More diesel problems, higher pump prices

user-gravatar

The national average price of a gallon of diesel passed the $3 mark for the week ending Monday, Aug. 7, and that was before BP’s announcement of a shutdown in the nation’s largest oilfield. Meanwhile, a diesel-fuel shortage in Colorado has prompted some trucking companies to advise drivers to avoid the state or refuel before they get there.

BP announced Monday that “unexpectedly severe corrosion” in its Alaska pipelines will force an unprecedented shutdown in the Prudhoe Bay oilfield, the largest in the United States. During the shutdown, which could last for weeks, U.S. crude oil production basically will be cut by 8 percent. After BP announced its bad news, oil prices shot up to $77 a barrel, an ominous sign for pump prices.

According to the U.S. Department of Energy, the average gallon of diesel in the week ending Aug. 7, before the Prudhoe Bay problems became known, cost $3.055, an increase of 7.5 cents from the previous week and an increase of almost 65 cents from the same week a year before. Prices in every region jumped by several cents, but they leaped by more than 15 cents in the Rocky Mountains, going from $3.052 to $3.208.

The Rockies bumped California from its spot as the most expensive place to buy diesel for the first time since January. Prices on the West Coast showed the least amount of change, increasing by only 4.7 cents, to $3.113. Only the Lower Atlantic and the Gulf Coast managed to retain diesel prices below $3 a gallon, halting at $2.989 and $2.988, respectively. For state-by state diesel prices, updated daily, click here.

Meanwhile, a diesel-fuel shortage in Colorado — and around the nation — has prompted some trucking companies to advise drivers to avoid the state or refuel before they get to Colorado. Trucks typically need 100 to 300 gallons of fuel to fill up, but some Colorado truck stops are rationing fuel to 50 to 75 gallons per truck, says Colin Heupel, safety manager for HVH Transportation’s truckload division in Henderson. HVH is advising its drivers to refuel before driving to Colorado.

The shortage is due to a combination of factors, including higher demand from farms during harvest season, difficulties complying with the 2007 emissions regulations, and a storm that knocked out a large refinery in Illinois. As of June 1, the Environmental Protection Agency mandated that refineries slash the sulfur content of diesel to 15 parts per million from 500 parts per million. In Colorado, the conversion of diesel to meet the new EPA requirement “has not been exactly smooth,” says Stan Dempsey Jr., president of the Colorado Petroleum Association.

Storage tanks along the diesel pipeline system must be “shut down and steamed and cleaned” to adhere to the new lower-sulfur standard, says Roy Turner, executive vice president of the Colorado/Wyoming Petroleum Marketers Association. Steve Douglas, general manager of supply and marketing at Suncor Energy, says his company is trying to make more diesel; Suncor recently completed a $445 million project to produce ULSD.

“It was certainly expected there would be some hiccups,” Douglas says. “When you spend hundreds of millions of dollars on new equipment, you do not flip a switch and produce the fuel.” Suncor supplies roughly 20,000 barrels of fuel per day for Colorado, where total demand is about 60,000 barrels a day, Douglas says. Suncor will limit the amount of fuel its customers can purchase and is looking for diesel that it can bring into Colorado by a pipeline, he says.