Higher-quality diesel fuel' could boost, hinder North American diesel light-duty...

Higher-quality diesel fuel' could boost, hinder North American diesel light-duty prospects

Diesel Fuel News, Nov 10, 2003 by Jack Peckham

Pittsburgh -- A "higher quality diesel fuel" (HQDF) might reduce North American automaker costs for meeting cold-start, noise, injector/pump wear and emissions targets seen critical for customer expectations and light-duty Tier-2/Bin 5 EPA limits in 2007.

But U.S. refiners warn that trying to force a very-high-cetane, World-Wide Fuel Charter (WWFC) "Category-4 like" version of ultra-low sulfur diesel (ULSD) fuel nationwide by around 2007 would be too costly--and timing looks tricky, as explained at the Society of Automotive Engineers (SAE) powertrain conference here.

Creating such a fuel (or something like it) could require costly hydrocracking investments to boost cetane to 55, especially for upgrading the low-cetane distillates resulting from U.S. refiners' growing diet of heavy-sour crudes and Canadian syncrudes.

Still, while 2007 might seem a very ambitious deadline for a WWFC Category-4-like fuel, it might be feasible to bring some version of HQDF to the U.S. market by 2010, according to a new study being launched at U.S. Department of Energy (DOE) and Oak Ridge National Laboratory. A first-draft report will be available by early 2004.

This study, "Estimating the Cost of Bringing a New High Quality Diesel Fuel to the Light-Duty Vehicle Market," assumes that virtually all diesel fuel in the U.S. will be ultra-low sulfur diesel (ULSD) by 2010. That seems likely given U.S. EPA intentions on non-road diesel fuel.

In DOE's preliminary analysis so far, two scenario cases -50% and 100% retail station "HQDF" penetration--assume cetane levels as high as "Category 4" (55 number, 52 index), although the "study outcome may suggest different properties" than Category 4, as DOE analyst Tom White explained here.

For the initial study period, "no refinery processing investment for HQDF" is assumed, although this assumption could change. If required, cetane additization would result in about a 3.3 cents/gallon cost increase, DOE's preliminary results indicate. No extra retail tankage would be required as retailers either would offer HQFD or regular diesel fuel.

Under the 50% case, 28,000 non-truck-stop (NTS) stations would offer the fuel, while the 100% case foresees 56,000 NTS stations offering HQDF.

The study assumes that diesels are 10% of light-duty U.S. vehicle sales in 2010 and account for 306,000 barrels/day diesel demand. This means an average 229 gallons/day diesel sales at the NTS stations--a tiny fraction of average U.S. truckstop sales.

Because of smaller HQDF production volumes, pipeline minimum batch size requirements might force refiners to truck-deliver HQDF directly to stations, adding about 4-5 cents/gallon distribution cost. If pipeline batch requirements aren't a problem, then refiners still would face about a 0.2 cent/gal. refinery tankage cost increase plus about a 0.2 c/gal. terminal tankage cost increase, the preliminary study suggests.

So, summing the extra cetane, distribution and tankage costs, getting an HQDF to market could add about 4-9 c/gal, cost, not including retail markup. "With limited pipeline use, production costs in some regions (including U.S. East Coast) could be much higher," perhaps as high as 17 c/gal., White said, adding that all cost estimates to date are "preliminary."

In contrast, a "fungible" HQDF would be much less costly. By 2010, when both highway and non-road diesel are desulfurized to <15 ppm sulfur, it's possible that much more of the distillate pool will have higher cetane and lower aromatics, perhaps "similar to today's CARB diesel," he said. Cetane additization at terminals might add roughly another 2 c/gal. if required, he added. Hence HQDF cost might be relatively low.

~ Chicken & Egg Problem?

Today, most refiners are reluctant to make massive, risky investments in a special light-duty fuel. That's because the core U.S. heavy-duty diesel market doesn't demand drastic fuel quality upgrades (aside from sulfur reduction), and refiners can't predict whether or when U.S. demand growth for light-duty diesel will become robust enough to justify more investment.

So it's the classic "which comes first" chicken-and-egg syndrome: Would refiners front-load investment for "HQDF" to incentivize light-duty dieselization, or would automakers instead front-load investment in more-robust engine/fuel systems to tolerate lower-cetane (and maybe lower-lubricity) fuels, then hope that resulting diesel demand growth will encourage refiners' future "HQDF" investment?

Some refiners are forced into high-cetane/low-aromatics "HQDF" investment by state fuel regulations as in California and Texas. But this is tied to getting critical U.S. EPA "state implementation plan" (SIP) emissions credits in the U.S.'s most air-polluted areas. Light-duty diesel demand has nothing to do with this, since relatively few light-duty diesels exist in the U.S.

