Diesel fuel in the Rocky Mountain region, an area that’s isolated from the national petroleum distribution infrastructure, solidified its claim as the most expensive in the country this week. Causes cited for the high prices include local terminals and refineries transitioning to ultra-low sulfur diesel (ULSD) and a drought that has diesel demand high from farmers running irrigation equipment.
The Energy Information Administration (EIA) reported that diesel prices on the week ending Aug. 20 rose the highest in the Rocky Mountain region, up 3.8 cents to $3.349. Meanwhile terminals that choose to supply ULSD are fast approaching the Sept. 1 deadline, which also complicate matters for the region. Retailers choosing to sell ULSD must convert by Oct. 15.
“Toward the end of the summer, supply has been tight because refiners are trying to make a new spec of diesel,” Randy Lusby, Oil Price Information Service (OPIS) markets editor told FleetOwner. “There had been some trouble getting on-spec diesel. Some haven’t reached a low enough spec on certain batches.”
On June 27, Suncor announced that it completed $445 million worth of upgrades to its refineries in Commerce City, CO to produce ULSD. One truckstop operator told FleetOwner that the refineries had problems ever since the upgrades. Terminals and retailers rely heavily on local refiners since the region is isolated form the national petroleum distribution infrastructure.
Charlie Drevna, director of technical advocacy activities for the National Petrochemical and Refiners Assn., said that the problems the Suncor facility is seeing are a result of the company expediting its overhaul to ULSD.
“When the Suncor folks took that refinery over [from Conoco] there was little done in the process to begin production of ULSD,” Drevna explained. “When they got that refinery [in 2003] they were starting form square one or zero. There was no way they were going to make the June 1 deadline given they were running it for a limited amount of time since they bought it. It takes a lot of engineering and permitting and construction before that first drop of ULSD comes.”
But overall, Drevna said the refiners “are making as much ULSD as [they] can right now.” He noted that although there had been some refining disruptions due to weather and other issues, refiners Sinclair Oil Corp. and Frontier Oil Co. reported completing a smooth transition to ULSD.
“Frontier says not every refinery in the region has made a full conversion though,” Drevna said. “This is a learning curve and a work in progress. I don’t think anyone should be shocked [by the price spikes]. We talked about this back in 1999 and 2000 when these [ULSD] rules were being written.”
Drevna declined to specify when spot diesel shortages caused by ULSD will subside. “As we transition from low sulfur to ULSD we’re going to learn a lot come October and November on how this system will flush out. I don’t anticipate as many hiccups then as now. The critical point for the transition is from now to next year.”
OPIS’s Lusby expects diesel prices in the Rockies to start falling off sooner. “I think prices should come off as we approach September. At September supply concerns should ease—that has to do with the direction of the spot market. The last couple months had been a crunch time for ULSD.”
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