T echnical Support Document for 2013 Methyl Bromide CUE Rule EP

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## 1. Supply Chain Factor Analysis

1.1 Introduction

Since 2004, U.S. methyl bromide producers’ estimate of the time needed to re

- establish methyl bromide production in the United States following a major domestic supply disruption has changed, prompting a reass essment of the inventory needed to mitigate potential supply shor tages following
such an event. In the event of a loss of domestic methyl bromide production capacity, the supply shortfall of methyl bromide for domestic consumption is estimated based on the amount of methyl bromide needed in excess of the amount that can be expected to be imported from foreign producers to satisfy domestic demand over the period required to restore domestic production capacity. The quantity of met l bromide authorized by th e Parties to the Montreal Protocol for critical uses in the
United States in 201 3 (and the amount on which the projected 2013 methyl bromide demand is based)
is 562,326 MT. To meet demand not expected to be satisfied by imports during the time required to

re

- establish domestic production would require domestic methyl bromide inventories of approximately 3

– 70 % of the annual 2013 demand or between 17 and 394 MT. This document explains the process by which this inventory calculation was reached.

This analysis assumes that the methyl bromide supply (i.e., the lost domestic production cap acity)
will be re

- established. However, it is important to note that in the event of a major loss of domestic production, whether U.S. methyl bromide production companies decide to re

- establish methyl bromide production capacity or to reconfigure their facility to produce methyl bromide would be an
individ ual company business decision. For example, if the methyl bromide shortfall is such that the price of methyl bromide increases and some users choose to switch to alternatives, the demand fo r methyl bromide may decrease. Under these circumstances, producers may choose to continue to purchase and transship methyl bromide from foreign suppliers, to not re

- establish methyl bromide

pro duction capacity, and to instead re

- direct production lines to manufacture other, poten tially higher

value chemicals. In brief, the market response to a methyl bromide plant failure and the subsequent response of domestic and foreign methyl bromide manufac turers could follow a number of differe nt scenarios. Additionally, chemical manufacturers that are not currently producing methyl bromide would face geographical limitations to producing methyl bromide, since they would need to be located in the vicinity o f a source of elemental bromine, found principally in underground brine depo sits in Arkansas and Michigan. Quantitative analyses of these alternative scenarios are not provided in this report.

The potential for importing methyl bromide following a major do mestic supply disruption depends on three key parameters: (1) the estimated total foreign production capacity for methyl bromide; (2) the amount of the foreign

- produced methyl bromide that would be available to U.S. customers considering worldwide demand; and (3) the availability and capacity of specialized shipping containers needed to import methyl bromide taking into consideration the logistics of shipping methyl bromide from foreign suppliers to the U.S.T echnical Support Document for 2013 Methyl Bromide CUE Rule EP

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### 1.2 Foreign Production Capacity

The amount of methyl bromide that can be imported into the United States depends on foreign production capacity and existing claims on that capacity (i.e., existing contracts between foreign manufacturers of methyl bromide and foreign consumers). As of 2 006, Israel, Japan, and China were the only countries other than the United States that were still producing methyl bromide. 1 

### The calculation of methyl bromide production capacity in China, Israel, and Japan is based on consumption data reported to UNEP. In 2009, the estimated amount of methyl bromide produced for
all uses was 24,258 MT.



### 1.3 Worldwide Demand

Calculated worldwide demand for methyl bromide in 2013 is presented in Table 1 based on U.S. and foreign critical use, QPS, and feedstock demand. Demand for critical use for both U.S. and non

Article 5 foreign users is assumed to be the amount authorized for critical uses in 2013 at the 23 rd 

### Meetings of the Parties. The 2010 consumption of methyl bromide for controlled uses by A rticle 5 countries was calculated based on data reported to UNEP for years 2006

- 2011. A steady rate of decline in demand since 2006 (approximately 760 MT per year) was projected out to 2013 to estimate future Article 5 consumption (see S e c t i o n 3 ). Worldwide consumption of QPS methyl bromide is based on data reported in 2011 to UNEP. U.S. and foreign demand for feedstock methyl bromide, which are assumed to be the same for 2009, is based on UNEP (2010). 2



### In summary, total worldwi de consumption of methyl bromide in 2013 is based on 2013 critical use allocations, data reported by UNEP (2010), and data reported to the UNEP Ozone Secretariat

, 3 

### and is projected to be approximately 18,335 MT (including U.S. consumption).

1 France discontinued methyl bromide production as of 2006 and Romania in 2004. Methyl bromide production
in France and Romania was not included in the calculation of foreign production capacity because it is assumed that capacity for methyl bromide production no longer exists or could not be restored in a reasonable time frame in those countries. Romania closed its methyl bromide production facilities in 2004,
and th e Albemarle Port de Bouc facility in France has been reconfigured as of 2006 to produce fine chemicals and is no longer producing methyl bromide. (Sources: UNEP. 2006. 2006 Report of the Methyl Bromide Technical Options Committee: 2006 Assessment. Availab le at: http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml

.