As EPA mobile sources official Chet France pointed out in response to a question here, "higher cetane and lower aromatics can provide small but meaningful emissions reductions" for some states. But it would be "better if there was a cooperative dialog between refiners and auto companies" on making changes beyond desulfurization, he added. Meantime, "individual oil companies are anticipating such modifications in other fuel parameters," even though EPA isn't mandating such changes, he added.

~ Coincidental Cetane Boost

EPA's 2006 ULSD mandate means that hydrotreating for desulfurization coincidentally will boost U.S. average cetane by 1-2 numbers, as Marathon-Ashland Petroleum (MAP) fuels technology manager Michael Leister pointed out in a speech here. Given that the U.S. average cetane number (including high-cetane California diesel) is about 46, this could boost U.S. cetane average to around 47 or slightly higher. However, the range is very wide--from about 40, to the mid-50s in California.

Diesel fuel additives expert Larry Cunningham of Ethyl Corp. likewise predicted here that U.S. refiners will see only a 1-2 average cetane boost from highway fuel hydrodesulfurization (to around 5-10 ppm sulfur at refinery gate) by 2006. Going above that would require chemical cetane additization, or further investments in distillate upgrading units, he pointed out. (However, not all distillates respond equally well to cetane additives, and a costly point of diminishing returns can hinder further additization when trying achieve high cetane).

Beyond additive costs, if light-duty diesel demand takes off, then the smaller (non-truckstop) retailers eventually would need more than one diesel pump at a single fuel island, Cunningham pointed out. So, more oil industry investment would be required.

Another factor: Light-duty diesel might require extra additization for low-temperature performance--especially if the new diesel cars won't enjoy the fuel-heating effects typical of the near-constant-use heavy-duty vehicles, or the same heat-sink benefits of fuel circulating around injectors, for return to on-board tanks, thus keeping fuel warm.

Fuel re-odorants and anti-foamants also might be needed to avoid offending some retail customers. But organo-silicon anti-foamants aren't what EPA considers as "typical" additives, he said, so this raises the costly issue of doing EPA's mandatory fuel-additives health-effects studies. Still, maybe it's worth the trouble, to avoid foaming/spilling incidents. "If you get diesel fuel on your hands it smells for a while. If you get it on your clothes, it smells all day. If your tank foams over and gets in your shoes, you throw them away," Cunningham points out.

Unforeseen additive interactions also could cause problems, as with filter plugging from additive cross-effects in Europe several years ago. Bottom line: Unless diesel customers enjoy problem-free fuels, then they'll "look for an alternative vehicle" for their next purchase, Cunningham warned.

Both quality and cost must be balanced carefully to avoid killing-off the North American light-duty diesel market opportunity, he said. So, here's how an "incremental" scheme could work:

"When the demand for light-duty diesel fuel is low, harm-free additive packages can be added at terminals or filling stations to convert fungible No. 2 diesel fuel into an acceptable light-duty diesel fuel," Cunningham said.

But there's still an unresolved obstacle: Minimum requirements (including cetane, lubricity, cold-temp operability) for this new light-duty North American diesel market are still fuzzy. So, a related Coordinating Research Council (CRC) study aims to find answers to those critical minimum fuel-quality requirements within the next year or two (see related story, p6).

Assuming that retailers can economically sell this new fuel via terminal or station blending at first, then later on "if the market develops enough for refiners to make a light-duty diesel for local or fungible distribution, [then] the same equipment can be used to differentiate or upgrade the fuel similar to what is done at terminals with gasoline," Cunningham said.

Hence, without spending hundreds of millions of dollars for refinery process upgrades, "additives can provide the flexibility and enable the introduction of light-duty diesel," via a gradual phase-in scheme with minimal capital cost.

~ One High-Quality Fuel?

Producing one high-quality fungible diesel fuel (for heavy and light-duty) might be seen as one alternative answer. But given that U.S. diesel fuels today legally can be as low as 40 cetane (some illegal fuels are even lower), it seems hard to imagine that most (or all) diesel fuel could shift to >50 cetane "HQDF" by 2007. What's more, ULSD fuel "will not look like" Worldwide Fuel Charter Category 4 diesel, as MAP's Leister pointed out here.

Even Europe's high-cetane, high-lubricity fuel is a far cry from a "Category 4" fuel that looks more like jet fuel than diesel, he pointed out. Problem: It's not practical to take huge cuts out of the distillate supply pool just to make a much smaller quantity of "Category 4" fuel. "No major full-range diesel meets this [Category 4] in the world," Leister said. "It's problematic to meet all these standards and it could only be from a lighter cut fraction of the distillate pool.

"The automakers and engine makers spent a great deal of time on the World-Wide Fuel Charter but it was developed unilaterally. They should work with real fuel manufacturers for realistic fuel standards."

