The People of America's Oil and Natural Gas Indusry

Changes In Store for Heating Oil

Jane Van Ryan

Jane Van Ryan
Posted September 27, 2010

Changes are planned for heating oil in the Northeast. In the region of the country where the preponderance of heating oil customers are located, several states are reducing the amount of sulfur allowed in the fuel.

  • New Jersey announced recently that it will lower sulfur from 2,000-3,000 parts per million (ppm) to a maximum of 500 ppm on July 1,2014, and then down to 15 ppm on July 1, 2016.
  • New York has passed legislation reducing the sulfur content from a maximum of 10,000 ppm to 15 ppm in 2012.
  • Maine's regulation, signed into law in April, will reduce sulfur to a maximum of 50 ppm by January 1, 2016 and to 15 ppm by January 1, 2018.
  • Connecticut has chosen to follow the lead of three other states. It will reduce heating oil sulfur to 50 ppm in July 2011 and down again to 15 ppm in 2014 only if Massachusetts, Rhode Island and New York take similar action. Connecticut also would mandate a 2 percent biodiesel blend in July 2011, which would move up to a 20 percent blend by 2020.

Reducing sulfur is expected to improve air quality and, according to heating oil dealers who support the change, will help the fuel remain competitive against other space heating options, including clean-burning natural gas.

But the switch to ultra-low sulfur heating oil could be challenging. Reducing sulfur levels to 15 ppm would put heating oil on par with Ultra-Low Sulfur Diesel (ULSD) fuel, thus increasing demand for ULSD and putting highway and heating oil markets in direct competition. It's also more costly to produce ULSD fuel. When refiners began to produce ULSD fuel in 2006 for use in cars and trucks, they spent more than $8 billion on new equipment. With refiners losing money in five of the past seven quarters, it could be difficult for them to make the needed investments. Moreover, it takes at least four years to design, permit, build and start-up new process units at a refinery.

Meanwhile, the U.S. Department of Energy (DOE) is doing its part to facilitate the move the lower sulfur heating oil. According to Platts, the U.S. Northeast Home Heating Oil Reserve will begin to store supplies of heating oil that adheres to the most stringent state sulfur levels. The two million-barrel reserve is located provides heating oil for emergency use. DOE spokeswoman Jenny Hakun told Platts, "The DOE continues to monitor the situation in the Northeast...and when required, will accomplish the conversion in the most efficient way."

Generally speaking, today's heating oil contains less than 2,000 ppm sulfur. Refiners say they can reduce sulfur in heating oil to 500 ppm, but further reductions could be difficult especially without being given adequate lead time.