ULSD 2006:Downstream Challenges: ULSD 2006: Downstream Challenges Andrea Martincic Executive Director The Arizona Petroleum Marketers Association


Introduction: Introduction 2001: EPA finalized its diesel sulfur rule for highway fuel. 2004: EPA finalized the diesel sulfur rule for non-road fuel. 2006: Implementation of Rule Begins 2010: All Highway Diesel must be 15ppm The 80-20 Refining Rule-Min. of 80% must be ULSD PMAA opposed “phase-in”—Favored one date & one diesel spec


An Update: An Update Pre-compliance reports submitted to EPA show that more than 90 percent of diesel will be ULSD Getting ULSD from the refinery to the end-user at 15-ppm may prove to be very difficult Most of the focus has been directed upstream EPA estimated ULSD would cost $ .05 more to produce. EPA failed to calculate downstream costs- which are only now becoming evident


DETAILED DIESEL SULFUR TIMELINE: DETAILED DIESEL SULFUR TIMELINE June 1, 2006: (HW) Refiner “80-20” deadline. (Small refinery exemption.) October 15, 2006: (HW) Retail & wholesale purchaser/consumers must specify product(s) handled; meet specification for product(s) handled (EPA recently revised this deadline from 9/1)


A MAJOR CHALLENGE FOR THE INDUSTRY: A MAJOR CHALLENGE FOR THE INDUSTRY What the pipelines demand: 7-8 ppm What the terminals want: 13-ppm (No Promises) What the marketer will get: 15-ppm (No Flexibility)


THE ONLY FLEXIBILITY: THE ONLY FLEXIBILITY EPA allows 2-3 ppm “testing tolerance” 3-ppm first two years only Delivery of ULSD “at spec” will be a huge challenge


6/1/06: TRANSITION TIME BEGINS: 6/1/06: TRANSITION TIME BEGINS Until October 15, ULSD at retail may be up to 22 ppm Transition time will facilitate tank turnover Unlimited downgrading during transition time


Marketer Decisions : Marketer Decisions What products will I handle? How will I transport this product? What planning should be completed for tank turnover? How will I train my employees/drivers on handling this new product? How will I implement a quality assurance program?


What products will I handle?: What products will I handle? What is available in your area? Options: No requirement that you handle both products Marketers will be meeting retailer and customer demand but availability will rule Remember engine compliance dates Pre-2007 diesel engines can use either ULSD or LSD 2007 and later models can ONLY use ULSD Supply and price differential unpredictable


SULFUR TESTING: SULFUR TESTING Pipelines will test at “breakout points” Terminals will initially test all receipts Terminals will “certify” product but will most likely not provide details Make sure you use an EPA Qualified Lab Not consistent, not reliable Excessive variance in results


Potential for Contamination: Potential for Contamination 5000 Gallons of ULSD can be contaminated by ONLY: 2.7 gallons of Jet Fuel 4 gallons of Heating Oil 16 gallons of Low Sulfur Diesel (500 ppm) Tier II gasoline not as problematic, conductivity issue


DOWNGRADING PROVISIONS: DOWNGRADING PROVISIONS Only the party with custody of the fuel may downgrade it Retailers and wholesale P-C who sell both LSD and ULSD may downgrade as necessary- no limitation Otherwise, downgrading limited to 20 percent of annual diesel volume


DOWNGRADING PROVISIONS : DOWNGRADING PROVISIONS Bulk plants limited to 20 percent annual downgrade limit of ULSD PTD (Product Transfer Documents) must have proper designation if downgrading occurs.


PRODUCT TRANSFER DOCUMENTS: PRODUCT TRANSFER DOCUMENTS Required each time fuel is transferred EXCEPT when fuel is dispensed into motor vehicles at retail or a wholesale P-C facility Must include: Name and address of the transferor and transferee Volume of fuel being transferred Designation of the fuel (for use in motor vehicles; non-road equipment, etc.) or required statement Sulfur content or required statement Must include language identifying dyed, tax exempt


RECORD RETENTION : RECORD RETENTION Other records must be retained for 5 years Any test results performed for quality assurance or other purposes Supporting documentation related to the tests such as date of sampling and testing, batch number, tank number, volume of product, etc. Business records regarding action taken in response to any violations discovered


PUMP LABELING: PUMP LABELING As the program progresses, labeling requirements change What must be labeled? Labels must be posted in a conspicuous place on the dispenser (Upper 2/3 of dispenser- suppliers recommend close to nozzle).


