ULTRA LOW SULFUR DIESEL A USER’S PERSPECTIVE

1. ULTRA LOW SULFUR DIESELA USER’S PERSPECTIVE Jerry Thrift Ryder Transportation Services TMC Summit June 10, 2003

2. Ultra Low Sulfur Diesel (ULSD) Timeline • June 2006 – We will start seeing ULSD in the on-highway market • September 2006 – ULSD will be prevalent in the on-highway market – 500 ppm sulfur diesel will continue to be available in the on-highway market, but in a much reduced volume and availability • January 2010 – 500 ppm sulfur diesel will no longer be sold in the on-highway market

3. Can I Run ULSD in my Pre - Jan ’07 Engines? • Yes, ULSD will not harm your engine and there will be an improvement in engine emissions. • ULSD will cost more, so you will probably purchase 500 ppm fuel for your pre – Jan ’07 engines as long as you can.

4. Why Will ULSD Cost More? • Reducing the sulfur level requires more hydrotreating and this adds cost • Additives will need to be added to ULSD to bring this fuel’s performance back up to 500 ppm sulfur diesel fuel’s performance level • Keeping ULSD at or below 15 ppm sulfur levels through out the distribution process will add cost

5. Why Will ULSD Cost More? • For those suppliers that offer both ULSD and 500 ppm diesel, this will add cost due to more infrastructure and/or less efficiency of the existing infrastructure

6. How Much More Will ULSD Cost? • EPA says $.05/gallon • API says $.15/gallon • Actual cost will probably be somewhere in the middle. For our purposes, lets say $.10/gallon

7. ULSD & New Engines’ Impact on Fuel Cost Assumptions: • 150,000 miles per year • Five year trade cycle • 6.50 MPG, Pre-Oct ’02 engine • 6.27 MPG, Post-Oct ’02 engine (w/ 3.5% penalty)

8. ULSD & New Engines’ Impact on Fuel Cost Assumptions cont’d: • 6.26 MPG, ULSD (w/ .25% penalty) • 6.16 MPG, Post-Jan ’07 engine (w/ 1.5% penalty) • $1.50/gallon for 500 ppm sulfur diesel • $1.60/gallon for ULSD

9. New Engines & ULSD and Their Impact on Fuel Purchases Description Five YearsDifference Pre-Oct 02 $173,000 Base Base Post-Oct 02 $ 6,300 + 4% Post-Jan 04 ? ? ULSD 18,700 + 11 Post-Jan 07 21,600 + 12.5

10. Execution of ULSD into the Market Raises Serious Concerns Current Regulation Says: • “Hardship” refiners will be allowed to sell 500 ppm sulfur diesel for the on-highway market until 2010 • These refiners can do so as long as they do not exceed 20% of the on-highway diesel market needs. (Called the 80/20 rule.)

11. Impact Of This Regulation: • Your Jan ’07 vehicle will be at risk of being fueled with 500 ppm sulfur diesel • If your tractor is equipped with a NOx adsorber, one fill-up will poison the adsorber and render it useless • The cost to replace the NOx adsorber will be approximately $6,000! • The particulate trap will need to be serviced sooner

12. Government’s Solution: • Label the dispensers as “15 ppm diesel” and “500 ppm diesel” • Educate the users on this issue This solution is not practical in the real world. • Errors by person fueling vehicle • Mistakes made on the distribution side • Unscrupulous business people

13. Better Solution: • In addition to labeling and education • Dye 500 ppm sulfur diesel blue • Decrease the size of the ULSD dispensing nozzles and require fuel inlet restrictors in the fuel tanks of Jan ’07 vehicles. (This was done when we went to unleaded gasoline.)

14. Best Solution: • Do not allow 500 ppm sulfur diesel in the on-highway market • Have “hardship” refiners sell to the off-highway market • Have other refiners reduce their off-highway sells to accommodate the “hardship” refiners • This solution also resolves the engine oil compatibility issue when using two sulfur level fuels

15. Fuel Quality Concerns • In 1993 on-highway diesel sulfur level was reduced to 500 ppm • This resulted in engines developing fuel system leaks and/or other fuel system problems • Is this going to happen again in 2006 when we go from 500 ppm sulfur to 15 ppm sulfur?

16. Fuel Quality Concerns Cont’d • It appears this will not be the case for two reasons: • After 1993, engine manufacturers switched to premium seals and made other improvements • In September 2002 the Engine Manufactures Association (EMA) released their “additional performance requirements” for ULSD

17. Fuel Quality Concerns Cont’d • EMA recommended improvements to ULSD in the following areas: • Cetane • Lubricity • Thermal Stability • However, most refiners will not follow this recommendation until the American Society of Testing and Materials (ASTM) approves these improvements

18. Fuel Quality Concerns Cont’d • Therefore, ASTM needs to approve EMA’s “additional performance requirements” for ULSD

19. ULSD – Above and Below Our Borders • Canada needs to adopt our ULSD plan and implement it at the same time as the U.S. so commercial traffic will not be negatively impacted • Mexico • Entrance of U.S. trucks beyond the commercial zone is prohibited so this should not be a major issue • NAFTA negotiations include the creation of a commercial truck “corridor”

20. ULSD – Above and Below our Borders • When this corridor is approved, ULSD will be needed

21. ULSD A User’s Perspective Conclusions: • The cost of ULSD needs to be closely examined and held to a minimum • The 80/20 rule needs to be repealed • Have the “hardship” refiners sell to off-highway markets and restrict other refiners to sell in this market • If the 80/20 rule is not repealed, we need smaller dispenser nozzles, fuel inlet restrictors and 500 ppm sulfur diesel dyed blue

22. ULSD A User’s Perspective Conclusions: • NOx adsorbers are too expensive and too easily poisoned • In 2007, you may wish to reduce your risk with new emission technology by leasing or adjusting your purchase / trade cycle

23. ULSD A User’s Perspective Questions? Jerry Thrift Ryder Transportation Services