. supply. Displacement of all butane (0.661 billion gallons) from Canadian gasoline would increase total North American incremental LPG supply to 5.4 billion gallons. The market clearing price of the butane used as a component of auto-LPG would be similar to that estimated for propane in 2010 of 49¢ per gallon on the U.S. Gulf Coast. The price for butane used in auto-LPG is therefore expected to be about 65% of the average price realized in the 1980s, when butane was priced as an octane enhancer for gasoline. Nevertheless, the producer netback for butane used as an auto-LPG component would be higher than for butane used as a petrochemical feedstock or as a refinery fuel. The capital required to retrieve and market butane displaced from the refinery streams consists of on-site storage and expanded rail and road tanker loading terminal capacity: the investment nationwide is estimated at $715 million. 3.3.3 Summary of New Auto-LPG Supplies Available from Refineries As shown in Exhibit 3.3, a modest increase in the volume of oil processed at refineries, cryogenic recovery and butane back-out could provide about 10 billion gallons per year of broad spectrum LPG by the year 2010. Refineries in Texas, Louisiana and California would be the source of 55% of this incremental volume, much of which would require out of state transportation by pipeline, rail and road tanker. Significant volumes of LPG could also be made available from refineries located in 30 other states. The details of production by state are given in the Appendix. Exhibit 3.3 NN ADDITIONAL ANNUAL REFINERY PRODUCTION OF "BROAD SPECTRUM" LPG POTENTIALLY AVAILABLE BY 2010 (MILLIONS OF GALLONS/YEAR) a SOURCE U.S. CANADA N. AMERICA Increased crude throughput 451 75 526 Cryogenic recovery 4,804 668 5,471 Butane back out 4.761 S61 5.422 Total Potential New LPG Supply 10,016 1,670 11,687 nn TT Source: R F Webb Corporation, 1992 i The supply of LPG from U.S. refineries could be augmented by increased supplies from Canadian refineries exported to the U.S., given the continuing Canadian surplus from conventional gas plant and refinery sources. Annual exports from Canada could be increased by 1.7 billion gallons of broad spectrum LPG (of which 0.4 billion gallons would be propane and 1.0 billion gallons would be butane with the remainder made up of ethane, propylene, butylene and pentanes plus) in the year 2010, should there be sufficient market incentive for new cryogenic fuel gas processing equipment and sufficient environmental incentive to adopt vapor pressure regulations similar to those currently evolving in the United States. The annual addition to LPG supply from U.S. and Canadian refineries by 2010 could therefore reach 11.7 billion gallons (of which 2.5 billion gallons would be propane and 7.6 billion gallons would be butane with the remainder made up of ethane, propylene, butylene and pentanes plus). The major part of this increment, that from U.S. refineries, would require an estimated investment of $2.55 billion in production facilities and $715 million in incremental on-site LPG storage and loading terminals, or a total of $3.26 billion. The Canadian increment would require an 3-9 investment of about $440 million in production facilities and an estimated additional investment of $105 million at storage and terminal sites. 3.4 New Sources of Natural Gas Liquids from Natural Gas Plants 3.4.1 Gas Plant Sources The supply of natural gas liquids (ethane, propane, butane and pentanes plus) from natural gas plants is determined by the demand for natural gas, the natural gas liquids content of the processed natural gas streams, the technology in place at existing plants, the technology available for new and upgraded plants, as well as the prices obtainable from the sale of the natural gas and the natural gas liquids. The estimates made for this study suggest that 66% of the added U.S. supply could be obtained from the processing of a larger natural gas flow, reflecting new markets for natural gas; 30% from installing processing plants to treat natural gas streams where natural gas liquids are currently not being removed (due to a lack of markets for the resultant products), and 4% from investments in more efficient cryogenic facilities at gas plants currently using less efficient processes. 3.4.2 Growth in Gas Demand as a Source of Natural Gas Liquids Estimates of the growth anticipated in the demand for natural gas in the U.S. to the year 2010 vary substantially, even when baseline (non-vehicle transportation) demand projections are compared as in Exhibit 3.4. As indicated in the exhibit, the highest estimate, that by the American Gas Association, forecasts baseline natural gas demand to increase by 5.8 Tct over the twenty year period between 1990 and 2010. The lowest forecast, that by the Energy Information Administration, forecasts base case demand to increase by 3.2 TCF over the twenty year period. In fact, the difference between the two. forecasts, 2.6 Tcf, is close to the value for the lower estimate. In light of the uncertainty implicit in such a wide range in forecast growth projections we have chosen to use the lowest of the three growth forecasts. There are three other potential sources of growth in natural gas demands over the period to 2010. These are for compressed natural gas (CNG) and 3-10 methanol as alternative vehicle fuels as set out in the National Energy Strategy, the natural gas that will be required to replace refinery fuel that is diverted into the auto- LPG and petrochemical markets as well as the gas that will be required to replace the shrinkage due to deeper gas plant natural gas liquids recovery. Exhibit 3.4 BASE CASE DEMAND GROWTH PROJECTIONS FOR NATURAL GAS IN THE U.S. 1990-2010 SOURCE OF PROJECTION PROJECTED INCREMENTAL DEMAND 1990 to 2010 Energy Information Administration 3.2 Tef Gas Research Institute 4.8 Tet American Gas Association 5.8 Tef The total growth in natural gas demand over the period between 1990 and 2010 is therefore estimated to be 6 Tcf as follows: e EIA baseline growth of 3.2 Tcf e natural gas required to produce CNG and a portion of the methanol ATF needed to reach the National Energy Strategy oil replacement target, equivalent to 1.46 Tcf of natural gas ° natural gas required to replace LPG now being used as a refinery fuel and to replace shrinkage associated with deeper cut extraction of natural gas liquids from existing natural gas streams, equivalent to 1.35 Tef. 3-11 The processing of the additional natural gas volume that would be required to produce the forecast increase of 6 Tef in cryogenic turbo expander-equipped gas plants would produce 9.5 billion gallons of LPG, based on current turbo expander extraction efficiencies and the estimated liquids content of natural gas in 2010. Most of the new natural gas liquids supplies would be extracted at plants in the major natural gas producing states of Texas, which would account for 40.5%, Louisiana with 14.7%, Oklahoma with 12%, New Mexico with 7.5%, Wyoming with 5.8% and Kansas with 5.6%. LPG production potential in other states is shown in the Appendix. Canadian natural gas production could be expanded to meet both Canadian and U.S. needs. The LPG (propane and butane) that could be made available from this source is about 3.5 billion gallons of LPG by 2010. Alberta gas and gas separation plants would provide 95% of this new Canadian supply. In total, almost 13 billion gallons of propane and butane could be extracted in North America by the year 2010 from the added natural gas needed to meet the demand for conventional applications, for natural gas-based ATF production and for displacement of LPG used as refinery fuel. Production of this large increment in propane and butane in the U.S. would be accompanied by the production of 15 billion gallons of ethane, should markets be found in vehicle transportation and petrochemical applications; otherwise the ethane would have to be returned to the sales gas stream. The investment required to generate 32 billion gallons of natural gas liquids (ethane, propane, butane and pentanes plus) would be about $9.8 billion in current dollars, assuming 176 new gas separation plants are built, each with combined natural gas liquids production capacity of 36 million gallons per year. The estimated plant gate cost for the propane, butane and pentanes plus would be $0.93 per gallon in 2010, assuming natural gas priced at $5.04 per Mct ($4.89 per MM BTU) and the ethane sold at a price of $0.49 per gallon. If no market were available for the ethane, requiring it to be reinjected into the residual gas stream, the cost of the LPG would be increased to about $1.04 per gallon -- substantially higher than the price of $0.49 per gallon estimated for propane and butane on the U.S. Gulf Coast 3-12 at an oil price of $34.20 per barrel in 2010. The plant gate cost of the propane and butane would be lower at larger, more cost-effective plants and where produced by incremental expansion of gas-treating capacity at existing gas plants. The investment required to recover the 13 billion gallons of LPG potentially available in the U.S. and Canada from the processing of new gas would be about $13.4 billion (in 1992 dollars). 3.4.3 Unprocessed Gas U.S. production of propane and butane from currently unprocessed natural gas could reach 4.3 billion gallons in 2010. The capital investment is estimated at $4.5 billion and the plant gate cost would be similar to that noted above for processing of new gas -- $0.93 per gallon for LPG if ethane co-preduct-Were sold, $1.04 per gallon if the ethane is reinjected into the salable gas stream. There is very small potential for added volume from Canada, since very little Canadian natural gas is not currently being processed for natural gas liquids recovery. 3.4.4 Increased Recovery of Natural Gas Liquids at Existing Gas Plants An examination of the technologies used in the current population of gas separation plants has identified a high proportion that use low cost, inefficient recovery processes where the propane extraction efficiency is below the 95-97% available in modem plants. It is proposed that 50% of these older technology plants could be upgraded with “turbo expander” and other equipment known to be capable of extracting 97% of the propane and 75% of the ethane available in the natural gas stream. These facilities would also increase the already high recovery rate of butanes and pentanes plus. The addition of these facilities could provide, by 2010, an additional annual production of 620 million gallons of propane and butane from the eligible U.S. gas plants at an incremental capital investment of $1.2 billion. The incremental LPG would be expensive, due to the high capital cost of the large number of small plant additions required. The plant gate cost is estimated at $1.94 per gallon with natural gas priced at $5.04 per Mcf where co-product ethane is sold 3-13 at $0.49 per gallon. Without ethane sales, the plant gate cost for the incremental LPG supply in 2010 would be about $2.84 per gallon. Canadian propane and butane supply could also be increased by 148 million gallons with the installation of cryogenic recovery units at 50% at the potentially eligible sites. The investment cost would be about $285 million. 3.4.5 Summary of Potential Natural Gas Plant Propane and Butane Supply The total added supply of propane and butane that could be separated at U.S. gas liquids processing plants totals 14.4 billion gallons - 62.5% of which would originate in 3 states: Texas, Louisiana and New Mexico. The total investment required to realize the added supply is $15.3 billion (in 1992 dollars) or approximately $1.06 per annual gallon of LPG production. The plant gate cost of LPG from new facilities would average $0.93 per gallon at a gas cost of $4.89 per MM BTU ($5.04 per Mcf) provided, however, that coproduct ethane could be marketed at $0.49 per gallon. A small, but high cost, supply increment is available from additions to 50% of the lower technology gas- processing plants. Addition of this volume would increase the plant gate cost of the natural gas plant LPG incremental volumes to $1.94 per gallon with natural gas priced at $4.89 per MM BTU -- the NES 2010 scenario price. 3.5 Summary of the Total New Supply of LPG Available in 2010 The total addition to propane and butane supply from gas plants and refineries in the U.S. could reach 28 billion gallons in 2010 if the timely investment of about $19 billion were made in new production and plant storage facilities. The estimated investment costs for these additional supplies are given in Exhibit 3.5. The lower average investment cost for the refinery production reflects the fact that investment is required for storage and terminal facilities, but no production facilities are required to utilize backed-out butane and LPG available from increased refinery crude oil runs. The relatively low capital requirement for the 3-14 refinery-sourced new volumes of propane and butane is reflected in the lower plant gate cost for this source of LPG relative to that from natural gas processing plants. Exhibit 3.5 a SUPPLY AND COST ESTIMATES FOR "BROAD SPECTRUM” AUTO-LPG i cee EEE EEE Sn U.S. Sources U.S. Refineries Gas Plants TOTAL SUPPLY a Annual Supply (billions of gallons) 10.02 14.42 24.4 Investment (billions $1992) 3.27 15.5 18.77 U.S. + Canada Sources N. AMERICAN Refineries Gas Plants TOTAL SUPPLY a Annual Supply (billions of gallons) 11.11 17.95 28.06 Investment (billions of 1992 $s) 3.8 19.4 23.2 i Source: R F Webb Corporation, 1992 i The added production from natural gas processing plants would require capital investment outlays averaging $1.07 or so per annual gallon of LPG produced, compared to 33¢ of investment required per annual gallon of LPG produced from refineries. A portion of the added volume of refinery LPG (5.5 billion gallons ~ of which 4.1 billion gallons is propane and butane - out of 11.7 billion gallons) would be in the form of a broad spectrum, olefin containing LPG, the performance characteristics of which have not been tested. Should further processing be required to remove these components from the auto-LPG pool, LPG production would be reduced and the refinery plant gate cost would be increased. The natural gas and natural gas liquids business in North America is - continental. Canadian refinery and natural gas plant production could be expanded to increase the auto-LPG supply available in 2010 to 28 billion gallons at a total North America-wide capital investment of about $23 billion. The availability of such 3-15 North America-wide capital investment of about $23 billion. The availability of such a large continental source of propane and butane should provide an opportunity to select processes and production locations to minimize production and distribution costs within the 13.7 billion gallons of LPG supply targeted for 2010. 3.6 Synthetic LPG The industrial process for the manufacture of methanol is based upon the high pressure conversion of synthesis gas (a mixture of carbon monoxide and hydrogen) to methanol over a catalyst. The major route to synthesis gas production is the steam reforming of natural gas, but other resources such as coal-bed methane, coal or biomass could be used. Synthesis gas derived from coal is converted to synthetic gasoline and diesel fuel on a commercial scale in South Africa. in New Zealand, synthetic gasoline and LPG are manufactured on a large commercial scale from methanol using a zeolite catalyst and technology pioneered by the Mobil Oil Company. The direct production of mixtures of ethane, propane and butane from synthesis gas using a Mobil-type zeolite catalyst has been demonstrated in China and is considered to be a commercial route to LPG from indigenous coal. Preliminary estimates of the cost of synthetic LPG from natural gas, through the intermediate production of synthesis gas, indicate that the investment required would be no higher, and probably somewhat lower, than that required for the production of an energy equivalent quantity of methanol. If the process were developed commercially, LPG costs up to about $1.75 gallon would be expected, based on the cost of natural gas at $5.04 per Mcf and depending on plant size. Another approach to the future supply of synthetic LPG could be developed from investigations into the direct catalytic conversion of methane to hydrogen and light hydrocarbons. Efficient conversion of methane to mixtures of ethane, propane and butane has been demonstrated at the laboratory level, but extensive research _and development is required to determine the commercial feasibility of this potentially low cost route from natural gas, and perhaps other resources, such as coal-bed methane. 