November 11, 2011 at 1:57 pm #2053
Refiners, Marketers Balk at Proposed Hydrogen Fuel Mandate
California refiners and marketers are not at all pleased with a plan that would require hydrogen-fueling facilities at some retail locations.
Nov 11, 2011
SACRAMENTO – California regulators are considering a plan to require major oil companies and their marketers to install hydrogen-fueling facilities at some locations. Those who don’t or won’t comply could face fines under proposals being debated by California’s Air Resources Board.
Refiners say any move by the state to require station owners to remove existing tanks and dispensers in order to install hydrogen fueling equipment – especially with no compensation – would be unconstitutional. The state has no authority to use eminent domain powers to seize private property in order to build clean fuel outlets, they say.
California is one of the world’s largest fuel markets and is a bellwether state on clean air requirements. CARB initiatives on gasoline vapor recovery, reformulated gasoline and diesel emission controls have formed the basis for regulations adopted both in other states and at federal level.
CARB officials have decided that the state needs at least 70 hydrogen fueling sites over the next five years or so, based on confidential sales projections auto manufacturers have provided the state.
A working group of refiners, marketers and auto companies has been discussing the issue with regulators for months and was moving toward a plan to provide $100 million or so in incentive funds to companies willing to offer hydrogen fueling at their locations.
But progress stalled after automakers indicated at a Nov. 3 meeting that they would not sign a Memorandum of Understanding on the issue. “The implication was that they had already invested millions in hydrogen technology development and that others should foot the cost for developing retail outlets,” says one source.
Refiners believe the auto giants have been emboldened in their position by a CARB threat to introduce a “backstop” measure that would make gasoline companies solely responsible for building hydrogen fueling locations if no voluntary agreement is reached, says the Western States Petroleum Association (WSPA), which represents 26 refiners and suppliers in six states.
Most of the hydrogen used for today’s transportation is produced by industrial gas firms, some of them listed on the Fortune 500. Those companies could build hydrogen-fueling facilities at a much lower cost than oil marketers, but CARB has not proposed to make them responsible parties under the regulations.
According to CARB documents, the agency thinks there will be approximately 4,200 fuel cell vehicles on California roads by 2015. CARB believes that the first facilities built should be able to accommodate hydrogen demand of up to 400 kilograms/day. It puts the capital cost at around $2.3 million to $3.7 million per station. Fill-ups would initially run about I kilogram/day per vehicle of hydrogen. The retail cost of hydrogen on a gasoline equivalent basis is expected to be $4-$6/gal. According to a report by the California Energy Commission, the pump price could be around $3.06 per gasoline gallon equivalent before state and federal excise taxes are added. It takes about four gallons of hydrogen to produce the same amount of energy as one gallon of gasoline, the state notes.
Stations would need to pay for the hydrogen and its delivery, and have a footprint large enough to accommodate equipment to compress the fuel, store it and dispense it. The working group estimates that the operator of an early hydrogen station would experience an estimated negative cash flow of $175,000 or more per year for at least four years. “It is possible they may never recognize any profit,” absent financial support, WSPA said in a Nov. 4 letter to CARB Chairman Mary D. Nichols.
Refiners say that the state should evaluate how pilot hydrogen fueling sites on private property perform before mandating that gasoline companies invest in the technology. There are nine test stations co-funded by the state.
Refiners and marketers have been willing to work with CARB and other stakeholders on the issue in a “voluntary, collaborative effort. Unfortunately, CARB’s rulemaking jeopardizes the likelihood of a cooperative approach to this issue with the private sector,” WSPA said.
CARB is using a special model to determine where a hydrogen site should be located, based on the auto manufacturers’ data, but a station owner would have no recourse for compensation if that demand doesn’t materialize because CARB chose the wrong site or the auto firms change their production plans, wrote WSPA President Catherine H. Reheis-Boyd.
CARB has said it wants the first hydrogen stations to be opened in Los Angeles, San Francisco, Sacramento and San Diego markets. The number of stations it would expect refiners to build and operate at their own expense would be tied to each company’s market share. For example, BP would be responsible for 22% of the sites and Chevron for 20%. ConocoPhillips and Tesoro would be expected to operate 15% of the units. Valero, Shell and ExxonMobil would be responsible for 13%, 8% and 7%, respectively.
“Basically, the state’s plan is to dictate who would pay for the hydrogen fueling sites, and where and when they would be built,” says Jay McKeeman, legislative affairs vice president of the California Independent Oil Marketers Association.
“We believe there is a legitimate business opportunity for small-to-medium sized California fueling enterprises but CARB’s insistence of this ‘backstop’ provision will scuttle the efforts everyone has made so far,” McKeeman adds. “It will almost certainly lead to a protracted legal battle over the placement of the facilities and it will be attorneys, not our members, who will derive income from this plan.”
WSPA also notes that government agencies have reduced their financial support of hydrogen technology, demonstrating a shift in focus toward other lower-carbon fuels. The U.S. Department of Energy has cut its annual funding request for hydrogen to nearly half of what it spent each year from 2008 to 2010.
Even California itself has cut back its spending. In a 2008-2010 investment plan, the California Energy Commission proposed $40 million to co-fund development of hydrogen stations, depending on the number of hydrogen vehicles expected to be rolled out. But in the end, the Commission has reduced its proposed financial support to only $13 million for fiscal years 2010 through 2011.-Carole Donoghue
November 11, 2011 at 2:01 pm #4837
California Regulators/CAB putting out Mandate Refiners & Marketers add Hydrogen fueling and remove fueling tanks at thier cost!
Are you kidding me – just when I think those idiots cannot get any crazier they go into straight-jackets! This should pretty well put them out of refining/oil business & walking in California.
Sure does clarify why all majors were selling plants/relocating headquarters – they were already underwater doing the partial H2 sites that were tied into Air Products distribution lines. Where do these masterminds think all H2 will come from when current suppliers close plants/eleminate offgas and lot high sales for H2 for plants avoided putting in their own? Air Products had only about half capacity for market for its commercial generating plants – rest was from waste gas of refineries, cement & power plants!
I would rate this a double down on the dumb-butt moves. Wonder what a bankrupt California is going to do with another huge hit to its tax coffers when these guys exit. Don’t think they will be importing H2 from China/elsewhere.
You must be logged in to reply to this topic.