a presentation by randall thompson conocophillips pipe line to the western regional air partnership...
TRANSCRIPT
A Presentation by
Randall ThompsonConocoPhillips Pipe Line
to the
Western Regional Air PartnershipDenver, CO July 16, 2003
A Presentation by
Randall ThompsonConocoPhillips Pipe Line
to the
Western Regional Air PartnershipDenver, CO July 16, 2003
Distribution Issues for Distribution Issues for ULSD and Not so ULSDULSD and Not so ULSD
Regional CharacteristicsRegional Characteristics
PADD 3, Gulf CoastPADD 3, Gulf CoastLargest supply region: No foreign nation has higher refined Largest supply region: No foreign nation has higher refined product output than PADD 3product output than PADD 3Origin of 80% of all refined products, 83% of the low sulfur Origin of 80% of all refined products, 83% of the low sulfur distillate and 94% of the high sulfur distillate shipped by distillate and 94% of the high sulfur distillate shipped by pipeline between U.S. regions. pipeline between U.S. regions.
PADD 1, East CoastPADD 1, East CoastLargest recipient of other region’s supplies; ~60% Largest recipient of other region’s supplies; ~60% of all inter-regional product pipeline movements go of all inter-regional product pipeline movements go to EC; 90% of high sulfur distillate movementsto EC; 90% of high sulfur distillate movementsLargest concentration of oil-heated homes Largest concentration of oil-heated homes (Northeast)(Northeast)Only region where ~all pipelines carry high sulfur Only region where ~all pipelines carry high sulfur distillatedistillate
PADD 2, MidwestPADD 2, Midwest
Infrastructure rich, but logistics strained Infrastructure rich, but logistics strained
Contrast agricultural west (sparse) with Contrast agricultural west (sparse) with industrial east (dense)industrial east (dense)
Recipient of ~30% of pipeline product; origin Recipient of ~30% of pipeline product; origin of 8%; much intra-regional flowof 8%; much intra-regional flow
PADD 5, West CoastPADD 5, West Coast
2-3 distinct refined product markets2-3 distinct refined product markets
California separate; no HSDCalifornia separate; no HSD
PADD 4, Mountain PADD 4, Mountain
Market tiny but growing; infrastructure sized to fitMarket tiny but growing; infrastructure sized to fit
Distances long, infrastructure thin, terrain steepDistances long, infrastructure thin, terrain steep
Few products (LSD only, e.Few products (LSD only, e.g.);g.); tanks optimized tanks optimized
Product Integrity During Movement
Reformulated regular gasoline
• Pipelines use optimum sequencing of product grades to reduce thepotential for contamination and/or downgrading of the products transported.
Low sulfur diesel fuel
Kerosene/ Jet Fuel
High Sulfur Diesel
Conventional regular gasoline
All premium
grades
Reformulated regular gasoline
• Different product batches are “pushed” through the system abutting each other. The product is kept in turbulent flow to minimize interfaces, the mixing zone between batches.
