# Why Diesel Prices Are Set To Soar



## alacey (Mar 14, 2018)

Interesting article on how new sulfur regulations for shipping fuel in 2020 may affect the price of our diesel fuel.

Why Diesel Prices Are Set To Soar


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## Doug Huffman (Apr 25, 2015)

ULSMGO - Ultra-Low-Sulphur Marine Gas Oil - referred to as Ultra-Low-Sulfur Diesel (sulphur 0.0015% max) has been required in US and EU territorial waters for long enough that the source that I looked at did not date the requirement. You do know about #FakeNews?


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## alacey (Mar 14, 2018)

I don't think it is fake news

IMO: The 2020 global sulphur limit

Shell: IMO 2020:What***8217;s next?

S&P GLOBAL: Feature: Refiners tease plans for 2020 0.5% sulfur bunker fuels

BP: MARPOL 2020 and beyond


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## alacey (Mar 14, 2018)

Doug Huffman said:


> ULSMGO - Ultra-Low-Sulphur Marine Gas Oil - referred to as Ultra-Low-Sulfur Diesel (sulphur 0.0015% max) has been required in US and EU territorial waters for long enough that the source that I looked at did not date the requirement. You do know about #FakeNews?


From what I have read, you are referring the limit of certain Emission Controlled Areas(ECA's) which impacted a much lower percentage of fuel demand. According to the Shell article I linked above, the new IMO regulation will have a much larger affect on global demand than these ECA's.



Shell said:


> The transition to 0.5%S will cause more changes to global marine industry than the switch to the 0.1%S fuel in the ECAs. The impact of this transition represents approximately 75% of global marine fuel demand when compared to the demand of ECA.


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## Pierre Louis (Oct 23, 2011)

alacey said:


> Interesting article on how new sulfur regulations for shipping fuel in 2020 may affect the price of our diesel fuel.
> 
> Why Diesel Prices Are Set To Soar


The author blames refining costs for raising the price of diesel when required to produce ULSD. Pre-ULSD regulator estimates were not pointing to this.

I was under the impression that the changes in US laws created a market for US produced ULSD, making the market price in the US higher. Given world-wide demand for diesel is higher than for refined gasoline (a necessary distillery byproduct of producing diesel), it seems logical to me that diesel would likely go up in price. The law was apparently changed allowing the export of refined products like diesel for US producers.

The author doesn't seem to understand how economics affects the price of commodities.

PL


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## alacey (Mar 14, 2018)

I believe the EU mandated ULSD several years before the US in 1999. The US mandated it in 2006 which was needed in order to meet the 2007 diesel emissions regulations . To meet these emissions, DPF's and other catalysts were needed. These DPF's and catalysts would not last long with the LSD that was used at the time so USLD was needed.

Working in the medium/heavy duty truck market with a lot of oil and gas customers, I do understand that the added cost for USLD mainly comes from the extra hydro-cracking and hydro-treating the fuel to remove the sulfur. These extra steps and the billions of dollars of added equipment needed to perform these extra steps plays a big role in why USLD costs more than the previous LSD. These steps are also what removes the lubricity from USLD.


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## Pierre Louis (Oct 23, 2011)

alacey said:


> I believe the EU mandated ULSD several years before the US in 1999. The US mandated it in 2006 which was needed in order to meet the 2007 diesel emissions regulations . To meet these emissions, DPF's and other catalysts were needed. These DPF's and catalysts would not last long with the LSD that was used at the time so USLD was needed.
> 
> Working in the medium/heavy duty truck market with a lot of oil and gas customers, I do understand that the added cost for USLD mainly comes from the extra hydro-cracking and hydro-treating the fuel to remove the sulfur. These extra steps and the billions of dollars of added equipment needed to perform these extra steps plays a big role in why USLD costs more than the previous LSD. These steps are also what removes the lubricity from USLD.


It was calculated to be, if memory serves, around $.03-$.05/gallon more for ULSD. The extra costs were heavily discussed and did not point to the current differential. The rest is the expanded market for US produced diesel. FYI, the US imports the excess European gasoline as the world wants diesel.

PL


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## Autoputzer (Mar 16, 2014)

There's no net gain in energy from producing ethanol from corn in the US. It takes a joule of energy (mostly from diesel on farms and in transportation) to produce and deliver a joule's worth of ethanol. The proportion of diesel and gasoline produced from a barrel of crude oil is to a large degree fixed, depending on the refinery and on the crude oil. So, all that ethanol we're required to use stimulates the demand for diesel. Get rid of mandatory ethanol in gasoline and there will be more demand for gasoline and less demand for diesel fuel. But, the relative levels of supply will remain mostly constant. So, the prices of diesel would come down.


