Pub.1 2019-2020 Issue 2

A s in 2019, air quality issues, both PM and ozone will continue to be a point of focus this year. Implementation of the new sales tax on diesel and gasoline is on the horizon and also likely to be accom- panied by some uncertainty and unknowns. Expect updates on both topics as we move through the year. It has already been a busy start to the year for our downstream members with two major federal regulatory changes coming into effect as of January 1, 2020. Both the new IMO 2020 and Tier 3 fuel standards promise significant emission reductions and air quality improvements. Starting closer to home, as of January 1, 2020 all five of our Utah refineries now need to comply with Tier 3 requirements. Tier 3 is a set of fuel and vehicle standards adopted by the Environmental Protection Agency (EPA) to reduce soot, smog and other types of vehicle tailpipe emissions. In order to meet the Tier 3 national standard, Utah refineries can either produce fuel that averages 10 PPM sulfur or less over a one-year period and across all their facilities, or they can purchase sulfur credits from another refiner who is producing less than 10 PPM sulfur. Voluntary commitments of some Utah refiners to produce this low sulfur fuel here as opposed to at another facility is an important strategy to help reduce tailpipe emissions locally. Three of the state’s five refineries are producing Tier 3 fuels here, rather than utilizing other methods to comply, such as averaging or purchasing credits. Several refineries have made multimillion dollar investments to produce Tier 3 along with other significant air quality improvements. While EPA has said that no state would benefit more from Tier 3 gasoline and emissions standards than Utah, Utah cannot set its own gasoline or vehicle emissions standards. Utah’s Tier 3 benefit is so significant because vehicles account for approximately half of all the emissions contributing to air quality challenges along the Wastach Front. In fact, vehicles are the largest source of pollution during winter inversions and the summer ozone season. In addition to lower sulfur fuel, the second half of the equation is the vehicle fleet. EPA is also requiring much cleaner vehicles to be phased in from model year 2017 through model year 2025. The DAQ estimates that Tier 3 fuel will immediately reduce vehicle emissions in our existing fleet by roughly 7-11%. Once fully implemented, Tier 3 gasoline burned in a Tier 3 vehicle results on average in an 80% reduction in tailpipe emissions, the equivalent of taking 4 out of 5 cars off Utah’s roads. The combined Tier 3 vehicle and fuel standards Downstream Updates will reduce volatile organic compounds (VOC) and nitrogen oxides (NOx) emissions by 80% on a fleet average basis and PM emissions by 70% on a per vehicle basis, according to EPA. Looking ahead, the other Utah refiners may also start producing T3 fuels locally and we could see an expansion in the retailers where T3 fuels will be available. We all have a role to play in improving air quality and we’re happy to be part of the solution! Shifting from vehicle fuels to marine fuels, IMO 2020, the International Maritime Organization’s new global shipping regulations are also now going into effect. These new standards are a win-win for the US — they will drive down global sulfur emission and will also strengthen our economy and further solidify the U.S. as a global energy leader. These regulations have been in the works for more than a decade, with the 171 IMO member states agreeing to a schedule of gradual marine fuel sulfur reductions from 3.5% to 0.5% by January 1, 2020. Analysts have predicted that foreign refiners failed to prepare and lack the capability to produce the newly required low-sulfur “sweet” fuel. The U.S., on the other hand, invested in capital intensive upgrades, and, coupled with booming production from the shale rev- olution, is well postured to capture significant gains from the new standards. Previous studies have shown Utah’s energy industry to be worth $5.3 billion and to be responsible for providing about $543 million in state and local revenues. The Ute and Navajo tribes benefit from royalties and taxes, and the industry also annually provides the majority of the state’s Permanent School Fund through SITLA, in 2018 providing $33.3M, or 54% of the fund — the largest single contributor. The state benefits even from production on federal acreage, receiving anywhere from 42-45% of federal oil and gas royalty payments. Additionally, the industry creates up to 16,500 high paying jobs, primarily in rural Utah. With the global demand for light, sweet oil, and Utah’s abundant untapped low sulfur crude resources, we stand well positioned to see increased production and move up from the current place of the 10th largest oil producing state in the U.S.. This growing interest in the state’s low sulfur fuels could even drive investments into the infrastructure needed to connect our abundant resources to growing global markets. The oil and gas industry is already a powerhouse for the state’s economy. IMO 2020 stands to further stoke demand for Utah’s massive low sulfur fuel resources while reducing sulfur emissions worldwide. 8 UP DATE