crobtex
08-30-2006, 05:47 AM
From the Colorado Springs Gazette:
Diesel prices traced to new sulfur rules
Drivers have seen a slight reprieve in the price of regular gasoline in recent weeks, but diesel fuel prices are hovering close to record highs, with no relief in sight.
Since June, the price of diesel fuel has threatened to topple Colorado Springs’ record high average set Oct. 24 at $3.282 a gallon.
Tuesday’s local average for diesel was just pennies less at $3.213 per gallon, AAA Colorado said. The national average Monday was $3.090.
Colorado is one of several states in the region, along with South Dakota, Kansas and Nebraska, suffering a diesel shortage, said Roy Turner, executive vice president of the
Colorado-Wyoming Petroleum Marketers Association.
And, he predicts, “It’s not going to be a short-term problem.”
Blame it on industry difficulties in complying with new Environmental Protection Agency regulations, which call for diesel fuel sold in the United States to have much lower sulfur compounds. Sulfur is attributed to acid rain.
Refiners on June 1 began producing the new allowable sulfur content, reduced substantially from 500 parts per million to 15 ppm.
Fuel distribution terminals must have the product in tanks by Friday, and retailers by Oct. 15. Turner said local retailers already are switching their inventories, so “we have ultra-low sulfur at the pumps right now.”
But “the production of ultra-low sulfur diesel has not gone as smoothly as we hoped it would,” said Harlan Ochs, president of Colorado Springsbased Acorn Petroleum, the largest seller of diesel fuel in southern Colorado.
To meet the government’s tougher clean-fuel regulations, Suncor Energy in Commerce City, which supplies about onethird of the state’s diesel consumption of 60,000 barrels a day, spent $445 million to upgrade its refinery.
But since the work was completed in June, production has stalled, said Steve Douglas, general manager.
“Every refinery across the U.S. lost some production, shifting into the new fuel because it takes a while to optimize it and maximize production,” he said.
Another problem is that diesel is a hot commodity this time of year, he said, because construction equipment, interstate trucking and farm machinery kicks into high gear.
“We certainly support the move to the ultra-low sulfur — it will result in cleaner air, lower emissions and better air quality — but it has been a difficult changeover because it happened at the peak of the demand season,” Douglas said.
Branded and unbranded diesel have been rationed to suppliers, Ochs said, with some easing of branded fuel in recent weeks.
“So our big task has been to go beyond this area to find and transport significant volumes into this market,” he said.
He has been sending his company’s tankers to nearby states, such as New Mexico and Wyoming, to fill up.
“That’s affecting pricing because we’ve had to go quite a distance to get the product,” Ochs said.
High diesel prices hurt a wide range of industries, and cost increases are passed on to consumers, said Sharon Williams, school director at the United States Truck Driving School in Colorado Springs.
“Trucking companies have higher freight charges, which are passed on to the suppliers and ultimately to the buying public at every level,” she said.
The school has increased its tuition 10 percent since prices spiked in June, Williams said.
“It’s cut into our bottom line, so we, like every other industry, must pass those charges along to the paying consumer,” she said.
Ochs hopes for a market turnaround by early October, while Turner foresees shortages lasting as long as two years.
Why?
“With ultra-low sulfur, you get a 3 percent reduction in energy content, so right away the mileage will drop on diesel engines,” Turner said.
That will boost demand.
Secondly, offshore refineries have no incentive to invest in producing ultra-low sulfur diesel, he said.
“They can sell their supplies to India, China or other markets, so we’re cutting out refined diesel products that we’ve been importing — which will continue to put pressure on the refiners here to raise their capacity,” Turner said.
Diesel prices traced to new sulfur rules
Drivers have seen a slight reprieve in the price of regular gasoline in recent weeks, but diesel fuel prices are hovering close to record highs, with no relief in sight.
Since June, the price of diesel fuel has threatened to topple Colorado Springs’ record high average set Oct. 24 at $3.282 a gallon.
Tuesday’s local average for diesel was just pennies less at $3.213 per gallon, AAA Colorado said. The national average Monday was $3.090.
Colorado is one of several states in the region, along with South Dakota, Kansas and Nebraska, suffering a diesel shortage, said Roy Turner, executive vice president of the
Colorado-Wyoming Petroleum Marketers Association.
And, he predicts, “It’s not going to be a short-term problem.”
Blame it on industry difficulties in complying with new Environmental Protection Agency regulations, which call for diesel fuel sold in the United States to have much lower sulfur compounds. Sulfur is attributed to acid rain.
Refiners on June 1 began producing the new allowable sulfur content, reduced substantially from 500 parts per million to 15 ppm.
Fuel distribution terminals must have the product in tanks by Friday, and retailers by Oct. 15. Turner said local retailers already are switching their inventories, so “we have ultra-low sulfur at the pumps right now.”
But “the production of ultra-low sulfur diesel has not gone as smoothly as we hoped it would,” said Harlan Ochs, president of Colorado Springsbased Acorn Petroleum, the largest seller of diesel fuel in southern Colorado.
To meet the government’s tougher clean-fuel regulations, Suncor Energy in Commerce City, which supplies about onethird of the state’s diesel consumption of 60,000 barrels a day, spent $445 million to upgrade its refinery.
But since the work was completed in June, production has stalled, said Steve Douglas, general manager.
“Every refinery across the U.S. lost some production, shifting into the new fuel because it takes a while to optimize it and maximize production,” he said.
Another problem is that diesel is a hot commodity this time of year, he said, because construction equipment, interstate trucking and farm machinery kicks into high gear.
“We certainly support the move to the ultra-low sulfur — it will result in cleaner air, lower emissions and better air quality — but it has been a difficult changeover because it happened at the peak of the demand season,” Douglas said.
Branded and unbranded diesel have been rationed to suppliers, Ochs said, with some easing of branded fuel in recent weeks.
“So our big task has been to go beyond this area to find and transport significant volumes into this market,” he said.
He has been sending his company’s tankers to nearby states, such as New Mexico and Wyoming, to fill up.
“That’s affecting pricing because we’ve had to go quite a distance to get the product,” Ochs said.
High diesel prices hurt a wide range of industries, and cost increases are passed on to consumers, said Sharon Williams, school director at the United States Truck Driving School in Colorado Springs.
“Trucking companies have higher freight charges, which are passed on to the suppliers and ultimately to the buying public at every level,” she said.
The school has increased its tuition 10 percent since prices spiked in June, Williams said.
“It’s cut into our bottom line, so we, like every other industry, must pass those charges along to the paying consumer,” she said.
Ochs hopes for a market turnaround by early October, while Turner foresees shortages lasting as long as two years.
Why?
“With ultra-low sulfur, you get a 3 percent reduction in energy content, so right away the mileage will drop on diesel engines,” Turner said.
That will boost demand.
Secondly, offshore refineries have no incentive to invest in producing ultra-low sulfur diesel, he said.
“They can sell their supplies to India, China or other markets, so we’re cutting out refined diesel products that we’ve been importing — which will continue to put pressure on the refiners here to raise their capacity,” Turner said.