I used to ride ships in my job. Marine diesel fuel is nasty stuff. The ships I rode would creep around at two or three knots for hours at a time, and that'd carbon up the engines. A lot of the air pollution in port cities is actually from maritime sources.


I read somewhere on the Interwebs that 10% of our gasoline comes from Europe, because they produce more than they can use.


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## alacey (Mar 14, 2018)

From what I have found, just the hydro-treating alone is more than just $.03-05.



> According to the EPA, severe hydrotreating increases fuel production costs by 5 to 7 cents per gallon.
> 
> However, these costs may be significantly higher depending on market, distribution, and other production factors.


ULTRA LOW SULFUR DIESEL (ULSD)

According to the EIA



> Refiners revamped (retrofitted) existing refinery units to produce ULSD, representing two-thirds of highway diesel production, and that
> the remaining refineries built new units. The capital cost of revamping is assumed to be 50 percent of the cost of adding a new unit.
> 
> The amount of ULSD downgraded to a lower value product because of sulfur contamination in the distribution system is assumed to
> ...


US EIA Petroleum Market Module


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## Pierre Louis (Oct 23, 2011)

alacey said:


> From what I have found, just the hydro-treating alone is more than just $.03-05.
> 
> 
> 
> ...


 This still seems a bit lower than what the actual market price of diesel seems to be. Certainly the costs are somewhere in the range of $.05-$.10 per gallon more for ultra low sulfur diesel, but not $.30-$.40 per gallon.


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## alacey (Mar 14, 2018)

Pierre Louis said:


> This still seems a bit lower than what the actual market price of diesel seems to be. Certainly the costs are somewhere in the range of $.05-$.10 per gallon more for ultra low sulfur diesel, but not $.30-$.40 per gallon.


Okay, If you have data saying that the cost is only $.5-.10 more I would love to see it because all the data I have seen says otherwise. Not saying you are wrong because I am not expert on fuel. I am just going by what I have read from verifiable sources.


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## Pierre Louis (Oct 23, 2011)

alacey said:


> Okay, If you have data saying that the cost is only $.5-.10 more I would love to see it because all the data I have seen says otherwise. Not saying you are wrong because I am not expert on fuel. I am just going by what I have read from verifiable sources.


The changes in refining are only a part of the cost difference:

WHY DOES DIESEL FUEL COST MORE THAN GASOLINE?

Gasoline and diesel usage and pricing

I was quoting from memory as the transition to ULSD was a big deal a decade ago. Most of the reports were estimates:


> The transition to ULSD is not without substantial costs. The US government has estimated that pump prices for diesel fuel will increase between $.05 and $.25 per gallon as a result of the transition. And, according to the American Petroleum Institute, the domestic refining industry has invested over $8 billion to comply with the new regulations.


Ultra-low-sulfur diesel

There were many predictions, but as a free marketeer, I tend to believe the power of the market would hold the price to a minimum:


> Since ULSD requires more refining and processing, it is more expensive. Plan on ULSD costing between $0.05 and $0.25 more per gallon than LSD.


The argument for fixed costs determining the price of a commodity does not work in a world economy where many other factors are involved, including the size of the market, the source of crude oil, government taxes, etc.

The idea is that even though ULSD costs $.05- $.25 per gallon more to produce, opening up the world market to US export of refined ULSD (the world is less interested in LSD apparently) was new and created a different pricing environment for US diesel.

PL


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## alacey (Mar 14, 2018)

Pierre Louis said:


> The changes in refining are only a part of the cost difference:
> 
> WHY DOES DIESEL FUEL COST MORE THAN GASOLINE?
> 
> ...


I was not not arguing fixed cost. I was debating that it cost more than just $.3-.5 you stated earlier to produce ULSD versus LSD, and your links seem to back up what I was saying. I didn't go into taxes or cost per barrel fluctuations since that would effect both ULSD and LSD equally.


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## Pierre Louis (Oct 23, 2011)

alacey said:


> I was not not arguing fixed cost. I was debating that it cost more than the $.3-.5 you stated earlier to produce ULSD versus LSD, and your links seem to back up what I was saying. I didn't go into taxes or cost per barrel fluctuations since that would effect both ULSD and LSD equally.


