Squeezed in the Middle, Terminal Operators Brace for ULSD
By Brian L. Milne, DTN Editor Refined Fuels
David Doane, president of the Independent Liquid Terminals Association (ILTA), called the induction of federally mandated ULSD fuel specifications the most difficult transition for the downstream refined fuels industry ever, with a host of issues still confronting terminal operators. Speaking at the Atlantic Region Energy Expo in early May, Doane said, “Terminals are the collision point of two unchangeable limitations coming from opposite directions. This link in the supply chain between suppliers and pipeline operators with jobbers and fuel resellers is littered with risk.”
ULSD MARKET RISK OUTLOOK
In developing the ULSD regulation, Doane said that the Environmental
Protection Agency centered its attention at the refinery level, but did
not look downstream.
He said that refiners will produce ULSD with no less than 8ppm sulfur
content, pipelines will add 5 - 7ppm more, and retailers can sell ULSD
with no more than 15ppm, leaving virtually no room for error between the
two supply-demand points. ILTA has sought guarantees from pipelines that
the product offtake at the terminal would have maximum 13ppm sulfur in
the product, but assurances were limited to delivering ULSD with no more
than 15ppm—potentially erasing the tolerance at the rack.
Doane said the enactment of this regulation has created a whole new set of market risks for terminals and distributors. The lack of a built-in tolerance level for ULSD will force terminal operators to scrutinize every barrel of fuel delivered by a pipeline during the initial phase-in of the regulation. “Most terminals feel they have to protect themselves from legal liability by testing source tanks before loading each day.” He noted the difficulty in testing sulfur content in fuel, saying testing doesn’t provide reliable, consistent measurement because small deviations could pull a product out of spec. Doane stated that testers will need good training.
Since the industry must deal with an inadequate level of precision in the sulfur testing process, Doane asked "Whose test prevails?" He questioned where the decision falls if the test by the terminal or retailer shows compliance, but an EPA tests says otherwise. Doane noted the 3ppm tolerance in the mandate, inched up last month from 2ppm, but questioned how it would be enforced.
ULSD SAFETY ISSUES REQUIRE NEW ADDITIVES
There is a heightened safety risk at the rack with the new regulation because the static charge in diesel increases when sulfur is removed, which creates a major risk of fire. Doane said larger terminals will use a conductivity improver to reduce this threat. The conductivity issue could also force truck operators to adjust their insurance coverage to address the increased risk of fire. Adding the conductivity improver at the rack is another step for terminal operators.
Because the content of sulfur is lower, the conductivity improver additive could cause engine friction. Therefore, operators are also required to add a lubricity agent in ULSD. Buster Brown of Colonial Pipelines said that a lubricity agent cannot be added to ULSD before pipeline delivery because tests show that it has contaminated jet fuel, another product delivered on Colonial’s fungible pipeline network.
CONSIDER TERMINAL TRUCK STANDARDS
Holly Tuminello of the Petroleum Marketers Association of America said flat bottom trucks have proven to be the most problematic. Terminals should consider seeking truck standards for customers picking up supply, and potentially deny a load if not convinced that the truck’s tank was properly cleaned. Requiring truck drivers to sign a statement verifying that the truck has been properly drained and cleaned is an additional precaution. “We’re not just dealing with an EPA enforcement action,” said Doane, saying potential litigation with downstream parties is a real threat—as is the potential for lawsuits triggered by a user of ULSD whose truck engine is ruined from out of spec fuel due to mislabeling.
- The automatic presumption of liability
- A minimal sulfur content safety margin
- Measuring the sulfur content, which is critical to ensure an affirmative defense
- The imprecise nature of sulfur testing
- The frequency of sampling and testing that must now be accomplished at the terminal
FINDING ANSWERS WILL TAKE TIME
Will there be ample storage capacity at terminals to store the additional products at the rack? “It’s a pretty big squeeze for the terminals,” said Doane, saying “operators will soon be forced to house multiple diesel fuel grades and space for contaminated product just as they’re dealing with finding more room for ethanol.” Obtaining permits to construct new tankage could be another problem. Large terminals got off to a quick start and are in good shape in meeting the upcoming regulation, but there could be problems at small terminals.
ULSD BACKGROUND
As of June 1, 80 percent of the on-road diesel fuel will be required to have a sulfur content below 15ppm, with the rule taking effect at the terminal September 1 and at retail outlets starting October 15. During the June 1 to October 15 transition period, diesel fuel with a 22ppm sulfur level can be labeled and sold as ULSD at retail outlets, with EPA enforcement expected to be light. The leeway ends October 15, with industry veterans expecting strict enforcement by the EPA starting on that date.
Visit www.ilta.org to see more information on upcoming ULSD training workshops and sessions.
Click here to learn how the DTN Guardian3™ terminal automation system helps you keep track of ULSD.
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The views and opinions expressed in this feature article are designed for educational purposes. The views do not necessarily state or reflect those of DTN.
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