First gasoline, and now diesel.
The US Environmental Protection Agency submitted its proposal for diesel fuel quality to the White House Office of Management and Budget earlier this year. It calls for a nationwide cap of 15 ppm for on-road diesel sulfur in 2006, a 97% reduction from today's 500 ppm cap. A separate report, by two associations of air-quality control officers, also calls for a reduction to 15 ppm.
What refiners want
With the final diesel rule expected before the end of April, refiners hope to ward off a repeat incident of their failure to convince regulators to adopt a milder plan for regulation of gasoline sulfur levels. Last year, the industry recommended a 50% reduction in average gasoline sulfur levels. Instead, EPA's final rule in December required a 90% reduction to 30 ppm by 2005.
Instead of a cap for diesel fuel sulfur content at 15 ppm, refiners want a cap of 50 ppm. Diesel sulfur stakeholders asked the EPA to withdraw and reconsider its proposal. They say EPA's proposed cap is neither doable nor advisable and warn of "future shortages of diesel and home heating oil."
Ed Murphy, manager of the American Petroleum Institute's downstream segment, estimates the capital cost to reduce diesel sulfur specs to 50 ppm at $5 billion vs. at least double that for 15 ppm. The 15 ppm rule creates different sulfur levels for home heating oil and diesel-a logistical nightmare for refiners and marketers.
Extreme sulfur specifications come at a bad time for refiners already bracing for the impact of several regulatory developments:
- MTBE looks like a goner in California by 2003; efforts are under way at the federal level to phase it out across the US (see related story, p. 36).
- National Petrochemical & Refiners Association estimates new gasoline sulfur rules will require $3-5 billion in new capital outlays.
- A reinterpretation of new source review may escalate project costs.
- Compliance with new regulations governing maximum achievable control technology (MACT) II standards and ozone levels poses additional concerns.
Higher prices
Although refiners want to reduce sulfur levels, they want to do so in a way that minimizes impacts on supply and prices. Refiners accuse EPA of wanting rock-bottom low sulfur levels with no substantial data to justify those levels and failing to properly consider the impacts of higher fuel prices on the US economy.
As a result of surging demand andhigher crude oil prices, home heating oil prices recently skyrocketed. Some northeastern state congressmen propose creating a heating oil reserve to prevent future price spikes.
Several weeks ago, a truckers' convoy to Washington, DC, complained about a 50% hike in diesel prices. These examples of short-term price fluctuations show that high material costs occur at the expense of consumers.
The truck drivers' descent on the capital is emblematic of Americans' dependence on diesel. From bringing products to store shelves to delivery of home heating oil, diesel is an integral part of the US economy.
That's what NPRA is trying to drive home with its warnings to the EPA: Shortages and high diesel prices-lest we forget-translate into high costs and prices for all.