This is the definition of fixed cost.

PL


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## alacey (Mar 14, 2018)

Pierre Louis said:


> This is the definition of fixed cost.
> 
> PL


Going by that, you stated that it was also fixed, but just at a lower cost of $.3-.5 to produce than what I was saying.

What is fixed is production cost and tax percentage. What isn't fixed is the cost per barrel and the dollar amount of taxes since it is a percentage of sale prices.


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## Pierre Louis (Oct 23, 2011)

alacey said:


> I was not not arguing fixed cost. I was debating that it cost more than just $.3-.5 you stated earlier to produce ULSD versus LSD, and your links seem to back up what I was saying. I didn't go into taxes or cost per barrel fluctuations since that would effect both ULSD and LSD equally.


The links I provided say $.05-$.25 fixed cost per gallon more, not $.3-$.5. Taxes and regulations changed the value of LSD and inflated the value of ULSD. The world demand for ULSD seems much higher than for LSD so the US can export it at a better profit than before when it couldn't anyway. The law changed.

The whole reason to even care about cost of production is that prices are much higher than originally expected compared to gasoline. The reason this is so is more likely to be changed market conditions, not costs of production. Gasoline is arguably a waste product of diesel production since it is less economical to try to get even more diesel out of a barrel and too cost prohibitive to convert gasoline distillate to the heavier diesel/avgas etc.

You would have a better idea of why ULSD is more expensive if you could show that refineries WERE trying to get more diesel out of a barrel by limiting other distillates even more at a greater expense than the "natural" ratio of products.

PL


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## alacey (Mar 14, 2018)

Pierre Louis said:


> The links I provided say $.05-$.25 fixed cost per gallon more, not $.3-$.5. Taxes and regulations changed the value of LSD and inflated the value of ULSD. The world demand for ULSD seems much higher than for LSD so the US can export it at a better profit than before when it couldn't anyway. The law changed.
> 
> PL


Lets recap.

You stated in post #7 that that it only cost $.3-5 more to produce ULSD. I rebutted that in post #9 saying it was more than that with links to information(other than Wikipedia) stating that it costs more. You may be drifting off about other things in your rebuttals, but what I was refuting was that it cost more than just the $.3-5 you stated earlier.


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## Pierre Louis (Oct 23, 2011)

alacey said:


> Lets recap.
> 
> You stated in post #7 that that it only cost $.3-5 more to produce ULSD. I rebutted that in post #9 saying it was more than that with links to information(other than Wikipedia) stating that it costs more. You may be drifting off about other things in your rebuttals, but what I was refuting was that it cost more than just the $.3-5 you stated earlier.





Pierre Louis said:


> It was calculated to be, if memory serves, around $.03-$.05/gallon more for ULSD. The extra costs were heavily discussed and did not point to the current differential. The rest is the expanded market for US produced diesel. FYI, the US imports the excess European gasoline as the world wants diesel.
> 
> PL


This is post #7


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## alacey (Mar 14, 2018)

Pierre Louis said:


> This is post #7


And this is post #9



alacey said:


> From what I have found, just the hydro-treating alone is more than just $.03-05.
> 
> ULTRA LOW SULFUR DIESEL (ULSD)
> 
> ...


Where that debate got off into the other things you are talking about I have not idea because I only rebutted the $.3-.5 comment here.


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## Pierre Louis (Oct 23, 2011)

alacey said:


> And this is post #9
> 
> Were that debate got off into the other things you are talking about I have not idea because I only rebutted the $.3-.5 comment here.


You asked for references to my price estimates. I gave them to you. I didn't state which estimates are correct. I just answered your request.

PL


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## alacey (Mar 14, 2018)

Pierre Louis said:


> You asked for references to my price estimates. I gave them to you. I didn't state which estimates are correct. I just answered your request.
> 
> PL


Yes, I asked for references that say production costs are only the $.3-.5 that you stated because everything I have read said it was more than that. Even the link you posted stated it was more than $.3-.5 so I am not sure what you are debating here.


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## Pierre Louis (Oct 23, 2011)

alacey said:


> From what I have found, just the hydro-treating alone is more than just $.03-05.
> 
> ULTRA LOW SULFUR DIESEL (ULSD)
> 
> ...


The first reference doesn't have your prices and the second reference is more to what I have been saying than any fixed cost.

