New requirements for ultra-low sulfur diesel will lay more costs on rural Alaska villages already suffering from sky-high fuel prices. In some places the new fuel could add as much as $1.50 per gallon to prices that now approach $5 per gallon or more in some rural communities.
The only good news is that the new fuel requirements won't kick in for five years in the state's outlying areas not connected to the road system. For non-rural communities on the road system, the new fuel will be required next year for vehicles and for off-road equipment in 2010.
Crowley Marine Services Inc., which now provides fuel to more than 150 mostly-rural communities in Alaska, presented an assessment of additional operating costs that will be associated with handling the new fuel.
The $1.50-per-gallon increase is a preliminary and worst-case estimate, but it illustrates the problems fuel transportation companies and distributors face, Mark Smith, a Crowley manager, told a conference on ultra-low sulfur diesel held in Anchorage Sept. 16.
Thirty cents of the additional per-gallon costs are attributed to getting the fuel from its source - most often from one of two refineries in Alaska - to the village.
Another $1 per gallon in additional costs could be borne by the community bulk fuel distribution facility. New costs for retail fuel distributors in the community might add another 20 cents per gallon, according to Smith's presentation.
The extra costs come about because fuel operators will have to have dedicated tanks, pumps, hoses and other equipment to hold and handle the fuel, Smith said. The fuel will have had sulfur trimmed to 15 parts-per-million, down from the normal sulfur levels of diesel which can be as much as 3,000 ppm.
The worst-case cost estimate is based on situations where relatively small quantities of the new fuel are shipped out, and where there will still be shipments of conventional diesel for uses not covered by the new EPA rule. Tom Chapple, director of the state Department of Environmental Conservation's air quality division, said the state of Alaska has asked EPA for a delay in applying the rule to rural Alaska so that communities can switch in 2010 to ultra low-sulfur for all uses.
If larger quantities of the fuel are shipped it might reduce some, but not all, of the extra handling costs, Chapple told those attending the September conference.
Separate storage in a specially dedicated tank is required because if the 15 ppm-sulfur fuel is stored in a tank that previously held a conventional fuel - either diesel, gasoline or jet fuel - residual sulfur left in the tank will contaminate the new fuel. Many existing tanks can be converted after cleaning and cycling the new fuel through several times to remove residual sulfur, but inevitably, many new tanks will be needed.
"Cleaning tanks is time-consuming and expensive, and it's not possible to wash a tank so that it is completely clean," Smith said in his presentation. Also, tank cleaning in rural communities is virtually impossible because of problems with disposing water that contains residual fuel. Water that contains even small amounts of fuel is now classified as hazardous waste.
As for the costs of building new tanks, the Denali Commission uses a benchmark of $12 per gallon of capacity for construction costs of new tanks, or $3 million for a 250,000-gallon tank. Costs for recently built tanks have exceeded that benchmark. Meera Kohler, general manager of Alaska Village Electric Cooperative, said her utility has recently seen rural fuel tank costs of $20 per gallon, or $5 million for a new 250,000-gallon tank.
Smith said some rural communities will be able to use existing tanks and some will build new, but he estimated that an average cost per community in rural Alaska might be $500,000.
Dedicated pumps, hoses, piping and tanks will also be needed on fuel barges. Transporters like Crowley will have to be mindful issues with stability of the barge if a tank designated for ultra-low sulfur diesel is only partly full.
Tim Bradner can be reached at tim.bradner@alaskajournal.com.
