ULSD update

July 1, 2006
FOR TANK truck carriers, ultra low sulfur diesel (ULSD) is both fuel and cargo; both challenge and opportunity. The various facets of the product were

FOR TANK truck carriers, ultra low sulfur diesel (ULSD) is both fuel and cargo; both challenge and opportunity. The various facets of the product were addressed during the National Tank Truck Carriers 58th annual conference May 7-9 in San Antonio, Texas.

Rich Moskowitz, regulatory affairs counsel for the American Trucking Associations, provided an update on ULSD supplies and how the fuel will impact the trucking industry. John Conley, NTTC president, reviewed petroleum hauler concerns about the challenges of ULSD distribution.

Production of ULSD with a maximum sulfur content of 15 parts per million was mandated to begin by June 1, and recent data from the American Petroleum Institute indicated that many refineries had already ramped up in May, and overall production levels were averaging 400,000 barrels a day. Most of the ULSD produced so far appears to be going into refinery storage.

June 1 was also the deadline for new labels on diesel storage tanks and fuel dispensing systems at fleet terminals, truck stops, and other petroleum retailers. However, there are widespread reports that the labels are in short supply, and the labeling process is far behind schedule.

“The labels are required because the trucking industry will have access to two different diesel fuels for the next few years,” Moskowitz said. “In addition to the new ULSD, low sulfur diesel (with a sulfur content up to 500 parts per million) will be allowed for on-road use until 2010. Truck engines built for the 2007 model year and beyond are only allowed to use ULSD, though.”

The next key dates 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.

Premium price

Fleets will pay a premium for ULSD compared with what they currently are paying for low sulfur diesel. “The Environmental Protection Agency estimates a five-cent-per-gallon premium,” Moskowitz said. “At ATA, we think the cost could be higher.”

It costs more to produce ULSD at the refinery, and it contains fewer Btu. Moskowitz estimated that the switch to ULSD would result in at least a 1% drop in fuel economy. In addition, engine maintenance costs could be higher due to accelerated parts wear with a fuel that has significantly less lubricity. Plugged fuel filters could be a problem initially, because ULSD will loosen sediment in fuel tanks.

On the plus side, initial demand for ULSD should be relatively limited. Fleets will still be running trucks and tractors designed for higher sulfur fuel, and low sulfur diesel can be used until 2010.

Ultimately, distribution may be the biggest factor in ULSD prices. The East Coast and the Midwest are the regions to watch, according to Moskowitz. Spot shortages could drive prices sky high.

More trucking

Petroleum transports may be the only option for hauling ULSD in some areas due to pipeline concerns about sulfur contamination. Even in areas with pipeline service, shippers are saying that dedicated transports will be required, at least initially.

“The petroleum industry was unable to agree on a switch-loading chart for ULSD,” Conley said. “This means a lot of dedicated equipment will be needed in the beginning, and that means higher transportation costs. We think the industry eventually will move to switch loading as shippers and their customers become more comfortable with fuel quality. It should be possible to switch load ULSD with gasoline.”

Static at the loading rack remains a big concern for petroleum haulers, according to Conley. Additives to improve conductivity will be crucial to rack safety.

Conley cautioned that petroleum haulers would be the first participants in the distribution chain to lack firsthand knowledge of the sulfur content of the ULSD being transported. “Fleets could be left holding the bag in the event EPA inspectors find an out-of-spec shipment,” he said.

Fines for each violation start at $32,500. EPA strongly recommends that petroleum fleets have a ULSD testing and analysis program.

Many petroleum fleets are being asked by shippers to sign indemnification agreements that would transfer virtually all liability for ULSD sulfur contamination to the fleet. Conley strongly recommended that carriers avoid signing the agreements if at all possible.