Northeastern States Seek to Limit Sulfur in Heating Oil

This story appears in the April 19 print edition of Transport Topics.

Trucking and oil industry experts are trying to forge a compromise with legislators, regulators and environmentalists in several northeastern states that are moving to limit the sulfur content in home heating oil.

Depending on their strictness, industry experts said, sulfur limits could bring heating oil into direct market competition with and raise the price of trucking’s main fuel, ultra-low-sulfur diesel.

Maine recently adopted a law restricting the sulfur content in heating oil, and Connecticut, New Jersey, New York and Pennsylvania are considering similar restrictions.

Truckers are concerned that “diverting ultra-low to home-heating oil could deplete or affect the supply and, consequently, the price,” said Michael Riley, president of the Motor Transport Association of Connecticut.

“It’s true that this can only be bullish for diesel prices,” said Andrew Reed, an independent oil analyst who specializes in distillate markets at Energy Security Analysis Inc. in Wakefield, Mass.

Reed said the effect on the price of ULSD, however, would be relatively small because demand for heating oil is strong only in the Northeast, as most other states depend on natural gas for heating.

In January, for example, heating oil demand was at 19.4 million barrels a month nationally, according to the U.S. Energy Information Administration. But nearly 17 million of those barrels were used in the East Coast region, EIA reported.

Reed cited other EIA statistics that said the average daily demand for distillate — from which diesel and heating oil are refined — was 3.2 million barrels in 2009, but only 480,000 barrels of the distillate were used for heating oil, he said.

American Trucking Associations is seeking a compromise that will protect diesel fuel prices and supply, said Richard Moskowitz, ATA vice president and regulatory affairs counsel.

“After speaking with both sides on the issue,” Moskowitz said, “it’s apparent to me that there is a middle ground, and getting them to move to the middle ground is a process.”

Compromise centers on the amount of sulfur states will allow in heating oil and the time states will give refineries to retool.

For example, Maine’s legislation — signed April 5 by Gov. John Baldacci (D) — has a strict requirement for low-sulfur content but a lengthy phase-in period, whereas a New Jersey bill calls for strict sulfur limits by next year.

In Maine, the lower sulfur content is to be phased in by 2018, but the sulfur content limit ultimately would be 15 parts per million — the same ppm limit as ULSD.

That means heating oil in Maine will be the same product as the fuel used by trucking.

“They aren’t going to have different properties,” said Al Mannato, fuels issues manager for the American Petroleum Institute, which represents oil refiners.

“If you’re making a home heating oil of 15 [ppm], then what you’re making is a 15 product that can be sold in the home heating oil market or can be sold in the transportation market,” Mannato said.

The sulfur content of heating oil typically has been as high as 2,000 ppm.

The petroleum institute does not believe it is necessary, environmentally or healthwise, for heating oil’s sulfur content to be below 500 ppm, but it would accept a 50 ppm standard, Mannato said.

Diesel fuel has a low, 15 ppm sulfur limit because it “enables” the emissions controls on truck engines, he said. But home-heating furnaces, Mannato said, are environmentally efficient at 50 ppm.

Moskowitz said ATA’s position is that “all of the interested parties should coalesce around a 50 [ppm] compromise since it provides the environmental benefit . . . they are looking for and does not jeopardize the supply of on-road diesel fuel.”

ATA and API also both want long phase-in periods and uniformity from state to state.

However, in New Jersey even the legislators and regulators do not agree. A legislative proposal calls for strict sulfur limits by next year, while the state’s Department of Environmental Protection has proposed a rule under which heating oil would not have to be 15 ppm until 2016.

Heating oil suppliers, at least in Connecticut, were among the first to compromise and have agreed to a 50-ppm sulfur content rather than the stricter 15 ppm so heating oil won’t compete with diesel, said Eugene Guilford, president of the Independent Connecticut Petroleum Association.

Heating-oil suppliers are among the strongest supporters of the lower sulfur content. They want to sell an environmentally friendly product, Guilford said.

Guilford took issue, though, with refiners who say they need time to adapt for a lower sulfur content.

“U.S. domestic refiners exported 80 million barrels of ULSD fuel last year,” Guilford said. “All we’re asking for is a little bit of that to be left in the United States.”

Jessie Stratton, director of government relations for Environment Northeast, a nonprofit organization concerned about global warming, said refiners already have “demonstrated” with ULSD that they have the capacity to produce lower-sulfur products.

Having one 15-ppm standard would “simplify” the refining process, Stratton said.

As it is, she added, heating oil is “sort of the dregs of the refining business at this point” and poses environmental and health hazards.