You are not only misreading my posts but your references are not supporting your arguments.

Goodbye.

PL


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## alacey (Mar 14, 2018)

Pierre Louis said:


> The first reference doesn't have your prices and the second reference is more to what I have been saying than any fixed cost.
> 
> You are not only misreading my post but your references are not supporting your arguing.
> 
> ...


My link did show production cost increases per gallon.

The first link stated that just the hydrotreating alone cost $.5-.7 more per gallon.



> According to the EPA, severe hydrotreating increases fuel production costs by 5 to 7 cents per gallon.
> 
> However, these costs may be significantly higher depending on market, distribution, and other production factors.


ULTRA LOW SULFUR DIESEL (ULSD): THE GOOD, THE BAD, AND THE RUSTY

The second link from the US Energy Information Administration showed cost increases from production, transport, and distribution.



> Refiners revamped (retrofitted) existing refinery units to produce ULSD, representing two-thirds of highway diesel production, and that
> the remaining refineries built new units. The capital cost of revamping is assumed to be 50 percent of the cost of adding a new unit.
> 
> The amount of ULSD downgraded to a lower value product because of sulfur contamination in the distribution system is assumed to
> ...


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## Pierre Louis (Oct 23, 2011)

You obviously think that 5 to 7 cents per gallon translates to $.5 to $.7 per gallon. 

It does not. 

5 to 7 cents per gallon translates to $.05 to $.07 per gallon.


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## Pierre Louis (Oct 23, 2011)

> Refiners revamped (retrofitted) existing refinery units to produce ULSD, representing two-thirds of highway diesel production, and that
> the remaining refineries built new units. The capital cost of revamping is assumed to be 50 percent of the cost of adding a new unit.
> 
> The amount of ULSD downgraded to a lower value product because of sulfur contamination in the distribution system is assumed to
> ...


.7 cents per gallon is even less: it is $.007/gallon. 
.2 cents per gallon is $.002/gallon

Big difference.


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## Doug Huffman (Apr 25, 2015)

pierre louis said:


> you obviously think that 5 to 7 cents per gallon translates to $.5 to $.7 per gallon.
> 
> It does not.
> 
> 5 to 7 cents per gallon translates to $.05 to $.07 per gallon.


lol


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## Doug Huffman (Apr 25, 2015)

Pierre Louis said:


> .7 cents per gallon is even less: it is $.007/gallon.
> .2 cents per gallon is $.002/gallon
> 
> Big difference.


Lacey thinks he's as educated as the guy he cuts&pastes from.


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## alacey (Mar 14, 2018)

Pierre Louis said:


> .7 cents per gallon is even less: it is $.007/gallon.
> .2 cents per gallon is $.002/gallon
> 
> Big difference.


Actually if you go into the link or have dealt with US government bids or other regulations before(like I have), you will notice that they do everything in 0.00 format so $.07 cents means 7 cents as in $0.07.


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## alacey (Mar 14, 2018)

Doug Huffman said:


> Lacey thinks he's as educated as the guy he cuts&pastes from.


Wow, you actually attacked me direct this time instead of the passive aggressive approach. Good job!

I am sorry you got mad that the link I posted earlier from BP and Shell refuted your statement.


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## Pierre Louis (Oct 23, 2011)

alacey said:


> Actually if you go into the link or have dealt with US government bids or other regulations before(like I have), you will notice that they do everything in 0.00 format so $.07 cents means 7 cents and $0.07.


Yes, at least they can do Math.


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## Pierre Louis (Oct 23, 2011)

alacey said:


> Interesting article on how new sulfur regulations for shipping fuel in 2020 may affect the price of our diesel fuel.
> 
> Why Diesel Prices Are Set To Soar


If basically eliminating high sulfur diesel from the market is going to increase the LSD and ULSD price, gasoline refined product will not stand still. The rules are also changing for gasoline sulfur content BTW. I believe Germany now is favoring particulate filters for its new gasoline cars too, as well as a shift to direct injection gasoline motors, making the pollution equipment between diesel and gasoline less different in engineering or cost.

Its not clear from this article how this will pan out. It also fails to make a difference between premium gasoline pricing and regular.

The journalist is quite vague in supporting his title thesis. I don't buy it.

PL


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## alacey (Mar 14, 2018)

Pierre Louis said:


> Yes, at least they can do Math.


