A2O A 2nd Opinion, Inc..

A 2nd Opinion on CaRFG3

T50 & SupplyPresented To:

Air Resource BoardMeeting to Discuss Issues Relating to the California Phase 3 RFG Regulations

August 18, 2000 By:

Cal Hodge, President A 2nd Opinion, Inc.

A2O A 2nd Opinion, Inc..

Agenda

What Has Changed C7 alkylate

cost & supply C8 alkylate &

isooctane cost & supply

Impact on emissions CaRFG3 T50 needs to

allow C8 isoparaffins

A2O A 2nd Opinion, Inc..

T50 & Supply are Important

ARB increased T50 limits tomaximize CaRFG3 blending flexibility.

That was a good move! ARB traded T50 for tighter sulfur

and benzene standards. California became more self

sufficient.(2° reduced imports 10 to 15 kbd.)

But there is more data

A2O A 2nd Opinion, Inc..

2000 is Different

Federal Phase 2 RFG has arrived. YTD price differential is 6 to 7 ¢/gal. Summer differential is 9 to 11 ¢/gal. Phase 1 differential was 1 to 2 ¢/gal.

Alkylate is worth more. 2000 quotes are typically 15 to 20

¢/gal. over conventional regular. CEC used 12¢ over in earlier work. CEC’s C7 alkylate is 19¢ over.

CEC Analyses Show California

Needs C7 Alkylate & Ethanol

0

50

100

150

200

250

Oxy Waiver 2 Wt. % 2.7 Wt. % No Oxy

Thou

s. B

arre

ls P

er D

ay

C7 Alkylate Ethanol CARBOB

Source: CEC 2/ 00

A2O A 2nd Opinion, Inc..

Propylene Used to Make C7 Alkylate is Now a

Chemical

Chemical FuelChemicals FuelsButylenes

Propylene

Since 1990 100,000 bpd of propylene (175,000 bpd C7

alkylate) has gone from Fuels to Chemicals

Propylene Now Sells for Over One Dollar per

Gallon

0

20

40

60

80

100

120

¢/Ga

llon

USGC

Butylene is Worth Butane

or about 60¢ per gallon

0

20

40

60

80

100

120

1/4/

00

1/18

/ 00

2/1/

00

2/15

/ 00

2/29

/ 00

3/14

/ 00

3/28

/ 00

4/11

/ 00

4/25

/ 00

5/9/

00

5/23

/ 00

6/6/

00

6/20

/ 00

7/4/

00

7/18

/ 00

8/1/

00

¢/Ga

llon

USGC

nC4

iC4

C7 Alkylate costs 30¢/gallon

more than C8 Alkylate

50

100

150

C8 Alkylate

Isooctane

C7 Alkylate

A2O A 2nd Opinion, Inc..

Cost vs Blend Value

( ¢/gallon) Variable

Cost Blend Value Gulf Coast Gulf Coast West Coast

C7 Alkylate 112 93 105 C8 Alkylate 82 94 109 Isooctane 107 98 117

A2O A 2nd Opinion, Inc..

Cost vs Blend Value Over

GC Conventional Regular

Variable Cost Blend Value

Gulf Coast Gulf Coast West Coast

C7 Alkylate 29 11 22 C8 Alkylate 0 12 26 Isooctane 25 15 34

A2O A 2nd Opinion, Inc..

Market Observations

West Coast setting Gulf CoastC8 alkylate price.

Variable cost isooctane from butane in converted Gulf Coast MTBE plants break even but no capital recovery.

Buying propylene back from chemicals 17-18¢ out of market.

A2O A 2nd Opinion, Inc..

Implications

West Coast can continue buying C8 alkylate away from Gulf Coast.

If Feds ban MTBE a West Coast refiner could lock up a supply ofisooctane by putting up the conversion capital to assure access if he can use it.

The trend to chemicals and the economics make C7 alkylate availability doubtful.

California needs to accommodateC8 alkylate and isooctane.

A2O A 2nd Opinion, Inc..

Replacing MTBE Hurts Midpoint

Boiling Point

E200 E300

MTBE 131 100 100 Ethanol 173 100 100 C7 Alkylate 174-209* 76 98 C8 Alkylate 211-259* 10 94 Isooctane 211 5 92

* Boiling Point range of isomers

Change in Emissions for Adding 10% of Component

to Flat Limit

-12

-10

-8

-6

-4

-2

0

2C7 Alkylate C8 Alkylate Isooctane

NOxExhaust THCEvap THCTotal THC+COPot. Tox.

Slight increase in Exhaust THC offset by less Evap. THC.Total THC down. Fuels Pass.

Change in Emissions (Adding 10% Component to Flat Limit

And Holding RVP at 6.9 by Adding Isomerate)

-12

-10

-8

-6

-4

-2

0

2C7 Alkylate C8 Alkylate Isooctane

NOxExhaust THCEvap THCTotal THC+COPot. Tox.

After balancing RVP, which refiners will do, Exhaust THC is less than Flat Limit.

A2O A 2nd Opinion, Inc..

Conclusions

C8 alkylate & isooctanehelp air quality.

They cost less than C7 alkylate.

They ease supply/cost crisis. California needs to find a way

to allow more C8 isoparaffinsinto CaRFG3.

A2O A 2nd Opinion, Inc..

Recommendations

Increase T50 Cap limit to 225. Increase T50 Flat limit to 215. Increase T50 Avg limit to 205.

OR T50 Cap limit to 220 plus 1°

for each Vol % isooctane. Set T50 Flat limit to 210 plus 1°

for each Vol % isooctane. Set T50 Avg limit to 200 plus 1°

for each Vol % isooctane.

A2O A 2nd Opinion, Inc..

Some DI Comments

The auto industry is concerned thiswill hurt DI.

Adding paraffins reduces olefin and aromatic contents and improvescustomer satisfaction.

T10, T50 & T90 can easily bereflecting aromatic boiling points.

Heavy aromatics and olefins impacton-road performance (octane needs) more than midpoint.

Heavy Aromatics Hurt On-Road Performance more than

Midpoint

51015202595.8

96

96.2

96.4

96.6

96.8

97

97.2

Min

RM

Oct

ane

Vol % C9+ Aromatics% Evap. @

170

Olefins Hurt On-RoadPerformance more than

Midpoint

0 2 4 6 8 10 12 14 16 18 20

94.595

95.596

96.597

97.5

Min

RM

Oct

ane

Vol % Olefins

% Evap. @ 170