U.S. poised for smooth ULSD switch

Energy economists are betting that the nationwide transition from low sulfur diesel to ultra-low sulfur diesel (ULSD) on Oct. 15 will be an uneventful one in terms of pricing and availability.

Energy economists are betting that the nationwide transition from low sulfur diesel to ultra-low sulfur diesel (ULSD) on Oct. 15 will be an uneventful one in terms of pricing and availability. Experts from the federal Energy Information Administration (EIA) and research firm Oil Price Information Service (OPIS) pointed to an ample supply of ULSD flowing out of the refiners and encouraging signs that most retailers are ready to certify the clean diesel.

“Our understanding is that the transition is essentially complete,” Michael Burdette, EIA senior analyst told FleetOwner. Another EIA economist said that retail price increases associated with the transition of diesel specs are already in effect.

“Everything seems to be going smooth,” OPIS markets editor Denton Cinquegrana told FleetOwner. “Refiners have been making [ULSD] since June and in some cases maybe before that. I think if there are any situations it would be pretty well isolated—maybe if a retailer hasn’t gotten his tanks cleaned quickly enough [to prevent contamination].”

But the road to transitioning diesel on a national level has not always been a smooth one. On June 1 refiners were required to allocate at least 80% of their on highway diesel production to ULSD. In August the Rocky Mountain region, noted to be the region most vulnerable to supply disruptions since it is isolated from interregional pipelines, saw two weeks of double-digit increases for the average price of diesel. The price spike was driven in part of a heat wave that increased agricultural diesel use along with some local refiners having problems producing on-spec ULSD batches.

“We did have delivery issues apparently in the mid-continent and the Rockies in August and one or two refiners had some issues with the on-spec product,” EIA’s Burdette said. “The distribution system was probably the biggest issue but I believe that process got over its rough spots. We haven’t heard anything negative about the transition for at least six weeks. I have good reason to believe that there won’t be a problem.”

On September 1 California became the first state to make the ULSD transition at the retail level, ahead of the national Oct. 15 deadline. For the week ending Sept. 3, diesel prices in California actually fell 2.5 cents to $3.175.

To comment on this article, write to Terrence Nguyen at [email protected]

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