National Petroleum News Supplement, December 1994

Tank Deadlines Put Heat On Marketers, Manufacturers

By Don Smith and Greg Lindenberg

The stampede could begin at any moment. Until now, the pace of compliance with the U.S. Environmental Protection Agency’s underground storage tank regulations has been painfully slow. Thousands of petroleum companies, convenience store owners and fleet operators have yet to replace or upgrade their tank systems as required by EPA regs.

Crunch time approaches. At a minimum, by the end of 1998, all USTs must be single walled, corrosion protected, equipped with leak detection and spill/overfill catch basins.

And, while the EPA has been cooperating by pushing solutions for such measures as lender liability reform and more flexible risk-based soil remediation, agency officials show no signs of relenting on the 1998 deadline. This tough stance was recently reaffirmed by EPA officials at a meeting in Washington, D.C. Lisa Lund, acting director of the Office of Underground Storage Tanks, told industry representatives that ten years (dating from EPA’s original rulemaking) was certainly enough of a phase-in period.

EPA wants to promote early compliance by tank owners. Irv Auerbach of the Office of USTs told NPN that the office is launching a program to encourage early compliance that will involve mailing a compliance deadline reminder to known tank owners. EPA will also continue pushing distribution of its Don’t Wait Until 1998 brochure (see sidebar). About 30,000 copies have already been distributed through various agencies and associations.

"The tendency on the part of marketers to want to conserve assets makes it hard to imagine that the bulk [of compliance] won’t come in the last few years [before 1998]," Auerbach says. But he suggests that early compliance could save money by encouraging a more methodical approach that would head off any added expense from hasty decisions, by reducing insurance costs and by reducing the potential that an old tank will leak before it is upgraded or replaced. Further, although "it wouldn’t put dollars in the pocket," he points out the benefit that early compliance would have for the environment.

According to Phil Chisholm, executive vice president of the Petroleum Marketers Assn. Of America, "It is a function of human nature that there are people who will wait until they have no choice but to comply; however, the decision whether to upgrade is also an economic one. Marketers may be holding out to see how demographics and other factors may change."

He cites highway construction, changing traffic patterns and possible reduced competition or increased margins as examples of changes that could affect a decision to upgrade, replace or close tanks. Marketers may delay these decisions until 1997 to see if someone down the street closes and gives remaining stations the extra volume, Chisholm speculates.

Do the numbers add up?

How many existing tanks are out of compliance? How many stations need to upgrade? Estimates vary, but there’s no question that hundreds of thousands of USTs will have to be replaced, upgraded or closed by 1998.

The EPA’s Auerbach estimates, based on informal vendor input, that of the 1.3 million to 1.4 million active USTs subject to EPA regulation, 1 million still need to be upgraded, replaced or closed.

This shortfall in tank replacements and upgrades will create an enormous backlog of UST work by 1998, according to PEI, which estimates that work on only 400,000 of the existing non-complying tanks has been completed [NPN—Oct. ’94, p9]. Even more ominous, PEI predicts that the industry will stumble into 1998 with 600,000 USTs not yet in compliance. Assuming that occurs, PEI expects the industry to make, sell, install, remove, line and cathodically protect six times more USTs in the 1998-’99 period than it did in any one of the five prior years. PEI says its members should "just be coming up for air when the millennium ends."

PEI says compliance has been hindered by the failure of individual states to develop information materials for tank owners concerning requirements. Tank owners need, but aren’t getting from their states, "concrete financial incentives for earlier compliance," PEI says. The institute supports EPA’s initiative to promote early compliance with the tank regulations.

One of the most pressing questions in the race to get USTs into compliance is whether tank manufacturers, distributors and contractors can cope with the intensified rate of tank production, installation or upgrading in the next four years. Knowledgeable industry observers are concerned about whether capacity can indeed meet demand.

John Hartmann, president, Hartmann Management Services Inc., Barrington, Ill., a past president of PEI, suggests that the industry could be facing a serious shortage in production capability in meeting the 1998 deadline. There is simply no way, Hartmann says, that current industry manufacturing capacity can turn out the required number of tanks to meet the deadline date.

Supply and demand

No one has exact figures, but industry sources estimate that current capacity is in the neighborhood of 100,000 units/year for both steel and fiberglass tanks. That estimate is predicated on full-blast, three-shift production. With roughly 800,000 tanks in need of replacement or upgrading in a four-year time frame, the gap between supply and demand is obvious.

Wayne Geyer, executive vice president of the Steel Tank Institute, foresees a strong impact on the industry’s ability to keep up with demand. "It won’t be easy," Geyer says. "We’re looking at a building backlog of order and longer deliveries. It’s not desirable from a customer service standpoint."