Given these obstacles, is it still possible to imagine the emergence of a U.S. light-duty diesel fuel? "Possibly," Leister said, but this would require a costlier segregation from regular diesel fuel. Such a fuel "can only be developed through cooperation between engine/vehicle manufacturers and fuel refiners," he said.

Such discussions potentially could lead to an agreement on higher cetane, but putting such changes into effect nationwide probably would take at least four more years, he said. If the goal is to have a higher-quality diesel for Tier 2/Bin 5 cars debuting in 2007, then "we need a cost-effective solution for a premium grade--if we can get more money for it, and if the customer wants to pay the extra money for it--and time is running out," Leister said.

~ Recipe For Disaster'

Even the new auto/oil Coordinating Research Council CRC diesel fuel performance committee work (see related story, p6) "may be too late for Tier 2 vehicles," he said. But if the result points to a high-cost, segregated diesel fuel, then that would be a "recipe for disaster," he said.

"The oil industry won't subsidize a fuel. You need to build into your model the cost of a higher-performance fuel. A good solution is both industries working together for customers."

Some refiners producing higher-quality diesel fuel might see a market opportunity for light-duty vehicles, but such fuel would need to be available everywhere, at a price competitive to gasoline. On the other hand, trying to push mandatory, nationwide "HQDF" limits too far, too fast might make diesel fuel costs jump so high that the incentive for greater light-duty dieselization could disappear, MAP's Leister warned.

Meantime, automakers pointed out here that marketing schemes for a new, segregated "HQDF" costing 10-20 cents/gallon more than gasoline probably would kill the U.S. diesel light-duty market anyway. So, automakers suggest that it's more logical to upgrade the highway diesel pool (both heavy and light-duty) at the tens of thousands of North American retail diesel outlets, rather than just a relative handful of "specialty" retailers.

Counterpoint: A smarter strategy perhaps could have automakers make their engines more robust for the North American diesel market, at least until fleetwide light-duty demand grows enough to incentivize more refiner investment in "HQDF," refiners say.

But loading-up diesel engines with costly "special" technologies and calibrations to compensate for low-quality North American fuel likewise could stifle diesel market prospects, automakers warn. Diesel engines already suffer a price premium compared to gasoline engines, and they'll suffer another cost hit for ultra-low emissions catalysts in 2007. So a "special" diesel engine, adding further costs, perhaps could kill the North American light-duty diesel market.

More highlights on "higher-quality diesel fuel" from SAE here:

--Despite all the negativity toward "dirty" diesel, world diesel demand passed gasoline demand since 2000, MAP's Leister pointed out. Meantime, on-road diesel demand growth in the U.S. is outstripping gasoline, with the result that the diesel/gasoline ratio is approaching 30%. Diesel is a good business for many U.S. refiners and especially for MAP, which explains its considerable investment in truckstops (Pilot chain, the nation's largest) and fuel/convenience stores (Speedway, the U.S.'s biggest single-ownership retail fuel chain).

But heavy-duty drives the U.S. diesel market today, Leister points out, citing demand by trucking, railroads, marine, agriculture, construction and mining. The emergence of ULSD by mid-2006 would enable ultra-clean emissions catalysts, which "may allow clean-diesel light duty vehicles to become a significant part of the U.S. fleet," he said.

Problem: This could pose new challenges for refiners' relative investments in distillate and gasoline output, as U.S. refiners historically have focused on gasoline. "A significant change in refinery operation has to take place if there is continued growth in diesel demand over the next five years," Leister warned. Such strong growth is "amazing considering the negative image of diesels, which are considered a 'dinosaur' in the age of fuel cells," he added.

Meantime, U.S. refiners' historical focus on gasoline means that a lot of low-cetane cracked stocks wind up in diesel fuel, which poses engine noise and cold-start/white-smoke problems for automakers and heavy-duty engine/vehicle makers.

Europe doesn't have such problems, as its refining system is optimized toward diesel rather than gasoline, and hydrocracking is more common, resulting in higher-cetane (low 50s) average fuel. Hence European automakers have optimized their engines for higher-cetane fuel, which helps explain a diesel craze that's pushing diesel's relative share over 50% in the light-duty sector.

--Ironically, very-high-cetane fuel isn't necessarily required for cold-start, nor is it best for highest energy efficiency, as a Delphi diesel engine expert pointed out to us here. Diesel automakers conceivably could incorporate variable valve timing (VVT), which would allow (on demand) effective compression ratio manipulation to eliminate the cold-start/white smoke problems, even with lower-cetane fuel. Example: During cold-start, inlet valve could be closed at bottom-dead center, allowing a full cylinder's-worth of air compression, creating more heat on the upstroke. This could eliminate white smoke/excess hydrocarbon emission, even with today's fairly ordinary cetane fuel. After engine/catalyst warm-up, effective compression ratio could return to optimal level for best thermal/fuel efficiency.

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