First, the On-Highway DatesFirst, the On-Highway Dates
Jun. 1, 2006Jun. 1, 2006
Jul. 15, 2006Jul. 15, 2006
Sept. 15, 2006Sept. 15, 2006
Jun. 1, 2010Jun. 1, 2010
Oct. 1, 2010Oct. 1, 2010
Dec. 1, 2010Dec. 1, 2010
Begin producing/importing 15 ppm for on-Begin producing/importing 15 ppm for on-highway use, at least 80% of on-highway highway use, at least 80% of on-highway volume; 20% can be 500 ppmvolume; 20% can be 500 ppm
Terminals & other downstream must comply Terminals & other downstream must comply (protect, track)(protect, track)
Retail outlets must comply Retail outlets must comply
No 500 ppm on-highway produced/importedNo 500 ppm on-highway produced/imported
No 500 ppm on-highway downstreamNo 500 ppm on-highway downstream
No 500 ppm on-highway at retailNo 500 ppm on-highway at retail
Outline of Non-Road ProposalOutline of Non-Road Proposal
Applies to transportation/vehicle fuels:Applies to transportation/vehicle fuels: Non-Road (NR); 500 ppm from 2007-2010, then 15 ppm Locomotive and Marine (LM); 500 ppm from 2007-2010;
then 500 ppm but marked from 2010-2014; then ?? ppm
Does NOT apply to stationary fuelsDoes NOT apply to stationary fuels Furnace, boiler, turbine, e.g. All called “heating oil” (HO) Marked from 2007-2010
Tracks on-highway v off-highway, and NRLM v HOTracks on-highway v off-highway, and NRLM v HO Provisions for Small Refiners and for CreditsProvisions for Small Refiners and for Credits Giveth (Baseline) and Taketh Away (downgrade, Giveth (Baseline) and Taketh Away (downgrade,
more grades)more grades)
Now, the “Non-Road” Proposed DatesNow, the “Non-Road” Proposed Dates
Jun. 1, 2007Jun. 1, 2007
Aug. 1, 2007Aug. 1, 2007
Oct. 1, 2007Oct. 1, 2007
Jun. 1, 2010 Jun. 1, 2010 (also ULSD)(also ULSD)
Jul. 15, 2010 Jul. 15, 2010 (also ULSD)(also ULSD)
Sep. 1, 2010 Sep. 1, 2010 (also ULSD)(also ULSD)
Begin producing/importing 500 ppm for non-Begin producing/importing 500 ppm for non-road, loco., marine (NRLM); mark heating oilroad, loco., marine (NRLM); mark heating oil
NRLM v HO segregated & tracked NRLM v HO segregated & tracked downstreamdownstream
NRLM v HO segregated & tracked at retailNRLM v HO segregated & tracked at retail
Produce/import NR at 15 ppm; LM marked Produce/import NR at 15 ppm; LM marked (still 500 ppm); HO not marked (still 500 ppm); HO not marked
Downstream Downstream
RetailRetail
Illustration of 2007 ProgramIllustration of 2007 ProgramBased on Distillate Use in 2001Based on Distillate Use in 2001
0
200
400
600
800
1000
1200
1400
1600
P5: WestCoast
P4: Mtn P3: GulfCoast
P2:Midwest
P1: EastCoast
KB
D
Highway 15 ppm Potential Highway 500 ppmNRLM 500 ppm Not Subject to S Rules
80% On-Highway
Res/Comm; Indus.; Elec. Gen.; Oil Co.
Farm; Rail; Marine; Mil.; Constr; Off-Hwy
Source: EIA, Sales of Fuel Oil & Kerosene. Includes No. 1 and No. 2 distillate/diesel to mirror EPA proposal. All CA use is classified as 15 ppm. “TCO” means Temporary Compliance Option. Illustration based on historical patterns.
20% TCO
Illustration of 2010 ProgramIllustration of 2010 ProgramBased on Distillate Use in 2001Based on Distillate Use in 2001
0
200
400
600
800
1000
1200
1400
1600
P5: WestCoast
P4: RockyMtn
P3: GulfCoast
P2:Midwest
P1: EastCoast
KB
D
15 ppm 500 ppm Not Subject
On-Highway; Farm; Mil.; Constr.; Off-Hwy
Res/Comm; Indus.; Elec. Gen.; Oil Co.
Rail; Vessel
Source: EIA, Sales of Fuel Oil & Kerosene. Includes No. 1 and No. 2 distillate/diesel to mirror EPA proposal. All CA use is classified as 15 ppm. Illustration based on historical patterns.
Too Simple!!Too Simple!!
2006 (4)2006 (4) On-road (OR) 15 ppm OR 500, OR Sm. Ref. 500 Non-Road, Loco, Marine
(NRLM) 500 dyed Heating Oil (HO) dyed
2014 (3)2014 (3) OR 15, NR 15 LM 500 HO
Potential Distillate Product Segregations
2007 (5)2007 (5) OR 15 OR 500, OR Sm. Ref. 500,
NRLM 500 undyed NRLM 500 dyed NRLM Sm. Ref. dyed (Yes . . .) HO dyed[?]+marker
2010 (4)2010 (4) OR 15, Non-Road (NR) 15 Loco, Marine (LM) 500 marker NR Sm. Ref. 500 dyed HO
And this is before Kero or Military Jet Fuel!And this is before Kero or Military Jet Fuel!
