The new standard

| July 02, 2006

The transition to ultra low sulfur diesel will reduce pollution but at a price.

Cleaner-burning ultra low sulfur diesel is officially on its way as of June 1, and trucking industry experts predict truckers will face higher prices and possible shortages.

Beginning June 1, the Environmental Protection Agency required oil refineries to dedicate at least 80 percent of their supply to 15 parts per million ULSD, a 97 percent reduction from the 500 ppm of low sulfur diesel. The EPA estimates the changeover will eliminate 90 percent of pollution from trucks and buses by 2030.

Owners of 2007 lower-emissions engines will be required by law – and compelled by the threat of a possible voided warranty – to fuel with ULSD. The ’07 engines use diesel particulate filters to eliminate additional soot, and DPFs need ULSD to function properly [see "Feel the Burn" on page 28 for more information on DPFs].

“The emissions technologies incorporated into these trucks are sensitive to sulfur and would not perform well in a high-sulfur environment and could potentially be damaged,” said Rich Moskowitz, assistant general counsel and regulatory affairs counsel for the American Trucking Associations. “The end users have a legal and an economic incentive to make sure these are not mis-fueled.”

ULSD is designed for the ’07 engines but should work about the same as low sulfur diesel in older engines. Truck owners will have a choice between the two, at least until 2010 when the EPA mandates a 100 percent transition to ULSD fuel.

“We expect that the fuel will be completely backward compatible, meaning that it will operate the same way low sulfur diesel operates,” Moskowitz said.

The concerns
Still, ULSD has its drawbacks. The key issues for the trucking industry are price and possible shortages, which go hand in hand.

The EPA predicts ULSD will cost 5 cents more per gallon to refine and distribute, and that cost will probably be passed on to the end user. The cost could go higher if the fuel requires dedicated tanker trucks to transport it.

However, production cost is only part of the equation. Supply and demand play a role. If ULSD is abundant, the increase in price should be reflective of the additional cost to produce it. But supply shortages in certain regions – particularly the areas at the end of the pipelines, such as upstate New York, North Dakota, Nebraska, Washington state and some of the Rocky Mountain areas – may result in localized price spikes, Moskowitz said.

And truck owners won’t be the only ones affected by higher prices.

“Over the long-term, the increased cost of fuel will translate into increased costs for freight transportation, which will ultimately be born by the consumer,” Moskowitz said. “In the short-term, especially in the transition years while both grades of fuel are available in the marketplace, it’s difficult to tell how much of the costs will be passed on.”

On top of the higher price, ULSD has lower energy content and a resulting fuel economy penalty of 1 percent.

“On an individual truck basis, the 1 percent is going to be very difficult to notice,” Moskowitz said. “But across a whole fleet, it’ll be easier to notice and will slightly impact the bottom line.”

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