Six states ready for transition to ultra low sulfur heating oil

Written on: June 28, 2018 by ICM

Houston (Platts)–

Six states in the US Northeast are adopting ultra-low sulfur heating oil specifications on July 1, completing a stair-stepping transition that began six years ago and leaving few options for high- and low-sulfur heating oil in the fuels’ largest demand area of the country.
Massachusetts, Rhode Island, Vermont, Connecticut, Maine, New Hampshire, and the District of Colombia are transitioning to ultra-low sulfur heating oil, capping sulfur in heating oil at 15 ppm. For most of the states, the move represents the end of a transition that began in 2014 when sulfur limits shifted from more than 2,000 ppm to 500 ppm, or low sulfur heating oil. The exceptions are Maine and New Hampshire, which will be transitioning directly from high-sulfur heating oil to ULSHO.
New York was the first state to lower sulfur limits, switching to ULSHO in 2012.
With all of New England transitioning, the only two states still allowing a higher sulfur heating oil in the primary demand region are Pennsylvania and Maryland, which will both continue to allow 500 ppm.
The widespread move to ULSHO and limitations on LSHO use will relegate high sulfur heating oil, defined as anything more than 500 ppm, to blendstock status in the region. High sulfur heating oil in the Gulf Coast is typically between 1,000 ppm and 1,400 ppm, sources say. That fuel could be blended down with ULSHO to make a LSHO barrel in Maryland and Pennsylvania, but the six transitioning states represented a large portion of US demand, with nearly half of homes in some of those states using heating oil.
Sources have said that buying interest in LSHO has picked up with the deadline approaching, since many states are allowing any LSHO already in tank before July 1 to be sold after the transition date.
“To ensure a smooth transition to 15 ppm sulfur content distillate oil throughout the heating oil supply chain, MassDEP is exercising enforcement discretion until December 31, 2018, to allow oil suppliers to ship and deliver existing inventories of non-compliant distillate oil and to allow stationary sources to receive non-compliant distillate oil for combustion,” the Massachusetts Department of Environmental Protection said in a statement in May.
The spread this week between LSHO and ULSHO barges has been 75 points/gal; last week the spread narrowed to 25 points/gal. On Wednesday, LSHO barges in New York Harbor were valued at NYMEX July ULSD futures minus 4.75 cents/gal, and ULSHO barges at minus 4 cents/gal. The last time LSHO and ULSHO prices were closer was on January 31, when they reached parity.
The two heating oil grades were also at parity for much of December and January, as the smaller LSHO market will rise to the point of ULSHO, at which point either fuel oil could be used.
“There seems to be less (LSHO) on offer,” one Atlantic Coast source said. “Anyone that can is taking it to New England this week. If it is in their tanks before July 1, they can continue to sell it, but you cannot put anything in but 15 ppm after July 1.”
The 75-point/gal spread between LSHO and ULSHO is similar to year-ago levels, but the values diverged after July, reaching nearly 3 cents/gal. A source agreed the two values would likely diverge again after companies can no longer buy LSHO for storage in newly ULSHO states.
“It should widen out next week when New England can no longer take it,” the source said.
One source there said LSHO availability has not been disrupted in Pennsylvania, which is mostly served by the Laurel Pipeline, which runs west starting near Philadelphia.
Despite its increasing use, LSHO stocks on the East Coast are about half the size of high sulfur heating oil. In data released Wednesday, the US Energy Information Administration showed that LSHO stocks on the East Coast fell 204,000 barrels in the week ended June 22 to 1.36 million barrels, the lowest since 2014.
In New England specifically, LSHO stocks fell 16,000 barrels week-on-week to 910,000 barrels, within 5,000 barrels of the lowest stock levels since 2014.
In comparison, stocks of heating oil with more than 500 ppm sulfur rose 119,000 barrels in the same week to 2.95 million barrels, and total East Coast stocks stand at 8.37 million, the EIA data showed.
–Beth Brown, [email protected]
–Edited by Kevin Saville, [email protected]
Article courtesy: Platts