Tier 3 Sulphur Reductions = Increased Pump Prices

With Tier 3 sulfur limits set to take effect January 1, 2017, refiners are looking at ways to manage their obligation.  EPA said Tier 3 will affect 108 refineries, and 67 can modify their equipment within two years, one needs a new gasoline hydrotreater to be installed within three years, and 40 can already meet the new standard or can purchase credits to comply.  Private analysts think compliance in 2017 and 2018 will mostly be achieved using Tier 2 credits. 

Gulf Coast refiners that process heavier, sour crudes may have a harder time complying with Tier 3, and the rule could force refiners to spend as much as $10 billion on facility modifications and engineering work, according to Bloomberg analyst Melissa Avstreih.  API estimates fuel costs at the pump to increase 5 to 9 cents per gallon.  The sulfur reduction, from 30 ppm to 10 ppm is similar to what California has already imposed under Air Resources Board requirements ("CARB"), a 20 ppm sulfur limit.  The non-sulfur differences between CARB gas specs and the Tier 3 specs are relatively small.  CARB gas has typically been $0.08 per gallon more expensive than 30 ppm sulfur gas.  The API estimate looks a little low if you assume there is a straight line cost per ppm of reduction from 20 ppm to 10 ppm.

While local communities will appreciate the extra economic activity at the refineries, they may feel the addition price at the pump.