© 2010 Kevin J. Lindemer LLC

4/6/2010

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Ultra-low Sulfur Diesel 

Fuel/Heating Oil Market Study

Prepared for the

National Oilheat Research Alliance
© 2010 Kevin J. Lindemer LLC

Outline

• Key observations and conclusions

• Heating oil demand

• Refining and refinery production

• PADD 1 distillate imports

• Distillate exports

• Distillate market balance

• Ultra-low sulfur diesel and heating oil values

• Impact on consumers

• Options

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KEY OBSERVATIONS AND 

CONCLUSIONS

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Key Observations

• Market trends will not result in a shift to ULSD for the heating 

oil market within the study period to 2020.

• Refiners add capacity only in response to market/regulatory 

requirements. Announced distillate upgrading projects closely 

match the amount of off-highway diesel that will need to be 

upgraded to ULSD by 2012.

• The US refining industry today does not have the capacity to 

convert all heating demand to ULSD.

• Refiners will be able to meet low sulfur heating oil 

specifications with enough lead time for the necessary 

investments. Past experience suggests at least 5 years will be 

needed for the industry to make the necessary investments.

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Key Observations

• ULSD supply in the US is currently in excess of domestic 

demand resulting in about 200,000 bpd being exported. A 

short-term shift to ULSD in some markets would have the effect 

of moving exported ULSD back into the US domestic market. 

However,

o Domestic ULSD prices would rise relative to the world market and,

o Domestic heating oil prices would fall relative to the world market 

in order to export displaced heating oil supplies.

• Export markets for US quality heating oil are becoming more 

limited, smaller in size and more remote due to low sulfur 

regulations around the world.

o As a result, the cost to export heating oil is likely to be higher than 

the cost to export ULSD due to the added transportation cost.

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Key Observations

• ULSD prices are expected to average for the study period 1 to 3 

cpg over heating oil in the PADD 1 winter season wholesale

market.

o The very high ULSD prices relative to heating oil in the 2006 – 2008 

period were an anomaly, unsustainable and are not expected to 

repeat.

• If a rule to move to ULSD in heating markets is adopted, price 

spikes could occur if the timing and implementation of the rule 

change is not done properly

• For consumers, the higher cost of ULSD relative to heating oil 

will be more than offset by lower maintenance costs and higher 

fuel efficiency.

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ULSD for Heating Oil – Potential 

Regulatory Options

• Option 1: Change the heating oil sulfur specification to ULSD 

for the entire market at once with enough lead time for refiners 

to add capacity.

o This option would insure supply at a specified time. However, past 

experience indicates that not all refiners would receive a return on 

capital invested.

• Option 2: Phase in ULSD for heating oil by state on a fixed 

schedule. 

o Some states could shift right away as current ULSD exports could 

be moved to heating oil markets. 

o Timing for the remaining states would need to be sufficient to 

allow refining to add capacity.

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HEATING OIL DEMAND

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Heating Oil Demand

• This analysis assumes that a shift to ULSD for the heating oil 

market will slow the structural decline in heating oil demand.

o With a shift, demand is expected to fall over 20% from 2009 to 2020 

which is similar to the decline experienced in the previous decade.

o Without a shift to ULSD, the decline could be greater.

• Heating oil is becoming a very small volume product compared 

to total distillate demand and total oil demand.

o In 2000, heating oil was 35% of total distillate demand in PADD 1, 2, 

and 3. 

o By 2009, heating oil declined steadily to 14% of distillate demand 

and is expected to be less than 10% by 2020.

• Heating oil is still an important product for PADD 1 refiners.

o Heating oil demand is about one third of total distillate demand in 

PADD 1 in 2009 and is expected to be as much as 25% in 2020.

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50

100

150

200

250

300

350

400

450 0

500

1,000

1,500

2,000

2,500

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Cents per Gallon Thousands of bpd

PADD 1 Middle Distillate Demand

High Sulfur Diesel

ULSD

Heating Oil

PADD 1 Wholesale 

Heating Oil Price

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100 

200 

300 

400 

500 

600 

1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 Thousands of barrels per day

PADD 1 Residential/Commercial Heating Oil 

Demand with ULSD for Heating Oil

Residential

Commercial

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3,000

3,500

4,000

4,500

5,000

5,500 -

5,000 

10,000 

15,000 

20,000 

25,000 Heating Degree Days Millions of gallons

PADD 1 Residential/Commercial Heating Oil 

Demand and Degree Days

Heating Oil Demand

Heating Degree Days

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0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Heating Oil Share of Total Distillate Demand

PADD 1, 2, and 3

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Heating Oil Demand Fundamentals and 

Key Assumptions

• The analysis assumes a conversion rate from heating oil to 

natural gas through 2020 consistent with long-term historic 

trend rate. 

