DIESEL REPORT: Retailers struggle; states waive HOS for fuel haulers

| 8/9/2006

Aug. 9, 2006 - Despite some media reports that problems with an Alaskan oil pipeline are causing diesel shortages and price spikes, several refiners, wholesalers and retailers in Colorado and Wyoming have toldLand Line Magazine that other factors are responsible.

The factors cited include the switch to ultra-low sulfur diesel, increased demand for off-road diesel because of harvest operations and high demand for jet fuel, which further decreases the distillates available to make diesel.

Eventually, the problems with the BP Amoco PLC pipeline in Prudhoe Bay, AK - which pumps about 400,000 barrels of crude a day when it's operating - may have an impact on fuel supplies, but not yet. No one knows how long the pipeline will be out of service, but Bloomberg News reported Wednesday afternoon that pipeline employees told BP officials in early 2004 that the inspection process on the line was inadequate.

While the nation waits for repairs to the pipeline that carries about 8 percent of the United States' total oil production, other factors continue to hamper the delivery of diesel.

One veteran truck stop operator who is scrambling to keep the pumps on for everyone summed it up for Land Line .

"August is gonna be an ugly month," said Jack Sapp of Sapp Bros. Big C in Cheyenne, WY, on Interstate 80.

"As long as you get up and cuss first thing in the morning you should be OK, though. Just know that you're gonna be cussing every day for the rest of the month."

Sapp said Wednesday that the Sapp Bros. Big C had been forced to limit customers to 75 gallons of diesel on July 31 and Aug. 1 because the truck stop missed six loads of diesel in one day - that's between 45,000 and 55,000 gallons.

Suppliers didn't offer a specific explanation for the missed deliveries, just that there wasn't any fuel available. Regardless of the reason, Sapp said he is doing whatever he has to do to keep fuel flowing to his customers - even when it means taking a hit to his bottom line.

"Today I'm trying to get fuel out of Concordia, KS, and Gallup, NM," said Sapp, who is the second generation of his family in the truck stop business. The Sapp Bros. chain is 35 years old and has 15 locations ranging from Utah to Pennsylvania.

"Of course the net price is higher for us because of the distance. We usually get fuel from a lot closer ... but I felt it important to keep the doors open."

Sapp said that in recent days he was able to find some diesel in McPherson, KS, that he paid $3.30 per gallon for - then he turned around and charged $3.15 per gallon because he didn't want his customers to take a hit.

Sapp has another strategy, too. He's got a good source for biodiesel and is selling a B20 blend in his biodiesel pumps for 2 cents per gallon less than regular diesel. He said that blend is making up about 23 to 24 percent of his sales right now.

"It's just a way of stretching some of the diesel we have," Sapp explained. "I can turn 10 gallons of diesel into 12 gallons of the blend. That doesn't sound like much, but when you're talking the volume we handle in a day, it adds up quick."

Wyoming isn't the only state facing diesel supply problems.

In Colorado, the Highway Patrol has suspended the hours-of-service rules for tanker drivers delivering diesel. The waiver began Aug. 4 and is effective until at least Aug. 18, according to Nate Strauch, a spokesman from the Colorado governor's office.

Nebraska has a similar HOS waiver in place through at least Aug. 20.

Colorado officials may take another step in the coming weeks, too. Strauch said that state officials are considering whether to waive the rules for off-road diesel, also known as red-dyed diesel.

"A waiver for off-road diesel to be used on-road is still on the table," Strauch told Land Line MagazineWednesday.

"We are still reviewing what the impact would be. We don't want to put the farmers in a bind."

It could be one or two weeks before Colorado officials decide about the possibility of a waiver for off-road diesel, Strauch said.

Land Line called the Nebraska and Wyoming governors' offices regarding whether those states would consider a waiver for the use of off-road diesel in on-road applications, but those calls had not been returned as of press time.

- By Coral Beach, staff editor