3-16 Accelerated development of processes for the production of synthetic LPG at commercial levels is clearly not required as long as large surpluses and untapped refinery and natural gas plant LPG are available. Research on LPG synthesis, however, could be justified on the basis that, in the long term, synthetic LPG could be a major ATF source, with economics, supply logistics and vehicle performance competitive with methanol and CNG. Development of LPG synthesis to commercial scale production would probably increase the total supply of LPG by 4-8 billion gallons per year by 2010 to a total annual LPG availability for all uses of 52-56 billion gallons, as illustrated in Exhibits 3.6 and 3.7. However, the potential supply of synthetic LPG or synthetic NGLs is almost unlimited. Exhibit 3.6 $$ POTENTIAL NORTH AMERICAN "BROAD SPECTRUM” LPG SUPPLY TO THE U.S. MARKET, 1992-2010 ee SUPPLY - BILLION GALLS PRICE - $/GALL 2010 Cumulative Market Clearing Supply Te Conventional sources 18.18 18.18 0.49 Increased refinery throughput 0.53 18.71 0.49 Butane backout 5.42 24.13 0.49 Heavy oil plant recovery 0.27 24.40 0.54 Increased refinery recovery 5.47 29.87 0.59 Increased gas flows 12.84 42.71 0.93 Use of unprocessed gas 4.34 47.05 0.93 Deeper cut gas recovery 0.77 47.82 1.94 Synthetic LPG 4.0-8.0 51.8-55.8 - 1.75 ee Source: R F Webb Corporation, 1992 OS 3-17 Ste Exhibit 3.7 Estimated Supply and Cost of Auto LPG (Billions of Gallons and Dollars per Gallon) Dollars per Gallon $0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 SOURCE: R.F.WEBB CORP. 1992 3.7. Propane Supply Diversion to the ATF Market The development of a significant demand for auto-LPG, particularly for propane, would reduce the producers need to clear their surplus LPG production in low netback markets. The petrochemical industry, and especially the ethylene and propylene production segment of that industry, is the single largest outlet for this surplus production. The portion of the petrochemical industry that is not self- sufficient in LPG may, therefore, have a reduced access in the future to the large volumes of domestically produced low cost propane (and occasionally also butane) that are now purchased in a well-developed feedstock acquisition process. That process involves purchases of LPG from U.S. producers and from overseas suppliers, purchases of other feedstocks (such as ethane and naphtha) that can be interchanged as a feedstock in a third of the ethylene plants operated in the U.S., the large-scale storage of feedstocks and futures trading which optimize feedstock costs. The increased production of LPG from the gas plants and refineries discussed above could provide sutficient LPG to maintain petrochemical operations, but the higher average cost of the new sources, relative to current clearing prices, would provide an incentive for olefin producers to increase their use of ethane, pentanes and naphtha, and to further increase feedstock flexibility at the cracking plants. The new sources of LPG concurrently provide large new volumes of ethane at competitive costs. The cryogenic processes for the recovery of LPG from refinery fuel gas could also supply significant volumes of ethylene and propylene to augment the supply from cracking plants. The majority of the new supplies of ethane and refinery-sourced propylene would be available, for the most part, from gas plants and refineries located in Texas and Louisiana. Petrochemical plants located in those states account for over 90% of U.S. olefin production, so the logistics are favorable for the adoption of the new sources of feedstock and refinery-sourced olefin supplies. The volume of LPG used in the petrochemical industry which might be displaced by other feedstocks by 2010 has been ‘estimated at a minimum of 1.7 billion gallons-about 20-25% of the annual LPG demand for U.S. olefin production. 3-19 A part of the LPG feedstock could be replaced by ethane drawn from the 15 billion gallons or so of new ethane supply which could be extracted at gas plants and refineries within the U.S. by 2010. Other uses may be impacted by the somewhat higher average cost of LPG when new production facilities are needed to supply the ATF market. The higher production cost of the new LPG supplies would be offset by lower costs and improved efficiency in the distribution system which would accompany higher throughput and an increase in the number of local LPG production and distribution centers. 3-20 4. LPG SUPPLY AND DEMAND IN 2010 The foregoing analysis of new sources of LPG supports the 13.7 billion gallon auto-LPG supply/demand scenario for the year 2010 that was developed by the Department of Energy (DOE) for the NES analysis. The allocation of the 13.7 billion gallon LPG supply and demand among the states proposed by DOE has been accepted for use in this investigation, since the allocation methodology is soundly based on consideration of regional motor fuel demand, the LPG delivery infrastructure and air quality, particularly with respect to the ATF penetration level anticipated in non-attainment areas. The allocation of the 2010 auto-LPG demand volume by state is shown in Exhibit 4.1. The LPG demands in California, Texas, New York, Illinois, Pennsylvania, Florida and Ohio together account for 52% of the: total projected demand in 2010 of 13.7 billion gallons. . Exhibit 4.2 projects the surplus of production over demand or the deficit of LPG supply in each state in 2010. Further detail is given in the Appendix. The excess of supply over demand is very large in Texas, Louisiana, other states in 2010 from W. Virginia, Mississippi and Delaware. Natural gas plant-sourced supplies from Alberta, Canada would be available for distribution to Califomia, the Midwest and Eastem states in competition with product from the U.S. Gulf Coast. The existing pipeline system, with capacity expansions, debottienecking and a new line from the "Four Corners” area of New Mexico to Bakersfield, California could be available to move these new export volumes to the LPG-deficient states. The cost of the new LPG imports into California will be low relative to those for other altemative transportation fuels such as natural gas, methanol and electricity. Exhibits 4.3 and 4.4 illustrate the ; relationship between the major elements of the integrated North American pipeline system and the major gas-producing areas — each of which supports a number of natural gas liquid separation plants operated close by, or within the major fields. 41 ov Exhibit 4.1 Auto LPG Demand 2010 eeeecerenceeees : Millions of Gallons Total US Suppl 13,700 Million, y Gallons SOURCE: R.F.WEBB CORP. 1992 e+ Exhibit 4.2 High Level 2010LPG Supply & Demand by State SOURCE: R.F.WEBB CORP. 1992 vy Exhibit 4.3 TheNorthAmerican | LPG Transportation Network Australia oe aioe ; Indonesia ; af i i North Sea AS Middle East SOURCE: R.F.WEBB CORP. 1992 s+ Exhibit 4.4 Natural Gas Supply Regions in North America Pacific Coast Offshore Atlantic iP Gulf Coast SOURCE: R.F.WEBB CORP. 1992 5. LPG STORAGE AND DISTRIBUTION INFRASTRUCTURE 5.1 Bulk and Terminal Storage Almost half of U.S. LPG volumes are currently sold into seasonal heating markets with narrow peak demand periods. The peak-to-average demand ratio for LPG is much higher than that for natural gas and oil, both of which benefit from significant non-seasonal loads. The high ratio means that current LPG storage and transportation facilities are under-utilized for most of the year, but may be stretched to capacity when unusually cold weather requires promptly delivery of propane to heating markets which may be increased as supplies of gas are curtailed to users with interruptible natural gas supply contracts. Since the auto-propane market is essentially non-seasonal with a low peak-to-average demand ratio, the efficiency of utilization of all LPG storage capacity will be improved as auto-LPG moves from less than 2% of LPG demand to the forecast 43% of LPG demand in 2010. This is supported by the fact that the throughput-to-storage ratio of gasoline is currently double that of LPG. Almost 11 billion gallons of above-ground and underground LPG storage facilities are operated in the U.S. The key elements of the U.S. storage system are the salt formation storage areas located at Mont Belvieu, Texas; Hattiesburg, Mississippi; and Conway-Hutchinson, Kansas, which serve as the hub of their respective LPG distribution systems. See Exhibit 5.1. The year-round demand for motor fuel, the ability to deliver auto-LPG directly from refineries by road tanker to large service stations, the high turnover rate of auto-LPG in storage and the scale of current storage capacity will reduce the need for massive further investments in bulk underground storage for the incremental volumes of auto-LPG added to the system by 2010. Incremental storage will be needed at gas plants and refineries. This storage will primarily be in above-ground pressurized steel tanks. The plant storage requirement at public and private refueling stations is described in Section 5.6 below. 5-1 The remaining bulk incremental storage required for the expanded LPG system will be in above-ground pressurized steel tanks located at terminals outside - the major urban centers of auto-LPG demand. These terminals receive LPG by pipeline, rail and bulk road tanker, as appropriate. The incremental storage required at these local bulk terminals is estimated at 250 million gallons, based on 1 billion gallon per year throughput at each facility and the same ratio of capacity to throughput encountered with gasoline (8 gallons of storage capacity for each 100 gallons of annual throughput). The capital cost of these new terminals ts estimated at $300 million. 5-2 e-s Total LPG Storage Capacity 1992 Millions of Gallons - Total LPG ioe Exhibit 5.1 SOURCE: R.F.WEBB CORP. 1992 5.2 Pipeline Expansion The long-distance transportation of LPG in the U.S. is primarily through an extensive system of distribution pipelines which are operated by integrated petroleum companies and by independent pipeline companies, many of which are jointly owned by LPG producers and/or marketers. These most frequently originate at the large LPG storage hubs which are themselves fed LPG from gas plants through a network of gathering pipelines. The availability of under-utilized and off-season distribution pipeline capacity, the ability to increase pipeline throughput by looping and debottlenecking the system, and the improved use of storage would reduce the need for large increases in pipeline capacity. The major new pipeline foreseen is that which would transport expanding LPG supplies from the New Mexico area to California, a state which is not currently connected to the continental LPG pipeline distribution grid. An investment of $200 million is estimated for the portion of this 600 mile pipeline which would serve the California auto-LPG market. Expansions elsewhere would be incremental and rolled into the existing investment base. The cost of these incremental improvements would be included in the pipeline tariffs, as discussed in Section 6. 5.3 Rail Tank Car Movements The NPGA reports that there are 22,000 rail tankers in propane delivery service. The low seasonality of auto-LPG demand and the availability of high turnover auto-LPG storage would improve the utilization of the rail tank car fleet in LPG service. Itis therefore estimated that the purchases of new rail tankers would be only 25% of that required to support the same volume of LPG transported for conventional and highly seasonal applications. It is estimated that 4,140 rail tank cars would need to be added to the existing fleet by 2010. An investment of $414 million (in 1992 dollars) would be needed to provide the rail tank car additions. 5-4 5.4 Barge Movement of Propane The transportation of propane (LPG) by barges is a small but highly expandable component of the U.S. LPG distribution system. Within the U.S., the movement of propane on the waterways east of the rocky Mountains is by 10,000 - 30,000 barrel capacity barges holding propane under pressure at ambient temperatures. The barges are towed or pushed by tugs. Tow or three barges can be towed by each tug. The U.S. chemical barge fleet is comprised of approximately 110 pressure barges with a total capacity of 90 to 95 million gallons of which 50-60 million gallons may be used in the movement of propane in the peak winter demand season. Barges able to transport propane are also suitable for the movement of ammonia which has a different demand season (spring-summer). About 50% of the propane barge fleet is also used to transport ammonia. , The limitations of barge transportation are predominantly related to the cost of transportation relative to the highly competitive rates offered by pipelines, rail and truck tankers. Icing in the upper Mississippi river also reduces the use of this waterway in the peak winter demand season for propane. Thus, while the navigable waterways east of the Rocky Mountains provide potential routes for delivery by barge, most of the current movements of propane by barge are confined to movements to petrochemical plants and refineries located on the Mississippi River between Baton Rouge and New Orleans in Louisiana and to small commercial and retail propane markets in southern Florida. See Exhibit 5.2. The propane market east of the Rocky Mountains, accessible by waterways but not serviced by pipeline or barge, includes the grouping of states shown in Exhibit 5.3 — Alabama, Arkansas, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Tennessee, Virginia and West Virginia. The total area east of the Rockies which could be serviced by barge and associated road or rail tanker service currently consumes over 10.5 billion gallons each year of propane — about 58% of . the total U.S. consumption. 5-5 5.5 LPG Tank Truck Transportation One half of the 25,000 LPG tank trucks currently in service are affected by the seasonal peaks and valleys of demand. The tank trucks in service range from tractor-trailer combinations for long and large hauls to a larger number of "bobtails” used for small, local deliveries from local terminals and refineries. There is a potential for improved utilization of the seasonally-impacted tank truck fleet due to the increase in the total volume of LPG transportation, reduced seasonal load variation and the larger drop-offs for auto-LPG than for the heating fuel business. Accordingly, it is estimated that 25% of the conventional fleet would be available for servicing the incremental auto-LPG market. Expansion of the tank truck fleet capacity to accommodate the new auto-LPG volumes would require the addition of only 4,700 trucks in the period to 2010. At an average cost (in 1992 dollars) of $100,000 per truck, the investment required by 2010 for truck acquisitions is estimated at $470 million. 5.6 LPG Refueling Stations The majority of today's approximately 10,000 locations in the U.S. where retail auto-LPG can be purchased are located on the outskirts of towns, and are equipped to service the recreational vehicle and barbecue cylinder refilling business. Such stations typically operate using a 500 or 1,000 gallon tank tucked away somewhere in a corner of the lot. Additional auto-LPG outlets are located at bulk storage terminals which typically have facilities to serve retail as well as wholesale customers. Development of the 13.7 billion auto-LPG potential would require the upgrading of facilities to match the appearance, convenience and refueling time associated with the marketing of gasoline. At minimum, the LPG service installed at existing gasoline stations would require the addition of a 1,000-2,000 gallon storage tank serving a two dispenser refueling island. In practice, a 5,000 gallon tank would be preferred from a cost and on-site storage refilling frequency viewpoint, although space limitations may dictate smaller tanks. 