HIGHWAY FUEL PUMP LABELS: HIGHWAY FUEL PUMP LABELS Required from 6/1/2006- 5/31/2010 ULTRA LOW SULFUR DIESEL (15-ppm Sulfur Maximum) Required for use in all model year 2007 and later highway diesel vehicles and engines Recommended for use in all diesel vehicles and engines


HIGHWAY FUEL PUMP LABELS: HIGHWAY FUEL PUMP LABELS Required beginning 6/1/2006. May not be posted after 9/30/2010. LOW SULFUR HIGHWAY DIESEL (500-ppm Sulfur Maximum) WARNING Federal law prohibits use in model year 2007 and later vehicles and engines. Its use may damage these vehicles and engines.


OFF-ROAD PUMP LABELS: OFF-ROAD PUMP LABELS Required 6/1/2006 until May 31, 2007. NON-HIGHWAY DIESEL FUEL (May Exceed 500-ppm Sulfur) WARNING Federal law prohibits use in any highway vehicle or engine. Its use may damage these vehicles and engines.


ADDITIVES & BLENDING: ADDITIVES & BLENDING Addition of used motor oil to diesel fuel banned Use of kerosene in diesel allowed as long as it meets the 15-ppm standards after blending PTDs for kerosene used in blending must be maintained EPA allows blending as long as the fuel is not altered in any other way


ADDITIVES AND BLENDING: ADDITIVES AND BLENDING New Amendment affects retailers who sell packaged additives to consumers Labeling requirement by 6/1/06 Bulk sales/blending must disclose additive sulfur content on PTD effective 6/1/06


ADDITIVES AND BLENDING: ADDITIVES AND BLENDING Required labels: “This diesel fuel additive complies with the federal low sulfur content requirements for use in diesel motor vehicles and non-road engines.” “This diesel fuel additive does not comply with federal ultra-low sulfur content requirements for use in model year 2007 and newer engines.”


QUALITY ASSURANCE: QUALITY ASSURANCE As with other fuels programs, should violations be discovered, EPA holds all parties in the distribution chain liable. As a defense, parties should have a Quality Assurance program in place, documenting fuel handling procedures and best practices.


QUALITY ASSURANCE-Terminals: QUALITY ASSURANCE-Terminals Marketers should consult with terminals in advance to determine what products they will handle and what steps they are taking to avoid contamination during product transfers Terminals may request info from drivers: Previous loads? Residual fuel? Dedicated trucks/compartments?


QUALITY ASSURANCE-Transportation: QUALITY ASSURANCE-Transportation Consider segregation of trucks/compartments; review product sequencing procedures; cleaning out and draining of transfer hoses. Tests have shown that flat bottom tanks on trucks have more contamination potential Train drivers on contamination potential Work with drivers/retailers to insure proper and complete product drops COMMON CARRIERS- Inquire about use of segregated trucks; inquire about procedures to minimize contamination and product sequencing


QUALITY ASSURANCE-Bulk Plant: QUALITY ASSURANCE-Bulk Plant Develop written fuel handling procedures; plan for storage of multiple products if necessary; determine which products will be stored at bulk plant Empty tank at least two times prior to introduction of ULSD, test, clean? Piping: Check for dead leg contamination


QUALITY ASSURANCE- Retail: QUALITY ASSURANCE- Retail ALLOW FOR MULTIPLE TANK TURNOVERS (3-5) BEFORE OCTOBER 15, 2006 RETAIL DEADLINE FOR ULSD Staggering of compliance dates (refiner, terminal, retailer) allow for this Downgrades during transition period unlimited


QUALITY ASSURANCE PROGRAM: QUALITY ASSURANCE PROGRAM Consider implementation of a regular fuel testing program utilizing a lab that can conduct sulfur tests to meet EPA specifications; maintain records of batches and test results per record keeping requirements Test trucks, test retail nozzles, test tanks-- before and after How to handle “off-spec fuel” Consider documenting loads


RFGSA (RFG Survey Association): RFGSA (RFG Survey Association) RFGSA—working for the refining industry developed a quality assurance program on behalf of its members to provide them with a defense against violations discovered at their branded retail sites. Marketers need to ask about their suppliers’ membership in RFGSA Membership enrollment has been extended to September 1, 2006.


