ARLINGTON, Va. -- Although few consumers will actually need it and only some marketers will likely be selling it in October, ultra-low-sulfur diesel (ULSD) is creating big waves across the fuel supply chain this summer and fall.
It's the most complicated, difficult thing we've tackled in the fuel industry, Dan Gilligan, president of the Petroleum Marketers Association of America (PMAA), Arlington, Va., told CSP Daily News.
The new 15-parts per million (ppm) diesel being introduced this year will ultimately replace the current 500[image-nocss] -ppm low-sulfur diesel (LSD) that has been fueling the nation's fleet for the past several years. The dramatically reduced sulfur content is designed to bring on-road diesel more in line with the emissions restrictions on gasoline-powered vehicles and reduce air pollutants, but getting ULSD to consumers has caused labor pains for the entire supply chain.
It was probably easier to convert from leaded to unleaded because this is a very complicated rule, said Gilligan. The spec is tight, plus the EPA is permitting two on-road diesel fuels in the marketplace for four years something we fought tooth and nail. Despite PMAA and other industry associations' efforts, marketers are faced with the choice of two on-road diesels that must be separated for the next four years, due to ULSD's tight 15-ppm sulfur limit.
Marketers won't be required to sell ULSD until 2010, when all on-road diesel sold in the United States must meet the 15-ppm spec (plus a 3-ppm tolerance allowed by the EPA). However, because the new fuel is required for diesel-powered vehicles with 2007 engines and laterolder engines can handle both LSD and ULSDit's an inevitable switch marketers must make within the next four years.
Gilligan said most marketers he has spoken to are planning to hold off on selling ULSD for as long as possible, or at least until they can find a reliable supply of the fuel that consistently fits below spec. Refiners have already surpassed the minimum supply volume of ULSD the EPA set for this year; terminals have been working throughout the summer to fulfill their end of the requirements.
Right now, we're smack in the middle of a full-fledged transition, Gilligan said. "Terminals [lost] their downgrading allowance on September 1, so they [moved] in August to get as much ULSD segregated in the terminals, so it's creating some real bottlenecks and stresses.
Diesel shortages have plagued marketers in the Midwest and Great Plains states as terminals draw down their LSD inventories to make room for ULSD. Gilligan notes that even greater stress is on the way for those marketers who choose to sell ULSD in October; by Oct. 15, they will lose the ability to downgrade 20% of their ULSD to LSD at the pump.
Violators of the ULSD spec are subject to up to $32,500 in fines per day, per violation, and all parts of the supply chain are presumed guilty until they can prove their innocence, causing some concern for marketers and retailers at the very end of the line. Things may not be as bad as many have feared, however.
It's a good-news, bad-news situation, said Gilligan. The bad news is terminals can legally hand over product at the maximum limit of 15 ppm to marketers and retailers. The good news is thatthey are telling us product is coming into their terminals in the single digits; some reports are that ULSD is coming off the pipeline and into terminals at around 9 ppm. If that's true, that means they should be able to get it to us at 13 ppm rather consistently. We have our fingers crossed the dilemma of the 15-ppm maximum may not be a problem.
Gilligan said PMAA has asked the EPA to survey all terminals in October to determine their ULSD sulfur content so marketers can be alerted to any troubled areas. Should that not come to fruition, PMAA itself may survey 1,200 of its members on ULSD specs at their terminals so it can counsel those facing an extremely low or no-tolerance supply situation.
All we're doing is encouraging them to make plans to convert their transport system, Gilligan said. They also have to make sure they have the appropriate storage segregation they need, and to start training drivers to handle this stuff. That will be really key: to get drivers to handle it properly.
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