• Heating oil demand/house/HDD has declined sharply due to 

high prices over the past few years. A similar pattern occurred 

in the early 1980s after the oil shock of the late 1970s. 

o When prices declined again in the mid-1980s, demand did not 

recover back to the pre-price shock levels due to efficiency gains 

and fuel switching.

o This analysis assumes a similar permanent loss in 

demand/customer as a result of the recent high oil prices.

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10

12

14

16

18

20 Millions of Households

US Households with Heating Oil Heat

Assumed rate of decline: - 2008 - 2009 = 2%/year - 2010 - 2020 = 2%/yr

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0.140 

0.160 

0.180 

0.200 

0.220 

0.240 

0.260 

0.280 

0.300 Gallons of Heating Oil per Housing Unit per Heating Degree Day

PADD 1 ResComm Heating Oil Consumption

gal/house/hdd

1983-2007 avg

Gal/House/HDD Forecast

1970 - 1978 avg

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REFINING AND REFINERY 

PRODUCTION

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Product Supplied Closely Matches 

Demand by Sulfur Specifications

• Refinery production of distillates by sulfur grade closely matches the demand 

in the sectors that can use each grade.

• Refiners minimize economic losses from producing products that are not 

matched with market requirements. As a result, there isn’t a significant amount 

of lower sulfur distillates being used in higher sulfur applications. In some 

regions of the country, logistics constraints dictate elimination of certain 

grades and force the use of products of higher quality in market segments that 

do not require them. 

o The large coastal markets of PADD 1 have higher logistics flexibility than inland 

markets. Marine terminals and significant terminal capacity allow suppliers to more 

accurately match market needs with specific quality products.

• Announced additions to ULSD capacity to 2013 closely matches off-road diesel 

fuel demand.

• Some ULSD projects have been indefinitely postponed due to the market 

environment.

o Demand for ULSD has fallen, and the market does not need the capacity at this time.

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100 

200 

300 

400 

500 

600 

700 

800 

900 

2006 2007 2008 2009 Thousands of bpd PADD 1 ULSD Demand: Supply is Balanced 

with Consumption

Supplied to the Market

On-Road Consumption

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100 

200 

300 

400 

500 

600 

2006 2007 2008 2009 Thousands of bpd PADD 1 High Sulfur Diesel: Supply is Balanced 

with Demand

Supplied to the Market

Off-Road Demand

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50 

100 

150 

200 

250 

300 

350 

400 

450 

500 

2010 2011 2012 Thousands of bpd PADD 3 Expected New ULSD Capacity 2010 -

2013

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Refinery Heating Oil Production

• Refiners produce products as the market requires.

• As heating oil demand declines, the marginal or high cost 

supplies decline first.

• A shift to ULSD for heating oil will cause the marginal suppliers 

of heating oil to either shift production, export or shut down 

first.

• Production shifts and refinery closures have already occurred -

driven by a variety of market forces. Heating oil exports are 

also declining due to smaller markets resulting from more 

stringent sulfur regulations internationally.

• Refineries in US close regularly due to competitive and market 

forces. A switch to ULSD in the heating oil markets may affect 

that decision, but is likely to be one of many factors that would 

result in a decision to close a refinery.

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Heating Oil Production and Demand

• Heating oil volumes supplied closely matches the demand from 

the residential/commercial sectors.

• Refiners in PADD 1 will need to invest in 150 – 200 thousand 

bpd of additional desulphurization capacity to meet lower 

heating oil sulfur requirements. This is slightly less than the 

capacity that has already been required to meet the ULSD 

specifications.

o In PADD 1, heating oil is 38 percent of distillate production and 14 

percent of total refinery output.

