Economic Costs of Ultra-Low 

Sulfur Diesel Fuel Requirements 

Presentation to 

Alaska Department of 

Environmental Conservation 

NEI and MAFA 

2008 

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Presentation Agenda 

• Study objectives 

• EPA standards 

• Overview of communities in northern and 

western Alaska 

• EPA transition plan 

• Current fuel consumption and handling 

• Transition process 

• Household cost impacts 

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Study Objectives 

• Evaluate economic costs to Alaska for 

implementing the new federal fuel 

requirements for ULSD. 

• Specific deliverables: 

• Quantify costs associated with fuel storage and 

distribution infrastructure changes in a typical 

hub community and village. 

• Estimate fuel volume demand for all regulated 

land and marine based diesel sources. 

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Study Objectives 

• Specific deliverables (continued): 

• Quantify the refinery based fuel cost premium for 

ULSD, recognizing the need for arctic grade 

specification fuel 

• Quantify the marine shipping cost premium associated 

with various importation scenarios 

• Quantify and assess whether the cost benefits of 

aggregate fuel purchases over multiple rural 

communities will be lost under a two-grade fuel system 

scenario 

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Study Objectives 

• Specific deliverables (continued): 

• Quantify the potential for a lower refinery cost 

premium on ULSD if ULSD demand volumes 

increase due to a one-grade ULSD 

infrastructure in rural Alaska 

• Quantify cost impacts to heating fuel in rural 

Alaska in the event of full conversion to ULSD 

• Quantify the power generation cost impacts to 

rural Alaskans 

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EPA Standards: Air Quality 

• Health Concerns Related to Diesel 

• New EPA standards 

• ULSD Mandates 

• Diesel highway mobile sources 

• Reduce emissions by 90% or more 

• Off-highway equipment by 2010 

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3 
EPA Standards: Mobile Engine Fuel 

Rules for Urban and Rural Alaska 

2007 to 2010 to 

2006 2009 2011 

Region Engine Type Parts per Million 

2012 

Rural 

Highway > 500 > 500 15 

Non-road > 500 > 500 15 

Locomotive and Marine > 500 > 500 15 

15 

15 

15 

Urban 

Highway 15 15 15 15 

Non-road > 500 500 15 15 

Locomotive and Marine > 500 500 500 15 

Source: Alaska Department of Environmental Conservation (ADEC). norther•onomics 

EPA Transition Plan for Alaska 

• In May 2006, EPA finalized an alternative 

transition plan for rural Alaska. 

• Rural areas can continue to use 

uncontrolled sulfur content diesel until 

2010. 

• As of June I, 2010, all areas of rural Alaska 

will have to begin the transition to 15 PPM 

ULSD. 

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EPA Transition Plan for Alaska 

• Implementation of EPA standards in rural 

Alaska is expected to be difficult due to the 

area's unique geography and economic 

characteristics. 

• The transition is likely to be more costly in 

rural Alaska due to logistics of." 

• Distributing multiple petroleum products 

• Storing multiple petroleum products 

• Both of the above in limited quantities 

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Northern and Western Alaska 

• The project area consists of 

communities in northern and western 

Alaska not connected to the road or 

ferry system. 

• The area has 151 communities 

characterized as regional hubs, subregional hubs, towns, and villages. 

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Northern and Western Alaska 

Northern and Western Alaska 

Population 

• 61,000 people in 151 communities 

• Ranges from 2 to 6,000 people 

• 100 of these communities have fewer than 400 residents 

Community Infrastructure 

• Most have no road or power grid connections 

• Depend on distillate fuels for heat and electricity 

• Most communities have seasonal fuel deliveries within the year 

• Some communities have fuel storage facilities that can only 

accommodate a few fuel products 

• Pay some of the highest diesel prices nationwide, recently over $7 

per gallon 

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Northern and Western Alaska 

% of Total % of Total 

Community, 2000 2006 2000-2006 Community 2000 2006 

Type Population Population CAGR (%) Count Population Population 

Hubs 19,105 18,918 -0.16 5 31.42 31.04 

Sub-regional 4,975 5,028 0.18 9 8.18 8.25 

Hubs 

Towns 20,620 21,642 0.81 37 33.91 35.51 

Villages 16,105 15,357 -0.79 O0 26.49 25.20 

Total 60,805 60,945 0.04 151 100.00 100.00 

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Current Fuel Use and Handling 

Current Fuel Demand 

• Statewide fuel demand in 2006 was l.7 billion gallons 

I.I billion gallons are Jet A fuel 

0.3 billion gallons are gasoline and associated fuels 

0.3 billion gallons are distillates (including kerosene and diesel) 

