1. Allegro Energy Consulting Allegro Energy Consulting Allegro Energy Consul Allegro Energy Consulting P.O. Box 230592  New York, NY 10023 Phone: (212) 787-6923  Fax: (212) 721-9028 ctrench@concentric.net November 20, 2002 Houston, TX © Cheryl J. Trench, 2002 A Presentation by Cheryl J. Trench President to the NPRA/EPA Clean Highway Diesel Implementation Workshop Co-sponsored by SIGMA, AOPL,NACS, IFTOA and PMAA A Presentation by Cheryl J. Trench President to the NPRA/EPA Clean Highway Diesel Implementation Workshop Co-sponsored by SIGMA, AOPL,NACS, IFTOA and PMAA Evaluating Supply Concerns: Regions, Batching, 15 ppm Kerosene

2. Allegro Energy Consulting Allegro Energy Consulting Allegro Energy Consul Allegro Energy Consulting P1 P3 P4 P5 P2 Regional Characteristics PADD 3, Gulf Coast ZLargest supply region: No foreign nation has higher refined product output than PADD 3 ZOrigin of 80% of all refined products, 83% of the low sulfur distillate and 94% of the high sulfur distillate shipped by pipeline between U.S. regions. PADD 1, East Coast ZLargest recipient of other region’s supplies; ~60% of all inter-regional product pipeline movements go to EC; 90% of high sulfur distillate movements ZLargest concentration of oil-heated homes (Northeast) ZOnly region where ~all pipelines carry high sulfur distillate PADD 2, Midwest ZInfrastructure rich, but logistics strained ZContrast agricultural west (sparse) with industrial east (dense) ZRecipient of ~30% of pipeline product; origin of 8%; much intra-regional flow P2 PADD 5, West Coast Z2-3 distinct refined product markets ZCalifornia separate; no HSD P4 PADD 4, Mountain ZMarket tiny but growing; infrastructure sized to fit ZDistances long, infrastructure thin, terrain steep ZFew products (LSD only, e.g.); tanks optimized

3. Allegro Energy Consulting Allegro Energy Consulting Allegro Energy Consul Allegro Energy Consulting E.g., Minimizing Products to Optimize Infrastructure (Current) Source: EIA, Sales of Fuel Oil and Kerosene and Petroleum Supply Annual. Data are for 2000, latest sectoral/regional consumption available. PADD 5 use adjusted for California's low sulfur requirement. PADD 5 West Coast PADD 4 Mountain PADD 3 Gulf Coast PADD 2 Midwest PADD 1 East Coast % of Distillate

4. Allegro Energy Consulting Allegro Energy Consulting Allegro Energy Consul Allegro Energy Consulting ZInfrastructure sized to fit market's characteristics ÛTerrain; Distances; Volumes; Sources; Demand mix ZTransport one diesel for on-road and off-road ZNo tanks or piping for add'l grade during phase-in ZSystems dictate break-out tanks Special Concerns in the Mountain and Plains States 1 2 3 3 4 4

5. Allegro Energy Consulting Allegro Energy Consulting Allegro Energy Consul Allegro Energy Consulting California's Special Challenges ZCurrently, all LSD ÛCalifornia reg applies 500 ppm to all uses, not just highway ÛJet interface goes to LSD ÛTransmix tanks must have space: used for transmix and to meet DOT requirement for pressure relief capacity ZThen, all ULSD ÛULSD cannot accept jet interface ÛMust wrap ULSD in gasoline, transmix will double ÛNo home for any accidental downgrade ZTransmix issues ÛMore customer/shipper truck trips to haul transmix ÛIncreased truck traffic coincides with truck increase for ethanol shipments ÛIf customers/shippers miss schedule, not enough space to meet DOT pressure relief requirement. LOCKOUT LOCKOUT

6. Allegro Energy Consulting Allegro Energy Consulting Allegro Energy Consul Allegro Energy Consulting Kero for Winterizing Diesel: An Issue in the North ZKerosene for "winterizing" diesel ÛKeep product flowing in cold weather ÛCommon in cold climates ÛMust be 15 ppm in 15 ppm diesel ZCurrently, can use jet fuel or K1 (heating kero) ÛShare (optimize) tanks/piping ZNew requirement will require segregation (unless jet also at 15 ppm) ÛReduce flexibility ÛIncrease cost of handling small volumes

7. Allegro Energy Consulting Allegro Energy Consulting Allegro Energy Consul Allegro Energy Consulting Sequencing and Interfaces: Nationwide Impact ZIf/while LSD or HSD market available, use to buffer jet and ULSD ÛImpacts sequencing/cycles, but little impact on infrastructure ÛLSD (smaller market) will have larger % gain from downgrade ZIf sequence jet with ULSD, must remove interface to transmix Û2x interfaces creating transmix (old + new), so double volume ÛTanks required at new locations? ZIf no LSD or HSD market available, buffer jet and ULSD w/gasoline ÛIncreases gasoline cycles, but decreases vol. to market ÛIncreases transmix, and its infrastructure ZIf jet fuel spec reduced to 15 ppm ÛWhat of lubricity and other quality issues?

8. Allegro Energy Consulting Allegro Energy Consulting Allegro Energy Consul Allegro Energy Consulting Downgrade Volume Larger, Even If Interface The Same % Gain/Loss Excludes transmix and terminal tanks/piping. Delivered: 74 ULSD/26 LSD Delivered: 76 ULSD/24 LSD

9. Allegro Energy Consulting Allegro Energy Consulting Allegro Energy Consul Allegro Energy Consulting A Home for Downgrade: An Uncertainty Nationwide ZMay not ship it, but may create it ÛEnough to merit a tank? ZWill customers/shippers want LSD? HSD? ZMore downgrade further downstream (%) ZNeed a home for downgrade at line's end every time Û"Last" (most downstream) customer for LSD/HSD must take all ÛStop line for slower delivery speed (cf. Atlanta's gasoline)

10. Allegro Energy Consulting Allegro Energy Consulting Allegro Energy Consul Allegro Energy Consulting Uncertainties Now ZWhat will refiners produce? ZWhat will marketers want? ZWill tankage be adequate? ZWill transmix infrastructure/processing be avail.? ZWhat will the S content of the rest of dist. be? ZWhat will the S content of jet be? ZWill a new testing mechanism limit losses from protective cuts?

11. Allegro Energy Consulting Allegro Energy Consulting Allegro Energy Consul Allegro Energy Consulting Uncertainties Later ZEvery system and region has special issues ZUniversal: operations protocols more stringent; impact of error greater ZInfrastructure – refining, transportation, distribution – stretched further ZFlexibility and hence capacity decreased ZDuration and severity of a price spike following a market imbalance increased