OAK BROOK, Ill. -- As if the supply struggles that retailers and jobbers faced in 2005 weren't enough, this year will have its share of challenges as well, particularly with diesel. We're going to ultra-low-sulfur diesel [ULSD]starting October 15, Mark Routt, an oil company consultant with Energy Security Analysis Inc., Wakefield, Mass., told CSP Daily News. [It's] as big a deal in diesel as moving from leaded to unleaded was in gasoline.
And Dan Gilligan, president of the Petroleum Marketers Association of America (PMAA), said the change could potential [image-nocss] be worse for diesel jobbers and truckstop operators. This is going to be different because there's a phase-in involved, he told CSP Daily News. We're actually going to have two on-road diesels in the marketplace for four years. There will also be two off-road diesels, and when you throw in heating oil as a fifth, you're creating an extremely complicated infrastructure in terms of storage, what product you store and what product you offer to your customers.
The four-year phase-in process, established by Bill Clinton in the waning days of his presidency as part of an effort to improve vehicle emissions, requires diesel refiners, marketers and retailers to convert from selling low-sulfur diesel (500 parts per million) to ultra-low-sulfur diesel (15 ppm) by June 2010. The change plays to price, but it also plays to that energy-supply chain because there isn't going to be enough, said Routt. At the same time [the change will be made], diesel sales are robust and growing, whereas gasoline, although larger, has been flat.
Although the change has been in the pipeline for more than five years, two marketers CSP Daily News spoke to said they haven't focused on the required change much and will need to review it in the coming months.
But Gilligan said he's heard plenty of marketers express their concern about the change. Jobbers are going to have to carry all the products, he said. They're going to have to carry the 15-ppm diesel and the 500-ppm diesel for on-road, and they're going to have to carry both products for off-road.
Most retailers that sell diesel fuels to highway vehicles, however, simply need to decide which product they're going to sellin most cases, the 15 ppmand convert their tanks to that product by Oct. 15, 2006.
But it'll be tougher for truckstop retailers, according to Gilligan. Truckstops are probably going to have to carry both products because you could see substantial price swings, he said. In any one week, the highway ULSD product could be 10 cents higher than the 500-ppm product, or it could be 10 cents lower. And in the truckstop business, over-the-road truck drivers will die over 2 cents a gallon. So you can't be caught with your competitor offering the [less expensive product] and you not having it.
In the meantime, all diesel retailers can expect some supply and pricing issues as the phase-in process progresses, Gilligan said. We know we're going to have outages and we know we're going to have price spike. The question is: How many outages and how many price spikes are we going to have?
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