5-6 Approval may be obtained to locate the LPG tank above-ground where the Station is located in a low density area. A minimum incremental investment for auto-LPG retailing in such a facility would be $25,000 (in 1992 dollars), but this type of station would achieve an annual throughput only in the range of 150,000 gallons. Some 15% of the LPG sales in 2010 may be made through such outlets which initially would provide full-service LPG refueling, but later must provide a self-service Option. This type of facility has high operating costs per gallon of fuel sold, even with self-service. A second type of station is expected to evolve to capture 40% of the sales volume. These would be medium volume Stations, with annual LPG sales of 500,000 gallons, requiring an investment of $50,000/station. Typically, these facilities would be self-service convenience or "C-Store" locations. Full-service operations would be replaced by self-service when equipment is available and Safety approvals are obtained. The entry of the major oil companies into auto-LPG marketing would be through company-owned and leased facilities with average annual LPG sales per Station of 1,500,000 gallons. These stations would Provide self-service as soon as equipment is available. The propane dispenser would be located on an island with @ canopy and the appearance of a normal gasoline refueling island. The 5,000 or ' 10,000 gallon LPG storage tank would be buried, mounded or otherwise hidden from view. Such a station would require an investment for LPG service of up to $250,000. Estimates of the capital cost and market share of the different types of public refueling stations are given in Exhibits 5.2 and 5.3. 5-7 Exhibit 5.2 a SUMMARY OF TYPES OF SERVICE STATIONS Le LOWVOLUME =§ MEDIUMVOLUME HIGH VOLUME ee % of market 15 40 45 Annual LPG sales (gals) 150,000 500,000 1,500,000 Investment ($1992 ) 25,000 50,000 250,000 a . Source: R F Webb Corporation, 1992 a _ 5-8 Exhibit 5.3 NN COST ESTIMATES FOR TYPICAL HIGH VOLUME LPG SERVICE STATION (in 1992 dollars) OO TANK Double Walled Horizontal Underground Above-ground i ——— Tank System 5,000 USWG pre-piped and pre-wired 35,000 35,000 Cathodic protection 400 - Equipment Dispensing meter and card lock system 34,000 34,000 Guard posts, lights, signage 6,400 6,500 Pumps, motor and valves 12,000 - Gauges and sensors 4,700 - Building Showroom and washroom 10,000 10,000 Site Work Concrete pad for tank and showroom 28,000 28,000 Remote meter island 11,000 11,000 Canopy 80,000 80,000 Underground piping 3,500 3,500 Electrical services 4,000 4,000 Surface repair : 2,000 Tank piping installation 12,000 : Other 4,000 2.000 TOTAL 245,000 216,000 a Note: Land excluded Source: RF Webb Corporation, 1992 5-9 The establishment, by 2010, of a 13.7 billion gallon market for auto-LPG would require the installation of approximately 15,250 new refueling stations, at a total cost estimated at $2.1 billion. The market share that would be accounted for by each type of station in 2010 was estimated on the basis of the actual experience with auto-LPG in other countries as well as with current experience with gasoline in the United States. As the cost of auto-LPG capital facilities rise in a linear fashion with increased throughputs, the actual distribution of station sizes in 2010 would not affect the total value of the capital required. The anticipated distribution of the refueling stations by state is summarized in Exhibit 5.4. The cost of the refueling service, taxes and other factors affecting the retail pump price of auto-LPG are discussed in Section 6. 5.7. Summary of the Incremental Capital Costs for Auto-LPG * Distribution to 2010 The total cost of the additional distribution infrastructure required to meet the 13.7 billion gallon sales objective in 2010 is estimated at $3.5 billion. The identified components of the investment are summarized in Exhibit 5.5. 5-10 bbs Exhibit 6.5 Projected Pre-Tax Auto-LPG Cost, 2010 Cents/gallonat self-service 1.5MM gallon/year station Cents / gallon SOURCE: R.F.WEBB CORP. 1992 Exhibit 5.5 ee a Un UIE nnn EI eenrnn EES EE EESS UNS Denn INCREMENTAL CAPITAL COST OF AUTO-PROPANE DISTRIBUTION TO 2010 Cost Element Required Investment (M 1992 $s) eS Refueling stations 2,100 Delivery trucks 470 Rail tank cars 414 Storage terminals 300 Pipeline expansion 200 TOTAL 3,484 ROUNDED TOTAL: $3.5 BILLION Source: RF Webb Corporation, 1992 5-12 6. BUDGETED COSTS 6.1. Capital Investment Costs The incremental capital investment required at U.S. refineries and gas plants to produce an additional 24.4 billion gallons per year of LPG supply was estimated (refer to Exhibit 3.5) at $18.76 billion or 77¢ per annual gallon of production (somewhat higher at 79¢/annual gallon when Canadian production is included). Production of an additional 13.7 billion gallons of LPG in the U.S. required to meet the Department of Energy's NES auto-LPG scenario would therefore require a potential maximum production plant investment of $10.5 billion (in 1992 dollars). The incremental investment required in storage and distribution facilities for the 13.7 billion gallons of added LPG sales was estimated at $3.5 billion (refer to Exhibit 5.5). The total capital investment required by 2010 to produce and distribute 13.7 billion gallons of LPG per year is therefore estimated at $14 billion, or approximately $1 per annual gallon of new LPG supply produced and distributed, excluding interest costs during construction. 6.2 Cost of Auto-Propane Service 6.2.1 Composition of LPG Service Costs LPG is a commodity that is traded solely on the basis of price at the wholesale level. Value and costs are added beyond the wholesale point by the provision of delivery and other services by distributors to the premium residential, commercial, industrial, agricultural and motor fuel markets. The wholesale price of LPG at Mont Belvieu, Texas, is the "marker price" to which LPG prices elsewhere in North America are linked. Mont Belvieu is the ~ marker price location because of its position as the leading location in North America for the purchase, sale, assembly, storage, import and pipeline distribution of LPG. The price of LPG at Mont Belvieu is also determined by competition with 6-1 other North American sources of LPG and other fuels as well as by the price of imported LPG which itself is linked to the international price of crude oil. The wholesale prices at other points in North America are set at levels necessary to compete with product out of Mont Belvieu -- that is, at the Mont Belvieu price plus or minus the transportation cost from or to Mont Belvieu. The surplus of production over local demand and higher delivery costs to major markets frequently result in wholesale prices below the Mont Belvieu market price: such is the case for production in Kansas and Alberta, Canada, for example. At other locations, such as California and Florida, local production is short of total demand (in California on a seasonal basis) and large volumes of LPG must be imported over long distances from other areas. High wholesale prices in those states are the result. The pretax retail price at each location can be viewed as the wholesale price plus a cost of service which includes the margins added for storage, transportation and local distribution. In the case of auto-LPG cost analysis and site comparisons, it is convenient first to examine the cost of service, then the retail price with and without taxes. 6.2.2 Cost of Transportation and Storage Service The cost of service for auto-LPG can be traced along the distribution channel from the primary terminal to the point at which LPG is dispensed to the vehicle. The cost of service normally includes the cost of: ° storage at production points ° bulk transportation (pipeline, rail or truck) to local terminals ° storage at local terminals e local transportation to refueling centers or end users. Some of these distribution steps may be bypassed. For example, the LPG supply may originate in a refinery and be directly delivered to LPG refueling stations. However, the cost to the public at the retail station will, in general, be related to the more complex distribution channel and cost of service from the major supply points. 62 A model of the U.S. auto-LPG distribution system and cost of service based on calculated and actual costs for auto-propane reported by industry has been used to estimate the cost of service at major cities in each state. The example given below in Exhibit 6.1 of auto-propane sold at a hypothetical retail service station located in Connecticut illustrates the components of the cost of service. The LPG supply originates at Mont Belvieu. The product is then pipelined to Selkirk, New York, at a pipeline tariff of 7.61¢/gallon. The LPG is then loaded into a truck tanker and transported to a terminal in Connecticut at a transportation cost of 4.2¢/gallon, where a storage cost of 1.5¢/gallon is incurred before the LPG is transported 20-25 miles and unloaded into storage at a retail service station at a further cost of 1.5¢/gallon. At this point, the cost of service per gallon of LPG transported from Texas totals 14.81¢/gallon. 6.2.3 Cost of Refueling Service The cost of service at the retail station is determined by the size and type of station (investment and throughput considerations) and by the availability of full- service or self-service refueling facilities. The three types of station examined are as previously described: 1. Annual LPG sales of 150,000 gallons: investment $25,000 2. Annual LPG sales of 500,000 gallons: —_ investment $50,000 3. Annual LPG sales of 1.5 million gallons: investment up to $250,000 63 Exhibit 6.1 LT COST OF LPG SERVICE AT TYPICAL* CONNECTICUT SERVICE STATION ¢/GALLON oo —— TRANSPORTATION TO RETAIL STATION i Service Location Cost Pipeline To Selkirk, New York 7.61 Truck haul To Connecticut Terminal 4.20 Storage Connecticut Terminal 1.50 Local Distribution To Refueling Center 1.50 Subtotal 14.81 a RETAIL STATION COST OF SERVICE a Fueling Service Total Service Self-service Low throughput 19.5 32.8 Full-service Low throughput 31.5 48 Selt-service Medium throughput 15.0 28.3 Full-service Medium throughput 23.0 36.3 Self-service High throughput 13.0 26.3 Full-service High throughput 21.0 34.3 * To Note: * Hypothetical Source: R F Webb Corporation, 1992 a. eee The projected cost of the refueling service is summarized in Exhibit 6.2 for both full and self-service operation and varies from 31.5¢/gallon at a low sales Volume outlet with full service to 13¢/gallon at a high volume “pumper” station with self-service. 6-4 Exhibit 6.2 a TYPICAL COST OF REFUELING SERVICE ¢/GALLON (1) EEE ANNUAL SALES (2) En Low Medium High Full-service 31.5 23.0 21.0 Self-service 19.5 15.0 13.0 NN $ ———_—_—_— Notes: (1) Labor, maintenance, other operating costs plus depreciation over 5 years and 15% pretax Interest on capital (2) 150,000; 500,000; 1,500,000 gallons/year Source: R F Webb Corporation a The switch from full-service to self-service at a medium and large service station can provide savings of 8¢/gallon - about 40% of the full-service refueling cost at a large station and, in the Connecticut station case, equivalent to 50% of the total distribution and storage cost involved in moving product from Texas through a number of storage sites and transportation modes. This underlines the importance to the LPG market of adopting state-of-the-art but established refueling technology and practices to ensure that self-service LPG refueling is available at the retail level in the U.S., as it is in Europe. 6.2.4 Total Cost of Auto-LPG Service Exhibit 6.3 summarizes the total current average cost of LPG service calculated for each of the Petroleum Administration for Defense Districts (PADDs). The high total cost of transportation, storage, distribution and retail service presents a challenge to the industry, since these costs are currently several times those 6-5 encountered with gasoline. But, as explained earlier, these costs tend to reflect the highly seasonal nature and small scale of the current retail LPG business. Exhibit 6.3 $< SUMMARY OF COST OF SERVICE ESTIMATES FOR AUTO-PROPANE ¢/GALLON El ANNUAL SALES * FULL-SERVICE SELF-SERVICE Low Medium High Low Medium High ea PADD 1 43.5 35.0 33.0 31.5 27.0 25.0 2 41.9 33.4 31.4 79.9 25.4 23.4 3 39.7 31.2 29.2 27.7 23.2 21.2 4 40.0 31.6 29.5 28.0 23.6 21.5 5 40.7 32.2 30.2 28.7 24.2 22.2 Average U.S. 412 32.7 30.7 29.2 24.7 22.7 nn Note: * 150,000; 500,000; 1,500,000 galions/year Source: R F Webb Corporation, 1992 a 6.3 Pump Cost of LPG 6.3.1 Forecasting the Wholesale Price of Auto-LPG The pump cost of auto-LPG is the sum of the wholesale cost, the cost of service and taxes. Forecasts of the pump price of LPG therefore require development of a means to forecast the wholesale price. Over a sufficient period of time the wholesale price of LPG has been found to track the price of crude oil. This is expected because LPG supplies are derived in part from crude oil operations and refining, and LPG competes in its major markets with petroleum-derived fuel oil and naphtha. Over the period 1980-91, the 6-6 wholesale price of propane on the U.S. Gulf Coast (where the marker propane price is set) averaged 60% of the average price of crude oil acquired by refineries at that location (the range was 52-69%). Assuming the auto-LPG wholesale price would be that of auto-propane and the price relationship to crude oil continues, it is possible to estimate the Mont Belvieu LPG price at various crude oil prices as illustrated in Exhibit 6.4. Exhibit 6.4 CRUDE OIL/LPG PRICE RELATIONSHIP CRUDE OIL LPG Refinery Acquisition Price Wholesale Price (1) $/BBL e/gal 18.00 25.7 21.00 29.6 27.50 39.3 34.20 (2) 49.3 Notes: (1) | Calculated Mont Belvieu (2) Presumed in the 2010 scenario Source: R F Webb Corporation, 1992 The various wholesale prices can be used to generate forecasts of the before-tax delivered price of auto-LPG at retail stations throughout the U.S. Use of the current crude oil price provided a means to check the price methodology using recent auto-propane retail price data supplied by industry. Good correlation was obtained between the calculated price and the costs reported. Forecasts of the average price of auto-LPG without fuel taxes in 2010 (in 1992 dollars) are given in Exhibit 6.5 for high sales volume self-service stations located in each state. All stations are assumed to have self-service operations in 6-7 2010 or a sales price which reflects only self-service costs. The average pretax cost of self-service auto-LPG in the U.S. using the year 2010, $34.20/BBL, $1992 cost scenario would range from: ° 71.7¢/gallon at a high sales volume outlet (1,500,000 gallons/year) e 78.2¢/gallon at a low sales volume outlet (150,000 gallons/year). 68 7 Exhibit 6.5 Projected Pre-Tax Auto-LPG Cost, 2010 Cents/gallon at self-service 1.5 MM gallon/year station Cents / gallon SOURCE: R.F.WEBB CORP. 1992 6.3.2 Retail Pump Price with Taxes There is a wide variation in the tax treatment of auto-propane from state-to- state (see Appendix). In nine states, such as Texas and California, registered LPG vehicles pay a flat tax and pump sales are untaxed. In three others, New York, New Jersey and Massachusetts, LPG carries a low state tax. In many others, such as Alabama, Kansas, Maine, Colorado and Mississippi, LPG is taxed at a marginally lower rate per gallon than gasoline, but the lower rate does not compensate for the reduced energy content of LPG relative to gasoline. In 19 states and the District of Columbia, LPG is taxed at the same rate per gallon as gasoline, providing a strong market disincentive for the lower energy fuel. There is no tax on auto-LPG in Alaska. Vermont and Wyoming charge only a sales tax on LPG, but levy a tax on gasoline. The average state fuel tax on LPG is currently 17.24¢/gallon and the current federal tax on LPG is 14.0¢/gallon. The corresponding gasoline taxes are 18.6¢/gallon and 14.1¢/gallon. Assuming an auto-LPG composition of 60% propane and 40% butane, the energy content in a gallon of auto-LPG is approximately 76% that in a gallon of gasoline. If auto-LPG taxes were set to be equitable on an energy basis, the average auto-LPG taxes would be 13.93 ¢/gallon at the states level and 10.82 ¢/gallon at the federal level. This would mean a total auto-LPG tax of 24.75 ¢/gallon instead of the current 31.24 ¢/gallon. After-tax pump costs at high throughput stations for the 2010 scenario and assuming auto-LPG taxed on an energy equivalent basis with gasoline and auto- LPG priced at 60% of crude oil at Mont Belvieu are summarized, by PADD in Exhibit 6.6. 