• PADD 3 refiners will also need to invest in distillate upgrading if 

the heating oil specification is changed to ULSD. However, 

heating oil is only 11 percent of the total distillate production in 

the region and just over three percent of total refinery output.

o Nearly all of the heating oil produced in PADD 3 is sent to PADD 1.

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100 

200 

300 

400 

500 

600 

2006 2007 2008 2009 Thousands of bpd

PADD 1 Heating Oil: Supply is Balanced with 

Demand

Supplied to the Market

Demand

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Refining

• Refiners will need market and/or regulatory signals before 

making investments to upgrade heating oil to ULSD. 

• Past changes in refined products specifications were largely 

driven by environmental requirements. In all cases, the refining 

industry has met the regulations.

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50%

55%

60%

65%

70%

75%

80%

85%

90%

95% Total Hydrotreating/Crude Distillation Capacity as of Jan 1

US Refining Hydrotreating Capacity is Driven 

by Regulatory Changes

Clean Air Act Amendments passed

and require diesel sulfur reduction

to 500 ppm in 1993

500 ppm diesel sulfur

specification fully 

implemented

2007 Clean Diesel Truck and Bus

Rule passed requiring diesel fuel

sulfur levels of 15 ppm by mid-2006

15 ppm diesel sulfur

specification implemented

Tier 2 vehicle emissions rule

passed requiring 30 ppm sulfur

gasoline by Jan. 1, 2006

30 ppm sulfur gasoline

specification implemented

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PADD 1 Distillate Production Seasonality

• There is little additional ULSD production capability within 

existing PADD 1 refineries.

o Prior to the winter of 2005/2006 there was a seasonal trade-off 

between diesel fuel and heating oil production.

• Average seasonal change was about 50,000 bpd.

o The seasonality in production virtually disappeared from summer 

2005 through winter 2006/2007

• From mid-2005 to mid-2008, the ULSD price premium far exceeded the cost 

of adding new capacity due to a convergence of several factors that are 

unlikely to re-converge. 

o Grade shifts in the US and several other countries at relatively the same time.

o Hurricanes reduced the capacity to produce in the USGC.

o Very strong global economic growth drove strong global diesel fuel demand 

resulting in world refiners running at or near maximum capacity.

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PADD 1 Distillate Production Seasonality 

(cont’d)

• Seasonality reappeared in the summer of 2007 when the refining 

industry had added sufficient capacity to produce ULSD. This 

continued through the summer of 2009.

o Seasonal variation returned to about 50,000 bpd.

• In 2009, two refineries in PADD 1 closed. These plants’ distillate 

production was mostly heating oil. Their closure has again removed 

seasonal production from PADD 1.

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10

12

14

16

18

20 -

50 

100 

150 

200 

250 

300 

350 cents/gallon Thousands of bpd

PADD 1 Seasonal Diesel Fuel Production and 

Premium to Heating Oil

Diesel Production

Price Premium Over Heating Oil

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10

12

14

16

18

20 -

50 

100 

150 

200 

250 

300 

350 cents/gallon Thousands of bpd

PADD 1 Seasonal Heating Oil Production and 

Price Discount to Diesel Fuel

Heating Oil Production

Price Discount to Diesel Fuel

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50

100

150

200

250

300

350

400 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Thousands of bpd

PADD 1 Middle Distillate Refinery Production

H O

ULSD

HSD

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PADD 1 DISTILLATE IMPORTS

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PADD 1 Distillate Imports

• Heating oil imports in the PADD 1 market have 

declined sharply from declining demand and rising 

domestic supply.

o PADD 1 imports are now sourced largely from eastern 

Canada and the US Virgin Islands.

o Imports take up the seasonal variation in demand.

• The market was balanced from a sharp drop in 

heating oil demand from 2000 to 2009 – in part, by a 

decrease in imports.

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PADD 1 Distillate Imports

• ULSD imports have declined slightly from 2007.

o ULSD imports are almost exclusively from Canada and 

USVI.

• PADD 3 is the largest source of distillate supply for 

PADD 1.

o Nearly double PADD 1 refinery production.

o Supplies have fallen in the last two years due to the loss of 

heating oil demand and economic recession.

