What refiners, marketers, engine makers, enviros say about EPA'S latest non-road diesel proposals

Diesel Fuel News, Dec 9, 2002 by Jack Peckham

U.S. EPA's "small-business" memo outlining options to mandate a 15-ppm ultra-low sulfur diesel (ULSD) for nonroad engines either in mid-2008 or mid-2010 (see Diesel Fuel News 11/25/02, p1) is splitting refiners into big/small blocs.

Many "small" refiners (as represented by an "ad-hoc small refiner coalition") tell EPA they favor the "1-step option" that would force larger refiners to convert non-road diesel to 15-ppm ULSD in mid-2008, while "small" refiners would get more time (until mid-2010).

But "1-step" also means that larger refiners would be faced with tougher financial hurdles if forced to convert virtually all distillates to ULSD within two years of EPA's mid-2006 deadline for highway ULSD. Only heating oil and kerojet fuel seem to escape EPA's mandates, yet many refiners and pipelines are expecting desulfurization of these fuels as well, partly due to terminal storage and pipeline interface "downgrading" constraints on ULSD.

In two separate places, the EPA memo uses contradictory language regarding possible locomotive/marine fuel sulfur limits, with one part of the narrative implying that marine/locomotive also might have to meet a 15-ppm sulfur limit in 2008, but another part of the memo implying a 500-ppm limit, starting in 2007. Whether rail/locomotive would eventually convert to 15-ppm ULSD is left unclear by EPA, especially for "small" refiners.

Meantime, American Petroleum Institute (API) and National Petrochemical & Refiners Association (NPRA) are verbally telling EPA that if they have to choose, the "2-step" option at least would offer some flexibility.

"2-step" effectively would allow refiners to sell some 500-ppm sulfur diesel either to the highway market (during the four-year "temporary compliance option" transition, until 2010) or to the non-road market (including locomotive/marine market).

"API is encouraged that EPA is considering the two-step approach," API's Peter Li-diak, Senior Products Associate, told us.

"Overlaying the phase-in of ultra-low sulfur highway diesel from 2006 to 2010 with a 15-ppm requirement for all non-road diesel in 2008 has much greater potential for creating supply problems.

"There will already be two grades of highway diesel and we see no benefit to limiting non-road to one grade, especially since it will take some time for newer emission control technologies to become prevalent in the non-road fleet. In addition, as EPA's emissions analysis shows, the two-step approach yields nearly equivalent emissions reductions as the one-step approach and offers significant reductions a year earlier."

Earlier this fall, API came up with its own draft non-road diesel proposal that it circulated to NPRA, Engine Manufacturers Association (EMA), railroads, farmers, miners, barge operators, construction companies and petroleum marketers.

This draft indicated that it might be possible to convince EPA to delay a 15-ppm ULSD non-road mandate until mid-2010 if refiners first agreed to accelerate a 500-ppm sulfur limit for all non-road diesel (except home heating oil) to mid-2007. Marine/locomotive ULSD limits wouldn't be set unless and until EPA and locomotive/marine operators can prove the benefit of such fuel on some future catalyzed exhaust systems, the API draft argued.

Among the advantages of "2-step" option: It could "provide an additional volume of 500-ppm diesel which can help [avoid] highway [diesel] shortages and distribution concern's as well as "allow some 15-ppm investment to be delayed two years," the API 'proposal said. It also could create new sulfur credits trading options "for early production of 500-ppm non-road diesel" as well as early production of 15-ppm non-road diesel, and possibly sulfur credits toward highway ULSD fuel mandates as well.

Meantime, here's what the rest of refiners, pipelines, marketers, diesel engine makers and environmental groups are telling EPA about the various "options," either with written comments or else verbally:

# "Ad-hoc small refiner coalition:" This group includes American Refining, Calcasieu Refining, Calumet, Countrymark, Gary-Williams, Holly, Placid, U.S. Oil & Refining, Western Refining, Somerset Refining, Southland Refining and Western Independent Refiners Association.

These small refiners favor EPA' s "1-step option" as long as only small refiners can continue to sell 500-ppm sulfur fuel to marine/locomotive "as long as market demand continues.

* Give Us 500-pm 'til 2015

However, if EPA chooses the "2-step option," then small refiners "should have a 500-ppm standard for general non-road fuel and marine and locomotive fuel beginning in 2012 and continuing at least until 2015," rather than having to meet a 15-ppm sulfur limit on general non-road fuel as EPA proposes for "small" refiners in 2015 ("version B" of 2-step option).

"Small" refiners also should enjoy a new sulfur credit program for early ULSD compliance, they argue. "To ensure that these credits have value in the market place, the credit generation program should be available only to small refiners," the coalition tells EPA.