Infrastructure sized to fit market's characteristicsInfrastructure sized to fit market's characteristics Terrain; Distances; Volumes; Sources; Demand mix
Transport one diesel for on-road and off-roadTransport one diesel for on-road and off-road No tanks or piping for add'l grade during phase-inNo tanks or piping for add'l grade during phase-in Systems dictate break-out tanksSystems dictate break-out tanks
Special Concerns Special Concerns in the Mountain and Plains Statesin the Mountain and Plains States
California's Special ChallengesCalifornia's Special Challenges
Currently, all LSDCurrently, all LSD California reg applies 500 ppm to all uses, not just highway Jet interface goes to LSD Transmix tanks must have space: used for transmix and to
meet DOT requirement for pressure relief capacity Then, all ULSDThen, all ULSD
ULSD cannot accept jet interface Must wrap ULSD in gasoline, transmix will double No home for any accidental downgrade
Transmix issuesTransmix issues More customer/shipper truck trips to haul transmix Increased truck traffic coincides with truck increase for
ethanol shipments If customers/shippers miss schedule, not enough space to
meet DOT pressure relief requirement.
LOCKOUTLOCKOUT
LOCKOUTLOCKOUT
Kero for Winterizing Diesel:Kero for Winterizing Diesel:An Issue in the NorthAn Issue in the North
Kerosene for "winterizing" dieselKerosene for "winterizing" diesel Keep product flowing in cold weather Common in cold climates Must be 15 ppm in 15 ppm diesel
Currently, can use jet fuel or K1 (heating kero)Currently, can use jet fuel or K1 (heating kero) Share (optimize) tanks/piping
New requirement will require segregation (unless New requirement will require segregation (unless jet also at 15 ppm)jet also at 15 ppm) Reduce flexibility Increase cost of handling small volumes
Sequencing and Interfaces:Sequencing and Interfaces: Nationwide Impact Nationwide Impact
If/while LSD or HSD market available, use to buffer jet and If/while LSD or HSD market available, use to buffer jet and ULSD ULSD Impacts sequencing/cycles, but little impact on infrastructure LSD (smaller market) will have larger % gain from downgrade
If sequence jet with ULSD, must remove interface to transmixIf sequence jet with ULSD, must remove interface to transmix 2x interfaces creating transmix (old + new), so double volume Tanks required at new locations?
If no LSD or HSD market available, buffer jet and ULSD If no LSD or HSD market available, buffer jet and ULSD w/gasoline w/gasoline Increases gasoline cycles, but decreases vol. to market Increases transmix, and its infrastructure
If jet fuel spec reduced to 15 ppmIf jet fuel spec reduced to 15 ppm What of lubricity and other quality issues?
A Home for Downgrade:A Home for Downgrade:An Uncertainty NationwideAn Uncertainty Nationwide
May not ship it, but may create itMay not ship it, but may create it Enough to merit a tank?