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20

40

60

80

100

120

140

160

180

2004 2005 2006 2007 2008 2009 Thousands of bpd

PADD 1 Heating Oil Imports (>500 ppm sulfur)

Other

Venezuela

E U

Virgin Islands

Canada

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100

200

300

400

500

600

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Thousands of bpd PADD 1 Middle Distillate Imports

HO + 2000

HO 500 - 2000

HSD

ULSD

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20

40

60

80

100

120

140

2004 2005 2006 2007 2008 2009 Thousands of bpd

PADD 1 ULSD Imports

Other

E U

Virgin Islands

Canada

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100 

200 

300 

400 

500 

600 

700 

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Thousands of bpd

PADD 3 to PADD 1 Shipments of Middle 

Distillates

ULSD

HSD

H O

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DISTILLATE EXPORTS

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Distillate Exports

• The combination of rising production of ULSD and 

the decline in diesel fuel demand resulting from the 

recession has caused both high and low sulfur 

diesel fuel exports to rise substantially.

o ULSD exports have been mostly to Colombia and the EU -

both are adding ULSD capacity over the next two to three 

years.

• High sulfur diesel exports decline sharply due to 

additions in domestic ultra-low capacity in the Gulf 

Coast.

• Distillate exports are expected to gradually decline 

over the next several years due to rising domestic 

demand for diesel fuel. 

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Distillate Exports

• Heating oil exports are expected to rise over the next 

few years due to falling domestic demand.

o Heating oil values to refiners could fall as exports rise due 

to:

• International markets are moving to lower sulfur specifications for 

distillate.

• Markets for US exports of current quality heating oil are small and 

getting smaller.

• These markets will have higher transportation costs than the current 

export markets, resulting in lower netback prices for US refiners.

o Some of the larger potential export markets for higher sulfur 

distillates are also supplied by local refiners that can easily 

make sufficient volumes of high sulfur distillates for the 

local markets.

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0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0% -

100 

200 

300 

400 

500 

600 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Percent of Refinery Production Exported Thousands of bpd

PADDs 1, 2, and 3: Distillate Exports on the 

Rise

H O

HSD

ULSD

% of production exported

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100 

200 

300 

400 

500 

600 

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Thousands of bpd

Projected Distillate Exports: PADDs 1, 2, and 3

Heating Oil

HSD

ULSD

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DISTILLATE MARKET 

BALANCE

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ULSD Heating Oil Balance

• ULSD exports are lower than the total demand for 

heating oil in the residential/commercial sectors.

• If all exported ULSD is shifted to the US heating oil 

market, it would be equivalent to about one third of 

the current heating oil market.

• Such a shift would result in much lower refinery 

margins for heating oil in the East Coast.

o Refiners in PADD 1 are not prepared for the shift.

o Exports and/or additional refinery closures would likely 

occur.

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100 

200 

300 

400 

500 

600 

700 

800 

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Thousands of bpd

Heating Oil Demand minus ULSD 'Surplus' --

PADDs 1, 2, and 3

Difference

ULSD Exports

Heating Oil Demand

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PADD 1 Heating Oil Supply Assuming No 

Specification Changes

• PADD 1 refineries can maintain heating oil and diesel 

production at current levels.

• High sulfur diesel imports from Canada and USVI are 

shifted to heating oil.

o Displaces all other imports – Canada and USVI remain the 

only ‘off-shore’ sources. 

o Represents a ‘down-grade’ in the value of HSD.

• Shipments from PADD 3 decline with demand.

o These are assumed to be the incremental supply.

• PADD 1 refiners will become the major source of 

heating oil spec supply to the market.

• Bio-heat is expected to be 5% by volume by 2014.

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100 

200 

300 

400 

500 

600 

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Thousands of bpd

PADD 1 Heating Oil Sources of Supply

(assuming no further specification changes)

Other Imports

Virgin Islands

Canada

PADD3 Shipments

Bio-heat

Refinery Production

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Future ULSD Supply Drivers

• By 2012, all off-road diesel fuel markets are required to use 

ULSD.

o Domestic refiners are investing to meet these regulations. 

Expected increases in ULSD production capability closely matches 

the demand for off-road diesel fuel.

• ULSD demand is expected to rise, however, refinery level 

gasoline demand is expected to be weak for the next several 

years.

o Rising ethanol volumes from government mandates.

o Rising vehicle efficiency from CAFÉ standards.

