The cost of producing Ultra Low Sulfur Diesel ULSD was a big concern when the decision to change over was discussed in the beginning of the EPA studies. It is estimated that an initial cost of as much as 13 Billion dollars will have to be invested. There was a very small numbers of refineries that could currently produce ULSD but not enough to meet demand. A study had to be done to find out what modifications would be need to current refineries. Second, did the refineries have the capitol they would need to make these modifications. Naturally the money would have to be borrowed which is the first increase in production, interest payments on the borrowed money. Second of all, the refineries would have to pay man hours to make the modifications. Thirdly, a better grade of crude would be needed to get the most economical results the government was looking for.
As you can see, the refineries have had to shell out great amount of money before the production had even begun, and they were not going to see any return for quit some time. Unlike the government, the refineries can not print millions of dollars anytime they feel the need to change something. Can you imagine the reaction of the heads of these refineries when the government came in and told them that they will no longer be able to sell diesel unless they change their process? The cost of these changes were estimated to be between 3 and 13 billion dollars. Needless to say, there were some refineries that had to shut down production of on road Diesel because they just didn’t have this kind of cash to put out there. Now that the refineries have shelled out from 3 billion to as much as 13 billion dollars to convert their equipment, lets look at the overall cost of the new process. It is said that if a refinery has to install a new Hydrotreater or refurbish existing ones. If the new Hydrotreater was needed than they figure the cost would add 0.8 to 6.0 cents to the cost of the existing fuel.
If the existing Hydrotreater could be refurbished, we are only looking at a cost increase of about 0.6 cents. Now, if the refinery had to invest 3 billion, and his share of the 2 million gallon a day market was 10%, he charge an extra $1 a gallon to the fuel, it would take him 41 years to recoup his investment. Realistically he is not going to wait 41 years so he is going to do one of two things, not invest in the new refinery, which would mean he will not be selling Ultra Low Sulfur Diesel(ULSD), or he is going to charge $2+ more per gallon and shorten the length of time to recoup his money. From where I am looking, and my figures may not be exact, but it seems to me that the higher cost of ULSD(Ultra Low Sulfur Diesel) is in the investment to produce it.
My calculations may not be exact, and my theory
may not be the best, so I invite anyone who may
know more to please send us your information.