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Vol. 11, No. 18 Week of April 30, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

Ultra-low sulfur diesel is here

Switch-over looms for Alaska highways, equipment, but cost, accountability uncertainties linger; DEC working with industry

Alan Bailey and Rose Ragsdale

Petroleum News

After years of talk and trepidation, Alaska’s diesel sector is ready to convert to using an ultra-low sulfur product in most mobile engines, including trucks and construction equipment.

The switchover is mandated by the U.S. Clean Air Act and set to begin June 1. It will roll to completion over the summer and fall, with final compliance for Alaska end users required by the U.S. Environmental Protection Agency by Oct. 15, according to Tom Chapple, director of Air Quality, Division of Air and Water Quality at the Alaska Department of Environmental Conservation.

The new ultra-low sulfur diesel products are aimed at drastically reducing sulfur emissions from diesel engines. Diesel exhaust contains pollutants that may increase asthma, respiratory problems, and cancer as well as contribute to acid rain.

The new ULSD Rule requires refiners and importers to produce highway diesel with a maximum of 15 parts per million sulfur and particulates, starting June 1. Pipeline operators are expected to require refiners to provide diesel fuel with even lower sulfur content (somewhat below 10 ppm) in order to compensate for possible contamination from higher sulfur products in the system and to provide a tolerance for testing.

Diesel meeting the new specs will be required at fuel terminals by July 15 and at retail stations and wholesalers by Sept. 1, 2006. The time schedule is driven by the need to provide fuel for the 2007 model year diesel vehicles that will become available in September.

Under a “temporary compliance option” up to 20 percent of highway diesel fuel produced may continue to meet the current 500 ppm sulfur limit through May 2010. But the remaining 80 percent of highway diesel fuel must meet the new 15 ppm maximum.

The option won’t help Alaska much since little 500 ppm diesel is produced in the state, according to Chapple.

DEC has been working with industry

Chapple and representatives of the state’s diesel supply chain gathered April 14 to discuss the implications of the conversion in an Alaska Trucking Association round-table panel at the Millennium Hotel in Anchorage.

“It’s been a long time coming,” Chapple said. “DEC has been working with various parts of the fuel industry for the past 2 to 3 years. … I think we’re ready.”

Brian Roos of Flint Hills Resources said the North Pole refinery operator has been working with distributors in the Interior to prepare for the conversion and received limited inquiries from retailers.

One wrinkle in the new rules is that truckers using the Haul Road will no longer be able to run the higher sulfur diesel south of Atigun Pass. Further north, BP Exploration (Alaska) Inc. and ConocoPhillips Alaska Inc. will make small amounts of ULSD for use in new engines, but otherwise continue to provide higher sulfur diesel for older equipment until 2008.

The oil companies use about 3,300 barrels of diesel fuel a day, which they produce at two small refineries at the Prudhoe Bay and Kuparuk oil fields. A small amount of the diesel is pumped into wells for freeze protection, but the amount burned in engines produces about 400 tons of sulfur emissions annually, according to DEC.

Alaska estimates the switch to ultra-low-sulfur diesel for all oil-field operations will result in less than 10 tons of sulfur emissions a year.

Bob Gilmore of Weaver Bros. said the trucking company’s larger customers have kept up and are knowledgeable about the changeover. “But I think we will have to hold the hands of our Mom and Pops, just as we do on most changes,” he said.

As for how much diesel will be involved in the conversion, Chapple said no one knows. He noted that Alaska users consume about 60 million gallons of diesel annually.

Old, new fuel must be kept separate

To avoid contamination of ULSD with higher sulfur diesel, every operator in the supply chain, from the refiner to the trucking fleet manager, will be required to keep the new fuel separated from the old. This means separate refining facilities, pipelines, terminals, tankers and storage tanks.

Jeff Evans of Tesoro Alaska said the refiner planned to begin flushing pipelines in April and stripping storage tanks for ULSD in Anchorage.

“We will have a dedicated facility this year and a second terminal in 2007,” Evans said.

Tesoro aims to manufacture ULSD with 6 ppm at the refinery that will average 8 ppm at the terminal and leave the terminal at 12 ppm, he said.

Tesoro already produces ultra-low sulfur gasoline, so the refiner plans to sandwich the new diesel between batches of the gas in the same pipeline.

Tesoro plans to offer four grades of diesel this year, including the ULSD product and five grades next year. Some of the diesel will be exported to the West Coast, he added.

Likewise, Flint Hills plans to designate up to 12 rail cars leased from the Alaska Railroad to carry ULSD and ultra-low sulfur gas as well as specific trucks to carry product to customers, said Brian Roos, the company’s technical manager.

Weaver Bros. also plans to dedicate a certain portion of its trucking fleet to carry ULSD. “There is too much risk of contamination to do otherwise,” said Gilmore.

What’s at risk? ULSD that fails to meet the federal 15 ppm standard could subject the entire supply chain to heavy fines with presumptive liability, the panelists said.

Batch testing of initial production and maintaining product transfer documentation is the best protection against fines, they agreed.

“EPA has the enforcement hat, and like many parts of the Clean Air Act, it places the onus on the people conducting the operation,” Chapple said. “You should have evidence even though the regulations don’t require much testing.”

“Everyone has to be accountable,” Roos said.

Evans said Tesoro has teams of people working on the problem. “You should protect yourself by taking samples of the product you receive. It’s in your best interest,” he said.

However, current testing technology is neither quick nor inexpensive, which makes it difficult to track and control ULSD once it becomes contaminated.

Industry unsure about prices

Moreover, the industry remains unsure how costs will affect ULSD prices. Remote areas of the state could face substantial price increases.

In Southeast Alaska, tour buses consume far more diesel than transport and logging trucks. Still, the entire region’s total yearly consumption is a relatively small 25,000 gallons a year, said Kirk Payne, chief operating officer for Delta Western. “The economies of scale just aren’t there.”

The amount of fuel used in mobile engines in rural Alaska is less than 5 percent. Electrical power generation and heating account for 95 percent. But with a 2010 deadline for compliance, rural Alaska has another 3 and 1/2 years to develop cost strategies.

The effect of lower sulfur fuel on diesel engines also will affect cost.

“Lubricants will need to change with the new engines,” said Curt Bruce, light products manager for Inlet Petroleum. “There’s going to be old engine oil and new engine oil. TBM is an antiacid. Without sulfur, you don’t need high TBM. Oils will be backward compatible. Sulfur is also an antiwear agent, which helps the moving parts of engines. In addition, drain intervals will be shorter if you use new oil with old engines. Fleets will continue with the old oil as long as possible.”

When should diesel users turn over their tanks?

It depends, said Tesoro’s Evans, on your volumes, or the rate to which you use diesel. “You may have to start in June and you may be able to wait until September,” he said. “If you are converting from high sulfur diesel, plan on 12 turns.”

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