2 UNEP. 2010. 2010 Report of the Methyl Bromide Technical Options Committee: 2010 Assessment

. Available at: http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/MBTOC

- Assesment

Report

- 2010.pdf

.

3 UNEP Data Access Center. Last accessed N ovember 20, 2012 at: http://ozone.unep.org/new_site/en/ozone_data_tools_access.php

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### Table 1

. Estimated Total Worldwide Methyl Bromide Demand in 2013 , in Metric Tons

Methyl Bromide Use Annual Methyl Bromide Demand (MT) U.S. Consumption of Critical Use Methyl Bromide a 562

Non

- Article 5 Foreign Consumption of Critical Use Methyl Bromide a 49
Article 5 Consumption of Critical Use Methyl Bromide b 1,636
Worldwide Consumption of QPS Methyl Bromide c 9,680
Worldwide Consumption of Feedstock Methyl Bromide d 6,408

TOTAL 18, 335
Totals may not sum due to independent rounding.

a Crit ical Use methyl bromide, as authorized for critical use in 2013 at the 23 rd Meetings of the Parties. Available at: http://ozone.unep.org/new_site/en/committee_documents.p hp?committee_id=1

b UNEP Data Access Center. International Methyl Bromide Consumption Data, 2006

- 20 11

. Last accessed November 20,
2012 at: http://ozone.unep.org/new_site/en/ozone_ data_tools_access.php

C UNEP Data Access Center. Methyl Bromide QPS Consumption Data, 20 11 . Last accessed November 22, 2012 at: http://ozone.unep.org/new_site/en/ozone_data_tools_ access.php

d Demand in 2013 for feedstock methyl bromide was assumed to be equal to reported consumptio n for these applications in
2009 . Source: UNEP. 20 10 . 20 10 Report of t he Methyl Bromide Technical Options Committee : 2010 Assessment.
Available at: http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/MBTOC

- Assesment

- Report

- 2010.pdf

.



### Foreign methyl bromide production capacity is estimated to be greater than total worldwide consumption of methyl bromide in 2013, based on 2013 critical use allocations, data reported by UNEP (2010), 4 

### data reported to the UNEP Ozone Secretariat

. 5 

### Therefore, foreign production should be adequate for meeting U.S. c ritical use needs, as well as the rest of demand worldwide, if U.S. methyl bromide production is shut down. The foreign production capacity estimate is not provided in this public document because that information could be used to estimate information abou t the production capacity of individual companies.



### 1.4 Availability of Shipping Containers

Imports and exports of methyl bromide require specialized shipping containers, or isotanks, of which

t here are a limited number

. Because manufacturing new methyl bromi de isotanks is a slow process, it may be difficult or impossible to quickly manufacture significant numbers of new isotanks in response to a production failure. As a result, in the event of a domestic supply disruption, the United States would have to dep end on the existing capacity of isotanks to import methyl bromide for U.S. customers and transship methyl bromide for foreign customers from foreign manufacturers.

4 UNEP. 20 10 . 20 10 Report of t he Methyl Bromide Technical Options Committee : 2010 Assessment. A vailable at: http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/MBTOC

- Assesment

- Report

- 2010.pdf

5 UNEP Data Access Center. Last accessed Novemb er 20, 2012 at: http://ozone.unep.org/new_site/en/ozone_data_tools_access.php

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### W hile methyl bromide impor ts have the potential to offset all of the methyl bromide needed f or domestic critical use (and formerly obtained from domestic production) for the estimated period,

some short

- term supply deficit would be experienced in the U.S during the timeframe required to complete the first import shipment if adequate domestic inve ntories are not available

. The timeframe for future shipments of methyl bromide to the United States is also a crucial element in the analysis of importing methyl bromide to the United States following a major U.S. production failure. The shipping time frame determines not only how long it will take for the first shipment of methyl bromide to arrive, but also the number of round trips (or “turns”) the isotanks can make in a given timeframe, thereby impacting both the speed at which methyl bromide can rea ch the United States and the total quantity of methyl bromide that can be imported before U.S. methyl bromide production is resumed. Based on information provided by industry representatives, it is estimated that
it would take 15 weeks for the first shipme nt of methyl bromide to reach the United States following a domestic production failure.



