In comments filed earlier this month with the U.S. Environmental Protection Agency, the American Petroleum Institute pointed to the potential for large regional shortages of diesel supplies if the EPA's on-highway diesel fuel sulfur reduction proposal is implemented as it is now written.
EPA did not adequately account for industry costs or address the potential of supply shortages, regional impacts or end-user fuel costs in its proposal, says API. While it supports significant reductions in on-highway diesel fuel sulfur, API says the EPA has badly underestimated the cost of producing and distributing ultra-low sulfur diesel fuel as well as the technology required to produce it.
A recent study by the U.S. Department of Energy reports cost estimates ranging from 7.8 to 10.6 cents per gallon, API said, twice to two-and-a-half times as large as the EPA estimates for its proposed on-highway diesel rule.
Further, API said industry capital costs will be roughly $8 billion, based on information from the National Petroleum Council technology assessments and a just released report by Charles River Associates -- roughly double EPA's projection of $4 billion.
The petroleum institute warns that the proposed diesel standards also create the risk for significant product shortages and price spikes at regional and national levels, citing a recently released National Petroleum Council study. That study concludes, "There is a significant risk of inadequate diesel supplies if the EPA's proposal for 15 PPM maximum sulfur on-highway diesel beginning April 1, 2006, is implemented." The new CRA report concurs with the NPC view and assesses the magnitude of the market impacts that would stem from implementation of the proposed EPA rule.
The Charles River Associates study also estimates diesel market price increases ranging from 15 cents per gallon to 52 cents per gallon depending upon the extent to which imports are available to dampen market shortages.