Will customers/shippers want LSD? HSD?Will customers/shippers want LSD? HSD? More downgrade further downstream (%)More downgrade further downstream (%) Need a home for downgrade at line's end every timeNeed a home for downgrade at line's end every time
"Last" (most downstream) customer for LSD/HSD must take all
Stop line for slower delivery speed (cf. Atlanta's gasoline)
Downgrade LimitationDowngrade Limitation
For on-highway ruleFor on-highway rule “Downgrade” reclassifies volumes from 15 ppm pool to
the on-highway 500 ppm pool; limited to 20%/yr of 15 ppm Includes normal interface and mistakes No limitation on reclassifying to off-highway
Under proposalUnder proposal “Downgrade” reclassifies volumes from 15 ppm pool to
ALL of the 500 ppm pool, on-highway and NRLM; limited to 20% of 15 ppm annually
Still includes normal interface and mistakes Can only reclassify to heating oil without limitation
Every party downstream of refiner/importerEvery party downstream of refiner/importer
The Downgrade Limitation’s LimitationsThe Downgrade Limitation’s Limitations
Stationary Uses (“HO”) dominated by space heatingStationary Uses (“HO”) dominated by space heating Seasonal Variable with the winter’s severity Concentrated in a limited geographic area
Availability may decrease as distributors choose Availability may decrease as distributors choose between a seasonal product and 15 ppm on-roadbetween a seasonal product and 15 ppm on-road
If can’t move off-spec ULSD to HO, may have to go to If can’t move off-spec ULSD to HO, may have to go to transmix; may overburden; will costtransmix; may overburden; will cost
Why not dyed NRLM?Why not dyed NRLM? Will further fragment market, stress infrastructure, Will further fragment market, stress infrastructure,
slow market correctionslow market correction
NEWNEW
Dyes and MarkersDyes and Markers
NRLM may be shipped dyed (visible) or undyedNRLM may be shipped dyed (visible) or undyed If undyed, may be commingled with OR of comparable S Whether dyed or undyed, cannot be commingled with HO unless
moving to HO use After NRLM dyed for IRS, can be commingled with higher S volumes
such as from small refiners
HO HO mustmust be marked w/ solvent yellow 124 (“Euromarker”) be marked w/ solvent yellow 124 (“Euromarker”) from mid-2007 to mid-2010, from mid-2007 to mid-2010, cancan be dyed be dyed
Loco, Marine (LR) marked w/ solvent yellow 124 from mid-Loco, Marine (LR) marked w/ solvent yellow 124 from mid-2010 to mid-2014; HO no longer marked2010 to mid-2014; HO no longer marked
Issues: Test for marker; jet fuel downstream; marker in Issues: Test for marker; jet fuel downstream; marker in transmixtransmix
Tracking and RecordkeepingTracking and Recordkeeping
Product Transfer DocumentsProduct Transfer Documents Refiners and Importers to Downstream Parties, 2007-
2010, for: Undyed 500 ppm fuel Undyed 15 ppm fuel Dyed 500 ppm fuel (not for use in highway vehicles) Dyed 15 ppm fuel (not for use in highway vehicles) Dyed high-sulfur fuel (not for use in highway
vehicles or certain nonroad engines) Marked heating oil (not for use in NRLM equipment
or highway vehicles) Plus, for refiners & importersPlus, for refiners & importers
Batch by batch for NRLM
Mismatched Timing Undercuts Ramp-up Mismatched Timing Undercuts Ramp-up
Later downstream compliance -- August 15, e.g., Later downstream compliance -- August 15, e.g., -- designed to allow system to saturate. -- designed to allow system to saturate.
““Prohibited acts” start on June 1: violation before Prohibited acts” start on June 1: violation before subject to rulesubject to rule
Calculation of 20% downgrade limitation begins Calculation of 20% downgrade limitation begins June 1: downgrades, of necessity, will be high June 1: downgrades, of necessity, will be high during the ramp-upduring the ramp-up
No environmental benefit, no program benefitNo environmental benefit, no program benefit
Uncertainties NowUncertainties Now
What will refiners produce?What will refiners produce? What will marketers want?What will marketers want? Will tankage be adequate?Will tankage be adequate? Will transmix infrastructure/processing be avail.?Will transmix infrastructure/processing be avail.? What will the S content of the rest of dist. be?What will the S content of the rest of dist. be? What will the S content of jet be?What will the S content of jet be? Will a new testing mechanism limit losses from Will a new testing mechanism limit losses from
protective cuts?protective cuts?
Uncertainties LaterUncertainties Later
Every system and region has special issues Every system and region has special issues Universal: operations protocols more stringent; Universal: operations protocols more stringent;
impact of error greaterimpact of error greater Infrastructure – refining, transportation, Infrastructure – refining, transportation,
distribution – stretched furtherdistribution – stretched further Flexibility and hence capacity decreasedFlexibility and hence capacity decreased Duration and severity of a price spike following a Duration and severity of a price spike following a
market imbalance increasedmarket imbalance increased