6-10 Exhibit 6.6 un TAXED LPG PRICE AT SELF-SERVICE RETAIL STATIONS FORECAST YEAR 2010 (1) (¢/GALLON) eed eee eo ee ee ee ee eee eee LOW VOLUME (2) HIGH VOLUME (3) eee ee PADD 1 105.5 99.0 2 103.3 96.8 3 101.5 95.0 4 99.9 93.4 5 101.2 94.7 Average U.S. 102.3 95.8 i Notes: (1) Based on $34.20 crude oll, LPG priced at 60% of crude oll at Mont Belvieu and energy equivalent taxation with gasoline (2) 150,000 gallon/year sales (3) 1.5 million gallon/year sales Source: R F Webb Corporation, 1992 i 6.4 Comparison of Costs The throughput or sales of auto-LPG at low, medium and high volume retail outlets previously discussed (15%, 40% and 45% of the auto-propane outlets respectively) would lead to an average auto-LPG price at all stations in the U.S. in the 2010 scenario of $0.98/gallon, assuming energy equivalent taxation with gasoline and LPG priced at 60% of crude oil at Mont Belvieu. The gasoline equivalent price (energy equivalent basis using 60% propane, 40% butane in LPG) would therefore be $1.27/gallon. This can be compared with a gasoline price of _ $1.53/gallon derived from the $34.20/BBL crude oil price assumed for the 2010 NES scenario. 6-11 This average price for auto-LPG will be sufficient to meet the needs of the market if the major part of the 13.7 billion gallons of additional supply is to be provided by offshore imports. However, as shown in Section 3, in order to call forward the necessary supply from U.S. and Canadian sources, a Mont Belvieu price of about 65¢/gallon will be required rather than the 49¢/gallon estimated on the basis of the crude oil price. If this is the case, the average auto-LPG price would be about $1.14/gallon or $1.48/gallon on a gasoline equivalent basis, which, although higher, is still below the average price for gasoline that has been forecast for 2010 under the same circumstances. It is therefore concluded that LPG can be made available at both the volume and price levels needed to qualify that fuel as a major contributor to a national target of replacement of 2.5 million barrels per day of crude oil imports. LPG could contribute at least 0.5 BPD of that reduction, potentially more. Increased supplies of LPG from Canada and the potential use of ethane as an ATF could expand the ATF supply and the oil displacement opportunity. 6-12 REFERENCES REFERENCES SECTION 1 Interagency Commission on Alternative Motor Fuels, Second Interim Report of the Interagency Commission on Alternative Motor Fuels, Sept. 1991. Energy Information Administration, Annual Energy Review 1990, DOE/EIA- 0384(90), Washington, D.C., May 31, 1991. National Propane Gas Association, "1989 LP-Gas Market Facts,” Lisle, IL, 1989. U.S. Congress, "National Energy Security Act of 1992,” S.2166, Feb. 19, 1992 Webb Corporation Ltd., R.F., An Assessment of Propane as an Alternative Transportation Fuel in the United States, June 1989. SECTION 2 Webb, R.F., "What Will We Do with the Butanes?,” DeWitt 1990 Petrochemical Beview, Houston, TX, Mar. 27-29, 1990. Delmas, P.J, Webb, R.F., "Natural Gas Liquids - Supply, Demand and Opportunities,” DeWitt 1990 Petrochemical Review, Houston, TX, Mar. 27-29, 1990. SECTION 3 Belgued, M., Pareja, P., Amariglio, A., Amariglio, H., "Conversion of Methane Into Higher Hydrocarbons on Platinum,"Nature, v. 352, ‘Aug. 29, 1991, p. 789-790. Burke, B.F., "Olefins Makers Keep Wary Eye on Feedstocks,” Chemical Marketing Beporter, Vol. 24, n. 3, Jan. 20, 1992. California Air Resources Board, Stationary Source Division, "Proposed Regulation Order Alternative Fuel Specifications - Draft,” Sept. 29, 1990. Delmas, P.J., Webb, R.F., "New Perspectives on Auto Propane as a Mass-Scale Motor Vehicle Fuel," Alternative Fuels in the Nineties (SP-876), Technical Paper #911667, Society of Automotive Engineers, Warrendale, PA, 1991. Energy Information Administration, Annual Energy Outlook 1991, DOE/EIA- 0383(91), Washington, D.C. Mar. 1991. Enron Gas Liquids, Inc., "Natural Gas Liquids PICS Data Base," Oct. 12, 1990. REFERENCES (con't) Haun, R.R., Ellington, E.E., Hawes, J.R., "Positive Notes Appear in U.S. Gas Processing Outlook for This Decade,” Oil and Gas Journal, Vol. 88, No. 28, July 9, 1990. Lin, L, Ding, Y., Liang, D., "Selective Synthesis of C2-C5 Hydrocarbons Over Reduced Molybdenum Catalysts," Proceedings Vith International Pittsburgh Coal Conference, 1989, p. 727-733. National Energy Board (Canada), Canadian Energy Supply and Demand 1990- 2010, Supply and Services Canada, 1991. Trimble, Karen A., Woods, Thomas J., "The Long-Term Trends in U.S. Natural Gas Liquids Consumption and Supply,” Gas Research Institute, Chicago, IL, Dec. 1990. Webb Corporation Ltd., R.F., Assessment of Propane/Butane Mixtures as Motor Fuel in Automotive Vehicles, prepared for Ontario Ministry of Transportation and Communications, Transportation Technology and Energy Branch, April 1986. SECTION 4 Private communication from propane distributors provided by LP Gas Clean Fuels Coalition. National Petroleum Council, Petroleum Storage and Transportation, Volume V - Petroleum Liquids Transportation, Washington, D.C., 1989. APPENDIX 1 APPENDIX 1 1. BARGE TRANSPORTATION OF PROPANE IN THE U.S.A. 1.1 Introduction The intent of the following analysis of the delivery of propane in the U.S. via barge is to provide the read with an overview of this often overlooked method of propane transportation. Within the confines of the U.S.A., propane is transported at ambient temperatures in pressure containers and pipelines. Movement and storage of refrigerated and semi-refrigerated propane is primarily confined to long haul waterborne import and export activity. The transportation of propane via ambient temperature (pressure) barges is an integral part of the distribution system in the U.S., along with pipelines, rail cars, and a vast fleet of large and small delivery trucks. Transporting propane via barge in other areas of the world is quite common also, particularly in Northwest Europe. Navigable waters east of the Rocky Mountains provide a transportation system that is vital to the U.S. economy for many liquid and dry raw materials and finished products. The propane supply industry utilizes the system as an alternative to the typical pipeline and rail car movements for market requirements located from the mid- continent eastward, stopping just short of most of the states bordering the Atlantic Coast (Florida and Georgia are also served by the waterway system). End users of propane in this market area consume an annual volume in the magnitude of 250 million barrels (10.5 billion gals). The waterway transportation system connects the Mid- American market with the Gulf Coast, which is the worlds largest propane supply source and storage area along with its having access to waterbome propane imports from other supply sources of the world. Propane sources for barge transportation are obviously limited to storage and _ production facilities such as refineries, gas processing plants or storages located adjacent to the waterways or from an LPG pipeline system also having access to the waterways. In the American barge fleet there is in excess of 100 (approximately 110)- pressure barges with a capacity of about 2.2 million bbls (92.4 million gals) capable of transporting propane. Because of the mechanical and physical capability to interchange between propane and anhydrous ammonia, many trucks, rail cars and barges either remain in propane service on a year round basis or transport propane only in the winter demand season and ammonia during summer periods. Many units also remain in ammonia transportation service. Forty-five to 50% of the propane/ammonia barge fleet remains in ammonia service. 1.2 Summary Theoretically, the navigable waterways east of the Rocky Mountains provide an alternative to the more typical methods of propane delivery by pipeline, rail and truck to terminals close to inland retail and commercial markets. In practice, however, most of the movement of propane by barge takes place in two specific areas; on the lower Mississippi River with delivery to petrochemical and refinery companies located between Baton Rouge and New Orleans, and also to small commercial and retail propane markets in southern Florida. Although ammonia is transported regularly by barge in the northern reaches of the waterway system, very little infrastructure has developed to receive propane via barge in market areas north, east and west of St. Louis, Missouri. The basic reason for this is the well developed pipeline delivery system that transports propane supply from West Texas and the Gulf Coast into the propane market areas of the eastern half of the U.S.A. The ammonia industry does not enjoy the same pipeline service alternatives as the propane industry. The potential to expand the propane barge transportation system exists in a 10 state area from the Mississippi River eastward. 2. A SYNOPSIS OF PROPANE TRANSPORTATION VIA BARGE 2.1. Propane Barge Routes The connecting inland waterway system, which provides a transportation route for propane via barge, is capable of serving the following states: Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, lowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Minnesota, Nebraska, New York, Pennsylvania, Ohio, Oklahoma, South Dakota, Tennessee, Texas and West Virginia. Propane is not currently transported via barge west of the Rocky Mountains, although the Columbia and Sacramento Rivers are “navigable.” The lack of propane barge movement in and around West Coast markets is largely due to seasonal demand swings (largely a winter only market) and lower transportation rates provided by rail and truck. The use of propane barges for transportation is limited in the northern portion of the barge transportation system by ice conditions during some of the colder winters. Typical barge movements from northern sources would be summer propane surplus production from refineries such as Shell Oil at Wood River, Illinois; near St. Louis, Missouri; or Ashland Oil at Catlettsburg on the northeast side of Kentucky, although expanded storage at Catlettsburg has diminished the traffic somewhat from that point. Northern sourced propane is occasionally transported down the Ohio River nearly the length of Kentucky via barge from Catlettsburg, (KY) to B.F. Goodrich at Calvert City (KY), located near the confluence of the Ohio and Tennessee Rivers. The summer surplus propane from Catlettsburg and Wood River is used as feedstock for the B.F. Goodrich petrochemical facility. Even though the northern waterways are available for use by the industry, there are no regular propane barge deliveries currently being conducted north and west of St. Louis, Missouri, nor north and east of Catlettsburg, Kentucky. The primary reason for this inactivity is economic as pipelines, rail and truck freight rates are usually more advantageous. Propane barge traffic is quite normal on the route between Baton Rouge (located at mile 230 on the Mississippi River), south to the intersection of the Mississippi and the “IntraCoastal Waterway" (below New Orleans) and beyond to the southernmost barge loading berth on the river at Ostrica near the mouth of the Mississippi at the 5 mile marker. Propane production and storage sites along the Mississippi in this area and natural gas processing plants connected by pipeline to the river provide the source of propane to be barged to end-user facilities such as the petrochemical industry at numerous locations along the Mississippi River. Although propane barge receiving facilities are in place at West Memphis, Arkansas and across the Mississippi River at Memphis, Tennessee, little propane has been received at those locations in recent years. The lack of propane barge activity is due to better transportation economics provided by the Dixie Pipeline which delivers propane to the area from the huge natural gas liquids processing and storage center at Mont Belvieu, Texas and other propane pipeline injection points in Louisiana to propane markets as far as northeast North Carolina. The "Gulf IntraCoastal Waterway” provides barges with a protected route from the rough waters of the Gulf of Mexico. The waterway utilizes the rivers and bays along the Gulf and is connected by many miles of dredged canals. It is in constant use by many companies who utilize barge transportation for propane, butane, chemicals, petroleum products and dry bulk cargoes. The “IntraCoastal" extends from Brownsville, Texas (adjacent to Mexico) along the Gulf Coast to St. Markes just south of Tallahassee, Florida. Unprotected waters of the Gulf Coast, although near the shoreline, are used consistently as a route to transport propane by barge beyond St. Marks to Tampa and on to Port Everglades on the Atlantic side of Florida. In addition to the continental U.S. waterways, barges are occasionally used to supply propane to Puerto Rico from the Gulf Coast. At this time, it is less costly to supply propane to Puerto Rico from international sources than from the U.S. Gulf via barge. In Hawaii, propane barges are also utilized as transportation to supply a portion of the various islands’ requirements. A-5 2.2 Sources of Propane for Barge Loading Sources of propane for delivery via barge for regular movement are primarily located along the Mississippi River south of Baton Rouge, Louisiana as well as those locations along the IntraCoastal Waterway. The westernmost point for barge loading propane on the IntraCoastal Waterway is at Corpus Christi, Texas and the eastern most barge loading point along the Gulf Coast is Pascagoula, Mississippi. The majority of propane being transported via barge along the IntraCoastal Waterway and its connecting routes is loaded at the Warren Petroleum (Chevron) import/export facility on the Houston Ship Channel near Houston, Texas with delivery to eastern Gulf Coast locations. No propane barge loading is occurring at this time from Corpus Christi, Texas sources due to competitive rates from other forms of transportation. 2.3 Propane Loading Sites (partial listing) Cattletsburg, Kentucky Wood River, Illinois Riverside, Louisiana Breaubridge, Louisiana Toca, Louisiana Ostrica, Louisiana West Hackberry, Louisiana Pascagoula, Mississippi Corpus Christi, Texas Houston Ship Channel, Texas 2.4 Potential Barge Transportation Expansion When observing a map of the navigable waterways in the U.S.A. with propane delivery pipelines superimposed over the waterways, it becomes obvious there is a large propane market area not serviced by pipeline that could be serviced by barge transportation. A-6 The propane market east of the Rocky Mountains that is currently not being serviced by pipeline or barge is a measurable percentage of the U.S. and consists of a continuous area including all (or portions) of Alabama, Arkansas, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Tennessee, Virginia, and West Virginia. With added storage, piping and other infrastructure, this marketing area has the potential to receive propane by barge delivery. Those areas not actually along barge waterways, but relatively close by (50 to 100 miles), could receive propane supply by trucks delivering from barge serviced terminals. In order to further develop a barge delivery system for propane, an expansion of facilities along the waterways must take place. To receive all the contents of a medium sized barge of 630,000 gals (15,000 bbls), a typical propane distributor or dealer would have to expand their storage substantially, although multiple stops along the waterway with smaller volume deliveries could be made by the tug/barge units. Seldom does distributor/dealer storage exceed 180,000 to 200,000 gallons, with most dealers having 30,000 to 60,000 gallons of storage. In most cases, a dock at riverside would have to be constructed. Barge service is feasible even if additional dock space, piping and/or storage is required. However, the cost to install the additional facilities does affect the delivery cost of propane by barge. A-7 Exhibit A.2 PotentialBarge Expansion Area “ewe PROPANE DELIVERY PIPELINES <> POTENTIAL BARGE EXPANSION AREA 2.5 Propane Barge Transportation Economics Propane delivery service by barge is unregulated at this point. No freight rates are posted, consequently transportation economics by barge provided in this analysis have been estimated. The cost figures used have been provided by one of the largest barge owner/operators in the U.S.A. To develop delivery freight costs by barge for propane, as with other products delivered in pressure barges at ambient temperatures, a daily rate for the tug and barge combination is used. Terminal load fees, transit speed, and load/unload time are also factors considered in calculating barge delivery rates. The unit cost charged by equipment owners for the smaller barge of 10,000 bbl size is $2,800 per day for the tug and barge combination. Mid-size barges are 15,000 to 20,000 bbls with a daily fee of $3,500 to $3,700 being charged. The larger 30,000 bbl size barges utilized in the movement of propane are active mostly in the lower Mississippi River for delivery to the large industrial users of propane paying an approximate daily rate of $4,500 for the tug/barge units. The speed of most tug and barge combinations are 5 mpg loaded and 6 mph empty. Barge load and discharge times are estimated to be one day each at the load and discharge end, including docking and tie up time. A typical fee charged by terminal owners to load propane barges is $0.015 per gallon. Fixed costs for transporting propane by 15,000 bbl barge are: ° Typical terminal loading fees are $0.0150 per gallon. The time required to dock, load and unload is approximately 48 hours. At the daily time charter rate for the tug and barge unit of $3,500 per day, the cost becomes $0.0111 per gallon. Consequently, the fixed cost for barge transportation on a 15,000 barrel barge is $0.0261 per gallon. ° Tug and barge units travel at an approximate speed of 5 mph when loaded and 6 mph when empty. The total cost per gallon for one way mileage is as follows: ° The mileage cost for 100 miles is $0.0086 per/gal. Combined with the “fixed cost" of $0.0261, the total cost for delivery of- propane is $0.0347 per gallon ° The mileage cost for 200 miles is $0.0172 per/gal. Combined with the “fixed cost” of $0.0261, the total cost for delivery of propane is $0,0433 per gallon ° The mileage cost for 230 miles is $0.0258 per/gal. Combined with the “fixed cost" of $0.0261, the total cost for delivery of propane is $0,0519 per gallon. 