RFGSA—HOW IT WORKS: RFGSA—HOW IT WORKS RFGSA will conduct random diesel testing at retail diesel locations. Testing can occur at member sites as well as non-member locations. (*Non-members are not legally bound to participate.) Out of compliance test results go to EPA and the branded refiner. EPA will not take enforcement action if the sample exceeds the standard by 2ppm and the retail location has not had a violation in past two years.


RFGSA—How It Works (cont.): RFGSA—How It Works (cont.) Additional tolerance for RFGSA members means that EPA would not take action on any sample until it exceeds 20 ppm from October 15, 2006 to October 15, 2008 and 19 ppm thereafter. Any samples taken from non RFGSA members are subject to enforcement action if they exceed the downstream standard (15ppm) with the 3ppm testing tolerance. *The extra tolerance for RFGSA members is only applicable on samples taken by RFGSA, if EPA takes the sample there is no additional 2ppm allowance.


RFGSA-Pros & Cons: RFGSA-Pros & Cons Participation in the RFGSA can help a marketer defend against a violation by satisfying the periodic testing and sampling element of the quality assurance program. However, a marketer is still required to: Prove that you did not cause the violation, Show other elements of a quality assurance program like truck loading procedures Show what steps were taken to correct an identified violation and prevent future violations. Be tested by RFGSA during next survey period Be reported to EPA within 120 days after sample was collected.


RFGSA—Pros & Cons: RFGSA—Pros & Cons Marketers should conduct a cost-benefit analysis to determine if they can set-up their own periodic sampling & testing program for a lesser cost. Marketers pursuing their own testing program will most likely NOT share the results of their testing and sampling with EPA allowing a marketer to take action to correct the problems without an EPA enforcement to deal with. RFGSA is not a “free pass” from enforcement action---EPA can enforce if a sample exceeds the tolerance. Also if it is a second violation for a retail site, EPA can enforce on a sample at 18ppm.


Not a Member? How to Respond to Sampling Requests: Not a Member? How to Respond to Sampling Requests It is important as a marketer that you can identify who is pulling a sample from your site. EPA will have government issues credentials which they will present on arrival. RFGSA representatives will have a letter from EPA requesting that you voluntarily participate in the sampling. As a non-member you will not automatically receive test results and the test results will be provided to EPA and may have enforcement consequences. It is NOT mandatory for a non RFGSA member to allow RFGSA sampling on their site. WHENEVER SAMPLES ARE TAKEN, MARKTERS SHOULD TAKE THEIR OWN SAMPLE FROM THE SAME DISPENSER!


MAINTENANCE ISSUES: MAINTENANCE ISSUES Particulate filters It has recently been reported that the new cleaner fuel may require more frequent replacement of particulate filters on dispensers and other equipment that handle fuel. Vehicle maintenance issues w/ULSD


DECISION TIME IS NOW: DECISION TIME IS NOW Now is the time for marketers to begin planning…. Talking to suppliers, terminals and common carriers Educating employees Most immediate decision: Will I handle BOTH fuels?


ULSD CHECKLIST: ULSD CHECKLIST Minimize tank inventories prior to ULSD deliveries Multiple ULSD deliveries to convert tanks Sulfur testing Drain/flush transport truck compartments prior to ULSD usage Driver/employee training- critical Set up procedure to monitor downgrades PTDs, Labeling Transmix Issues??


DECISION TIME IS NOW: DECISION TIME IS NOW Now is the time for marketers to begin educating…. Drivers Employees Customers www.clean-diesel.org www.epa.gov/otaq/regs/fuels/diesel/diesel.htm