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The Transition to Ultra-Low Sulfur Diesel
In the near future, 80 percent of the on-road diesel fuel refined or imported must be ultra low sulfur (ULSF) compliant. For motor carriers, few issues are likely to be bigger this year. Will this move risk disrupting the steady supply of fuel that is essential to the industry.
An incredibly volatile diesel fuel market is undergoing a radical change. The United States is in the process of transitioning to ultra-low sulfur diesel (ULSD) fuel, raising fuel supply and pricing concerns throughout the trucking industry.
The trucking industry depends upon an uninterrupted supply of affordable diesel fuel to move 70 percent of United States' goods. Over the past year, dramatic increases in crude oil prices, caused in part by geopolitical instability and coupled with significant domestic refinery outages in the wake of several hurricanes, led to the highest diesel prices in U.S. history and threatened the stability of this critical market.
The Environmental Protection agency mandated that by June 1, 80 percent of the on-road diesel fuel refined or imported must be ultra low sulfur compliant, which has no more than 15 parts per million. Retail outlets and centrally fueled fleets must comply with the rules Oct. 15. The new standard reduces the amount of sulfur in on-road diesel by 97 percent and is necessary to support the next generation of engines, which will be equipped with advanced emission control equipment. For motor carriers, few issues are likely to be bigger this year.
The transition to ULSD has been in the works for more than five years; however, no amount of planning will completely ameliorate the unanticipated problems associated with such a major change. The greatest challenge presented by the transition to ULSD will not be its cost to produce or distribute, but rather the more critical issue of supply. Historically, introducing a new on-road fuel generates supply and demand imbalances. And the transition to ULSD will be no different. EPA has said that the changeover to ULSD initially might decrease domestic refining capacity for on-road diesel.
The on-road diesel supply problem may be exacerbated by the fact that ULSD can easily be contaminated during transport. As ULSD moves through the national network of fuel terminals and pipelines, which also transport high-sulfur products such as home heating oil and jet fuel, the risk of it picking up sulfur is substantial. Refinery tests already have shown that ULSD leaving the refinery gate at 7 parts per million may exceed the 15 ppm regulatory limit by the time it reaches the destination terminal in certain parts of the country. Delivery from terminal to point-of-sale presents an additional opportunity for sulfur contamination. Such contaminated fuel cannot be sold as ULSD.
In light of the challenges associated with the distribution of ULSD, there is a risk of temporary localized shortages and ensuing price spikes. Indeed, truckers in Denver already have experienced temporary supply shortages, the causes of which might be partially attributed to the ULSD transition.
Other challenges presented by the transition include misfueling scenarios, as two grades of diesel fuel will be available until 2010. Refueling a post-2007 truck with fuel exceeding 15 ppm sulfur could reduce fuel economy, damage after-treatment emission devices, invalidate certain warranty claims and result in increased air emissions.
Clean air is not free. EPA estimates that ULSD will cost an extra 5 cents a gallon to refine compared with today's low sulfur diesel fuel. The cost of ULSD distribution could further increase its price. Another economic concern for the trucking industry is that ULSD contains less energy than today's diesel fuel and is expected to reduce truck fuel economy by about 1 percent.
The American Trucking Association (ATA) remains committed to the introduction of the next generation of heavy duty diesel engines and recognizes the critical role that ULSD plays in ensuring future emissions reductions. technological changes are necessary to achieve these reductions, but trucking can ill afford petroleum supply disruptions.
If trucks are to continue moving the nation's economy, a steady supply of fuel is imperative. ATA has been working with EPA and the petroleum industry to discuss the concerns that our industry has over the transition to ULSD. While everyone is hopeful that additional supply disruptions do not materialize, it is clear that the transition to ULSD must occur in an expeditious manner so that the inevitable market disruptions are behind us by the time the new generation, cleaner burning 2007 diesel engines, roll off the assembly line next year.