2.6 Barge Ownership and Services Compared to the other methods of transportation for propane in the U.S., there are relatively few owners of propane barges, which tends to reduce the competitive nature in this form of transportation. Two companies dominate propane barge ownership; Hollywood Marine, Inc., a privately held company located in Houston, Texas and Warren Petroleum, a division of Chevron Oil, based in Tulsa, Oklahoma. Hollywood Marine provides tug and barge service on a hire basis for those companies requiring propane (and many other products) transportation. This is in contrast to the Warren Petroleum operation that primarily transports propane for their own supply distribution and retail businesses. Numerous companies provide barge towing (pushing) services for propane barge owners preferring to not own and operate tugs. Most propane barge owners have more requirement to transport propane than their barge ownership capacity can provide in order to not have a costly surplus position in barges. It is quite typical of the barging industry, when the need occurs, to charter in barges to transport a specific lot size of propane or to cover a shorfall in their own barge fleet. Barge ownership is spread throughout the industry including producers, marketers, petrochemical companies and those providing transportation services only. A-10 2.7‘ Physical Features of Propane Barges The size of pressure barges involved in transporting propane typically ranges from 10,000 bbls to 30,000 bbis, although two barges are of the 50,000 bbls class and a few are only 6,500 bbls in size. The carrying capacity of smaller sized propane barges are the equivalent of 10 to 13 propane rail cars. Due to Coast Guard safety regulations, pumps are not allowed to operate on barges, consequently propane is transferred from barges to shore storage by creating a pressure differential between the barge and shore. The pressure differential discharge process is generally accomplished by using shore mounted compressors. This is the same method commonly used by the LPG industry for product transfer at many locations between trucks or rail cars and field storage. Another method utilized by companies to offload barges is the application of inert or natural gas pressure to accomplish sufficient pressure differential to transfer propane from the barge to shore storage. Barges are moved on the canals and waterways under tow or mostly by “pusher” tugs with approximately 800 horsepower. Tows are mostly limited to two barge units due to tight corners in the waterways, although it is not uncommon to see three barges in tow for relatively straight line delivery runs. A-11 APPENDIX 2 PUMP PRICE COST COMPONENTS FOR U. S. AUTO-LPG IN CENTS PER U.S. GALLON AT CRUDE OIL PRICE OF $34.20 PER BARREL, SELF-SERVE & GASOLINE TAX RATES wowaw a9 LOCAL REFUELING CENTERS LOCAL TERMINAL moos | Tarirr| STOR | PRICE HH E é meee tata yy yy ye i SCC R aa : Pata tt ddd: Pitta: EEEEEEEEEE BC Cao ae i si gs 3 oS sl a OS} 3 3 == ne (i Ricci 3 8 i i dada STATE MARYLAND 6 D.C. DELAWARE MT BELVIEU, TX 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 a | | on | 0.00 SARNIA, ON DRAGON, MT BELVIEU, TX MT BELVIEU, TX MT BELVIEU, TX NEW JERSEY. MARCUS HOOK, PA SOUTH CAROUNA| NEW YORK. NORTH PENNSYLVANIA NEW JERSEY. NEW JERSEY. NEW YORK VERMONT VIRGINIA 3 3 | g = 12.76 19.46 | 14.98 | 12.07 1.50 1.50 | 61.23 PADD1 PUMP PRICE COST COMPONENTS FOR U. S. AUTO-LPG IN CENTS PER U. S. GALLON AT CRUDE OIL PRICE OF $34.20 PER BARREL, SELF-SERVE & GASOLINE TAX RATES oe EEEREEREEEEREEEE Ta Pasa dadd aay RETAR PUMP PRICE re PUMP PRICE COST COMPONENTS FOR U. S. AUTO-LPG IN CENTS PER U. S. GALLON AT CRUDE OIL PRICE OF $34.20 PER BARREL, SELF-SERVE & GASOLINE TAX RATES wovew ms RETAR PUMP PRICE PUMP PRICE COST COMPONENTS FOR U. S. AUTO-LPG IN CENTS PER U. 8. GALLON AT CRUDE OIL PRICE OF $34.20 PER BARREL, SELF-SERVE & GASOLINE TAX RATES PUMP PRICE COST COMPONENTS FOR U. S. AUTO-LPG IN CENTS PER U. S. GALLON AT CRUDE OIL PRICE OF $34.20 PER BARREL, SELF-SERVE & GASOLINE TAX RATES woven us LL-SERVE PUMP PRICE COST COMPONENTS FOR U. S. AUTO-LPG IN CENTS PER U. S. GALLON AT CRUDE OIL PRICE OF $21 PER BARREL AND FU! wovawas ye Baz q i ‘sTATE 3 104.41 2 5 s| 8 g S| 3 ee NEW JERSEY NEW JERSEY ( gs) og) § NEW YORK NEW YORIK NORTH CAROUNA| DRAGON, MS gs 8 61.16 VERMONT. 19 ze 2 y| 3 8 © = VIRGINIA PADD 1 $. GALLON AT CRUDE OIL PRICE OF $21 PER BARREL AND FULL-SERVE PUMP PRICE COST COMPONENTS FOR U. S. AUTO-LPG IN CENTS PER U. MINNESOTA PUMP PRICE COST COMPONENTS FOR U. S. AUTO-LPG@ IN CENTS PER U. S. GALLON AT CRUDE OIL PRICE OF $21 PER BARREL AND FULL-SERVE swowaw ns PUMP PRICE COST COMPONENTS FOR U. S, AUTO-LPG IN CENTS PER U. S. GALLON AT CRUDE OIL PRICE OF $21 PER BARREL AND FULL-SERVE wwowawns PUMP PRICE COST COMPONENTS FOR U. S. AUTO-LPG IN CENTS PER U. S. GALLON AT CRUDE OIL PRICE OF $21 PER BARREL AND FULL-SERVE OTAL NATURAL GAS LIQUID POTENTIAL SOURCES OF ‘BROAD SPECTRUM” LPG SUPPLIES BILLION GALLONS PER YEAR US ACDA TOTAL TOTAL TOTAL TOTAL 5.789 . 12.839 23.474 2.733 : I r 4339 10.846 0.505 |! F 0.768 = 5.858 9.028 5.304 17.946 40.178 11.102 0.473 12.056 0.194 28.058 51.864 9n9192 PRE-1992 TYPICAL GASOLINE BLEND BUTANE MTBE ALKYLATE LSR FCC NAPHTHA ISOMERATE REFORMATE OTHER TOTAL MW 58 88 107 80.7 105 78.7 98 105 98.0 SG -584 -744 -690 -654 -750 -647 -805 -740 eo eoooo9oo°o -741 1992 TYPICAL GASOLINE BLEND BUTANE MTBE ALKYLATE LSR FCC NAPHTHA ISOMERATE REFORMATE OTHER TOTAL 1995-2010 TYPICAL GASOLINE BLEND - ETOH+TAME ETOH TAME MTBE ALKYLATE LSR FCC NAPHTHA ISOMERATE REFORMATE OTHER TOTAL MW 58 88 107 80.7 105 78.7 98 105 98.9 sc 0.584 0.744 0.690 0.654 0.750 0.647 0.805 0.740 0.744 RVP 3 RPWuHH ewe bwubreeo ° ° RON 93.8 118.0 93.2 72.0 92.1 84.0 97.7 70.0 93.8 118.0 93.2 72.0 92.1 84.0 97.7 70.0 ~ w ° 111. 118. 93. 72. 92. 84. 92. 70. ecooronce 1995-2010 TYPICAL GASOLINE BLEND - ETOH+TAME+MTBE ETOH TAME MTBE ALKYLATE LSR FCC NAPHTHA ISOMERATE REFORMATE OTHER TOTAL MW sG RVP 46 0.796 18 102 0.770 4.0 88 0.744 9.0 107 0.690 7.9 88 0.690 10.0 105 0.750 7.1 78.7 0.647 13.7 103 0.780 5.3 105 0.740 7.1 95.5 0.741 8.6 MW so RVP 46 0.796 18 102 0.770 4.0 88 0.744 9.0 107 0.690 7.9 88 0.690 10.0 105 0.750 7.1 78.7 0.647 13.7 103 0.780 5.3 105 0.740 7.1 98.2 0.740 7.7 RON 130 111. 118. 93. 72. 92. 84. 92. 70. cCoORONCO MON 90. 100. 91. 70. 80. 81. 87. 68. MON 90. 100. 91. 70. 80. 81. 87. 68. MON 9 OnmonrlcrKOCO onmororoS 6 98.0 100.0 91.1 70.0 80.7 81.0 82.0 68.0 9 98. 100. 91. 70. 80. 81. 82. 68. SCoOoVSOKH OOM (R+M) /2 91.9 109.0 92.2 71.0 86.4 82.5 92.6 69.0 (R+M) /2= (Rem) /2 91.9 109.0 92.2 71.0 86.4 82.5 92.6 69.0 (R+M) /2= (R+M) /2 113.0 104.5 109.0 92.2 71.0 86.4 82.5 87.0 69.0 (R4+M) /2= (Rem) /2 113.0 104.5 109.0 92.2 71.0 86.4 82.5 87.0 69.0 (R+M) /2= 80.0 126.7 80.5 45.6 69.0 62.1 81.4 43.2 87.4 B.I 80.0 126.7 80.5 45.6 69.0 62.1 81.4 43.2 87.3 B.I 141.1 112.3 126.7 80.5 45.6 69.0 62.1 70.1 43.2 86.9 141.1 112.3 126.7 80.5 45.6 69.0 62.1 70.1 43.2 87.6 ve » ° ° oOo enouvloon m Sew 3 rN w 2202 o coOoKrCCOe » 2 3 3 aAWowunsoo ww ores 3 awn woe we Coe ane wVernuMnMnoood 100.0 MOLS -05 01 -08 +03 -27 -03 +22 0.08 eooooo°o 0.76 0.03 0.01 0.08 0.03 0.27 0.03 0.22 0.08 0.75 MOLS 0.09 0.01 0.00 0.07 0.06 0.27 0.04 0.16 0.07 0.78 MOLS 0.03 0.01 0.05 0.07 0.06 0.26 0.04 0.16 0.07 0.75 Mt Vfr AROM Vfr BENZ 5.99 1.12 10.07 4.18 35.43 4.24 28.90 10.07 100.00 Mt Vfr AROM Vfr BENZ 3.88 1.12 10.29 4.31 36.20 4.37 29.50 10.31 100.00 M& Vfr AROM Vfr BENZ 11.14 0.97 0.00 9.64 7.78 34.69 5.19 20.97 9.62 100.00 Mt Vfr AROM Vfr BENZ 4.46 0.97 6.53 9.30 7.87 33.58 4.98 20.29 9.35 97.04 32.0308 ° 0 ° 0.028 0.292 ° 0.626 0.4 32.5392 ° ° ° 0 0.028 0.292 0 0.626 0.4 28.923 0 ° ° 0.001 0.006 0.026 0.006 1.0006 0 ° ° ° 0.001 0.006 0 0.026 0.006 0.8565 wt 02 IN GASOLINE= wt 02 IN GASOLINE= wt 02 IN GASOLINE= 0.18 0.18 2.03 2.01 1992-2010 INCREMENTAL NGL FROM EXISTING AND NEW GAS PLANTS REV: 2 iigsaeeeseees ecu ueucucucceececeecnceeseseeeceeeseeeeneees 1992 2010 2010 , 2010 BASE CASE EIA BASIS EIA+CNG+MeOH MAX LPG(4) USA NATURAL GAS PRODUCTION/CONSUMPTION seceeeccnecccscccceses ee cccccccccccees BSCFD BSCFD BSCFD BSCFD NATURAL GAS FROM LIQUIDS EXTRACTION FACILITIES 32 34.6 36.8 50.8 NATURAL GAS FROM NON-LIQUIDS EXTR FACILITIES (1) : 18.8 20.4 21.7 10.9 TOTAL INDIGENOUS NATURAL GAS TO SALES 50.8 55 58.5 61.7 USA IMPORTED NATURAL GAS (FROM CANADA) 4.9 9.4 10 10.5 TOTAL PRODUCED + IMPORTED NATURAL GAS 55.7 64.4 68.5 712.2 LESS GAS USED IN RECOMPRESSION, REINJECTION, ETC 0.9 1.1 1.2 1.2 TOTAL NATURAL GAS CONSUMPTION 54.8 63.3 67.3 71.0 CANADIAN NATURAL GAS PRODUCTION/CONSUMPTION NATURAL GAS FROM LIQUIDS EXTRACTION FACILITIES 10.6 16.2 16.8 17.6 NATURAL GAS FROM NON-LIQUIDS EXTR FACILITIES (1) 0 0 0 0 TOTAL INDIGENOUS NATURAL GAS TO SALES _ 10.6 16.2 16.8 17.6 LESS GAS USED IN RECOMPRESSION, REINJECTION, ETC 0.2 0.3 0.3 0.3 NET NATURAL GAS PRODUCTION 10.4 15.9 16.5 17.3 NATURAL GAS CONSUMED WITHIN CANADA 5.5 6.5 6.5 6.8 NATURAL GAS EXPORTED TO USA 4.9 9.4 10 10.5 TOTAL GAS CONSUMPTION i : 10.4 15.9 16.5 1733 GAS SHRINKAGE CALCULATIONS (3): USA, 1992 BASIS: FROM REVAMP OF EXISTING LIQ RECOVERY PLANTS \ WEW PLANTS PROCESSING OLD NON-LIQ EXTR GAS (4) seeeeccecceeeees c2 c3 ca! c5+ TOTAL 2 c3 ca C5+ TOTAL SHRINKAGE (KBPCD) 90.1 a2 2.7 0 © -:104.8 i 250.2 166.3 100.7 56.8 574.0 (MMBTU/DAY) 250478 -46200—S-«1:1448 0 308126 698634 640201 426858 © 2628732025566 NAT GAS EQUIV (BSCFD) 0.250 0.046 0.011 0.000 0.308 0.696 0.640 0.427 0.263 2.026 CANADA, 1992 BASIS: SHRINKAGE (KBPCD) 31 2.9 0.6 0 34.5 0.0 0.0 0.0 0.0 0.0 (¥MBTU/DAY) 6180 «11165 2544 0 ©: 99889 0 0 0 0 0 NAT GAS EQUIV (BSCFD) 0.086 0.011 0.003 0.000 0.100 0.000 0.000 0.000 0.000 0.000 1992-2010 INCREMENTAL NGL FROM NEW PLANTS + NEW GAS IN USA & CANADA 1992-2010 INCREM NGL RECOVERED (ALL SOURCES) USA NGL RECOVERY (KBPCD) 680.0. 385.2 233.3 131.6 1330 USA 920.3. 563.5 336.7 «=-:188.4 2008.9 CANADIAN NGL REC (KBPSD) 212.3 141.0 85.4 48.2 487 CDN 243.3 143.9 86.0 48.2 $21.3 TOTAL NGL RECOVERY (KBPCD) 1817 2530.2 NOTES: (1) RAW GAS TO LIQUIDS EXTR PLANTS IN 1990 WAS 37.7 BSCFD. ASSUMING 15% SHRINKAGE GIVES 32.0 BSCFD GAS TO PIPELINE. ASSUME 1992 = 1990 VOLUMES. (2) EIA W/CNG + MEOH CASE REFLECTS INCREAS! EXTRA DEMAND IS PROVIDED ON PRORATA BASIS (3) *EXISTING* PLANTS AND *OLD* GAS IMPLY i HIS CASE INCLUDES REPLACEMENT GAS FOR ED CNG AND MEOH USAGE RESULTING IN 4 BSCFD ADDITIONAL GAS DEMAND BETWEEN INDIGENOUS AND IMPORTED SUPPLIES. A 1992 DATUM. *NEW* IMPLIES ALL PLANTS OR GAS DEVELOPMENTS BETWEEN 1992 AND 2010. wk IMFAGE IS AMOUNT OF 1000 BTU/SCF GAS THAT MUST REPLACE ENERGY LOST DUE TO LIQUIDS EXTRACTION. MAX LPG RECOVERED FROM ALL SOURCES (SEE SHRINKAGE TABLES ABOVE) - CASE ALSO INCLUDES »o)0 KEPLACEMENT GAS FOR REFINERY LPG EXTRACTION OF 1.41 BSCFD (USA) AND 0.28 BSCFD (CAN). FOR REVAMPING OF EXISTING NON-LIQ PLANTS ONLY 50% OF AVAILABLE GAS IS ASSUME! D TO BE ECONOMICALLY VIABLE FOR LIQUIDS EXTRACTION. PROCESS NAME: CRYO-EXPR ADD-ON TO EXISTING NATURAL GAS PLANT DATE/LOCATION: 10/92, USA TYPICAL OPERATING EXPENSES: FEED GAS FUEL GAS (TAX) POWER RAW WATER CAT & CHEMICALS MAINT MAT & CONTR LAB MAINT LABOUR & SUPER OPER LABOUR & SUPER ADMIN & SUPPORT LAB OTHER EXPENSES TOTAL EXPENSES OPERATING CREDITS: ETHANE PRODUCT ETHANE IN LPG PROPANE IN LPG BUTANE IN LPG PENTANES + IN LPG NET SALES GAS SULFUR CARBON DIOXIDE TOTAL CREDITS LPG PRODUCT 856 ETHANE PROD 3397 TOTAL FIELD COST (1) LAND COST HOME OFFICE ENG COST CAT + CHEM INVESTMENT TOTAL PLANT COST WORKING CAPITAL START UP COST INTEREST PRE STARTUP ROYALTY CONTINGENCY TOTAL INVESTMENT PRETAX ROI RETURN ON INVESTMENT THERMAL EFFICIENCY FEED GAS VOL% (DRY) SALES GAS VOL% (DRY) % COMPONENT RECOVERED NOTES: (1) INCLUDES (2) REVAMP CONSISTS OF ADDITION OF TURBOEXPANDER & NO EXTRA LIQUIDS STORAGE. UNITS TONS TONS TONS PERSONS PERSONS TONS ‘TONS TONS TONS TONS TONS TONS TONS TONS MMBTU/D MMBTU/D $MM $MM SMM SMM $MM SMM SMM SMM $MM $MM $MM (% / YEAR) SMM (%) H2S 0 0 0 PLANT CAPACITY: SERVICE FACTOR: 0.959 QUANTITY HHV UNIT STRM DAY ANNUAL PER DAY MMBTU/TON MW COST $ COST M$ COST MM$ 1126.8 46.13 17.13 92.26 104.0 36.4 20.2 46.30 16.41 0 0.0 0.0 15.65 40 0.6 0.2 233.5 0.05 0.0 0.0 0.2 0.1 0.3 0.1 4 35000 0.4 0.1 4 35000 0.4 0.1 1.0 0.4 1.4 0.5 108.3 37.9 i! 76.2 44.61 30 133.8 10.2 f 3.6 0.8 44.61 30 379.3 0.3 0.1 15.2 43.32 a4 368.3 5.6 2.0 3.8 42.55 58 361.8 1.4 0.5 0.00 41.61 712 353.8 0.0 0.0 1010.3 46.30 16.41 92.6 93.5 32.7 0.0 7.97 32 67.0 0.0 0.0 0.0 0 44 0.0 0.0 0.0 1106.2 111.0 38.9 222 BPSD 20 TONS/DAY 78.0 CENTS/GAL (AVG) 1222 BPSD 76 TONS/DAY 19.8 CENTS/GAL 1445 2 ACRES @ 0 $/ACRE 10 , FIELD COST 90 DAYS OF OPERATING EXPENSES EXCL RAW GAS 2 % OF TOTAL PLANT COST 10 ? COST OVER 1.5 YEARS 0 . PLANT COST co2 N2 cl c2 c3 c4 0 1.7 92.46 5.2 0.54 0.1 0 1.8 96.8 1.4 0.0 0.0 0 100 100 75 97 100 1 x 60000 GAL BULLETS INCREMENTAL LPG STORAGE (6DAYS) 6 x 60000 GAL REFRIG BULLETS INCR OR NEW ETHANE STORAGE (6 DAYS) OF WHICH ABOUT 50% ARE ECONOMICALLY VIABLE FOR REVAMPING. 50 MMSCFD FEED GAS $/MMBTU (HEV) 2.00 3.00 8.50 8.50 8.50 8.50 2.00 WRN: - SOOWSDOCOANADMKMNSCS c5+ 0 0.0 100 REV: 2 CENTS/ GAL LPG BPSD 19.8 56.2 13.3 77.9 170.6 86.5 38.3 92.5 0.0 222.2 TOTAL % BTU/SCF 100.00 1039.7 100.00 999.6 ABOUT 40% OF EXISTING PLANTS ARE NON-EXPR PROCESS NAME: STAND-ALONE NATURAL GAS CRYO-EXPR PLANT DATE/LOCATION: 1Q/92, USA TYPICAL UNITS OPERATING EXPENSES: RAW NATURAL GAS TONS FUEL GAS (TAX) TONS POWER MWH RAW WATER TONS CAT & CHEMICALS MAINT MAT & CONTR LAB MAINT LABOUR & SUPER PERSONS OPER LABOUR & SUPER PERSONS ADMIN & SUPPORT LAB OTHER EXPENSES TOTAL EXPENSES OPERATING CREDITS: ETHANE PRODUCT TONS ETHANE IN LPG TONS PROPANE IN LPG ‘TONS BUTANE IN LPG TONS PENTANES + IN LPG TONS NET SALES GAS TONS SULFUR TONS CARBON DIOXIDE TONS TOTAL CREDITS ‘TONS LPG PRODUCT 14730 MMBTU/D ETHANE PROD 6786 MMBTU/D TOTAL FIELD COST (1) SMM LAND COST $MM HOME OFFICE ENG COST $MM CAT + CHEM INVESTMENT $MM TOTAL PLANT COST $MM WORKING CAPITAL $MM START UP COST $MM INTEREST PRE STARTUP SMM ROYALTY $MM CONTINGENCY $MM TOTAL INVESTMENT $MM PRETAX ROI (% / YBAR) RETURN ON INVESTMENT $MM THERMAL EFFICIENCY (%) H2S RAW GAS VOL® (DRY) 1 SALES GAS VOL® (DRY) 0 % COMPONENT RECOVERED 0 NOTES: (1) INCLUDES QUANTITY HHV PER DAY MMBTU/TON 2562.0 37.3 31.3 467 10 10 152.1 13.7 157.3 106.9 66.3 1867.1 42.1 115.8 2521.3 3663 2442 6105 2 10 90 2 15 0 43.13 46.34 44.61 44.61 43.32 42.55 41,61 46.34 7.97 BPSD BPSD ACRES @ 1 FIELD COST % OF TOTAL PLANT COST * COST OVER » PLANT COST PLANT CAPACITY: SERVICE FACTOR: 0.959 UNIT —STRM DAY ANNUAL MW COST $ COST M$ COST -MM$ 19.47 86.26 221.0 77.4 16.45 0 0.0 0.0 40 1.3 0.4 0.05 0.0 0.0 0.2 0.1 2.9 1.0 35000 1.0 0.4 35000 1.0 0.4 1.0 0.4 1.4 0.5 229.8 80.4 30. -:133.8 20.4 TA 30. 