• The changing gasoline/diesel demand mix will result in refiners 

being under sustained pressure to reduce gasoline production 

and increase distillate production in order to maintain refinery 

throughput.

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Future ULSD Supply Drivers (cont’d)

• Changes in refinery operations from gasoline to distillate 

production will require additional hydrocracking capacity. 

o Hydrocracking will produce low sulfur distillates.

• Without refinery closures, future supplies of ULSD are likely to 

continue to increase as refiners invest to shift production from 

gasoline to ULSD.

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ULTRA LOW SULFUR DIESEL 

AND HEATING OIL VALUES

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Diesel Fuel Premium to Heating Oil 

Prices

• PADD 1 ULSD prices are expected to average 1 to 3 cents per 

gallon above heating oil prices through 2020 at the wholesale

market level based on a volume weighted average winter price 

basis.

o Volatility around this level should be expected and could be 

driven by short-term market dislocations and events including the 

transition from one specification of product to another.

• Prior to ULSD, EPA low sulfur (LSD) (500 ppm) diesel fuel for 

highway use was in effect from 1994 to 2006.

o Through 2003, the price differential between LSD and heating oil 

averaged between 0.5 and 1.0 cpg in the wholesale market and 1.0 

and 2.0 cpg in the spot market (volume weighted winter demand).

o In 2005 , the LSD premium over heating oil rose to over 5 cpg in 

the spot market and to 3.5 cpg in the wholesale market in the US 

due to very strong US and global demand.

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Diesel Fuel Premium to Heating Oil 

Prices (cont’d)

• The very high premium of ULSD over heating oil from 2006 to mid2008 was an anomaly in the market created by the convergence of 

non-recurring factors.

• A shift to very low sulfur diesel fuel in several major global markets in a 

relatively short period of time. 

• Strong global diesel fuel demand generated by strong economic growth.

• High global refinery utilization rates.

• Shortage of light low sulfur crude oils.

• Long capacity outages in the USGC from hurricane damage.

o Since the end of 2008, the USLD heating oil price differentials at the 

wholesale level in PADD 1 have moved back to the historic range of 

the LSD heating oil price differential as the factors contributing to very 

wide differentials have dissipated. A slightly higher level of price 

difference between ULSD and heating oil is expected to be typical for 

the next several years.

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Diesel Fuel Premium to Heating Oil 

Prices (cont’d)

• Refinery costs to upgrade existing heating oil to ULSD could be 

higher than cost associated with the ULSD specification 

change.

o Heating oil contains higher amounts of sulfur and aromatic compounds 

than the distillate streams being upgraded to ULSD. 

• The cost of upgrading heating oil to ULSD is unlikely to be fully 

reflected in the price of ULSD relative to crude oil.

o Refiners can export heating oil rather than upgrade it to ULSD.

o Some heating oil components that are high cost to upgrade could be 

diverted to other uses within refinery operations.

• This would leave components that are lower cost to upgrade for ULSD.

• Some reduction in supply and distribution costs are likely due 

to a reduction in the number of grades of fuel.

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Diesel Fuel Premium to Heating Oil 

Prices (cont’d)

• The net effects on high sulfur distillate (heating oil quality 

distillate) and ULSD prices relative to crude oil are likely to be:

o Directionally higher ULSD prices as exports are diverted to the domestic market and 

directionally lower prices for heating oil as heating oil or components are diverted to 

exports or other lower value uses within the refinery.

• The price of heating oil once a shift to ULSD occurs will set by 

the much larger global and US transportation diesel fuel 

market. 

• The anticipated cost increase from a shift to ULSD will be 

relatively small in terms of the absolute price of heating oil and 

diesel fuel compared to the magnitude of volatility in crude oil 

prices.

o Since the introduction of ULSD, the cost of crude oil has averaged 75% of 

the retail price of ULSD.

o The average annual change in crude oil prices over the past 15 years has 

been 25 cpg/year, nearly all of which has been passed through to the 

consumer.

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(6.00)

(4.00)

(2.00) -

2.00 

4.00 

6.00 

8.00 

10.00 Cents per Gallon

Winter Season (October - March)

PADD 1 Wholesale Diesel Fuel minus Heating 

Oil Price Winter Months (Oct - Mar) 

500 ppm - Heating Oil

15 ppm - Heating Oil

Prices are weighted average based on PADD 1

heating oil supplied by month in the winter 

season.