### 1.5 Estimate of Supply Shortfall

With sufficient foreign production capacity to meet U.S. and worldwide critical use needs, the limiting factor in the event of a major loss of domestic production capacity becomes the shipping container capacity available to import the foreign methyl bromide into the United States and the logistics of such shipments. Assuming that U.S. critical users will require the 562 MT authorized fo r critical uses in 2013 , the available shipping containers and estimated shipping capacity would be adequate to fulfill U.S. critical use methyl bromide demand ; h owever, ramping

- up foreign production and adjusting shipping routes to transition the United S tates from a major exporter to a major importer would take time. Therefore, the United States would be without newly produced or imported methyl bromide for a certain time period

— estimated to be 15 weeks

— after a domestic production failure (based on inform ation from industry representatives). Meeting demand during this time period would require domestic methyl bromide inventories of approximately 3 to 70 % of the annual 201 3
demand or between 17 and 394 MT

. Th e s e inventory estimates represent the range of critical use
demand over the time period preceding the first shipment of imports, depending on the season in
which the major loss of domestic production capacity occurred. The season in which the domestic supply disruption occurs will affect the inventory needed because the rate of methyl bromide use is not constant throughout the year.

In order to estimate the supply chain factor for 2013, t he following assumptions are retained from the previous analysis:

1. Foreign production of methyl bromide would be suf ficient to meet U.S. critical use needs (as well as the rest of worldwide demand) should U.S. methyl bromide production be shut down.
2. Given the availability and capacity of methyl bromide shipping containers and shipping logistics, it would take 15 weeks for the first shipment of methyl bromide to reach the United States following a domestic production failure.

Using these assumptions and data presented in Table 2 , we estimate the necessary domestic methyl
bromide inventories dur ing the 15

- week period in which the U.S. would be without newly produced or imported methyl bromide, in the event of a major loss of domestic production capacity. We use theT echnical Support Document for 2013 Methyl Bromide CUE Rule EP

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### data on seasonal production of critical use methyl bromide from 2006 to 2011 to ca lculate the average proportion of methyl bromide produced per week in each quarter. Quarterly production data for 2006 to 2011 show consistent patterns in the level of production throughout the year; these are likely the
result of normal variation in meth yl bromide demand at different times of year. For example, critical use methyl bromide used for pre

- plant and post

- harvest applications would be in the highest demand immediately prior to the growing season. The average proportion of methyl bromide produ ced per week in each quarter is multiplied by the allocated amount of critical use methyl bromide consumption in the U.S. in 2013 (562 MT) and 15 weeks to compute the average 15

- week demand for methyl bromide in 2013. The resulting upper and lower bounds r eflect seasonal differences in the level of production and critical use demand.

Table 2 . 2013 Supply Chain Factor Calculation

Quarter Average 2013 15 week

demand (MT) (A) Percent of 2013 demand (B)
1 394 70%
2 148 26%
3 90 16%
4 17 3%
Notes: A = Average proportion of CUE pre

- plant and postharvest methyl bromide produced per week in quarter
562 MT (2012 U.S. consumption of critical use methyl bromide) × 15 (time required to obtain new foreign supplies of methyl bromide).

B = A ÷ 562 MT (2012 U.S. consumption of critical use methyl bromide).



### Domestic inventory requirements vary d epending on the time of year in which a disruption occurs . If a supply disruption occurs in the fourth quarter of the year, the inventory require ment is expected to be at the lower end of this range. If the disruption occurs in the first quarter, the inventory requirement is expected to be at the higher end of the range. For a disruption during the second or third quarters, the required inventorie s would fall between the two extremes. EPA estimates that critical use production in the first 15 weeks of each year (the peak supply period) currently accounts for approximately 70% of annual critical use methyl bromide demand. EPA, therefore, estimates that the peak 15

- week shortfall in 2013 could be 394 MT.