174.0 2.4 0.8 faa 168.9 26.6 9.3 58 165.9 17.7 6.2 72 162.3 10.8 3.8 16.45 92.7 173.1 60.6 3267.0 2.8 1.0 44 0.0 0.0, 0.0 253.7" 68.8 344 ‘TONS/DAY 37.3 CENTS/GAL (AVG) 152 ‘TONS/DAY 19.8 CENTS/GAL 0 $/ACRE DAYS OF OPERATING EXPENSES EXCL RAW GAS 1.5 YEARS cl c2 3 cA 85 5.6 2.8 1.4 96.6 1.6 0.1 0.0 100 75 7 100 19 x 60000 GAL BULLETS FOR LPG STORAGE (6DAYS) 13 x 60000 GAL REFRIG BULLETS FOR ETHANE STORAGE (6 DAYS) $/MMBTU (HHV) 2.00 3.00 3.90 3.90 3.90 3.90 2.00 2 > cobrowonoun sNMCSe ru Youn obhoUSSOuUON © 100 MMSCFD RAW FEED GAS CENTS/ GAL TOTAL & 100.0 100.0 LPG BPSD 219.7 1768.9 1071.2 603.5 3663.4 BTU/SCF 1105.0 1003.3 REV 1 STATE GASOLINE, DIESEL FUEL AND LPG TAXES (cents per gallon) Alabama Alaska Arizona Arkansas Califomia Colorado Connecticut Delaware Dc Florida Georgia Hawaii Idaho Minols Indiana lowa Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippl Missouri Montana 13.00 8.00 18.00 18.70 16.00 22.00 25.00 19.00 18.00 11.60 7.50 16.00 21.00 19.00 15.00 20.00 17.00 15.40 20.00 19.00 18.50 21.00 15.00 20.00 18.20 11.03 20.00 Gasoline Diesel 1-Jan-92__1-Jan-92 14.00 8.00 18,00 18.70 16.00 18.00 18.00 19.00 18.00 13.60 7.50 16.00 21,00 21.50 16.00 22.50 19.00 12.40 20.00 20.00 18.50 21.00 15.00 20.00 18.20 11.00 20.00 LPG 1-Jan-92 12.00 0.00 18.00 18.50 6.00 18.00 25.00 19.00 18,00 6.00 7.50 11.00 21.00 19.00 0.00 20.00 16.00 15.00 20.00 18.00 18.50 9.40 15.00 20.00 17.00 11.00 0.00 PROPTAX.XLS NOTES Plus 7.25% sales tax (federal tax included In sales price). LPG users may pay annual fee in fleu of gallonage tax Registered LPG vehicles pay annual flat fee in leu of gallonage tax Plus 3% gross earnings tax Registered LPG vehicles pay annual decal fee in lieu of 4% tax on ATFs and 2 cents ‘Scets' tax" on LPG Plus 3% second motor fuel tax (Includes federal tax in sales price) plus 1% sales tax Plus 4% sales tax (excluding federal and state motor fuel taxes) Plus 5.25% sales tax (excluding federal and state motor fuel taxes) Plus 5% sales tax (excluding federal and state motor fuel taxes). Registered LPG vehicles pay annual fee LPG Users may pay annual fee in feu of gallonage tax LPG vehicles of 10,000 Ib or less gross vehicle weight pay annual fee t Plus 4% sales tax (Indluding federal motor fuel tax) except vehicles for hire with 10+ passengers on scheduled routes Registered LPG vehicles pay annual flat fee in feu of gallonage tax LPG vehicles of 18,000 Ib or less gross vehicle weight pay annual decal fee in leu of gallonage tax LPG vehicles subject to annual license fee based on gross weight. Non-residents may purchase 72 hour tip permit Page 1 STATE GASOLINE, DIESEL FUEL AND LPG TAXES (cents per gallon) Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming 24.20 21.50 18.60 10.50 17.00 22.99 22.30 17.00 21.00 17.00 22.00 21,00 26.00 16.00 19.00 20.00 20.00 19.00 16.00 17.70 23.00 20.35 22.20 9.00 Gasoline Diesel 1-Jan-92___1-Jan-92 24.20 24.50 18.60 13.60 17.00 24.99 22.30 17.00 21.00 14.00 22.00 21.00 26.00 16.00 19.00 17.00 20.00 19.00 17.00 16.20 23.00 20.35 22.20 9.00 LPG 1-Jan-92 23.90 20.50 19.00 5.25 16.00 8.08 22.30 17.00 21.00 17.00 22.00 18.10 26.00 16.00 16.00 14.00 20.00 19.00 0.00 16.20 0.00 20.35 22.20 0.00 PROPTAX.XLS NOTES LPG vehicles of 25,000 Ib or less gross vehicle weight may pay annual decal fee in lieu of gallonage tax Plus 4% sales tax (including federal motor fuel tax) LPG users may pay annual fee in lieu of gallonage tax Diesel and LPG tax paid by vehicles not under jurisdiction of Public Utility Commissioner Diesel and LPG sales tax of 7% (applied to sales prices). Gasoline Is exempt LPG users may pay annual fee in lieu of gallonage tax, paid quarterly by users with permits, annually in advance by users without permits Registered LPG vehicles pay annual flat fee in lieu of gallonage tax LPG use Is tax exempt if user purchases exemption certificate annually Plus 5% sales tax (applied to sales price) Plus 2% sales tax only in county or city where heavy rail or bus commuter mass transport system operated by transportation agency Plus 6.5% sales tax (applied to sales price). Registered LPG vehicles pay annual fee 3% sales tax on LPG (applied to sales prica) Source: U.S. Federal Highway Administration, “Monthly Motor Fuel Reported by State" Jan, 1992. Table MF-121T. FWHA-TL-91-01. ‘Additional information for notes from Energy Information Administration/ Petroleum Marketing Monthly, January 1992, p. 163 (Table EN-1) These two documents are somewhat inconsistent. U.S. Federal Highway Administration numbers were used in the case of a discrepancy. *Scets tax = state comprehensive enhanced transportation system tax Page 2 R. F. Webb Corporation Confidential Information DOE/LPG Coallition Report Supply Availability of Propane, Butane, and Ethane by PADD 1990 and growth '81-'90 (LPG=Propane + Butane only) 152 5329 137.9% 5.4% 3598 AS% 45% PADD 2 38034 1.1% 20819 3.0% 58853 18% 27088 2.4%) PADD3 44157 -71% 28457 -9.1% 72614 -19% 50933 -1.3%| PADD4 84710 24% ‘51187 15% 135897 20% 92201 5.1% PADDS 3924 118% 9874 44.3% _—_—«13798__—*30.3% 0_#NUM! PADDIX 0 #NUM! 0 #NUM!I 0 #NUMI 0 #NUM! PADDIY 9230 1.6% 2709 = --1.6% ~=— 11939 -2.0% 0 #NUM! PADDIZ 548 45% 267 39.6% 815 5.5% 0 -1.3% 2916 #VALUE! 12754 #NUM! 0 0.0% 26735 -2.2% 2900 -16.5% 29635 -3.8% 0 #NUM! PADD3 21467 18.3% 74 -25.0% 29181 8.1% 0 #NUM! PADD4 24696 20.0% 13357 -20.4% 38053 6.8% 0 #NUMI PADDS 11425 3.4% 19513 -2.1% 0 8088 3.9% «NUM! PADDIX 0 #NUM! 0 #NUM! 0 #NUM! 0 #NUMI 9325 13% 2166 04% 12001 -15% 0 #NUM!I 4051 43% 2093 -5.6% 6144-48 13376 24% 4859. + ~4.0% «(18235 «= -2.8% 2338 -11.8% 64769 03% 23719 0.3% «88488 0.1% =—--27088 2.4% PADD3 65624 01% 36171 12.8% © :101795 4.6% = 50933 1.3% PADD4 109406 5.1% 64544 2.9% += 173950 2.5% = 92201 5.1%) PADDS 15349 0.7% __17962__27.6% ___33311_11.6% o__#NUM! U.S. TOTAL 268524 2.1% 147255 -3.0% __ 415779 0.3% 172560 0.0% LPGVOL1.XLS R. F. Webb Corporation Confidential Information DOE/LPG Coallition Report Supply Availability of Propane, Butane, and Ethane by PADD 1990 and growth '81-'90 (LPG=Propane + Butane only) OQ #NUM! 81 68 47 57 = 148.2% 1910 1958 1826 -5.6% 2005 1883 45% 21531 20761 21486 21920 20819 3.0% PADD3 33864 31050 28754 29946 28800 26224 26779 27342 27170 28457 -9.1% PADD4 53574 52886 52584 55570 55148 54004 52483 53056 51720 51187 15% 3 PADDS 303735493651 3663____—3862 725 ___-'10794——«12116——11424 9874 44.3% PADDIX 0 0 0 0 0 0 0 0 0 0 #NUMI PADDIY 1748 = 1832, «14091265 1804 ©1725. (AS92080 2579 2709 -1.6% 55 25 30 5 132 102 130 180 252 267___ 39.6% 1803. 1857.~1439”~C*«~‘STKOS~*~«dGS~*~<Ci«é«iT:=SC*«“‘«‘éi 281 2976 0.6% PADD 2 735 1055 991 973 1113 1327 1216 1419 1970 2900 -16.5% PADD3 2678 3250 3561 3703 2694 3381 3485 3763 5145 714 = -25.0% PADD4 710 —«-3389—=si(i« (it 3816G——(tiH430 4626 842 700810504 = 13357 -20.4% PADDS 1759 —«:1823,==—«1964_——=—2222,- 23a 40S2_— 741 S502_~—SC—808B___—=S«IH PADDIX 0 0 0 0 0 0 0 0 0 0 #NUMI PADDIY 1753 —«1838=Ss«i42—s*—=“<«é‘«iTASsi«dBMASs«d78BCSC:iCiSKO 20982626 2766 0.4 2762 -2329,—=S—267 23122320 20332028 = 2090 221020935. 6% 4515 4167 3589 3586 4154 3821 4568 4188 4836 4859 4.0% 22866 21341 21164 23435 2A275 22858 21977 22905 23890 23719 03% PADD3 36542 34300 32315 33649 31494 29605 30264 31105 32315 36171 = -12. 8% PADD4 61284 56275 55688 58736 58578 58630 59325 60064 62224 64544 -2.9% PADDS 47196 5372 5615 5885 6174 6142 14846 18857 16926 17962 27.6% U.S. TOTAL 130003 121455 118371 125291 124675 121056 130980 137119 140191 147255 -3.0% LPGVOL1.XLS R. F. Webb Corporation Confidential Information DOE/LPG Coallition Report Supply Availability of Propane, Butane, and Ethane by PADD 1990 and growth '81-'90 (LPG=Propane + Butane only) wae [we Lm Le | oe | ve | os | we | vm Lacon 1981 1985 1989 z Extraction at Gas Processing Plants PADDIX 0 0 0 0 0 0 0 0 0 0 #NUM! 0 0 0 0 0 0 0 0 0 0 #NUM! 5396 4218 3615 3103 2986. 2666 2564 2745 2755 2338-11. 8% PADD1 5396 4218 3615 3103 2986 2666 2564 2745 2755 2338 «= -11 8% PADD 2 33762 32389 38288 37157 32056 33382 34115 31833 25990 27088 24% PADD3 0 0 0 0 0 0 0 0 0 0 #NUM! PADD4 51766 44992 45400 48394 42098 41854 51218 50637 51766 50933 -13% PADDS 27 20 13 12 9 10 4 2 0 0 _#NUM! PAS ast is9 8716 tos 77149 7ro12 8790145017 9051180359 _0.5% TOTAL 90951 81619 87316 88666 71149 T1912 87901 85217 80511 80359 05% US OA ee at Refineries PADDIX 0 0 0 0 0 0 0 0 0 0 #NUM! PADDIY 0 0 0 0 0 0 0 0 0 0 #NUMI 0 0 0 0 0 0 0 0 0 0 #NUM! 0 0 0 0 0 0 0 0 0 O #NUMI! PADD 2 0 0 0 0 0 0 0 0 0 0 #NUM! PADD3 0 0 0 0 0 0 0 0 0 0 #NUMI! PADD4 0 0 0 0 0 0 0 0 0 0 #NUM! PADDS 0 0 0 0 0 0 0 0 0 OQ #NUM! PAO AN TOTAL 0 0 0 0 0 0 0 0 0 0 #NUM! MS A kia Production & Extraction PADDIX 0 0 0 0 0 0 0 0 0 0 #NUM! PADDIY 0 0 0 0 0 0 0 0 0 0 #NUMI PADDIZ 5396 4218 3615 3103 2986 2666 2564 2745 2755 2338 PADD1 5396 4218 3615 3103 2986 2666 2564 2745 2755 2338 «= -11.8% PADD 2 33762 32389 38288 37157 32056 33382 34115 31833 25990 27088 24% PADD3 0 0 0 0 0 0 0 0 0 0 #NUM/ 51766 44992 45400 48394 42098 41854 51218 50637 51766 50933 4 2 0 87901 85217 80511 80359 05% LPGVOL1.XLS R. F. Webb Corporation Confidential Information DOE/LPG Coallition Report Supply Availability of Propane, Butane, and Ethane by PADD 1990 and growth '81-'90 (LPG=Propane + Butane only) seem Toe be am Le To 1981 1984 1986 0 0 0 0 0 0 14 18 24 26 15 142 8127 6346 5963 6199 6170 8141 6364 5987 6225 6245 5614 PADDIX PADD1 PADD 2 62461 57200 59065 65046 65716 60769 59024 59646 60684 58853 18% PADD3 84162 78017 72115 15271 70860 66938 69488 70056 70069 72614 -7.9% PADD4 140584 138705 141003 148304 147624 145424 140234 141685 135993 135897 2.0% PADDS 6179 7152 8263 8215 8407 8260 15288 16657 15675 13798 30.3% PAOD AL sont samose 98703309067 _2oaus_ 287005 249504 293800 __288415__286643_0.28 TOTAL 302127___—_—-288038 287033 303067298852 287005__—-289504__—-293890 288415 286643 0.2% ac at Refineries PADDIX 0 0 0 0 0 0 0 0 0 0 #NUM! PADDIY 12129 11316 11259 10814 11332 11281 11266 11562 12066 11939 -2.0% PADD1Z 580 463 440 626 636 591 574 7160 859 815 5.5% 12709 11779 11699 11440 11968 11872 11840 12322 12925 12754 -1.6% PADD 2 23445 24106 25862 24829 26469 24640 25902 26940 26445 29635 -3 8% PADD3 18428 17760 17363 18702 20428 22442 27628 26212 27788 29181 8.1% PADD4 23458 23320 25873 26158 29611 32040 32141 33304 36614 38053 6.8% PADDS 8772 9319 10111 10861 10465 10679 12671 16034 15842 19513 -2.7% PADS aes ne28a 9000891990 98941101673 tio1s2 114812 119614129136 _. #8 TOTAL 86812 86284 90908 91990 98941 101673 110182 114812 119614 129136 18% US ON ike Production & Extraction PADD1X 0 0 0 0 0 0 0 0 0 0 #NUM! PADDIY 12143 11334 11283 10840 11407 11423 11457 11726 12206 12091 -1.5% 8707 6809 6403 6825 6806 6063 5853 6442 6713 6144 48% 0 1988 0 164 0 140 5854 5994 Extraction at Gas Processing Plants 0 #NUM! 152 137.9% 5329 -54% 5481 45% 20850 18143 17686 17665 18213 17486 17310 18168 18919 18235 -2.8% PADD 2 85906 81306 84927 89875 92185 85409 84926 86586 87129 88488 0.1% PADD3 102590 95777 90078 93979 91288 89380 97116 96268 97857 101795 4.6% PADD4 164042 162025 166876 174462 177235 177464 172375 174989 172607 173950 2.5% PADD5 15551 17071 18374 19076 18872 18939 27959 32691 31517 33311 11.6% U.S. TOTAL 388939: 374322 377941 395057 397793 388678 __399686__—«408702__—-408029 415779 0.3% LPGVOL1.XLS R. F. Webb Corporation Confidential Information DOE/LPG Coallition Report Supply Availability of Propane, Butane, and Ethane by PADD 1990 and growth ‘81-90 (LPG=Propane + Butane only) 40330 36914 50298 44157 87010 85819 92734 84273 84710 3742 4203 4612 4552 4545 4251 3924 185662 177912__174176 174423 03% 0 9528 U.S. 186809 __—-177957 179721 189220 Fated ui Wee at Refineries 0 0 0 0 10381 9484 9850 9549 525 504 10906 9922 10260 10060 22710 23051 24871 23856 25356 15750 14510 13802 14999 17734 15748 19931 22769 26181 7013 7496 8147 8153 0 0 9532 9487 34% 7.6% Total Production & Extraction 25299 26296 8619 9293 1998 9367 0 22992 PADDS 8639 8262 10340 is TOTAL 72127 74910 7984980546 87436 88085 9199893671 93662_94101_7.6% TOTAL 72127 4 T9849 80546 87456 88095 9 93662. 94 0 0 0 0 9566 9635 9580 74910 1 101 0 0 0 0 0 #NUMI 10390 9496 9861 9628 9325 -13% 5945 4480 4513 4030 4503 4051 43% 14097 14079 63763 66440 57763 60330 111188 115726 12759 13191 259570 273118 LPGVOL1.XLS BUT1.XLC Thousands of Barrelis 160000 140000 120000 100000 80000 40000 20000 U.S. Butane Production Volume 1981-1990 By PADD Wi PADD4 Wi PADD3 PADD 2 Wi PADD1 Page 1 ETH1.XLC Thousands of Barrells 100000 40000 30000 20000 10000 1961 1962 U.S. Ethane Production Volume 1981-1990 By PADD 1983 1984 1985 1 1987 1988 1989 1990 PADD5 WB PADD4 Wi PaADD3 CJ PADD 2 MB Pavp1 LPG1.XLC 450000 400000 350000 300000 250000 200000 Thousands of Barrelis 150000 100000 50000 U.S. LPG Production Volume 1981-1990 By PADD Eee Page 1 1981-1990 LPG8190.XLC Volume of LPG by PADD 10 Year Period 450000 1987 1968 1986 1985 1984 1983 1982 1981 100000 50000 0 400000 gjeueg JO SpuesnoyL FORECAST U. S. LPG PRODUCTION AND USE BY STATE, 2010 OIFFERENCE USE OTHER (bibl GALS) MM GALE) (MM GALS) (MM GALS) SUPPLY TOTAL AUTO LPG STATE (uM GALS) Al 3) 89/8 58 RYLANO ZONNECTICY | | HF : ECEEEBE mB S18) 88 2 SHG F S nan j rian | rene | aan | Milt TOTAL U. 8 PADOS 16,176 31,876 13,700 W777 47,683 TOTAL NORTH AMERICA 7-7 7 = INCREMENTAL NGL RECOVERIES FROM EXISTING LIQUIDS-EXTRACTION TYPE GAS PLANTS UNITS IN THOUSANDS OF BBL/YEAR (EXCEPT WHERE NOTED) USA Secceccccosecsoses MONTANA NEW-MEXICO NO-DAKOTA OHIO OKLAHOMA PENNSYLVANIA TEXAS UTAH WEST-VIRG WYOMING TOTAL USA DELTA KBPY DELTA KBPD CANADA eececese ALBERTA BRITISH.CO MANITOBA SASKATCHEWAN TOTAL CAN DELTA KBPY DELTA KBPD SC ee ee Cee 1990 BASE CASE RECOVERIES G3 oO C+ 15001278 944 300 @As«d8AZ. 98 103 146 34 9503836 3566-2253 1836 asi 619 549 6 31 2 104% S305 (3834 877 327 128 2408 =—oMGTTLSs«(16498 1917161 1359 126 113 104 214 «1% 150 13045 7163,———«G191 206 02=~Cts138683 1184 16 17 2 2262 = 1S 95 37 9 T3299 4AITL_— 37148 1034 7 812 265201207 154 10397 6281S 174423112219 101290 MAXIMUM LPG RECOVERIES ca a ca C+ 3240 1671 1331 944 4 342 Ten 11842 89 88 84 146 8476 «238 3097 3536 4399 3842 2323 1836 1804 1141 649 549 2 «0 3 2 7620 1127S 5480 3534 184 94 334 1B 47091 27333 17257 16494 2286 2026 1904 1359- 2-7 144 118 104 a7 2s 181 150 20999 14734 7946 6191 4094 2350 1425 1184 9 18 18 2 30643 23879 12304 9921 217 108 6 59 111657 71116 44793 37148 1256 1281 165 812 2778 287 12468 1S4 1444 10991 Gaal) 4557 262671 186455 = 114960) 101290 90111 12032 2741 0 69 33.0 15 0.0 91661 45615 24662, 34906 3623 1934 1027 277 66 33 12 14 23 63 437 28 95633 48205 26137 36455 31047 2906 610 38 85.1 8.0 7 0.1 —a MILLION GALLONS ADOMONAL GAS PLANT STATE oe vase INCREASED GAS PLANT RECOVERY LPG INCREASE FLORIDA, [ses se 3 ed GEORGIA Pe rere el tl aa del get ee MAINE a D&dc. BT a ee ed ee ee CHUSETTS te TS eee ee eel peer Ee pe ieee ae Ee eee a Pest Mi aa ek Bea ea Te Aa al NSIC Ba ge : Pi a ANO fame se i Nw permed MeN WLLL) UE pr tl acum ald etl CANADA ee ee eee NORTH AMERICA 12,963 4,338 768 18,060 ADOITIONAL NORTH AMERICAN GAS PLANT & TOTAL LPG SUPPLY, 1992 - 2010 TOTAL INCREASED LPG SUPPLY os 95.4 23 167. 43 EST] 18 041 29,474 til th F ist He] jgidigia) | inimiy is } Saieiaial SI a} |ais pala |a| § sili met itll sli | 1 i ofl 1 S1be | : lf. i bes Joo! | a ee _ tH ~ - ‘ “ 7 oy z SYNCRUDE/SUNCOR PLANT FUEL GAS - POTENTIAL LPG RECOVERIES 190 KBPSD HVY CRUDE 800 KSCFH/BBL FUEL GAS PRODUCTION HHV REFINERY FUEL CRYOGENIC RECOVERY PRODUCT KSCFH KSCFH MW SG BTU/SCF VOL% H2 2 324 25.6 N2 2 0 11 cl 16 1007 36.5 C2- 28 0.35 1595 5.7 c2 30 0.356 1765 13.4 x) ad 0.508 2512 86 C3- 42 0.522 2330 58 iC4 58 0.563 3249 0S nC4 58 0.584 3256 14 CA. 56 0.601 3076 08 iCS 72 0.625 3993 03 ns 72 0.631 4001 0.3 C6 86 0.657 4744 0.0 co2 44 0 0.0 H2s 34 0 0.0 TOTAL 100.0 ON-STREAM EFF (%)= 96 OPERATING A RATE UNITS S/UNIT ELECTRIC POWER 16896. = kWh/h 0.04 STEAM 35000 Ib/h 0.006 TOTAL UTILITIES REPLACEMENT GAS 2949.7 MMBTU/ 2.00 MAINTENANCE @ 3.5% Invest/yr= TOTAL OPERATING COST 1621.3 69.7 2311.7 361.0 848.7 544.7 367.3 31.7 88.7 50.7 19.0 19.0 0.0 0.0 0.0 6333.3 350.4 DAYS/YR LPG BPSD= SMM/YEAR 596° 1.77 145 49.61 2.80 59.86 0.0 0.0 0.0 18.05 50.92 528.33 345.29 31.67 88.67 + 50.67 19.00 19.00 0.00 0.00 0.00 1151.6 BPH VOL% 0.0 0.0 0.0 0.0 0.0 0.0 10.9 14 32.3 43 344.1 45.6 208.9 21.7 45 3.2 66.2 8.8 35.5 4.7 165 2.2 163 2.2 "0.0 0.0 0.0 0.0 Tid 100.0 18122 TOTAL PROJECT INVESTMENT 80.0 $MM PRETAX RETURN ON INVESTME 15 % INVESTMENT COST/YEAR 12.00 $MM TOTAL COST/YR 71.86 $MM COST/STREAM DAY 205982 $ PLANT GATE LPG COST 11.3. $/BBL 26.9 CENTS/GAL 2.9 $/MMBTU(HHV) MULTIPLE OF GAS PRICE 1.448479 TYPICAL REFINERY FUEL GAS - LPG RECOVERY ECONOMICS 100 KBPSD CRUDE CHARGE HHV REFINERY MW SG BTU/SCF VOL % H2 2 3A 525 N2 2B 0 0.7 ca 16 1007 172 C2- 28 0.35 1595 06 C2 30 (0.386 1765 132 a 4 = 0.508 = 2512 1 a. a2 0s2a 2% 18 ia 38 0.563 32A9 27 nc 58 0584-3286 27 ca. 56 0.601 3076 06 ics 72 «0625 3993 04 acs T 0.631 4001 03 ce 86 0.657 4744 02 co2 “4 e 0.0 H2s u“ 0. 