Ultra-low sulfur fuel set to debut in New York

New York is ahead of the pack.

Effective Sunday, July 1, separate regulations passed by New York City and New York State will require ultra low sulfur fuel oil ‘ that is, heating oil with sulfur content of no more than 15 parts per million (ppm). That deadline puts New York years ahead of other states intending to switch to lower sulfur heating oil that burns cleaner and results in fewer emissions.

How will New York’s head start affect the wider market and the industry? That’s something fuel oil dealers, refiners and trade associations in both New York and other northeastern states are waiting to see.

Grant Brown, vice president of marketing and investing for Sprague Energy, Portsmouth, N.H., a supplier of energy products including heating oil, said one of the impending challenges in New York is management of inventory with sulfur content higher than 15 ppm. Sprague Energy has large volumes of higher-sulfur fuel oil in storage in New York; the company plans to move it to other markets, a project that has costs associated with it, Brown noted.

Whether supply of the low-sulfur fuel oil in New York City and in the state will be an issue remains to be seen as well, Brown and others said. New York State will need 15 ppm heating oil from refiners who don’t have to supply it to customers anywhere else, Brown pointed out. That could mean heating oil customers competing with diesel fuel customers for the same product. ‘There is a potential for prices to increase,” Brown said.

New York City adopted its requirement and its deadline first, and New York State followed, urged on by, among others, the Empire State Petroleum Association (ESPA) which represents marketers of liquid petroleum products including fuel oil.

‘We pursued the legislation,” Tom Peters, chief executive officer of the association, said.

In addition to the benefits that ultra low sulfur fuels have for consumers, Peters said, the prospect of two different fuel oil markets ‘ one in New York City and another throughout the rest of the state ‘ did not bode well.

‘The oil heat marketers in the metropolitan New York City area were very concerned that if they went by themselves they would wind up with a boutique fuel and all the premiums that might be attached to that,” Peters said. ‘Their customers in the New York City area would be burdened with higher costs,” he added.

New York City also will require, beginning Oct. 1, that ultra low sulfur fuel oil contain two percent biofuel. New York State has no such mandate ‘ yet. ‘We’re working with the New York State legislature to see if we can do likewise at the state level,” Peters said. ‘That is one of our priorities this year ‘ to get a bioheat mandate for the entire state of New York consistent with what New York City already has.”

As for ESPA members’ readiness for dealing with the ultra low sulfur fuel, Peters said, ‘Most of them are rack buyers so they’re expecting that the terminals in the state are going to have the product available for them on July first. If they’re concerned, they’re concerned about whether or not there will be a premium for that fuel and, if so, how much? I don’t think anybody can answer that question yet.”

Peters said, ‘It looks like there will be adequate supply. That may or may not change as a result of the refinery closings in Pennsylvania.” (See sidebar.)

‘The only concern that I’m really hearing is that some suppliers said to the legislature that they may not be prepared to provide the 15 ppm [product],” Peters said. ‘We’ve been assured by other suppliers that even though one or two or three may not be able to supply this year because they might not have made necessary upgrades to their refining capacity, these other suppliers could step in and fill that void.”

SIDEBAR

Refineries close in Northeast

The Northeast looks to be down by three refineries by this summer. Defined as Connecticut, Delaware, the District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont, the Northeast typically accounts for more than 80 percent of U.S. heating oil sales, according to the Energy Information Administration. The top five consuming states, in descending order, it said, are New York, Massachusetts, Pennsylvania, Connecticut, and New Jersey.

Sunoco’s refinery in Marcus Hook, Pa., and ConocoPhillips’ refinery in Trainer, Pa., are already idled, and Sunoco has announced that it will close its Philadelphia plant within months if a buyer is not found.

The three plants process about 700,000 barrels of crude oil a day, more than half the refining capacity in the Northeast, according to news reports. Since all three plants produced fuel oil among other petroleum products, suppliers, dealers and analysts have been debating the affect the closings will have on the heating oil market generally and on prices specifically.

Sunoco has been executing a plan to exit from the refining business. The company has conducted ‘a rigorous and thorough sales process for its Marcus Hook and Philadelphia refineries over the past five months with the help of its financial adviser Credit Suisse,” Sunoco said in a statement in February. The company said it initiated contact with more than 150 potential purchasers from around the world, including national oil companies, integrated oil companies, independent refiners, pipeline companies and private equity groups. ‘The potential buyers we have spoken to have considered a range of options, including operating the refineries (or only one refinery), operating specific units within the refineries, or using the facilities for their storage and logistical capabilities. At this time, the company has received some degree of interest in its Philadelphia refinery and will continue to pursue a sale of that facility as an operating refinery. If a suitable transaction cannot be concluded, the company intends to idle the main processing units at Philadelphia by July 2012.”

Sunoco said it had not received a single proposal for the purchase of Marcus Hook as an operating refinery, but is continuing to pursue alternatives for the facility. ‘At this time, Sunoco does not believe that Marcus Hook will be purchased and re-started as an operating refinery,” the company said. The Marcus Hook plant halted crude processing in December and its idling process was continuing as of this writing.

ConocoPhilips’ idled refinery in Trainer had a crude oil processing capacity of 185 million barrels per day; it processed mainly light, low-sulfur crude oil, producing mostly transportation fuels, such as gasoline, diesel fuel and jet fuel, but also home heating oil.