Typical fuels consumed in rural Alaska 

include: 

• Jet A (for heating and aircraft) 

• Diesel #1 and #2 (sometimes with arctic additives) 

• Aviation gas 

• Unleaded gasoline 

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Current Fuel Use and Handling 

Storage Use 

Sub-regional Village and 

Hubs Hubs Towns Totals 

(Millions of Gallons) 

Total Petroleum Products 34.6 6.8 29.8 71.2 

Motor Gasoline 6.6 1.3 5.7 13.6 

Electricity 9.9 1.9 7.2 19.1 

Residential Heating 4.9 1.1 8.2 14.1 

Marine 3.4 0.7 0.0 4.1 

Aviation 6.6 1.0 0.0 7.6 

Off-Road 1.0 0.2 1.0 2.1 

Other 3.3 0.8 6.5 10.5 

All Distillates, excl. Jet 21.2 4.5 24.4 50.0 

Regulated Distillates 13.8 2.8 11.3.•.._.,,• .• 

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Current Fuel Use and Handling 

• Fuel Storage and Distribution 

• Communities in rural Alaska have increased their bulk fuel capacity 

through the Denali Commission and Alaska Energy Authority's rural 

bulk fuel program 

• Of 186 bulk projects statewide, 58 completed or near-complete 

projects in the project area were available to provide current cost 

data for this study 

• Storage and distribution costs vary with community size and location 

• Fuel Sources 

• Six refineries operate in Alaska and one, in Nikiski, produces ULSD 

• Other fuel sources include some of the 35 refineries in Washington 

and arctic grade ULSD is available from Canada 

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Current Fuel Use and Handling 

Cost differences between ULSD and Jet A: 

• Jet A is the main fuel consumed in the study area. 

• ULSD is more expensive than Jet A by: 

• 1.32% in Anchorage (ranging from 0.6 to 13.2 cents/gallon) 

3.3% in Fairbanks 

1.4% in Anacortes, Washington (averaging 2.7 cents/gallon) 

(representative of northern Puget Sound refineries) 

• Cost differences are getting smaller as ULSD volumes 

increase, 

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Transition Process 

Transition scenarios 

• Scenario I: Warranty scenario 

Just enough ULSD shipped to meet 2007 and newer engine 

requirements 

• Scenario 2: Compliance 

Increased consumption of ULSD to meet EPA-mandated 

requirements 

Either a gradual transition (2a) or blend-down approach (2b) 

• Scenario 3: Full Conversion 

ULSD shipped for all purposes (heating, engines, and power 

plants) except aircraft requiring Jet A 

Uses the blend-down approach 

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Transition Process 

Blend-down approach 

• By starting to use ULSD in 2008, villages could blend 

their existing stored diesel fuel as it is used and refilled 

• With the blend-down approach, average sulfur 

concentrations would decline over a three-year period 

• The blending process would lead to the final tank filling 

achieving 15 parts per million sulfur content (or less) 

• The blend-down approach appears to be the lowest cost 

option for the transition, compared with the cost of 

purchasing new tanks, cleaning and disposing of waste 

from existing tanks, or using drums for temporary 

storage 

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Transition Process 

Units 

Scenario 2A: Scenario 2B: Scenario 3: 

Gradual Rapid Transition Rapid Transition 

Transition to (excluding (including 

ULSD (excluding heating oil) with heating oil) with 

heating oil) blend down blend down 

Household 

Cost 

2010 

Household 

Cost 

(2008-2030) 

Households 

$ per household 300 278 189 

per year 

$ per household 2,902 2,361 2,091 

(NPV 20065) 

Number of 

households in 

Study Area 

14,700 14,700 14,700 

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10 
Household Cost Impacts 

• Electrical cost increases are projected at $61 per year. 

• Additional fuel transportation and storage system costs are 

estimated at $99 per year. 

• ULSD costs more to refine than competing fuels, increasing 

costs by $49 per year. 

Cost Category S/Year 

Cost of modifications to electric utility diesel generating $61 

systems 

ULSD refinery premium over Jet A $49 

Cost of modifications to fuel transportation and storage $99 

systems 

Total $209 

Percent 

29.2 

23.4 

47.4 

100.0 

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Household Cost Impacts 

Environmental Justice issues 

• Environmental justice factors are an issue in the study 

area 

Area's population is 84% minority 

19.6% of the area's population is low-income 

• Household costs of the ULSD transition are highest for 

areas of the state with the highest concentration of 

minority and low-income populations 

• Disproportionate impacts are due to the study area's 

greater reliance on diesel for heating and power 

generation in comparison to the rest of the state 

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11 
Questions? 

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