Bloomberg News

ExxonMobil Cites U.S. Pollution Rules in N.H. MTBE Fight

January 14, 2013

ExxonMobil Corp. (XOM:US) and Citgo Petroleum Corp. are the last holdouts in an $800 million lawsuit by New Hampshire alleging that oil companies knew a chemical added to gasoline would contaminate residents’ groundwater.

Opening statements are set to begin today in Concord in a trial that pits the state’s environmental claims against the companies’ efforts to comply with federal pollution standards. It’s one of scores of cases involving the additive methyl tertiary butyl ether that have been filed since 2000 against oil refiners, fuel distributors and chemical makers.

New Hampshire says ExxonMobil and Citgo knew MTBE would pollute water supplies. The companies say the federal Clean Air Act overrides the state’s claims and by adding MTBE to gasoline, they were complying with a U.S. mandate to supply fuel that would burn more cleanly.

“The oil companies will say: Federal law made us do that and that pre-empts any state lawsuit,” Keith Hylton, who teaches law and economics at Boston University School of Law, said in an interview before the trial began. “If the federal regulatory body looked at all the issues that the state would examine in a lawsuit, then there is pre-emption.”

Oil refiners have added MTBE to gasoline since the 1970s to replace lead. From 1995 to 2006, they increased the use of MTBE, which boosts the oxygen level of the fuel and makes it burn more efficiently.

‘Foul, Putrid’

According to filings in the New Hampshire case, MTBE can render drinking water “foul, putrid and unfit for human consumption.” The state said it petitioned the U.S. Environmental Protection Agency in 2001 to get out of its reformulated gasoline program because of awareness of MTBE’s harmful effects. The additive has been banned in the state since January 2007.

In 2003, New Hampshire sued ExxonMobil and Citgo along with Shell Oil Co., Sunoco Inc., ConocoPhillips (COP:US), Irving Oil Ltd., Vitol SA and Hess Corp. All have settled except Irving, Texas- based ExxonMobil and Citgo, the Houston-based unit of Venezuela’s state-owned oil company, Petroleos de Venezuela SA. Shell and Sunoco agreed to pay New Hampshire $35 million in a settlement announced in November.

The state has said it has identified 229 sites that will require cleanup from contamination by MTBE, which, according to court filings, can cause cancer in animals. It said tests in 2005 and 2006 showed MTBE in 9.1 percent of private wells throughout the state.

New Hampshire is seeking $816 million to cover cleanup and monitoring costs, Jessica Grant, a lawyer for the state, said at a pretrial hearing.

‘Second-Guessing’

The state is “second-guessing decisions made by Congress, the EPA and by the state’s own officials to rely on gasoline with MTBE as the solution to air pollution,” Claire Hassett, a spokeswoman for ExxonMobil, said in an e-mail. “Gasoline with MTBE was a product that worked as it was intended -- it provided significant health benefits by helping gasoline burn cleaner, thereby reducing smog.”

Citgo said in an e-mailed statement that although it doesn’t comment on pending litigation, its “strong safety and environmental record speaks for itself.”

The state has said the oil companies could have used safer additives, such as ethanol, and chose not to because MTBE is inexpensive to produce.

“If they had an alternative product to use and the alternative is just as good and avoids serious risk to consumers, there’s a strong argument the defendants have failed the risk-utility standard and can be held liable,” said Hylton, the Boston University professor.

Short Supply

The oil companies have said ethanol wasn’t in large enough supply at the time an additive was sought and that it presents its own environmental hazards.

“This case is not about health risks or personal injuries,” Hassett said. “There is not a single recorded case of anyone getting sick from drinking water with MTBE. The majority of the state’s damage claims are based on computer models and projections not on actual testing or data.”

The oil companies also said in court filings that a statute of limitations should prevent the litigation from proceeding. The state waited three years from the time it detected MTBE in sites until it sued, they said.

New Hampshire Superior Court Judge Peter Fauver in August rejected a series of motions by the oil companies seeking judgment without a trial based on the arguments they raised. Those issues can be brought up again for the jury’s consideration.

Water Sources

In January 2011, the New Hampshire Supreme Court denied a motion by the companies to decide the case in their favor and sent it back to the Superior Court. The state’s highest court said New Hampshire could seek damages for contamination of nonpublic sources of water, such as wells, as well as public sources.

The New Hampshire case was moved to federal court in New York, where other lawsuits have been consolidated for pretrial evidence-gathering and motions before U.S. District Judge Shira Scheindlin, who presided over the trial of New York City’s case against ExxonMobil. In 2009, the jury in that case ordered ExxonMobil to pay $104.7 million after finding it liable for polluting wells in the city. ExxonMobil has appealed.

In 2007, the U.S. Court of Appeals in New York sent New Hampshire’s case back to the state court.

The cases consolidated in New York may be tried separately in courts around the U.S. if settlements aren’t reached. In the New York litigation, the New Jersey Department of Environmental Protection filed its fourth amended complaint in June. No date has been set for a trial, which would probably take place in federal court in New Jersey.

Great Distances

MTBE is produced by combining methanol, which is derived from natural gas, and isobutylene, a byproduct of gasoline refining. It can leak into the ground from gas stations, storage tanks and automobile junkyards. It dissolves in water and doesn’t biodegrade or stick well to soil particles, so it can be carried with the water great distances from the site of a leak or spill, according to court papers. The chemical is difficult and expensive to find, treat and remove, according to court filings.

“In the 1980s, the defendants knew that the addition of MTBE would lead to widespread contamination,” Grant said in an interview after a pretrial hearing Jan. 9. “Despite knowing that MTBE posed a greater threat to drinking water resources, they never posted a single warning.”

Spills Fault

ExxonMobil’s Hassett said the fault lies with whoever spilled the chemically treated fuel.

“MTBE contamination has been found in New Hampshire because someone spilled gasoline in New Hampshire, not because it was added to gasoline in a refinery in another state,” she said. “The state should be suing parties responsible for spilling gasoline.”

ExxonMobil rose 0.6 percent to $89.61 in New York Stock Exchange composite trading (XON:US) on Jan. 11. Citgo’s shares don’t trade publicly.

The case is State of New Hampshire v. Hess Corp. (HES:US), 03- C-0550, State of New Hampshire Superior Court (Merrimack County). The federal cases are consolidated as In re MTBE Products Liability Litigation, 00-11898, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net; Sarah Earle in Concord, New Hampshire, at sarah_earle@comcast.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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