WASHINGTON, DC -- Fuel specifications and regulations during 2006 could keep fuel supplies tight and prices high, notes the Bureau of National Affairs (BNA).
During a Jan. 10 briefing, Energy Information Administration (EIA) Administrator Guy Caruso commented that the transition of the refining industry to new gasoline and diesel fuel specifications "will influence how high prices go this year and could lead to regional supply disruptions," write BNA.
Caruso also said that he expects to see retail gasoline to sell at an average of about $2.34 a gallon during the peak summer driving season, as long as disasters such as the 2005 hurricanes don't occur.
According to EIA, there are five fuel specification changes that will be made in 2006 that could "stress the fuel supply system," such as mandates for cleaner-burning fuels under the Clean Air Act Amendments of 1990 and other new requirements enacted under the Energy Policy Act of 2005.
However, notes EIA, the two major challenges will be the introduction of ultra-low sulfur diesel fuel and the removal of methyl tertiary butyl ether (MTBE) from the reformulated gasoline program.
Bob Slaughter, president of the National Petrochemical & Refiners Association, told BNA that the refining industry has spent $8 billion to prepare for this year's introduction of an ultra-low sulfur diesel fuel.
BNA writes that the diesel program "requires refiners to produce by June 1 at least 80 percent of their highway diesel fuel with no more than 15 parts per million sulfur content," adding that non-highway sulfur content "will be phased out over the next few years."
Caruso also pointed out the largest challenge for the oil industry will be transportation and distribution of low-sulfur diesel fuel.
To help facilitate the transition, retailers will have an additional 45 days (until mid-October 2006) before they must sell the new low-sulfur product. Until that time, writes BNA, diesel fuel with a sulfur content of 22 parts per million will be considered a compliant fuel. (A more detailed analysis of the retail component of this rule will be available in February's NACS Magazine.)
Refiners will also be faced with the phaseout of MTBE. "Moving away from MTBE to ethanol as the main oxygenate in gasoline will cause a drop in production capacity because of the unique characteristics of ethanol, a renewable fuel which evaporates easily, versus MTBE, a petroleum-derived fuel additive," write BNA. The largest users of MTBE are on the East Coast and in Texas.
Transportation problems will likely occur with ethanol as well, as ethanol-blended gasoline cannot be intermingled with other gasoline during the summer months, writes BNA.
EIA predicts that three other fuel changes slated to take effect in 2006 will have less impact on gasoline prices, such as the establishment of a renewable fuels standard enacted in the Energy Policy Act that requires refiners to blend 7.5 billion gallons of ethanol and like fuels into gasoline by 2012.
Click here to view EIA's 2006 energy outlook.