You make some good points Mavrick, which is why the next few years are going to be so interesting. I have talked personally to pipeline operators, terminal operators, reps at the American Petroleum Institute, reps at the Society of Independent Gasoline Marketers of America, NPRA, NACS, the Energy Information Administration (DOE), a few major oil companies... and no one really knows what is going to happen.
It is a very complicated issue, but in a nutshell there are diesel sulfur requirements that will drop sulfur levels from the current 500 ppm to 15 ppm max at the point of retail sale. The auto industry kicked the oil industry's bellybutton (not all too uncommon) with the regulation development, and placed the majority of the pollution reduction requirements on the oil industry by pushing emission reduction technologies that cannot work (and will be damaged) by diesel higher than 15ppm.
There is no real understaing in the industry as to how this will play out nationally or regionally/locally. For a change the EPA is interested in working to keep a full blown disaster from happening, but who knows. Here's a section form a National Association of Convienience Stores position paper on the subject. It's a couple of years old, but I just revisited the issue in a recent pipeline article and no one today can really say anything more today.
While compliance with the regulatory requirements of the final diesel sulfur rule should not be onerous for diesel fuel marketers, other, non-regulatory impacts of the rule may affect marketers more severely. First, it will be expensive for refiners to upgrade their equipment to make 15 ppm diesel fuel. Faced with this expense, some refiners -- particularly small- and medium-sized refiners -- may choose to reduce their highway diesel fuel production or exit the on-road diesel market entirely. Consequently, the final rule may have the affect of reducing the number of suppliers of diesel fuel across the nation, as well as the amount of highway diesel fuel available.
Second, EPA's decision to grant exceptions to the general 15 ppm mandate will result in two highway diesel fuels being available to marketers between mid-2006 and mid-2010. NACS strongly opposed EPA's exceptions because they will force marketers to either choose one type of highway diesel fuel to carry (thereby limiting the classes of trade that marketers may serve) or install additional tanks and dispensers to carry both types of highway diesel fuel. Whichever option a marketer chooses, it will cost the marketer money, either through lost business or capital investments.
Third, EPA's decision to phase-in the 15 ppm highway sulfur standard will create logistical problems for the diesel fuel distribution system because the two highway diesel fuels must be segregated throughout the system. It remains to be seen whether both fuels will be available in widespread markets, or whether 500 ppm fuel is available only in some areas of the country where the higher sulfur diesel can be transported directly from a refinery to retail outlets by truck.
It doesn't touch too much on the pipeline and terminal aspects, but it's common to ship multiple products batched in a pipeline and have multiuse tanks for similar products like diesel and fuel oil at regional terminals. Even if you get 7ppm diesel from the refinery, it doesnt take too much contact with the residue of 1500 ppm jet fuel to breach the 15 ppm level, which raises a lot of liability and product loss issues the farther downstream you go with product. Who pays for the damaged engine or the expensive on-road diesel that creeps above 15 ppm and has to be used in off road applications at a lower price? Alll in all, there will be those from the refinery to the retailer who decide it's too much trouble. The verdict is still out on how many will make that choice (though refineries should already be making the upgrades if they are going to meet the deadline).
It may be nothing, but an awful lot of "cup half full" type of action is going to have to happen for this just to be a minor disruption. Maybe it will.
Charon
