US Federal Trade Commission monitors of gasoline and diesel fuel prices have detected sudden price increases for diesel during the last 2 weeks in the Mississippi River Valley from Arkansas to Minnesota and westward to the Dakotas.
Diesel prices in the US Heartland have climbed to a virtual tie with the West, which traditionally leads the US, as customers pay roughly 12¢/gal more than elsewhere in the Midwest, FTC said on Aug. 15.
The agency sourced the increases to the continuing conversion to ultralow-sulfur diesel (ULSD) fuel, unusually high demand due to greater irrigation pump use during drought conditions, and refinery production problems.
The new diesel fuel regulations ordered by the US Environmental Protection Agency are an important factor, FTC said. Refiners have been producing ULSD since June 1, while pipelines and terminals must deliver it by Sept. 1, and retailers and marketers must sell it by Oct. 15, it noted.
Terminals are facing significant challenges in making the conversion as they clear older, higher-sulfur diesel from their tanks to avoid contaminating the newer grade. Useful storage capacity at terminals is reduced as tanks are drained and refilled, FTC said.
“With a smaller amount of fuel than usual in storage at terminals during the transition to ULSD, a sudden increase in demand from causes like unusual weather may cause a terminal to run out of diesel,” FTC said. “The short-run solution to this problem would be to bring in diesel by truck from more distant terminals, but the problem may be harder to solve if the demand surge is widespread and if nearby terminals are also short of stored product because they are making the same transition.”
Apparently occurring
This appears to be happening in the Heartland, FTC said. “According to reports in early June, supplies of new diesel were tight along the main pipeline serving the region. Later that month, storage for the old diesel was reportedly limited, and the pipeline operator was discouraging shipments of old diesel. We would expect this to occur if terminals along the pipeline had to flush old diesel fuel from their tanks before the new ULSD could be stored.”
The region also is in the midst of an extensive drought, with conditions ranging from “exceptional” in central South Dakota to “severe” in the rest of the state and in Nebraska to abnormally dry, FTC said.
Large engines drive the big irrigation pumps and huge motor-driven sprinklers many farmers use. Just one of those engines can use 10-20 gal/hr of diesel, or even more. “The drought in the Heartland has forced farmers to irrigate more, and it doesn’t take long for thousands of farms pumping many hours per week to burn a lot more diesel than usual. This raises the consumption of diesel in a system already limited in its supply,” FTC said.
In addition, an unidentified Kansas refinery closed in mid-July for maintenance, aggravating the diesel shortage in a region that has significantly fewer refineries and pipelines than elsewhere, FTC said. “It may be harder to alleviate a shortage in the Heartland than in parts of the country with more infrastructure.” it said.
Moreover, FTC warned that diesel fuel markets may be growing tight farther west, citing the US Energy Information Administration’s latest weekly survey, which showed a 16¢/gal week-to-week jump in the Rocky Mountains. “Other sources carried unconfirmed reports that a regional refinery was having difficulties making ULSD in its recently upgraded processing facilities,” the FTC said.
“For now, a combination of regulation, logistics, and drought appears to have caused the diesel price increase in the Heartland and perhaps beyond. Prices may decrease as the transition to ULSD is completed,” FTC said.