Geyer says there has also been a big shift to aboveground steel tanks, noting that members report AST orders running two or three times the UST order rate. He says fleet customers are moving rapidly to AST installations, which now account for 38% of fleet installation. "Make that 78% for owner/operator customers."

Some observers see potential shortages of materials and rising material costs because of rising demand as a bigger issue than capacity. Almost certainly, higher demand will boost UST costs, one source says.

Many marketers, especially smaller operators, will choose tank lining as a viable option to replacement (see sidebar). But even if half of the tanks not in compliance—say about 400,000—were upgraded through the lining procedure, the remaining replacements would strain manufacturing capacity to the utmost, especially as market demand rises to predicted levels.

Sully Curran, executive director of the Fiberglass Petroleum Tank and Pipe Institute, is equally concerned about suppliers’ ability to sustain adequate manufacturing capability and support a rush to comply with the 1998 deadline. Curran says FPTPI members have experienced "significant declines" in tank and piping installations since 1992.

Curran cites three factors: Major oils nearing the end of their upgrading and replacement programs; early upgrading to meet the December 1993 leak detection deadline; and lender liability limiting capital available to the small UST owner. As a result, Curran reports that the number of UST manufacturers listed by Underwriters Laboratories in its Gas and Oil Equipment Directory has declined by 15.5% since 1991.

Hartmann is concerned, too, about the quality of tank installation with the rush of work anticipated in the next few years. Higher standards of quality control, training, testing and documentation are crucial, he says. "Otherwise, we’ll just create a new generation of leakers."

The raw numbers on tanks don’t tell the whole story. Equally as important are the number of motor fuel outlets in the various industry segments that are being impacted by the UST regulations.

In a recent survey, PMAA found that 56% of its marketer member tanks are already in compliance. Among smaller marketers, the compliance rate was only 47%. PMAA reports that only 26% of the marketers were in compliance on all of their tanks. Almost half (48%) of the survey respondents spent an average of $135,000 on tank upgrades and replacements in the past year. PMAA says marketers plan to bring all but 7% of their tanks into compliance by the 1998 deadline.

On the bubble

The most detailed analysis and outlook on the impact of the EPA’s regs on the various petroleum market segments was conducted last year by Havill & Co. Inc., a Toledo, Ohio, consulting firm [NPN—Dec. ‘93]. Havill, which conducted over 1,600 in-depth interviews with major oil companies, independent marketers, C-store firms and fleet operators, found that 50% of all types of 1992 motor fuel outlets were in compliance with the 1998 UST regulations.

The report, U.S. EPA Regulated Retail, Commercial and Industrial Gasoline Service Station Marketers 1992-1998, projected a 1998 compliance rate of 78% among all outlet types, meaning that more than one-fifth could be on the bubble at deadline time. Projected 1998 compliance for major oil stations was 100%; for independent marketers, 84%; C-store companies (with gasoline), 83%; and private facilities, 69%. This latter category includes commercial and government fleet operations.

For this NPN report, Havill provided an update on 1993 compliance among the various industry categories (see table). Note that compliance has improved among outlets in each category. The 59% rate of compliance for independent oil firms (marketers) also tracks well with PMAA’s data, although Havill's statistics are compiled from marketer sources that include, on average, somewhat larger jobbers than found in PMAA's sampling.

So far, company president Nicholas Havill sees little that would change the outlook for compliance among the industry groupings. "The big question is what will happen in the commercial fleet market," Havill says. "One-third of he fleets have not yet finalized their plans."

Joseph Slagel of Havill points out that more than 50,000 fleets with onsite fueling facilities said they would be out of compliance with the 1998 regs. "Many will close in favor of offsite refueling programs, others will upgrade and some will convert to alternative fuels."

The shift to offsite refueling has not gone unnoticed by retail petroleum suppliers, says Slagel. Citing a proprietary Havill study of the fleet market, he notes that "major oil companies have been investing heavily in POS hardware to implement their fleet management systems. Our research found that two out of every three new dispensers shipped to major oil companies had internal card readers installed. This is almost twice the number shipped two years ago."

Havill says the changing fleet market is the target of the company’s next big forecast survey, beginning this December. According to Havill’s prospectus, the study—DOE-EPA Regulated Commercial Fleet Market Fuels, Equipment and Services Forecast 1994-2000—will track the changing buying practices of fleet administrators for offsite refueling, alternative fuels, vehicles and fleet management services.

For information, contact Joseph Slagel at (419) 841-2244.