### 1.6 Limitations

There are several limitations associated with the estimate of 17 MT to 394 MT of inventory needed to meet a supply shortfall resulting from a sudden domestic supply failure. First, it should be noted that the pre

- 2005 inventory is held by multiple companies, and the sale of that inventory is governed by market forces. Hence, in the event of a production failure, the stockpile could be purchased by any user (i.e., critical use/non

- criti cal use, QPS, feedstock, or foreign users). Most likely, the stockpile would go to the user willing to pay the highest price in time of short

- term global shortage. Second, there may also be existing contract agreements that must be honored. As a result, there is no guarantee that the existing pre

- 2005 inventory of methyl bromide will flow towards U.S. critical uses in the case of a production failure. Third, it is not clear that a contingency plan exists amongst theT echnical Support Document for 2013 Methyl Bromide CUE Rule EP

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### various methyl bromide producers as t o how to respond to a major supply disruption. Thus, the reallocation of shipping containers to import methyl bromide into the Unite d States may not occur smoothly over the first weeks or months while the various manufacturers, shippers, and customers

sor t out their arrangements. Finally, characteristics such as the purity of the pre

- 2005 inventory of methyl bromide could affect users’ ability to use this inventory to meet their needs for methyl bromide; however, these characteristics are not known. For example, some of the methyl bromide held in inventory may be intended for pre

- plant uses may be pre

- mixed with chloropicrin in compressed gas cylinders and therefore could not be used for post

- harvest fumigation.T echnical Support Document for 2013 Methyl Bromide CUE Rule EP

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## 2. E stimate of F u t u r e P r e - p h a s e o u t M e t h y l B r o m i d e Inventory

In past supply chain factor analyses, in order to estimate the future available methyl bromide inventory, EPA applied a simple linear fit of past pre

- phaseout methyl bromide inventory using
Microsoft Excel softw are. As shown in Table 3 and Figure 1 below, this method predicts negative inventory amounts for 2012 and 2013. These projections are no longer useful in proj ecting amounts be held by companies in the U ni ted States as of January 1, 2013.

Table 3

. Linear Projection of Methyl Bromide Inventory, in Metric Tons , 2004

- 2013

Year Reported Projected

2004 16,422 14,581

2005 12,994 12,719

2006 9,974 10,856

2007 7,941 8,993

2008 6,45 8 7,131

2009 4,273 5,268

2010 3,063 3,406

2011 1,803 1,543

2012 1,249

- 320

2013

- 2,182



### Figure 1 shows the reported and projected inventory graphically.T echnical Support Document for 2013 Methyl Bromide CUE Rule EP

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### Figure 1

. Projected Linear Trend of Methy l Bromide Inventory , 2004

- 2013

A s s h o w n in Table 4

, the drawdown of pre

- phaseout inventory for all uses has never exceeded 42% of the prior year’s inventory and has never been less than 16%. In absolute terms, largest amount of
annual drawdown on inventories was 2, 303 MT

. I n t h e pr opo se d r ul e, EP A estimates that 42% (more
than ha s been record ed to

- date) of the amount on

- hand at the beginning of 2012 will be sold in 2012.

Table 4 . Drawdown on U.S. Pre

- phaseout Inventories, 2006

– 2012

Year On

- Hand at

Beginning of Year (MT) Drawdown

D uring Year (MT) Percent

Drawdown On

- H and at

End of Year (MT)
2006 9,974 2,303 23 % 7,671

2007 7,671 1,213 16 % 6,458

2008 6,458 2,185 34 % 4,273

2009 4,273 1,210 28 % 3,063

2010 3,063 1,260 41 % 1,803

2011 1,803 554 31 % 1,249

2012 1,249 634 (P rojected ) 42 %

(P rojected ) 615

(P rojected )

Note: Drawdown f

or 2012 projected based on the highest percentage drawdown recorder to

- date. - 5,000 - 2,500 0 2,500 5,000 7,500 10,000 12,500 15,000 17,500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Reported

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### Based on these projections, no more than 634 MT of pre

- phaseout inventories would likely be sold in
2012 and 615 MT will be on

- hand at the beginning of 2013.

I n t he p r o pos ed r ul e, EP A e st im ate s the amount of inventory used in 2012 on critical uses. O n average only 59% of the CSAs allocated for a control period are reported as sold in that control period

. T he highest proportion of sold

- to

- allocated CSA w a s 70 % a s recorded in 2011 (see Table 5 )

. I n t h e pr opo se d r ul e, EP A projects that 70% of the amount of CSA allocated in 2012 would be sold
for critical uses . The result is an estimate of 184 MT of pre

- phaseout methyl bromide inventories sold
f or critical uses in 2012.

