Put Some Urea in the Tank

There have been a number of milestones on the road to cleaner diesel. Ultra low sulfur diesel regulations came and’despite a range of concerns from availability to quality control’went without causing too much heartburn for the industry.

On its heels there are new diesel engine emissions standards set for Jan. 1, 2010. The goal is to reduce nitrous oxide emissions up to 90 percent; hydrocarbons and carbon monoxide emissions by 50 to 90 percent and particulate matter emissions by 30 to 50 percent. While similar to European requirements, the standard is actually far more stringent. All diesel vehicles from class I to class 8 are included in this requirement.

There are two primary solutions from engine manufacturers needing to meet these requirements: exhaust gas recirculation and selective catalytic reduction.

EGR is already used to some extent in a range of engines (both gasoline and diesel) for NOx reduction, and it operates by recirculating some exhaust gas back to the engine cylinders. It basically speeds up combustion, which retards the formation of NOx. However, it also reduces fuel economy by up to 2 percent.

SCR is a newcomer to automotive systems, but is a well established solution for emission issues related to power plants and has also been used on diesel vehicles in Europe since 2005. With SCR, a urea-based solution is injected into a catalytic system to create a chemical reaction that converts some of the NOx emissions into pure nitrogen and water vapor. A diesel particulate filter can be added to the system for even greater emission reductions. Because of early European branding, the word ‘blue” typically features into the brand names of many solutions.

SCR technology does not reduce power like ERG, or create heat issues, and it is said to deliver a 3 to 5 percent diesel improvement in mileage as the engine can be fully optimized for performance. It does add weight, complexity and cost (at least $9,000 to a new Class 8 truck). There is also the cost of the diesel exhaust fluid to consider. However, the benefits are said to offset the disadvantages, including a positive return on investment for the added costs.

According to the SCR supporting Web site, FactsAboutSCR.com, an online study conducted in May 2009 noted that 51.2 percent of truck buyers are likely or very likely to consider the purchase of SCR to meet the 2010 EPA standards, compared to only 31.2 percent that are likely or very likely to consider increased EGR. Currently, only Navistar is holding out aggressively as an EGR provider.

Tank sizes for the DEF solution will be in the 13 to 25 gallon range. DEF consumption will be approximately 2 percent of diesel consumption, giving the range on a DEF tank fill up of approximately 4,000 miles. Although there is no damage caused by running an SCR equipped vehicle without the fuel, the vehicle manufacturers have worked with the EPA to set in place disincentives, such as dramatically reducing the engines output, if an engine is operated for too long without the fluid. For example, with Daimler a truck can drive 1,000 miles without the fluid before a computer de-rates the engine and limits vehicle speed to 5 mph.

Marketing Opportunities

Trucks and diesel automobiles are going to need DEF, and our channels represent definite sources of supply. So, exactly what’s in it for petroleum marketers and retailers? The answer to that question right now is that no one really knows for sure. Although this technology has been around in Europe for a few years, that experience was based more on fleet central fueling than the broader retail market found in the United States.

However, there are some common assumptions that can be drawn. The good news out of the gate is that margins will likely be notably better than gasoline on a per-gallon basis. The bad news is that volume will start out low, perhaps exceptionally low, and that even when it ramps up to full penetration, it will still lag well behind motor fuels. But, ramp up it will.

‘The generally accepted turnover rate is about 3 percent per year for new vehicles. So you have 3 percent in 2010, 6 percent in 2011 to 30 years, you have a whole fleet turned over,” said Bob Renkes, executive vice president and general counsel of the Petroleum Equipment Institute. ‘And then there’s the automobile side. Currently, about one out of every 20 (automobiles) in this country is a diesel.”

Although the Jan. 1 deadline will build demand for DEF, it’s anticipated to be slow going in the immediate future. The economic slowdown has impacted truck sales. In addition, older technology engines that are already in the supply chain can be used until they are exhausted. On the plus side, unlike what was seen with the ULSD deadline, the economy is also suppressing the heavy purchase of existing 2009 models that are not required to meet the new standards ahead of the deadline. So, although truck purchases will likely be sluggish to start, once the economic conditions improve and confidence builds there should be a notable bump in purchasing activities. Finally, as noted not every vehicle will be using SCR to meet the emission requirements.

Even so, the market that eventually develops will be comparable to other aspects of industry business. The volumes are not going to match fuel by any means, but a closer comparison can be made to motor oil.

A range of solutions will bring the product to market, and work to provide a cost-effective entry point for the product that will meet current expected needs. These include 1-gallon jugs; 2-gallon jugs; 2.5-gallon jugs; 55 gallon drums; 275 and 330 gallon totes; 725 gallon mini-bulk solutions; and conventionally dispensed above ground and below ground storage tank options in the $50,000 price range holding a thousand gallons or more.

Just where will the trucks fill up on DEF? The answer to that is a combination of where trucks currently get both fuel and service. DEF will likely be offered at the dealership (an initial core option); at the central truck facility for fleets that self fuel; at truck stops and other diesel-heavy retail units; at cardlock sites; lube and service shops; and likely mobile fueling opportunities exist. The auto centers in big-box retailers and dedicated auto repair stores will most certainly carry jugs.

Automobiles will likely utilize the dealer as a guaranteed source of fluid. Beyond that, and more common as distribution develops, jugs at retail seem the most likely primary channel given convenience and cost factors and the fact that automobiles require much more limited quantities to fill the tank.

‘As far as the infrastructure is concerned, the first players that need to be involved are the truck stops certainly, with perhaps an emphasis on the small pack approach with 2.5 gallon jugs,” said Alan Smith, business development manager ‘ DEF, for Brenntag. Brenntag is a leading distributor of diesel exhaust fluid under the TerraCair® brand. “Basically, you’ll see very small quantities in a very large area.  The truck are going to have 20 to 25 gallon tanks so it’s probably more case of topping off rather than filling up the tanks and a jug will get you about 600 miles or so. A large truck may only need 300 gallons of this per year. The market is going to grow, and it’s going to eventually become a large market, but it’s going to be gradual.”

Smith also noted that the larger for hire fleets that are putting a lot of miles on their trucks and the companies that do home fueling are primary early adopters, as are municipalities. Beyond that, ‘