Industry Groups Spar Over Pros and Cons of Low-Sulfur Heating Oil Mandate in CT

Posted by Josh Garrett on March 26, 2010 at 2:07 pm

ICPA President Gene Guilford and API Senior Communications Manager Jane Van Ryan. (image: heatingoil.com and rpi.edu).

The “greening” of heating oil has been in the news a lot lately around the Northeast, as many state governments in the region consider laws requiring lower sulfur content and higher levels of biodiesel in residential heating oil. Recently, legislation to that end took a step closer to ratification in Connecticut.

The environmental and health benefits of lower-sulfur heating oil are clear: when burned, sulfur produces sulfur dioxide gas which lowers air quality and detrimentally affects respiratory health. The less sulfur in the fuels we use for transportation and heating, the better.

However, the progression of low-sulfur heating oil legislation has revived the debate over the economic costs and benefits of such measures, specifically for heating oil consumers.

On Thursday, Jane Van Ryan, the Senior Communications Manager and New Media Advisor at the American Petroleum Institute (API), wrote a blog that laid out her organization’s opposition to the Connecticut bill; the API’s opposition was joined by Steve Guveyan of the Connecticut Petroleum Council in testimony to the state legislature. The API is the nation’s largest industry group “that represents all aspects of America’s oil and natural gas industry” (description from the API’s blog, “Energy Tomorrow”).

Like most statewide heating oil industry groups, the Independent Connecticut Petroleum Association (ICPA) strongly supports the potential low sulfur and biodiesel mandate. In an interview with HeatingOil.com last fall, ICPA President Gene Guilford stated that his group’s members “are primarily petroleum retailers like gas stations and heating oil dealers.”

What’s behind the opposing viewpoints on this major issue in the oil industry? Are low sulfur and biodiesel requirements good or bad for heating oil consumers? Take a look at the arguments below from both sides and make a decision for yourself.

Ms. Van Ryan begins her blog with an analogy that compares heating oil to gumballs, and argues that the proposed mandates would require complex and expensive changes to the manufacturing and distribution system of “gumballs” that would bring about higher retail prices. “As a gumball manufacturer, your job has become more complicated and costly, when all you’re trying to do is supply gumballs to people who enjoy them,” she writes. Mr. Guilford dismisses this premise, stating, “For 35 years API has always opposed every fuel specification change. These scare tactics and misinformation is [sic] nothing new.” Specific points of contention follow:

1. Competition for road diesel supplies. Reducing the sulfur content of heating oil to 15 parts per million (ppm) would make it nearly identical to the diesel fuel used by trucks and other vehicles. Van Ryan argues that this “would put homeowners in direct competition with motorists and truckers who vehicles require diesel fuel.” According to Van Ryan and Guveyan, increased demand for the product would drive up heating oil prices. Guilford calls this premise “false,” arguing that US refiners make massive quantities of low sulfur diesel/heating oil for export to other countries, and the mandates would only require a small portion of those exports to remain in the US for use as heating oil. He added, “Since API is exporting all this material using it for heat here obviously doesn’t compete with anything.”

2. Higher cost of road diesel. According to Van Ryan, “Statistics for the past three years show that diesel fuel has ‘almost always’ been more expensive than home heating oil, ‘ranging up to 18 cents a gallon more.’” Guilford refuted this assessment, saying “There have been weeks during this past winter when dyed ulsd (ultra low sulfur diesel) has been less expensive than traditional #2 oil.” The validity of the arguments depends on how long the timeline the price comparisons are placed on, as well as the type of diesel fuel used. Ultra low sulfur diesel has lower sulfur content than does low sulfur diesel. A quick snapshot of EIA data that averages all types of road diesel shows the national average retail price for road diesel on March 18, 2010 was $2.904 and the national average retail price for heating oil was $2.919. On March 15, the average road diesel price was $2.924 per gallon and the average heating oil price was $2.929 per gallon.

3. Timetable for switch to low-sulfur heating oil. Van Ryan argues that the switch to low-sulfur heating oil, as set by the pending bill, would happen too quickly and put an excessive burden on refiners. She also warns, “Connecticut’s heating oil recipe would be the only one like it in the country, a fact which could complicate the fuel’s delivery.” To counter this argument, Guilford again refers to the huge quantity of diesel exports from the US: “Given the 80 million barrels of ulsd that were exported in 2009, the fact we want a tiny percentage to be left here is hardly a dramatic impact on domestic refining.” In response to Van Ryan’s second claim, he posits that the requirements would actually give American heating oil users access to a larger supply pool, which could bring lower prices, writing, “ulsd is a worldwide standard and if there is an unusual spec it is 3000ppm heating oil. CT would have far stronger sources of supply if we were plugged into a worldwide ulsd distillate pool.” Most US heating oil currently contains 2,000 to 3,000 ppm of sulfur.

4. Operation of biodiesel in cold weather. Finally, Van Ryan states that “Significant cold-weather problems have occurred with biofuels, and there is no large supplier of biofuels in the Connecticut area.” Poor performance in cold weather would obviously be a major concern for heating oil users; a lack of adequate supply implies higher prices. Guilford responds vehemently to these claims, writing, “This is so laughable as to be beneath the dignity of a national petroleum association. We have…sold biofuels here for more than a decade for both heat and transportation without issue. The National Biodiesel Board (NBB) verified that there is ample material available for blending to meet even a national mandate for heating oil.” He also claims that Van Ryan’s citing of “cold-weather problems” with biodiesel was motivated by political strategy and not fact. According to Guilford, “API’s lobbyists here approached the CT BioFuels Association, our partners on the ulsd/bio legislation, and told them that they had NO issue with the bio part of our bill - and API asked CT Bio Assn to split off from us and pass just the bio part and oppose the ulsd part.” If that account were true, API’s concerns about biodiesel’s performance in cold weather as stated by Van Ryan would be disingenuous.  Reached for comment on Guilford’s staement, Guveyan (who is a registered lobyist for API) said that he himself did not approach the Connecticut Biodiesel Association with the alleged proposition.  He added that the prospect of contracted lobbyists making such a proposition “did not ring a bell,” and stated that API opposed all mandates and bans on additives to liquid petroleum fuels.

Clearly, the API and the ICPA do not see eye to eye on the issue of lower sulfur/higher biodiesel mandates in the state of Connecticut. We encourage heating oil users to use the above summary as a starting point of their own research on the pros and cons of green heating oil mandates in Connecticut and other states where such mandates are being considered. Please let us know what you think in the comments section and keep visiting HeatingOil.com for updates on the legislative progression of mandates throughout the Northeast.