Arco loses corner on market for cleaner gasoline.

Arco loses corner on market for cleaner gasoline

Shell's entry drives competition; there's more to come

Backed by the booming voice of actor and spokesman James Earl Jones, Los Angeles-based Atlantic Richfield Co. introduced its pollution-reducing EC-1 gasoline to consumers last Aug. 15, heralding it as the break of an environmental dawn in Southern California's gasoline business.

Bringing the product from concept to pump in a scant six months, Arco was the first and only oil company in the lucrative Los Angeles market to sell a reformulated, less-polluting gasoline.

Until this month -- when Houston-based Shell Oil Co. introduced its reformulated premium unleaded SU 2000E gasoline to Los Angeles and other cities nationwide April 11, usurping Arco's corner on the market for pollution-reducing gas.

And there's more competition to come, oil industry experts say. Faced with the threat of the tough and limiting Clean Air Act, retail oil companies plan to hit Los Angeles heavy with reformulated and emission-reducing fuels.

"Competition to be perceived by consumers as corporate good citizens in Los Angeles will heat up the oil industry," said Joseph Lastelic, a spokesman for the Washington-based American Petroleum Institute. "Arco and Shell are just the first. The Arco and Shell competition in Los Angeles, if you can call it that, is as much based on public perception as it is based on market share."

The two reformulated gasolines marketed by Shell and Arco are vastly different, said a spokesman for Arco. The Los Angeles-based oil company's position through the release of Shell's SU 2000E has been to emphasize the differences between the products and point to Arco's trailblazing of EC-1 as visionary.

Pumped through a nozzle that will only fit in the tanks of cars that use leaded gas, Arco's EC-1 is formulated to reduce sulpher has benzene emissions in older vehicles.

Shell's SU 2000E is a reformulated super unleaded, formulated to reduce hydrocarbon vapor and carbon monoxide emissions during transportation, storage and delivery. SU2000 E, according to Shell, has been targeted for the nine cities that have been identified by the Bush administration as having the nation's worst ground-level air quality problems: New York, Hartford, Conn., Chicago, Houston, Philadelphia, Milwaukee, San Diego, Los Angeles, Baltimore, and Washington, D.C.

"The new gasoline reflects Shell's ongoing commitment to make environmental considerations a priority in our development of new products and processes," gushed Frank H. Richardson, Shell's chairman and chief executive officer. "We obviously do not view our introduction of SU 2000E as a total solution to the nation's air quality problems. We do believe that it is an important step in the right direction."

With 10 percent of Shell's gasoline sales coming from Los Angeles and another 2 percent coming from San Diego, the success of the reformulated gasoline in the Southland is one key to the environmentally motivated SU 2000E project, which has cost Shell $20 million to $25 million, said a Shell spokesman.

"When we thought about what we should be doing about the 1990 driving season, Los Angeles was, unfortunately, at the head of the list," said Steven Miller, vice president of Shell's refining and marketing division. "Los Angeles' problem is so massive, it cannot be ignored. We hope that SU 2000E will be embraced by consumers here."

According to Miller, the launch of Shell's SU 2000E sped ahead because the required upgrades to Shell refineries were not capital intensive. The product will cost about 5 cents to 10 cents more per gallon to produce, said Miller, but the price of the gasoline will be determined by market conditions, not production costs.

Shell was eager to enter the consumer market with a low-polluting gasoline before Arco introduced its low-emissions unleaded, Miller said.

"We knew that Arco was working on a reformulating other grades of gasoline, including unleaded," said Miller. "It was a peripheral issue in our decision to move ahead quickly, but it was in the backs of our minds."

Arco plans to have a reformulated unleaded on the market by late 1990 or early in 1991, if research and development and refinery upgrades are completed in time, an Arco spokesman said. Arco is engaged in a $300 million upgrade of its refineries which will allow it to produce a low-polluting unleaded.

Since Arco entered the low-polluting gasoline market last summer, Bartlesville, Okla.-based marathon Petroleum Co., lay, Ohio-based Marathon Petroleum Co., Radnor, Penn.-based Sun Refining Co. and Houston-based Conoco Inc. have all rolled out low-emission gasolines. But Shell's marketing is by far the most extensive.

The industry has reacted to federal pressure, said Lastelic, and is now peddling fast to outrun the Clean Air Act in Congress.

Already passed in the Senate, and soon to be debated in the House, the Clean Air Act includes a definition for reformulated gasoline.

"None of the reformulated gasolines that are currently being marketed would fit the definition currently being discussed by Congress," said Lastelic. "Our position is that Congress should not write the definitions for gasoline because it could lock out improvements that might even be better for the environment than those fuels favored in the Clean Air Act."

The cost of the Clean Air Act to gasoline retailers is estimated as high as $100 billion, or 10 cents to 25 cents a gallon.