EIA says low sulfur diesel supply picture uncertain


By the OGJ Online Staff

WASHINGTON, DC, May 8 -- The US Energy Information Administration late Monday said it could not predict whether refiners and importers will be able to supply enough low sulfur diesel fuel to meet market demand in 5 years.

"As a result of distribution limitations and nonroad uses, the amount of (ultra low sulfur diesel) actually needed to balance demand in 2006 is highly uncertain," EIA said.

The agency's comments were in a report requested by the House Committee on Science last December on the possible impact of the new low sulfur requirement on the diesel fuel market. EIA did not offer any recommendations; instead, it presented several possible scenarios that could occur when the 15 ppm standard becomes effective in June 2006.

EIA also noted that under rules issued by the US Environmental Protection Agency last year, up to 20% of highway diesel fuel produced may continue to meet the current 500 ppm sulfur limit through May 2010. The remaining 80% of the highway diesel fuel produced must meet the stricter standard. EIA said that highway diesel represents about 12% of total petroleum consumption, compared to 43% for gasoline.

Consumption of highway-grade diesel (500 ppm) was 68% of the distillate fuel market in 1999, while 9% went to nonroad (rail, farming, industry) and home heating uses. Higher sulfur distillate (more than 500 ppm) is used solely for non-road and home heating and comprises the remaining 32% of the market, EIA said.

The agency noted that the number of vehicles in 2006 that will need low sulfur diesel to run properly will be small because few new vehicles requiring the clean fuel will still be on the road. EPA would then have the option of temporarily reducing the required amount of the new fuel on the market, EIA said.

EIA assessed short-term and mid-term supply issues identified by the Science committee.

It predicted that some refiners may be able to produce low sulfur diesel for as little as 2.5¢/gal; however, at the volumes needed to meet demand, costs are estimated to be between 5.4 and 6.8¢/gal.

Reacting to the report, clean air groups accused the agency of using "selective" data to undermine the rule.

"This report uses selective information in an obvious attempt to help the oil industry undermine EPA's new diesel fuel standards," said Frank O'Donnell, executive director of the Clean Air Trust.

"It raises real doubts about the Bush administration's intentions about the clean diesel standards," O'Donnell added. "Will this lead to yet another flip-flop?" he asked, noting the president used an earlier EIA study to justify a flip-flop on carbon dioxide controls.

Meanwhile, the American Petroleum Institute and the National Petrochemical and Refiners Association have filed suit to block the EPA diesel sulfur rule, claiming it could cost the oil industry too much money and lead to fuel shortages.

EPA estimates the standards would prevent 8,300 premature deaths/year and produce $70 billion/year in benefits by reducing smog, soot, and toxic air contaminants.

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