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Dear PEI Member:

Do you remember Y2K? As Jan. 1, 2000 approached, people around the world braced themselves for computer outages that were expected to plague the new millennium. Some businesses, banks, utilities, stock exchanges and individuals responded by upgrading or replacing their computer systems. Others elected to take their chances when the clock struck midnight Dec. 31, 1999.

Whether because of good planning, overblown fear or a combination of both, the expected Y2K bang was a bust. Computers mostly kept humming along.

Although not quite at Y2K scale, at least one respected oil analyst is predicting a major disruption of the world’s fuel supply beginning Jan. 1, 2020, including a doubling of U.S. diesel fuel prices from today’s $3.08 per gallon average to $6.00 a gallon or more. If this prediction comes true, PEI members that manufacture, install or service diesel-dependent agricultural or commercial fueling systems could face some challenges.

Dr. Philip Verleger’s concern is IMO 2020, a new regulation from the International Maritime Organization (IMO), a United Nations agency. Beginning Jan. 1, 2020, IMO 2020 requires that the maximum sulfur in the “bunker oil” now powering most oceangoing vessels be reduced from 3.5% to 0.5%.

One of the most respected energy analysts in the world, Verleger’s resume includes a doctorate in economics from MIT and such positions as senior research scholar at Yale, senior staff economist on President Ford’s Council of Economic Advisers and director of the U.S. Treasury Department’s Office of Energy Policy for President Carter. He also was the keynote speaker at the 2010 PEI Convention.

Verleger’s doomsday diesel scenario is essentially this:

1. Few maritime vessels will be able to install scrubbers to remove sulfur or convert their engines to alternative fuels such as LNG before the IMO 2020 deadline. So, they will be forced to purchase the much more expensive, very low-sulfur fuel (VLSF) specified by the new regulation.
2. To meet the increased demand for marine VLSF, refineries will divert production from over-the-road ultra-low sulfur diesel (ULSD).
3. The drop in ULSD supply will result in skyrocketing retail ULSD prices. Diesel-dependent agricultural operations will be hit hardest. Truckers also will face dramatically higher fuel costs.
4. Shippers, agricultural businesses and trucking concerns that survive will pass the increased fuel costs on to their customers, setting up the possibility of a global recession.

IMO 2020 Disruption?

UST Component Compatibility Library

High-Octane Fuel White Papers

GM’s EV Subsidies Phaseout

Respond to this Newsletter

by e-mail to the editor, Rick Long at rlong@pei.org

or join the discussion in the  Petroleum Equipment Forum

Perhaps most frighteningly of all, the economic harm could lead to political peril. To protect his voters from massive diesel price increases during an election year, President Trump might halt U.S. diesel exports. Such a move would bring even more disruption and uncertainty to the market.

In the past, Verleger’s predictions have been right more often than they have been wrong. For example, he was among the first to predict the 2014 oil price collapse. Nevertheless, most energy analysts take more guarded views of the IMO 2020 threat.

Denton Cinquegrana, chief oil analyst with the Oil Price Information Service (OPIS), predicts any IMO 2020 price disruptions will be both minor and short-lived. John Eichberger, executive director of the Fuels Institute, agrees. In a recent “Convenience Matters” podcast, both said refiners and ship owners facing higher fuel costs are smart enough to develop compensating strategies and, in any case, the fuel volumes affected by IMO 2020 are too small to cause major disruptions.

Our best advice to you and your customers? Treat IMO 2020 like Y2K. Be watchful, but don’t panic. The future will become clear before the clock strikes midnight.

UST COMPONENT COMPATIBILITY LIBRARY TO AID E15 RAMP-UP
As the U.S. moves toward year-round E15 sales, retailers will begin to consider whether their underground storage tank (UST) systems are compatible with the higher-blend fuel.

In 2011, the U.S. Environmental Protection Agency (EPA) provided guidance on how to demonstrate compatibility when storing gasoline blends containing more than 10 percent ethanol or biodiesel blends containing more than 20 percent biodiesel.

To demonstrate compatibility, owners and operators may:

1. Use components that are certified or listed by a nationally recognized, independent testing laboratory (for example, Underwriters Laboratories) for use with the fuel stored.
2. Use components approved by the manufacturer to be compatible with the fuel stored.
3. Use another method determined by the implementing agency to sufficiently protect human health and the environment.

As a service to the industry, PEI publishes manufacturers’ statements of compatibility in our UST Component Compatibility Library. To date, 32 manufacturers have posted letters in the library.

To submit or amend a statement of compatibility, manufacturers are invited to visit www.pei.org/ust-component-compatibility-library. The site details the 12 components the EPA considers critical for determining compatibility and provides submission instructions.