00 TOTAL 100.0 ON-STREAM EFF (%)= 9 OPERATING AT RATE UNITS ELECTRIC POWER 2057 = kWhh 0.04 STEAM 4320 Sovh 0.006- TOTAL UTILITIES ; REPLACEMENT GAS 353.4 MMBTU/ ‘Loo MAINTENANCE @ 35% Investiyr= TOTAL OPERATING COST GAS SHRINKAGE = 353.4 MMBTU/ EQUIV TO 6 DAYS STORAGE REQUIREMENTS: NOTES: 18$ KSCFH/BBL REFINERY FUEL GAS PRODUCTION FUEL CRYOGENIC RECOVERY PRODUCT KSCFH KSCFH 47 00 SA 0.0 1326 “0.0 46 0.23 1018 611 47 53.09 139 13.04 208 2081 20.8 20.81 46 463 31 3.08 23 231 “1S 154 0.0 0.00 0.0 0.00 TIOB 128.7 BPH VOL% 00 00 00 6° (ee 00 00 0.1 02 39 4A M60 OS 19 90 16.1 184 18S :178 32 37 27 aa 20 23 15 17 00 0.0 8715 ‘T0080 TOTAL PROJECT INVESTMEN 15.0 $MM PRETAX RETURNONINVEST 15 % INVESTMENT COST/YEAR 225 $MM TOTAL COST/YR 943 SMM COST/STREAM DAY 27478 $ PLANT GATE LPG COST “131 S$/BBL 31.1 CBNTS/GAL 3.2 S/MMBTU(HHV) MULTIPLE OF GAS PRICE 1.619968 4037 SCF NAT GAS/BBL LPG RECOVERED 11,030570654697 x 60000 GAL BULLETS INCREMENTAL STORAGE (1) ASSUMED THAT FUEL GAS SHRINKAGE CAN BE MADE UP BY NATURAL GAS. (2) LPG VAPOUR PRESSURE = 140 PSIG AT 100F (ROAD/RAII. TANKERS GOOD FOR 235 PSIG) (3) BASED ON 15.1 MMBPD US AND CANADIAN CRUDE RUN TO STILL, POTENTIAL 1992 INCREMENTAL LPG IS 317250 BPCD (4) MAX ETHANE RECOVERY WOULD RESULT IN EXTRA MAKE-UP NAT GAS FOR THIS EXTRA PRODUCT EXTRACTION IS 2780 SCF/BBL C2’S. 1117 BPSD NGL. BUT AT ADDITIONAL PRODUCTION COST. THE ENERGY POLICY ACT OF 1992 A REPORT ON THE ALTERNATIVE TRANSPORTATION FUEL AND ALTERNATIVE FUEL VEHICLE PROVISIONS OF THE ACT October 1992 R F WEBB CORPORATION R F WEBB CORPORATION, LTD UNITED STATES CANADA 2300 M STREET, NW (SUITE 800) 1011/5 PRINCE OF WALES DRIVE WASHINGTON DC 20037 : OTTAWA, ONTARIO K2C 3K1 Voice (202) 775-0200 Voice (613) 224-8460 Data/Fax (202) 775-0202 Data/Fax (613) 224-8077 sss 1. A NOTE ON THE REPORT This report describes the components of the ENERGY POLICY ACT OF 1992 (the Act) which deal with Alternative Transportation Fuels (ATFs) and Alternative Fuel Vehicles (AFVs). It has been provided as a courtesy to the Company's clients, colleagues, and friends. The AFV mandates of the Energy Policy Act overlap with the Clean Fuel Vehicle provisions of the Clean Air Act Amendments of 1992 which deal with vehicles fueled by ATFs and reformulated or "clean" gasoline and diesel fuel. A comprehensive assessment of the impact of both Acts on the AFV and ATF industries will be available in November. The Energy Policy Act, together with the Clean Air Act Amendments and regulations issued by the EPA under previous legislation now provide a unique opportunity to generate new business in the supply of ATFs and AFVs nationwide. This business will best be developed by active cooperation of industry participants with those government agencies at the Federal and State level charged with delivering clean air, enhanced security of fuel supply, fuel price stability, and the jobs which related new industries can create. The Federal Government has taken a strong position in pursuit of oil displacement and environmental controls in the transportation sector. The ATF and AFV industries should now respond by taking a similar strong position to secure the markets opened up to them by the legislation. 1-1 2. SUMMARY OF THE ENERGY POLICY ACT OF 1992 The Energy Policy Act signed by President Bush on October 24, 1992, is the outcome of work by committees of the Congress, the Senate and the Department of Energy initiated in the 1989 National Energy Strategy. The primary aim of the Act is to reduce the Nation's dependence on crude oil imports. The Energy Policy Act legislates improved energy efficiency in buildings, equipment, and electricity production, the development of a market for AFVs and ATFs, support to the development of biomass-sourced fuels and electric vehicles, and the regulation of the coal, gas, nuclear and hydroelectric power industries. The Act defines alternative transportation fuels (or "replacement fuels") as alcohols (methanol, ethanol and higher alcohols); blends of alcohols with gasoline or other fuels containing 85% or more alcohol by volume; natural gas; liquefied petroleum gas (LPG); hydrogen; fuels derived from biomass; liquid fuels derived from coal; and, electricity. The Act requires that 50% of the ATFs used in the US program must be derived from Domestic or Canadian feedstocks. The Act mandates the purchase by Federal Government and State government fleets, and fleets operated by ATF providers, including electric utilities, of light duty, dedicated AFVs, which have been manufactured in the US or Canada. The Federal fleet commitment begins in fiscal year 1993 at a 5,000 vehicle level, and grows to at least 75% of Federal fleet purchases by 1999. State government AFV fleet purchase requirement begin with the model year 1996. At that time, 10% of light duty vehicle acquisitions by each state must be AFVs, increasing to 75% of acquisitions in model year 2000. ATF provider fleet mandates begin in the 1996 model year at 30% of provider fleet acquisitions, ramping up to 90% by model year 1999. 2-1 The Energy Policy Act of 1992 requires the Secretary of Energy to investigate the need for extension of mandates to acquire AFVs by fleets other than those noted above (Federal, State and Fuel Provider fleets), and to issue a rule relating to the mandated use of AFVs in such fleets beginning with a 10% AFV acquisition requirement target in model year 1999 (or 2002) increasing to a 70% requirement target in model year 2005 (or 2006). The Act provides tax deductions up to $2,000 per vehicle for vehicle conversions, and between $2,000 and $50,000 for new AFV acquisitions by commercial fleets. A tax deduction up to $100,000 is available for the installation of AFV refueling facilities. Small business loans are available to finance the incremental cost of AFV purchases or conversions from conventional to AFVs. The Act provides discretionary powers to the Secretary of Energy who must determine the feasibility of producing ATFs sufficient to meet at least 10% of the motor vehicle fuel requirement in the year 2000, and 30% of the requirement in the year 2010. The Secretary cannot force ATF production to the target level, but may expand the AFV acquisition mandate to achieve the motor fuel replacement target. The Act establishes a system of credits provided for the acquisition of AFVs under the mandated fleet vehicle acquisition program. The credits are transferable to other fleets or persons required to comply with the mandate. The Energy Policy Act expands the application of the CAFE (Corporate Average Fuel Economy) credit to include dedicated and dual fuel AFVs fueled by LPG. Expenditures of approximately $500 million are authorized under the Energy Policy Act which is intended to be leveraged significantly by State programs and joint venture funding of demonstrations and R&D projects with local government and industry. BENEFITS TO END USERS AND ATF/AFV INDUSTRIES FROM THE ENERGY POLICY ACT OF 1992 All Alternative Fuels and Vehicles The Act: ° resolves the fuel availability/vehicle availability discussion by opting to stimulate AFV supply through vehicle purchase mandates, leaving ATF supply to the industry, and potential ATF purchase stimulants to State legislation (reduce ATF fuel taxes etc.) ° provides National targets for ATF use in the years 2000 and 2010 (10% and 30% of motor vehicle fuel use respectively). . is aimed at the replacement of gasoline and diesel fuel produced from oil, but does not further discriminate among the Replacement Fuels. There is a requirement that the fuels used in the mandated AFV fleets conform to Federal and State vehicle emission control standards, and that Federal purchases of AFVs consider those which provide the most cost-effective pollution reduction. ° applies mandates to the designated fleets in all metropolitan areas with 1980 populations of 250,000 or more. The mandates are not confined to populations in the “non attainment" areas as is the case with the Clean Air Act Amendments. ° intends to stimulate acquisitions of dedicated (monofuel and flexible fuel) factory produced AFVs. Post-purchase conversions are also stimulated. The conversions must also meet Federal and State vehicle emission standards and original equipment manufacturer (OEM) warranties. ° provides that Federal AFV purchases be made from manufacturers in the US and Canada and that at least 50% of the ATFs used shall be from domestic and/or Canadian sources (expands to include all NAFTA members). 3-1 stimulates the installation of public ATF refueling stations by requiring that Federal agencies seek their ATF supplies from public outlets. provides tax reduction incentives for the purchase of AFVs by fleets and refueling facilities. The tax benefit is prorated in dual fuel vehicles to cover only the incremental cost associated with the ATF. It is applicable to equipment and labor costs involved in vehicle conversions to ATF. No provision is made for tax deductions for private/personal AFV acquisitions or conversions. The tax deduction for fleets and refueling stations is essentially an accelerated depreciation -- allowing a one year write-off of the investment. The benefit is therefore the net present value of the acceleration of tax deductions for depreciation. The benefit is provided only to commercial fleets and to ATF refueling station owners. The tax deductions are scaled according to the vehicle weight classification. They are planned to be phased out at a 25% per year rate after December 31, 2001. They are applicable only to vehicles which meet State and Federal emission standards and testing certification and warranty requirements. The maximum deductions are set at follows: ——— es VEHICLE WEIGHT CLASS $ TRUCK OR VAN WITH GROSS VEHICLE WEIGHT 26,000 LBS OR MORE 50,000 BUS WITH 20 OR MORE ADULT SEATING CAPACITY 50,000 TRUCK OR VAN WITH GVW 10,000-26,000 LBS 5,000 OTHER ROAD VEHICLES AND CONVERSIONS 2,000 MAXIMUM INCENTIVE FOR ATF REFUELING EQUIPMENT 100,000 ———— provides $75 million for a 3 year program of small business loans for AFV acquisitions and conversions, and $90 million for Federal contributions in the 1993 to 1995 period towards joint venture bus acquisitions and demonstrations. requires the Secretary of Energy to establish a data collection program on ATFs and AFVs in at least 5 geographical areas in the US which will include 3-2 3.2 data on vehicle use -- trips (i.e. number. type, frequency, and distance,) cost, performance, and data on environmental, energy and safety impacts. ° provides funds for training certification programs for technicians involved in the conversion of vehicles to ATF use, and AFV maintenance. ° provides for the conduct of a vehicle R&D program related to improving ATV technology with emphasis on gaseous fueled and electric vehicles. Benefits to LPG Stakeholders ° LPG (propane) is included in the list of alternative fuels in the Act, and in the Clean Air Act Amendments of 1990. e LPG is now included in the list of fuels specified in the Motor Vehicle and Cost Saving Act and the Energy Policy and Conservation Act. The provisions which previously applied only to natural gas are now expanded to include propane in the category "gaseous fuels". Of particular importance is that CAFE credits are available to OEM production of dedicated and dual fuel propane (LPG) vehicles beginning with model year 1992. ° the cap on the tax deduction for AFVs and refueling stations is less of an impediment for LPG than for CNG because of the lower cost of LPG equipment. ° LPG sales to the public will be facilitated by Federal fleet purchases from public LPG refueling centers. e the Act provides authorization to the Gas Research Institute to conduct R&D on propane and pass on costs to the gas industry but does not direct the Institute to undertake R&D on LPG. 3.3 Benefits to CNG Stakeholders A large number of the provisions related to transportation in the Energy Policy Act were designed to expedite the development of a market for natural gas vehicles. In addition to the general ATF provisions, certain important provisions relate exclusively to natural gas, including those which follow. The Act: ° encourages natural gas supply at competitive costs through provisions relating to equitable treatment of natural gas imports from "Free Trade Agreement Nations" (i.e. Canada,) and support for increasing the recoverable natural gas resource base e provides authority to allow the Gas Research Institute to fund programs through expense recovery in advance from natural gas companies (essentially a way of rate-basing RD&D expenditures.) The programs covered are research, development and demonstration (RD&D) activities related to the use of natural gas (and fuels derived from natural gas) for transportation purposes. ° instructs the Secretary to carry out a program on “techniques related to improving natural gas and other alternative fuel vehicle technology". A majority of the items listed in the Act are designed to further the development of natural gas engines, gas storage and compression technologies, consistent with the need to develop lower cost refueling stations, increased vehicle range and the ability to exploit the unique combustion properties of natural gas. 3-4 3.4 Other ATFs The Energy Policy Act aims to expedite the development of electric vehicle technology and requisite infrastructure through support of research, development and electric vehicle demonstrations and tax credits to fleet purchasers of electric vehicles. Work with the states is to be undertaken to develop rate-basing opportunities for the electric utilities and other incentives beyond those provided for in the Act. The Act does not single out methanol and ethanol for special treatment except the inclusion of certain alcohol-related technologies which will be advanced in a program of renewable energy projects such as: ° conversion of cellulosic biomass to liquid fuels ° ethanol and ethanol byproduct processes. 4. FURTHER DETAILS ON THE ENERGY POLICY ACT OF 1992 RELATED TO ALTERNATIVE FUELS AND RELATED VEHICLES TITLE Il -- ALTERNATIVE FUELS -- GENERAL Section 301 - Definitions The definitions of: alternative fuels; replacement fuels; alternative fuel vehicle; dual fuel vehicle, fleet and other terms used in the Act are summarized in Appendix 1. Section 302 - Amendments to the Energy Policy and Conservation Act and the Alternative Motor Fuels Act of 1988 This section amends the previous Acts as follows: ° the Federal Government ATF demonstration program under the Energy Policy and Conservation Act will include dedicated and dual fuel vehicle purchases from OEMs and, if these are not available, from conversions which do not void OEM warranties. (Exceptions are provided for experimental and certain other vehicles.) e provisions for the selection of vehicles and fuels are preferenced to vehicles that operate on ATFs derived from domestic sources, AFVs manufactured in the US or Canada, and the operation of dual fuel vehicles on ATFs. ° the Secretary and the Administrator of the GSA shall investigate and report data on performance, cost, and disposal of heavy duty AFVs acquired in the Federal fleet program. Section 303 - Minimum Federal Fleet Requirements The Federal Government AFV acquisitions schedule will be at least the following: aE EE MODEL YEAR ACQUISITIONS REQUIRED | CRIN a ee ed I ATL TI IE CET TEES BEE 1993 5 ,000 LIGHT DUTY VEHICLES (LDVS) 1994 7,500 LDVS 1995 10,000 LDVS 1996 25% OF ALL PURCHASES * 1997 33% OF ALL PURCHASES 1998 50% OF ALL PURCHASES 1999 FORWARD 75% OF ALL PURCHASES |S ora A SE SE AST OL IT A IIS IEE DOLE, (*) In fleets of 20 or more vehicles In urban areas with 250,000 or higher population (according to the 1980 census) and excluding emergency, law enforcement and certain other vehicle categories. a pa PT EEE NE RS ETE The procuring agencies may allocate the cost premium for AFV acquisitions over the entire fleet of motor vehicles distributed by the agency. Section 304 - Refueling To the extent possible, Federal agencies shall arrange for the fueling of their AFVs at commercial fueling facilities that offer ATFs for public sale. Section 305-311 - Federal Agency Promotion, Education, Incentives, Information and Reporting The Secretary will promote programs and educate employees of Federal agencies on the merits of AFVs and provide information to facilitate ATF and AFV adoption. For a three year period the GSA may offer a reduction in the leasing fees for AFVs compared to that for comparable conventionally fueled vehicles. Awards will be provided annually to Federal employees who demonstrate the strongest commitment to the use of ATFs and fuel conservation in Federal motor vehicles. 