US EPA agrees to ULSD supply hearings starting this fall; refiner, marketer, end-user views not so 'hunky-dory"

Diesel Fuel News, July 8, 2002 by Jack Peckham

Alexandria, VA. - U.S. EPA just agreed to hold a new series of public workshops starting in November on potential fuel supply/distribution snafus for its ultra-low sulfur diesel (ULSD) regulations that phase-in starting in mid-2006.

EPA announced the new workshops at its "federal advisory committee act" (FACA) 2006/7 diesel rule review panel here. The FACA panel is investigating whether refiners and engine/catalyst companies are adequately preparing to comply with both the 15-ppm sulfur limits on ULSD as well as the particulate matter (PM) and nitrogen oxides (NOx) limits requiring diesel particulate filters (DPFs), NOx traps and sophisticated engine management schemes.

EPA's "Highway Diesel Progress Review" report (unveiled just prior to the FACA meeting) claims that as of now, everything for 2006/7 looks just peachy (see Diesel Fuel News 6/24/02, p1). But refiner, fuel marketer and end-user commentaries (including the just-added American Trucking Associations panelist) here were far more skeptical about EPA's ULSD supply outlook.

"There's publicly available information that two refineries are shutting down and another eight say it's unprofitable, so they've been put up for sale," Marathon-Ashland Petroleum (MAP) fuels technology manager Mike Leister said. "Some companies told you [EPA] that some other refineries will be shut down," but this wasn't included in EPA's "Progress Review," he said.

"Those 10 refineries account for over 1 million barrels/day of capacity. You need to admit those. When you call us and ask us our plans, then you need to tell both sides of the story. Your report says you talked to 95% of refiners and it says all are doing something to get ready for 2007. That's not a true statement."

"Is it that all refiners were saying they're going to comply or is it that some refineries are not going to comply?" asked FACA panel chair Dan Greenbaum, president of Health Effects Institute.

"We didn't talk to every refinery," EPA official Mary Manners responded. "Some are still uncertain about every refinery. They're trying to figure out how to comply."

"But someone reading this [EPA] report would think we're all in the process of complying," Leister responded.

* Claim That All Refiners Able To Make ULSD 'Not Accurate'

"I'm worried about the press concluding that all refiners are able to make the 15-ppm sulfur fuel by 2006," added Wyoming Refining Co. environment VP Bob Neufeld. "That's not accurate. And there's a big difference between the 12.8%" of required ULSD supply EPA has already accounted for, and the ultimate 2006 ULSD supply target. "The glass is both half full and half empty," Neufeld said. "So I'd disagree with [EPA mobile source director] Margo [Oge]. The [U.S. Appeals] Court said the rule will stand, but the issues aren't closed.

"For those refiners indicating they may get out of this business, [there's a question of] which straw breaks the camel's back. That can be debated all day. But there's no guarantee that everything will be hunky-dory. The [desulfurization] technology is there, but no-one knows if the economics are there for individual refiners."

"There are issues this report wasn't intended to address," FACA panel chair Greenbaum responded. "If a significant number of refiners go out of the highway fuel business, then EPA could find a new trend emerging. Then EPA may have to adjust its plans."

In defense of the "Progress Review" conclusion, EPA's Oge pointed out that the report "didn't say that refiners would comply by shutting down." Rather, "there are refineries for sale, but they're not shutting down today due to the 2006 rule," she said.

Similarly, Alliance of Automobile Manufacturers fuel/environmental issues specialist Ellen Shapiro pointed out here that market exit decisions are individual rather than industry-wide issues. "There's no guarantee that any company will be around to produce any product," just as happens in the auto industry, she said. "These are all business decisions and they're also related to EPA's off-road diesel rule, which will affect their business plans."

Likewise, Natural Resource Defense Council's "dump dirty diesel" campaign director Rich Kassel pointed out that while two U.S. refineries are closing and some are up for sale, EPA found that three current non-road diesel refiners are planning to switch to ULSD, while well over 100 refineries seem to be figuring out compliance plans. "We're in a glass-half-full situation here," Kassel said. "We can't decide today what the marketplace looks like in 2006. But the question is, does the information flow between industry and EPA work, or can there be improvements? Are the issues caught, addressed and resolved?"

Engine makers and exhaust catalyst makers sounded relatively more optimistic about meeting 2007 emissions limits. Among the various engine companies EPA interviewed recently, "the optimists spent the most [R&D] money and made the most progress," EPA's Byron Bunker explained. However, that provoked Wyoming Refining's Neufeld to point out that spending big R&D money doesn't always equate to "success."