U.S. oil refiners say EPA low-sulfur rules may cause shortages Filed: 06/20/2000

New York, June 19 (Bloomberg)  Unless proposed government restrictions on sulfur levels in diesel fuel are modified, some refiners will be driven out of business and shortages will be probable, industry officials argued at a public hearing today.

The Environmental Protection Agency's plan to lower the amount of sulfur allowed in diesel fuel to 15 parts per million from 500 parts would cost refiners $8 billion, twice the amount that the EPA estimates, said Red Cavaney, president and chief executive of the American Petroleum Institute, an industry group.

"We are concerned that the agency's diesel-sulfur proposal risks too much by going too far, too fast," Cavaney said at hearings in New York City organized by the EPA.

Much of the debate centered around the extent of the EPA's proposal. The agency wants the 97 percent reduction in the level of sulfur allowed in diesel fuel by 2007. Sulfur is the main cause of toxic emissions in diesel fuel. Refiners would have to be ready to sell the cleaner fuel by June 2006. BP Amoco Plc, the third-biggest publicly traded oil company, already is able to produce fuel that meets the new standards, agency officials said.

Opponents of the EPA's plan argued that while a reduction in sulfur is necessary, a 97 percent cut is not feasible.

"A 97 percent reduction puts wishful thinking ahead of market reality," said J. Louis Frank, president of Marathon Ashland Petroleum LLC, a refining and retailing group that's a joint venture of USX Marathon Group and Ashland Inc.

Trade groups representing oil companies, refiners and the trucking Industry have urged the EPA to modify their rules to a 90 percent reduction in sulfur content. They contend that a 90 percent reduction would cost about one-third to one-half of the amount needed to meet the 97 percent standard without compromising clean-air rules or causing shortages.

Same as Gasoline

Following through on the EPA's original plan means "there will be a significant shrinkage of diesel fuel supplies available in the United States," Frank said. "The same thing will happen with diesel fuel as has happened with gasoline."

Gasoline prices have soared to record levels above $2 a gallon in Chicago and elsewhere in the Midwest partly because of tight supplies of a cleaner-burning motor fuel mandated by the EPA.

Margo Oge, director of the EPA Office of Transportation and Air Quality, said that the sulfur levels proposed by industry officials are too high.

"Our concern is that if you reduce sulfur by 90 percent, you will reduce particulate matter by only 20 percent," she said.

Particulate matter refers to the particles in exhaust that are toxic and that can be seen with the naked eye.

A 97 percent reduction in sulfur would do significantly more toward cleaning emissions, she said.

Cavaney estimated that 30 percent of current refineries, many of them small, don't have the resources to make the switch to these new standards. Those companies will either switch to making different fuels or get out of the business, he said.

"EPA's proposed rule will decrease the total volume of diesel fuel produced," and that means refiners will fall short of satisfying rising consumer demand, Cavenay said."

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-- Martin Thompson (mthom1927@aol.com), June 20, 2000