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New Fuel Specs to Impact Gasoline Prices in ‘06

January 05, 2006

WASHINGTON, D.C. --- Five fuel specification changes, mandated by 2005’s energy bill along with Clean Air Act amendments, are expected to have a dramatic impact on retail gasoline prices in the coming year, according to the Energy Department’s Energy Information Administration (EIA). Key among the changes, the EIA reported, are the ultra-low sulfur diesel (ULSD) program and the removal of methyl tertiary butyl ether (MTBE) from reformulated gasoline by many suppliers. These new standards will spur operational changes and new equipment installation by refineries and distributors in 2006. What may result are weakened production capability, loss of import supply sources, greater difficulty in delivery of new products, and a short-term inventory pinch while tanks are prepared for the cleaner new product. The ULSD program begins this year with the mandate that at least 80 percent of on-highway diesel fuel supplied has no more than 15 parts per million sulfur content at retail. Refineries are scheduled to comply by June 1. The removal of MTBE from gasoline has been prompted by state bans, which are aimed at protecting water supply, along with greater liability exposure arising from the Energy Policy Act of 2005. 2006's other three spec changes are expected to have a lesser impact on gasoline prices and price volatility, the EIA said, but nonetheless will collectively exacerbate a tight market. They are: establishment of a renewable fuels standard in EPAct 2005, requiring greater volume of renewable transportation fuel each year; implementation of an EPAct 2005 requirement that reformulated gasoline meets the same volatile organic compound (VOC) emission standard in northern and southern regions; and implementation of low-sulfur gasoline requirements that result in average gasoline sulfur content of 30 parts per million.
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