NEW DIESEL RULES SPARK FEARS OF FUEL SHORTAGES IN CALIFORNIA

California's new regulation governing the aromatics content of diesel has sparked fears of shortages of the fuel when the rule takes effect this fall.

Despite assurances from the state's air quality agency, independent fuel marketers, truckers, and farmers have voiced concerns there may be a shortfall of the new specification diesel because some key refiners won't be able to produce it by the Oct. 1 deadline.

California Air Resources Board (CARB) is requiring all diesel sold in California after Oct. 1 to have either a maximum aromatics content of 10 vol % or equivalent emissions reductions vs. the current level of 30-35 vol %. CARB's rule also slashes limits for sulfur in die sel to 0.05 wt % from the current average of 2.8 wt %.

The rule allows refiners to sell current grades of diesel after Oct. 1 if they pay a 6cts/gal penalty and agree to produce the new spec diesel within 3 years.

A California assembly bill that would have delayed the rule's implementation until supplies of the new spec diesel could be assured was killed late last month by the assembly transportation committee.

BACKGROUND

California Independent Oil Marketers Association (Cioma) last month said a delay was needed in implementation of the rule because only Texaco Inc.'s (OGJ, Mar. 22, p. 34) and Chevron Corp.'s new spec diesel grades (OGJ, June 8, 1992, p. 30) had been certified as of last month and other refiners warned marketers they could not meet the deadline.

Cioma contends the new rule will result in spot shortages and price spikes, lost sales to adjoining states, and bootlegging of nonspec diesel.

Associations of farmers, truckers, and truckstop operators also testified against the rule at a CARB staff workshop last month.

Even with certification, Texaco as of mid-May had not received permits--held up over allegations of environmental violations--to proceed with an upgrade at its 55,000 b/d Bakersfield, Calif., refinery to enable production of the low aromatics diesel. Texaco also has a 95,000 b/d refinery at Wilmington, Calif.

Chevron Corp. said it would miss the deadline by several months but plans to file for the temporary variance.

ARCO expects to be able to manufacture the new fuel by Oct. 1 but has vet to receive certification. Tosco Corp., with a 126,000 b/d refinery at Martinez, Calif., also expects to be able to produce new spec diesel at least its historic diesel output levels by Oct. 1. The big independent refiner will be allowed to produce diesel at double the 10 vol % level for 2 years but has not filed for certification.

The four refiners opposed efforts to delay the deadline, citing money already spent to meet it.

Two other California independent refiners, also allowed to produce 20 vol % aromatics diesel, have said they plan to produce the tougher spec diesel. They are Ultramar Inc., with a 100,006 b/d refinery at Wilmington and Kern Oil & Refining Co., with a 20,000 b/d refinery at Bakersfield.

Exxon Corp. said it won't produce the new spec diesel, and Unocal Corp. plans to produce it at half the company's current level of diesel output.

CARB'S DEFENSE

CARB claims the new rule will not result in shortages of diesel in California, noting offers by Chevron and Texaco to make new spec supplies available to other refiners that can't produce their own.

Chevron told state regulators it could produce as much as 90,000 b/d, or about 60% of state demand, of the new spec diesel, according to press reports.

CARB said it is "comfortable that there will be an adequate supply of diesel fuel, especially enough to meet the needs of growers in the San Joaquin Valley. We will take every action to ensure that."

CARB estimated the new formula diesel is expected to cost 6cts/gal--excluding variance penalties--more than current grades in California.