Provided by the Society of Independent Gasoline Marketers of America

Preparing the industry

ULSD hits pipelines in June 2006 and must be at pump islands by October. Several organizations, including the Society of Independent Gasoline Marketers of America, are dedicated to educating marketers about the new fuel and making sure the transition to ULSD will be a smooth one.

As background, ULSD stands for Ultra Low Sulfur Diesel and is defined by the United States Environmental Protection Agency to have a maximum sulfur content of 15 parts per million. Today’s on-highway diesel fuel is known as Low Sulfur Diesel and can have as much as 500 ppm sulfur content.

In order to reduce emissions from diesel vehicles and equipment, the EPA, as well as the California Air Resources Board, has established strict new emissions standards for heavy-duty diesel engines. These standards require engine manufacturers to reduce emissions by 90 percent compared to today’s standards. New emission control devices cannot tolerate high levels of sulfur in the fuel, so EPA also set regulations that significantly reduce the allowable amount of sulfur in diesel fuel. By implementing emission standards and ULSD fuel standards for heavy-duty engines, EPA’s regulations are expected to dramatically reduce the air pollution from heavy-duty vehicles.

Since 2001, automotive and refining industries have invested billions of dollars in new technology, conducting studies and making necessary changes to vehicle design and refining and distribution processes and are on track to introduce ULSD in June 2006.

The requirement to provide ULSD is effective on June 1, 2006 for refiners and importers of ULSD, on August 1, 2006 for terminals that store ULSD, and on Oct. 15, 2006 for retail outlets. However, ULSD regulations do not require service stations to sell ULSD. Nonetheless, given the implementation strategy EPA has chosen to ensure retail availability of ULSD (80 percent of all on-road diesel produced or imported must be ULSD), it is anticipated that most retail service stations that have one diesel tank servicing pumps will sell ULSD exclusively provided that ULSD is available at a competitive price in their area. Larger service stations and trucks stops with more than one diesel tank and the ability to completely segregate these products to avoid contamination will be more likely to have both ULSD and LSD available. The new ULSD regulations also require service stations to label their pumps with the specific type of diesel fuel that the pump contains.

To ensure compliance with the ULSD program, EPA has the ability to review records, such as product transfer documents, and to test product samples to prevent non-compliant fuel from being offered for sale as ULSD. While EPA can randomly test samples of fuel, the new regulations require only refiners and importers to test batches of ULSD fuel. However, any party in the distribution chain downstream from the refiner can test samples independently in order to defend against potential allegations of supplying non-compliant fuel.

Existing EPA studies indicate that while some refineries may add diesel refining capacity as ULSD production ramps up, others refineries may either produce less ULSD compared to their previous LSD production or not produce at all for the ULSD market. On balance, EPA’s studies suggest that there may be a decline in distillate refining capacity for on-road product use.

Will the introduction of ULSD cause supply disruptions? As mentioned, introduction of the new fuel is being phased in gradually starting in June 2006 to facilitate a smooth transition between LSD and ULSD. At this time, refiners are not anticipating supply disruptions. Refineries are currently reporting that approximately 95 percent of on-highway diesel fuel will be ULSD when the regulation becomes effective in June 2006 (which is above the minimum 80 percent required by the regulation).

Obviously, there is much information that marketers need to know before the 2006 deadlines. SIGMA will be offering an intensive four-hour workshop on ULSD at its Spring Convention in San Antonio on April 27 to 30, 2006. For more information, call SIGMA at (703) 709-7000.