4-2 The Administrator of the GSA, and the Postmaster General shall report on their AFV programs to Congress. TITLE IV - ALTERNATIVE FUELS - NON-FEDERAL PROGRAMS Sections 401-403 -- Amendments to Previous Acts These sections expand the roster of ATFs to be used, and clarifies definitions in the Truck Commercial Application Program, the Energy Policy and Conservation Act, and the Motor Vehicle Information and Cost Savings Act. Section 404 -- Vehicular Natural Gas Jurisdiction This section loosens restrictions on companies and persons involved in the marketing of CNG and LNG under the Natural Gas Act and the Public Utility Holding Company Act of 1935, thus removing monopoly conditions enjoyed by many local natural gas distributors who sell or plan to sell natural gas in its compressed natural gas form for transportation use. Sections 405-407 - Information and Labeling A program will created providing the public with information on the cost and benefits of ATF use, and information which will be used to facilitate choosing among ATFs and AFVs. Uniform labeling requirements are to be established for ATFs and AFVs. Section 408 - Research, Development and Demonstration Financing by Energy Utilities The Federal Energy Regulatory Commission (FERC) may allow the recovery in advance by natural gas companies of expenses related to research, development and demonstration projects conducted by the Gas Research Institute on natural gas and fuels derived from natural gas (such as CNG, LNG, LPG, and presumably methanol) for transportation including work on emission control from vehicles using these fuels. 4-3 FERC may also allow similar arrangements for research, development and demonstration of electric vehicles by the Electric Power Research Institute. Section 409 - State and Local Incentive Programs Regulations will be issued establishing guidelines for comprehensive State ATF and AFV incentives and programs. Federal assistance will be provided toward State plans introducing substantial numbers of AFVs in each State by the year 2000. For each of the 5 years, beginning with the Energy Policy Act enactment, $10 million is authorized for expenditure. Opportunities for states listed in the Act include: ° exemption from state sales taxes on AFVs, ATFs and ATF refueling facilities ° AFV use by state fleets ° special parking at public buildings, airports and transportation facilities ° public education programs to promote use of ATFs . treatment of sales of ATFs for use in AFVs e facilitation of the availability of ATFs . rate-basing of the incremental cost of new AFVs, conversions to AFVs, and refueling facilities. Section 410 - ATF Bus Program For each of the years 1993, 1994 and 1995 $30 million is authorized for ATF bus programs. Cooperative agreements and joint ventures may be entered into by the Secretary of Transportation with municipal, county or regional transit authorities in urban areas with a 4-4 population over 100,000 to demonstrate ATF buses and other motor vehicles used for mass transportation. Federal assistance may not exceed 80% of the demonstration project costs. Similar agreements are authorized to meet the incremental cost of acquisition of dedicated ATF school buses, conversion of school buses to ATF use and for the installation of ATF refueling facilities. Section 411 - Certification of Training Programs The Federal Government will establish a program for the certification of training programs for technicians responsible for vehicle conversions to ATF use and maintenance of the dedicated dual fuel AFVs. Section 412 - Use of ATFs in Non-Road Vehicles and Engines The feasibility of using ATFs in non-road vehicles and engines will be investigated. The Secretary of Energy may make recommendations to Congress to encourage or require ATF use in these vehicles and engines. Section 413 - Reports to Congress The Secretary is required within 6 months of enactment of the Energy Policy Act to report on purchasing policies of the Federal Government which inhibit or prevent Federal Government purchases of AFVs and also upon the promotion of AFV use through changes in Federal, State and local traffic control measures and policies. Section 414 - Low Inherent Loans Twenty five million dollars per year in 1993, 1994 and 1995 is authorized for low interest loans for vehicle conversions to ATF use. These are meant to reduce the incremental cost of AFVs and for ATF non-road vehicles and engines. Preference is given to small business including repayment schedules that count the savings in fuel cost from use of ATFs in place of gasoline. 4-5 TITLE V - AVAILABILITY AND USE OF REPLACEMENT FUELS, ALTERNATIVE FUELS AND ALTERNATIVE FUELED PRIVATE VEHICLES Section 501 - Fuel Provider Mandate A schedule is mandated for the acquisition of light duty AFVs by fleets of 20 or more centrally fueled vehicles used within metropolitan areas (with 1980 Census population of 250,000 or more) by organizations owning, operating or leasing at least 50 vehicles in the US, and whose principal business is the provision of ATFs. The schedule applies as follows: FUEL PROVIDER MANDATED AFV ACQUISITIONS MODEL YEARS % OF ACQUISITIONS WHICH ARE AFVS a EA SNS ET OT, 1996 30 1997 50 1998 70 1999 AND THEREAFTER 90 Section 502-506 - Replacement Fuel Supply and Demand A program is established to promote the maximum possible replacement of petroleum fuels and to ensure the availability of replacement fuels. Estimates are to be published on the technical and economic feasibility of producing sufficient replacement fuels to replace, on an energy equivalent basis, at least 10% by the year 2000, and 30% by the year 2010 of projected consumption of motor fuel in the US for each such year, with at least 50% of such replacement fuels being domestic fuels. Estimates and information are to be provided on: ° the number, type and distribution of each type of AFV and ATF projected to be used in the US ° the greenhouse gas emissions projected to result from replacement fuel use 4-6 . annual reports from ATF and AFV suppliers on products supplied and supply plans for the next year Provision is made for the Secretary to modify AFV acquisition goals and to issue additional regulations if needed to assure compliance with ATF supply goals. Voluntary commitments are to be sought: ° from fuel suppliers to make replacement fuels available ° from AFV suppliers to ensure supply and services are available for AFVs ° from owners of 10 or more vehicles to acquire and use ATFs and AFVs. The Secretary of Energy will provide a technical and policy analysis not later than March 1, 1997 covering the potential of and progress made in developing the availability of ATFs and advancing imported oil replacement schedules. Section 507 - Fleet Requirement Program Starting in 1999 the mandate for acquisition of light duty AFVs will be extended to include all commercial fleets with 20 or more vehicles capable of central refueling within fleets of 50 light duty vehicles owned and operated within metropolitan areas (with 1980 Census population of 250,000 or more.) The schedule for light duty AFV acquisitions within this expanded fleet sector (excluding certain categories of vehicle) are: COMMERCIAL FLEET MANDATED AFV ACQUISITIONS Pn SS SS ES NT OS SE SERIES MODEL YEARS % OF ACQUISITIONS WHICH ARE AFvs! A SE EL ETA RESTS 1999-2001 20 2002 30 2003 40 2004 50 2005 60 2006 AND THEREAFTER 70 aA TSI ILD IE ET TT OIE LEELA, (1) The schedule may be slowed or reduced (but not increased) at the discretion of the Secretary of Energy. | me a AAR STE OT I TORE IS OE AOE EEE EDEL EEDA LLL A mandatory State Fleet Program for light duty AFV acquisitions is established for State government fleets (but not municipal fleets) as follows: STATE FLEET MANDATED AFV ACQUISITIONS? a MODEL YEAR % OF ACQUISITIONS WHICH ARE AFVS as ee cid PE SL 1996 10 1997 15 1998 2 1999 50 2000 AND THEREAFTER 75 aE A TE TE EE OT EE LEASES AEE, qa) State acquisitions or combination of State, local and private fleets. Seen AGG TE a TE Section 508 - Credits Credits for acquisitions of AFVs are to be issued to those who comply with or exceed the mandate. The surplus credits gained in any year may be transferred in that year to others within the mandate and counted by the recipient fleet toward compliance by that fleet. 4-8 _a my TITLE VI- ELECTRIC MOTOR VEHICLES Measures to develop a Commercial Motor Vehicle Demonstration Program and Electric Motor Vehicle Infrastructure and Support System Development Program are described under this title. TITLE XI - GLOBAL CLIMATE CHANGE Reports will be submitted to Congress on the feasibility and cost of stabilizing and reducing the generation of greenhouse gases in the US by 2005 and on the least cost energy strategy. (These developments are of interest with respect to gaseous fuels because of the relatively low greenhouse gas emissions characteristics of light duty vehicles operating on gaseous ATFs compared to similar vehicles operated on gasoline, and given that emissions are included from all cycle steps including production, transportation, storage, distribution and use in vehicle applications.) TITLE XIX - REVENUE PROVISIONS RELATED TO ATFs AND AFVs Section 1913 - Treatment of Clean Fuel Vehicles A tax deduction is allowed for the cost of qualified AFVs and ATF refueling facilities in the year in which the property is placed in service. The deduction for AFVs is applicable in full until December 31, 2001 at 75%, 50% and 25% respectively in the years 2002, 2003 and 2004. The AFVs qualify only if they meet the applicable Federal and State emission standards, and testing, certification and warranty requirements. 4-9 MAXIMUM COST ALLOWANCE FOR MOTOR VEHICLES VEHICLE WEIGHT CLASS TAX DEDUCTION ($s) TRUCK OR VAN WITH GROSS VEHICLE WEIGHT 26,000 LBSOR MORE _50,000 BUS WITH 20 OR MORE ADULT SEATING CAPACITY 50,000 TRUCK OR VAN WITH GVW 10,000-26,000 LBS 5,000 OTHER ROAD VEHICLES AND CONVERSIONS 2,000 In the case of OEM-produced AFVs, the allowance is attributable only on the incremental cost of the ATF engine, storage and exhaust systems. In the case of dual fuel vehicles, the deduction is limited to the ATF-related components and retrofitted parts and the installation cost. Electric vehicles are considered as a separate case. Qualified electric vehicles are allowed a tax credit not exceeding $4,000 if placed in service before the year 2002 (reduced by 25%, 50% and 75% in 2002, 2003 and 2004 respectively). The tax deduction for an ATF refueling property in the year the facility is placed in service is up to $100,000. The definition of qualifying property and fuels as defined in the Act is given in Appendix 2. TITLE XX - GENERAL PROVISIONS; REDUCTION OF VULNERABILITY The following sections relate to gaseous fuels and vehicle requirements. Section 2013 - Natural Gas Supply The Secretary must conduct a five year program to increase the recoverable natural gas resource base including: ° more intensive recovery from discovered conventional resources . recovery from unconventional sources including recovery from tight gas sources, Devonian shale and from biofuels and surface gasification of coal. 4-10 mm” Section 2014 - Natural Gas End-Use Technologies The five year program for the development of end-use technologies will include increased deliverability from existing gas storage facilities, new facilities for gas storage near demand centers, and on-site storage at major energy consuming facilities. Section 2023 - Alternative Fuel Vehicle Program A cost shared program will be undertaken to improve natural gas and other AFV technologies. Section 2024 - Biofuels User Facility A biofuels user facility will be established to expedite industry adoption of biofuels technologies including alcohol fuels from biomass. A research program will be established to evaluate the production of "biodiesel" from vegetable oils or animal fats. 4-11 alternative fuel (AF) or alternative transportation fuel (ATF) alternative fueled vehicle (AFV) comparable conventionally fueled motor vehicle covered person dedicated vehicle dual fueled vehicle domestic fleet fuel supplier APPENDIX 1 Definition ion 301 methanol, denatured ethanol and other alcohols, natural gas, liquefied petroleum gas, hydrogen, coal-derived liquid fuels, fuels derived from biological materials, electricity, and any other fuel the Secretary determines is substantially not petroleum means a dedicated vehicle or dual fueled vehicle capable of operation on ATFs a vehicle that is commercially available, powered by a gasoline or diesel engine, and provides passenger capacity or payload capacity the same or similar to the AFV a person that owns, operates, leases or otherwise controls: (a) a fleet that contains at least 20 vehicles that are centrally fueled or capable of being centrally fueled and are used primarily within a metropolitan area with a population of 250,000 or more (according to the 1980 census) and (b) at least 50 motor vehicles within the US a vehicle that operates exclusively on an ATF vehicle operated on an ATF and is capable of operating on gasoline or diesel from any of the states, territories, or from resources within a nation where there exists a free trade agreement a group of 20 or more light duty vehicles operated by a “covered person” - exceptions include vehicles held for lease or rent to the general public, dealer vehicles held for resale, law enforcement vehicles, emergency vehicles, defense vehicles, non-road vehicles including farm and construction, and those normally garaged at personal residences at night anyone engaged in the importing, refining, processing, production, storage, transportation, or sale of motor fuel or anyone engaged in the generating, transmitting, importing or selling of wholesale or retail electricity light duty motor vehicle replacement fuel a light duty truck or vehicle of 8,500 GVW rating or less essentially the same “alternative fuel” as defined above but includes only the non-petroleum component of gasoline-ATF and diesel-ATF mixtures APPENDIX 2 Summary of Qualifications for Tax Deductions for Clean Fuel Vehicles The deductions apply to any qualified clean fuel vehicle property and any clean fuel vehicle refueling property. If the vehicle may be propelled by both a clean burning and any other fuel only the incremental cost of permitting the use of the clean burning fuel shall be taken into account. Qualified Clean Fuel Vehicle Property is defined for tax purposes as: ° property acquired for use by the taxpayer and not for resale, the original use of which commences with the taxpayer ° property which meets applicable Federal and State emission standards with respect to each fuel by which such vehicle is designed to be propelled, and in the case of retrofit parts and components, property which meets applicable State and Federal emission-related certification, testing and warranty requirements. Qualified Clean Fuel Vehicle Refueling Property means (not including a building and its structural components): ° depreciable property, the original use of which begins with the taxpayer, used for the storage or dispensing of clean-burning fuel into the fuel tanks of a motor vehicle propelled by such fuel, but only if storage and dispensing of the fuel is at the point where such fuel is delivered into the fuel tank of the motor vehicle e for electric vehicles qualifying property is defined as including equipment used for the recharging of motor vehicles propelled by electricity, but only if the property is located at the point where the motor vehicles are recharged. Clean burning fuels in this context are defined as: ° natural gas, LNG, LPG, hydrogen, electricity and any other fuel at least 85% of which is one or more of the following: methanol, ethanol, or any other alcohol. or ether. A-4 For further information or analysis please contact Dr. Reginald F. Webb, or Mr. Peter J. Hubshman at the Canadian or US offices of the R F Webb Corporation. UNITED STATES CANADA R F WEBB CORPORATION R F WEBB CORPORATION LTD 2300 M STREET NW (SUITE 800) 1011-5 PRINCE OF WALES DRIVE WASHINGTON, DC 20037 OTTAWA, ONTARIO K2C 3K1 (202) 775-0200 (Voice) (613) 224-8460 (VOICE) (202) 775-0202 (DATA/FAX) (613) 224-8077 (DATA/FAX) ADDITIONAL INFORMATION ADDITIONAL INFORMATION ON THIS REPORT: This report is protected under the copyright laws of the United States. It may not be copied or reproduced in whole or in part without the express permission of the R F Webb Corporation. The report is available for purchase directly from the R F Webod Corporation, or, for members of the LP-Gas Clean Fuels Coalition only, directly through the Coalition. The price of the study is $185 to the general public, and $95.00 to coalition members. Inquiries should be directed to: R F Webb Corporation, (202) 775-0200, or LP-Gas Clean Fuels Coalition, (714) 253-5757, or by mail to either party at the address as provided on the cover page of this document.