Meeting the challenges of new fuels

DISTRIBUTING petroleum products — such as gasoline, diesel, and heating oil — seems to get more complicated by the day. This year brought an especially heavy flurry of changes (many of them compliments of the federal government), and more will come before the end of 2006.

The year started off with significant changes in gasoline formulation that had an impact on distribution. Marketers across the country are distributing large volumes of gasoline blended with ethanol. In many areas, ethanol is being used as an additive replacement for methyl tertiary butyl ether, a chemical that helped reduce exhaust emissions that contribute to air pollution. Ethanol also is a renewable fuel, and gasoline blends with up to 85% ethanol are on the market in many locations.

For some petroleum distributors, the rise of ethanol brought a new business opportunity. These companies deliver the blended fuel to their customers and transport the ethanol blend stock from the processor to petroleum terminals and bulk plants. It's turning into a great source of new revenue.

Changes on the distillate side include the rollout of ultra low sulfur diesel (ULSD) and the growing use of biodiesel blends. Key dates for the switch to ULSD are September 1 and October 15. Petroleum terminals must begin handling ULSD by the September deadline, and retail sales of the fuel must be underway by the October date.

Like ethanol, biodiesel is viewed both as an additive to improve the performance of petroleum-based diesel and as an environmentally friendly alternative fuel that can be blended with petroleum-based diesel. Biodiesel also is seen as an alternative to petroleum-based heating oil.

All of these fuel formulation changes are bringing new challenges for the distributors. It is absolutely crucial that distributors stay on top of the issues. Failure to do so could be extremely costly. For instance, Environmental Protection Agency fines for distribution of out-of-spec ULSD start at $32,500 per violation.

Operators must make sure that transport and bulk plant equipment is compatible with the new fuel blends. Ethanol and biodiesel can damage the gaskets, seals, and bushings that were used in the past for equipment handling gasoline and petroleum-based diesel.

ULSD poses additional concerns, because sulfur content cannot exceed 15 parts per million under the EPA rule. The fuel is extremely susceptible to contamination by stray sulfur retained in cargo tanks and product handling equipment.

It's important to have the right equipment. To limit the potential for sulfur contamination, many petroleum distributors plan to run dedicated tank trailers, at least initially. Petroleum distributors could find it impossible to use metered-delivery tank wagons for heating oil and diesel unless the heating oil also is ultra low sulfur.

Further, equipment design experts say it could be cost-prohibitive to convert existing tankwagons to ULSD service. The product delivery systems are simply too complex to be purged effectively.

The challenges of handling the latest gasoline, diesel, and heating oil formulations should get sorted out over the coming months. This is hardly the last change in fuel formulation that we'll see, though. More sulfur reduction is in store for refined fuels, and no one can really predict where the market will go in terms of alternative fuels.

Petroleum distributors will have to be flexible. The companies that do the best job of handling change will have the best chance of sticking around for the longhaul.

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