Issue Paper: Ulsd Production

Issue Paper: Need for Production of Ultra Low Sulfur Diesel (ULSD) Fuel at CITGO

Introduction

The U.S. Environmental Protection Agency (EPA) has issued new standards regarding diesel fuel to improve air quality. The petroleum industry must start producing Ultra Low Sulfur Diesel (ULSD) fuel in order to meet these standards. ULSD is a cleaner burning diesel fuel than others, comprising of a maximum of 15 parts-per-million (ppm) sulfur. Most of the highway diesel fuel created or imported into the U.S. will be ULSD fuel and replace Low Sulfur Diesel fuel containing a maximum of 500 ppm sulfur. In combination with cleaner-burning diesel engines and vehicles, ULSD fuel will help to improve air quality by significantly reducing emissions. Currently CITGO's refineries and facilities do not support the production of ULSD. Greater refining and manufacturing are required to produce ULSD as the amount of sulfur must be dramatically decreased.

A full integration into producing ULSD fuel is complex and would involve coordination at many levels. ULSD fuel will be the leading highway diesel fuel produced, but the EPA has not required service stations and truck stops to sell ULSD fuel. Therefore, ULSD fuel will not be available at every service station or truck stop and that a seller might choose to sell Low Sulfur Diesel (LSD) fuel instead of ULSD fuel. The other industries involved in the transition are doing all they can to minimize potential inconveniences during the conversion to the new diesel fuel. Federal regulations require all diesel fuel pumps to label specify the type of fuel dispensed by each pump. Similarly fuel inlet/fill cap and instrument panel labeling is being required for engines and vehicles that require ULSD fuel. Consumers are being advised to check the pump labels and vehicle labels to ensure that they are refueling with the proper diesel fuel consistent with their vehicle warranties. These new standards provide a powerful incentive for suppliers to provide the proper ULSD fuel formulation. Civil penalties of up to $32,500 per violation per day can be assessed for non-compliance with EPA's LSD fuel standards, or for misrepresentation of the sulfur level of diesel fuel. Many Industry leaders such as Exxon Mobil, BP, Chevron, Texaco, and Shell have already started refining and supplying ULSD.

It is necessary for CITGO to implement the production of ULSD fuel in order to compete and remain in the diesel industry. ULSD is currently available in low supply on the general market and any company that "jumps" to offer it would see early success. Newly made diesel powered engines and vehicles will be made to run on ULSD fuel and there demand will need to be met. It is possible for CITGO to shut down its diesel production altogether, or just abandon the highway diesel market. This would not be the most beneficial decision as other refineries will capture the market and sustain themselves for the future gaining a competitive advantage. CITGO could sell their current higher sulfur distillate products into the non-road, rail, ship, or heating oil markets.

History and Background

One of the most significant air quality challenges is reducing the emissions from diesel engines. Even with more severe heavy-duty road engine standards in effect, over the next ten to fifteen years millions of diesel engines that are already in use will carry on emitting huge amounts of nitrogen oxides and other matter, which contribute to serious health concerns. These problems are revealed by thousands of instances of premature mortality, hundreds of asthma attacks, millions of lost worker productivity, and numerous other health problems.

The EPA issued new standards and required a 97% reduction in the sulfur content of highway diesel fuel to aid in the of combat air pollution. The pre-2007 maximum of 500 parts per million was now down to 15 parts per million. Due to this requirement major refiners began producing cleaner-burning ULSD for use in highway vehicles beginning June 1, 2006. CITGO was not one of these refiners who switched over to producing ULSD. It takes about 60 trucks with 2007-emissions-compliant engines to equal the particulate emissions of just one truck sold in 1988. (Stewart, 2007)

Diesel engines are used to power vehicles and other equipment for both public road and non-road uses. The EPA requirements for highway vehicle used fuel have been predominantly implemented. California has already adapted the new fuel and engine creation methods. In California, a 100% of all diesel fuel sold has to be ULSD. The EPA fuel standards for locomotive, marine and other non-highway diesel fuel engines and equipment, like for farms or construction equipment, will become effective at dates later than those for highway vehicles (except in California) (Office of Transportation and Air Quality, 2006):

* By June 2010, the ULSD fuel standard of 15 ppm sulfur will apply to non-road diesel fuel production.

* Beginning in 2012, locomotive and marine diesel fuel must meet the ULSD fuel standard of 15 ppm sulfur.

* Only ULSD fuel will be available for highway use starting on December 1, 2010.

There shouldn't be any noticeable impact on the overall power of an engine using ULSD fuel under the usual working conditions. Fuel saving may be slightly reduced because the same process that removes the sulfur from diesel can also reduce energy content in the fuel. Manufacturers of engines and vehicles expect ULSD to be congruent with the current fleet of vehicles, including the 2006 and earlier models. In some instances, the introduction of ULSD fuel to older vehicles may affect fuel system components or loosen deposits in fuel tanks (Stewart, 2007). As part of a good maintenance program, owners and operators of existing cars, trucks and buses are encouraged to monitor their diesel-powered vehicles closely for potential fuel system leaks or premature fuel filter plugging during the change-over to ULSD fuel. Diesel-powered engines and vehicles for 2007 and later model year vehicles are designed to operate only with ULSD fuel. Improper fuel use will reduce the efficiency and durability of engines, permanently damage many advanced emissions control systems, reduce fuel economy, and possibly prevent the vehicles from running at all. Manufacturer warranties are likely to be voided by improper fuel use. Additionally, burning Low Sulfur Diesel fuel (instead of ULSD fuel) in 2007 and later model year diesel-powered cars, trucks and buses is illegal and punishable with civil penalties (CEPA Environmental Registry).