Diesel Rule a Catch-22 for Trucking Industry

Here’s another slippery problem for the volatile U.S. diesel fuel market.

Already grappling with prices that are 30% higher than a year ago, truckers and other users are bracing for possible diesel shortages starting today. The culprits: a lubricating fuel additive and new regulations created by an obscure standards-making board.

“We’re watching this very carefully, because our members are concerned about shortages of diesel fuel for whatever reason,” said Bill Gouse, vice president of engineering at the American Trucking Assns., an industry trade group in Washington.

The possible supply squeeze stems from new federal clean-air regulations mandating the use of diesel fuel with an ultra-low sulfur content beginning next June. Sulfur provides lubrication that is essential for engines and fuel pumps that run on diesel -- this is not an issue with gasoline -- and a replacement needed to be found.

Enter ASTM International, a century-old volunteer organization formerly called the American Society of Testing and Materials. Its 30,000 members, mostly scientists and technical engineers, develop safety and efficiency standards for many industries, including the energy business.

The group has no enforcement power, but its edicts are often put into law by state and local governments. In the case of diesel fuel, its standards are automatically endorsed by about 20 states, including California, and generally followed by other states as well.

The group declared this year that an additive should be mixed with the fuel, starting today, to solve the “lubricity” problem in diesel fuel.

“Everyone assumed the additive could be put in [the fuel] at the refineries,” where other additives are routinely injected, said Dean Simeroth, fuels chief at the California Air Resources Board. Then the fuel would be shipped normally through pipelines to the nation’s 1,500 fuel terminals.

But in October, sand got thrown into the gears. Colonial Pipeline Co. in Atlanta, which runs one of the nation’s largest independent pipeline systems, tested the new additive-laced fuel to make sure it didn’t corrupt other fuels that it feeds through its pipes.

To its alarm, the altered diesel fuel left a residue -- or “trail back,” in industry parlance -- that could contaminate jet fuel that also runs through its pipelines.

Another major pipeline operator in the West, Kinder Morgan Energy Partners, discovered the same problem, Simeroth said.

Any threat to airline safety, naturally, is off limits. “The pipeline operators said ‘Whoa, we need to do something,’ ” Simeroth said.

They did -- promptly announcing that they would not ship diesel fuel with the additive.

Disarray ensued. Operators in California and other states suddenly realized they would have to mix the additive not at the refineries, but at the terminals -- a much bigger and time-consuming job.

Moreover, each state would have to ensure that its terminals were modified to inject the additive into fuel and thus meet state standards.

“It’s a logistical nightmare,” said Al Mannato, senior fuels associate at the American Petroleum Institute, the industry’s trade group in Washington. “We’ve been working state by state to explain the problem and get them to issue emergency rules or letters” extending the Jan. 1 deadline, “to allow the terminals enough time to put the additive equipment in.”

California did just that. The state Air Resources Board delayed implementing the new lubricity standard until May 1, to give terminals more time to comply.

Several other states have taken similar action, but a handful have yet to signal their plans, Mannato said. They include New Mexico, Montana and Washington. Truckers and other diesel-fuel users in those states could run into shortages if marketers can’t sell either the old version of the fuel or aren’t ready to sell the new one. Since trucks crisscross the nation, the ripple effect of delayed shipments could still reach California.

The lubricity snag is just one more problem in a tough year for the U.S. trucking industry, which burns about 650 million gallons of diesel fuel each week.

Diesel prices have soared in tandem with oil and gasoline prices. In September, the average national retail price for diesel climbed above $2 a gallon for the first time. In the week ended Monday, the U.S. price was $1.987 a gallon, up 48.5 cents from a year earlier, the Energy Department said. The average price in California was $2.097 a gallon, 42.1 cents higher than a year earlier.

The trucking industry’s plight led to some protests last April and May, when truckers created huge traffic jams by parking their big rigs on Southern California freeways and by slowing traffic at the ports of Los Angeles, Long Beach and Oakland.

Some of the major oil companies are quickly modifying their refineries and terminals to accept the new fuel by today, regardless of what the states do. They include ConocoPhillips, which said its Colton terminal would be among those modified.

But whether all U.S. terminals will be equipped in time is an open question, Mannato said, which leaves truckers “concerned that the fuel won’t be there when they need it.”