FUELS INSTITUTE REVIEWS POSSIBILITIES, CHALLENGES FOR HIGH-OCTANE FUEL
Two new reports from the Fuels Institute suggest a high-octane standard could be the fastest, most cost-effective way to enhance fuel efficiency and lower U.S. emissions.

“The science demonstrates that when higher-octane gasoline is used in engines designed for it, those engines can deliver greater fuel efficiency and lower emissions,” said John Eichberger, executive director of the Fuels Institute. “Our research team found that a high-octane market could be achieved but would likely require a federal mandate to be successful.”

In addition to summarizing the advantages of high-octane fuel, the reports discuss production challenges, compatibility and the importance of consumer education. You may download the papers, “Transitioning the U.S. Gasoline Pool to a Single High-Octane Fuel: A Baseline Analysis” and “Analysis of the Potential for Increasing Octane in the U.S. Fuel Supply,” here.

PHASEOUT OF GM’S EV SUBSIDIES BEGINS
The $7,500 federal tax credit for General Motors (GM) electric vehicles (EVs) fell to $3,750 April 1 after the company reached 200,000 EV sales — the statutory limit for the full credit — in the fourth quarter of 2018.

The GM credit will be reduced Oct. 1 to $1,875, and eliminated April 1, 2020.

GM ceased production of its Chevrolet Volt hybrid March 1, leaving the Chevrolet Bolt as its only current EV model. However, the company plans to roll out 20 new EV models by 2023 and recently announced a $300 million EV manufacturing facility north of Detroit.

FLORIDA LEGISLATORS INTRODUCE BILLS TO COMBAT SKIMMING
A bipartisan group of Florida legislators proposed bills to address the growing use of skimmers in the state. Florida has one of the highest rates of credit card fraud in the U.S.

Senate Bill 1652 and the companion House Bill 1239 would form a Consumer Fraud, Identity Theft and Skimmer Working Group composed of state cabinet officials, legislators, industry groups, credit-card companies, consumer advocates and fraud victims.

SUSPECTS ARRESTED IN MULTI-STATE SKIMMING SPREE
The Sacramento (California) Sheriff’s Department arrested four men March 14 in connection with a months long, multi-state skimming operation that used pinhole cameras to capture credit card data and PINs. When making the arrest, officials discovered 20 skimmers, numerous recording devices, re-encoded debit cards and equipment to build more skimmers and re-encode debit and credit cards. Authorities said the operation targeted sites in California, Nevada, Arizona and Washington.

BRIEFLY NOTED
“LMC Automotive, a consulting firm with a strong reputation for its market forecasts … anticipates that in the U.S. internal combustion engines will still make up 69 percent of the new-car market in 2030 — and that more than half of global vehicle demand then will still have tailpipes and fuel tanks.” — Green Car Reports, March 25, 2019
“Gasoline taxes in the United States were a small share of the cost of gasoline in the fourth quarter of 2017. Of the countries listed [in the survey], the United States had the lowest gasoline price ($2.42/gallon) and the lowest percentage of taxes (22%). Over 60% of the cost of gasoline in France, Germany, and the U.K. was for taxes.” — Department of Energy, March 25, 2019
“A Parliamentary committee of MPs and peers has launched an inquiry into introducing E10 in the UK. The inquiry, by the All Party Parliamentary Group for British Bioethanol, follows announcements last year from two of the UK’s largest bioethanol producers, Vivergo and Ensus, that they were ceasing and pausing production due to insufficient demand in the UK where only E5 is available.” — Forecourt Trader, March 19, 2019

MEMBER NEWS
LSI Industries Inc. named Nelson Wesley, vice president of strategic initiatives. He will oversee initiatives to grow sales, drive operational efficiency and improve financial performance. Wesley has more than 20 years of experience in marketing, sales and product management.
Washworld Inc. launched a new, responsive website at www.washworldinc.com. The site features a clean design, intuitive navigation, improved functionality and additional information. 

ADMITTED TO PEI

• Kind Autogo Technology, Beijing, China (affiliate)
• POS Without Limits, Laguna Hills, California (affiliate)
• Petro Environmental Consultant Services Inc., Belle Glade, Florida (service & construction)
• Anthony-Yasin Sofyian Ayesh, Double AA Corporation, South San Francisco, California (operations & engineering)

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Petroleum Equipment Institute
P. O. Box 2380
Tulsa, OK 74101-2380

The TulsaLetter (ISSN 0193-9467) is published two or three times each month by the Petroleum Equipment Institute. Richard C. Long, Editor. Opinions expressed are the opinions of the Editor. Basic circulation confined to PEI members.