Table 5 . Critical Stock Allowance Usage, 2006

- 2012

Year Allocated CSA

(MT) Sold CSA (MT) a Sold CSA to Allocated CSA

2006 1,136 784 69%
2007 1,915 922 48%
2008 1,730 1,047 61%
2009 1,919 1,127 b 59%
2 010 1,028 613 60%
2011 555 386 70%
2012 263 184 (Projected) 70% (Projected) Average 61%

a Methyl Bromide 2005

- 2011 Accounting Frameworks. Available at: http://www.regulations.gov/#!documentDetail;D=EPA

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b According to the accounting framework, 1,135 MT of CSAs were used. Reports received after the Framework was submitted to UNEP indicate that 1,127 MT were used.



### Since 2006, the amount of prior year inventory used through the expenditure of CSAs has ranged from 8% to 26% (see Table 6 )

. Based on the project ion i n T a b l e 5 of 70% of allocated CSA being sold in 2012, EPA estimates that 15% of the prior year inventories will be used through expenditure
of CSAs.

Table 6 . Expenditure of Pre

- phaseout Methyl Bromide Inventories and Sold CSA , 2006

- 20 12

Year On

- Hand at

Beginning of Year (MT) Sold CSA

(MT) Percent

Expended
2006 9,974 784 8 %

2007 7,671 922 12 %

2008 6,458 1047 16 %

2009 4,273 1127 26 %

2010 3,063 613 20 %

2011 1,803 386 21 %

2012 1,249 184 (Projected) 15 %

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### I n t h e p r o p ose d rul e, EP A e s ti mate s the amount o f pre

- phaseout inventory used in 2012 on non

critical uses. The annual amounts of pre

- phaseout methyl bromide inventories used for non

- cr itical uses have varied with no discernible pattern since 2006 (see Table 7 )

.
Table 7 . Expenditure of Inventories for Non

- cr itical Uses, 2006

- 2012

Year On

- Hand at

Beginning of Year (MT) Non

- Critical

Uses (MT) Percentage of Non

Critical Uses to Inventories
2006 9,974 1,249 16 %
2007 7,671 561 9 %
2008 6,458 1,139 27 %
2009 4,273 267 9 %
2010 3,063 647 36 %
2011 1,803 168 13 % 2012 1,249 450 (Projected) 36% (Projected)
Based on M ethyl Bromide 2005

- 2011 Accounting Frameworks. Available at: http://www.regulations.gov/#!documentDetail;D=EPA

- HQ

- OAR

- 2009

- 0277

- 0059



### I n 2010, 36% of the total prior year inventory was sold for non

- critical uses . On a weight basis, this was equal to 647 MT. In 2006, much more inventory (on a weight basis) was sold for non

- critical uses, 1,249 MT, but this comprised only 16% of the total start of year inventory that year. As a result,
the a verage proportion of prior year inventories of 17% does not provide enough informatio n for estimating the likely amount of inventories used for non

- critical uses in 2012. U sing the highest proportion of inventories used for non

- critical uses between 2006 and 2011

, t h e p r o p o s e d r u l e esti mates that 36% of the total start of year inventory would be used for non

- critical uses in 2012.
T h i s i s e qu al t o 450 MT

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## 3. P rojection of Article 5 Methyl Bromide Consumption

Table 8 presents the projection of Article 5 methyl bromide consumption through 2013. Article 5 consumption in 2002 through 2011 is from UNEP Data Access Center (201 2 ). The consumption values for 2012 and 2013 are projected based on the 2006

- 2011 consumption trend. 6 

### The 2006 Assessment of the Methyl Bromide Technical Options Committee supports this projection method.

As sh own in Table 8 , consumption in 2013 is projected to be about 1,636 MT. This value is used to calculate the total worldwide methyl bromide demand in 2013.

Table 8

. Methyl Bromide Consumption in Article 5 Co untries (MT) , 2002

- 201 3

Year Reported Article 5

Consumption of Critical Methyl Bromide Projected Article 5 Consumption of Critical Methyl Bromide
2002 12,579

N/A 2003 11,755
2004 10,531
2005 9,497
2006 6,952 6,949
2007 6,224 6,190
2008 5,495 5 ,431
2009 4,435 4,672
2010 4,038 3,913
2011 3,164 3,154
2012 2,395
2013 1,636

6 There seems to be a clear break in the trend between 2005 and 2006, and as a result, we projected t he Article 5 consumption data for 2012 and 2013 using data from 2006

– 2011.