Prices are Source: EIA/DOE the Wholesale/Resale

price for all sellers. 

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50 

100 

150 

200 

250 

300 

350 

400 

450 Jan-2007 Feb-2007 Mar-2007 Apr-2007 May-2007 Jun-2007 Jul-2007 Aug-2007 Sep-2007 Oct-2007 Nov-2007 Dec-2007 Jan-2008 Feb-2008 Mar-2008 Apr-2008 May-2008 Jun-2008 Jul-2008 Aug-2008 Sep-2008 Oct-2008 Nov-2008 Dec-2008 Jan-2009 Feb-2009 Mar-2009 Apr-2009 May-2009 Jun-2009 Jul-2009 Aug-2009 Sep-2009 Oct-2009 Nov-2009 Dec-2009 Cents per Gallon

PADD 1 ULSD Estimated Price Components 

(excluding taxes)

Retail minus Wholesale

Wholesale - Spot

Spot minus Crude

Crude Oil Price

Source: EIA and Kevin J. Lindemer LLC

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IMPACT ON CONSUMERS

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Impact on the Consumer

• The impact on the price of ULSD by requiring ULSD in heating 

oil markets is likely to be minimal for consumers of ULSD.

o Higher costs for additional ULSD for the heating oil market will originate in 

the refining industry. The highly competitive nature of the markets 

efficiently transfer changes in the spot prices to wholesale and retail 

markets. 

o Based on EIA price data, the volume weighted average PADD 1 wholesale

ULSD prices minus heating oil in the winter seasons since the introduction 

of ULSD has averaged 5.2 cpg, but has steadily declined from a high of 

8.25 cpg in the winter of 2006/2007 to only 1.0 cpg in the past winter 

season.

• A shift to ULSD for heating oil will result in cost savings for the 

consumer from lower heating system maintenance costs and a 

small efficiency improvement.

o NORA estimates the heating plant service cost savings for a 

typical homeowner would be on the order of $50 per year and fuel 

efficiency improves about 2 percent.

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Impact on the Consumer

• Assuming a home with 800 gallons per year demand and an 

average ULSD price of $3.00/gallon delivered, the annual 

savings over heating oil would be on the order of 12.25 cpg:

o $50 in maintenance or 6.25 cpg.

o $48 from lower fuel use due to a 2% efficiency improvement or 6.0 

cpg.

• If wholesale ULSD prices average 3 cpg higher than heating oil, 

the home in this example would pay an additional $24/year for 

fuel.

• ULSD prices could average as much as 12.25 cpg higher than 

heating oil, and the consumer would be economically 

indifferent to the fuel quality.

o ULSD prices at the wholesale level in PADD 1 averaged 8 cpg 

during the winters of 2006/2007 and 2007/2008, 3.75 cpg in the 

winter of 2008/2009 and about 1.0 cpg in the winter of 2009/2010

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$(40.00)

$(20.00) $- $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 - 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 Dollars per Year

PADD 1 Wholesale ULSD minus Heating Oil cpg

Annual Savings per Household Compared to 

PADD 1 Wholesale ULSD minus Heating Oil

Winters of 2006/2007 

and 2007/2008

Winter of 2008/2009

Winter of 2009/2010 

through December

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OPTIONS TO MOVE FROM 

HIGH SULFUR TO ULSD IN 

HEATING OIL MARKETS

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Options

• Policy Options

o Option 1: Change the heating oil sulfur specification to 

ULSD for the entire market at once with enough lead time 

for refiners to add capacity.

• This option would insure supply at a specified time. However, past 

experience indicates that not all refiners would receive a return on 

capital invested.

o Option 2: Phase in ULSD for heating oil by state on a fixed 

schedule. 

• Some states could shift right away as current ULSD exports could 

be moved to heating oil markets. 

• Timing for the remaining states would need to be sufficient to allow 

refining to add capacity.

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20 

40 

60 

80 

100 

120 

140 

160 

180 

200 

N Y PA MA C T N J VA ME N H MD R I V T D E D C Thousands of bpd

Estimated 2008 State Level Heating Oil 

Demand Compared to ULSD Exports

2009 PADD 1 - 3 ULSD Exports

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END

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