Yes, and I can too which is why I refuted your $.03-.05 statement because the data I have read(and even the data you yourself linked) showed it to be higher than that.

Look, I am not sure why you are getting so mad about this, and insinuating personal attacks as if I can't do simple math. I am not mad at you and I am just having a debate on the validity of one of your statements. If you were to post facts backing up that statements then I would concede, but all of the data I have read(and that you posted) have stated otherwise that it is more than just $.03-.05 to produce ULSD.


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## alacey (Mar 14, 2018)

Pierre Louis said:


> If basically eliminating high sulfur diesel from the market is going to increase the LSD and ULSD price, gasoline refined product will not stand still. The rules are also changing for gasoline sulfur content BTW. I believe Germany now is favoring particulate filters for its new gasoline cars too, as well as a shift to direct injection gasoline motors, making the pollution equipment between diesel and gasoline less different in engineering or cost.


I agree with you on this and I have read the same.


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## Pierre Louis (Oct 23, 2011)

Pierre Louis said:


> You obviously think that 5 to 7 cents per gallon translates to $.5 to $.7 per gallon.
> 
> It does not.
> 
> 5 to 7 cents per gallon translates to $.05 to $.07 per gallon.


No I am disappointed that So many in our country can***8217;t do math.


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## alacey (Mar 14, 2018)

Pierre Louis said:


> No I am disappointed that So many in our country can't do math.


As with most things that are contextual, it depends on the format used.

If you are using a 0.0 numerical format, then $.7 means 7 cents and $.07 means .07 cents.

If you are using a 0.00 currency format, then $.7 means 70 cents and $.07 means 7 cents.

Its all relative and depends one what format is used by the giver of the information.
.


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## Pierre Louis (Oct 23, 2011)

alacey said:


> As with most things that are contextual, it depends on the format used.
> 
> If you are using a 0.0 numerical format, then $.7 means 7 cents and $.07 means .07 cents.
> 
> ...


Uh, no.

https://www.answers.com/Q/How_do_you_write_5_cents_in_decimal_form


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## ard (Jul 1, 2009)

Not to interrupt, but is there a symbol for 'cents'??? Might help instead of the confusing $ sign.

That's all...back to the discussion....





.


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## alacey (Mar 14, 2018)

Pierre Louis said:


> Uh, no.


So where is my math wrong adding up the info given from both links given. The EIA does give you costs of the associated with the hydrotreating process alone which is why I posted the other link that does.

.05-.07 cents for the extra hydrotreating<---- this alone is more than the $.03-.05 you stated
.007 cents loss in revenue for contamination and selling at a lower cost 2006-2009
.002 cents loss in revenue for contamination and selling at a lower cost 2010+
.007 cents for addition tank storage
.002 cents for addition operating costs
.002 cents for additives.

That comes out be $.07-.09 from 2006-2009 and $.06-.08 for 2010+ according to both articles which is more than the $.03-.05 you stated earlier. What also is not accounted for is how much the $8 billion spent on the infrastructure to produce ULSD versus LSD increased the cost per gallon. So is my math wrong? Where do you get that is only $.03-.05 cent increase to produce ULSD over LSD when even the links you provided said it was $.05-.25 more with every thing accounted? If so, then why did the price of diesel shoot up $.30-.40 higher when we(the US) switched from LSD to ULSD in 2006?


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## Pierre Louis (Oct 23, 2011)

alacey said:


> So where is my math wrong adding up the info given from both links given. The EIA does give you costs of the associated with the hydrotreating process alone which is why I posted the other link that does.
> 
> .05-.07 cents for the extra hydrotreating<---- this alone is more than the $.03-.05 you stated
> .007 cents loss in revenue for contamination and selling at a lower cost 2006-2009
> ...


I only was going on memory. Apparently you come up with $.06-.08 for 2010+ which is basically completely agreeable to what I guessed and nowhere near $.5 - $.7 in your original estimate.

You've lost your own argument. Now goodbye.

PL


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## alacey (Mar 14, 2018)

Pierre Louis said:


> I only was going on memory. Apparently you come up with $.06-.08 for 2010+ which is basically completely agreeable to what I guessed and nowhere near $.5 - $.7 in your original estimate.
> 
> You've lost your own argument. Now goodbye.
> 
> PL


Did you miss what I stated? The US EIA link does not add in the cost per gallon of the $8 billion in infrastructure needed to make ULSD. It mentions the added infrastructure, but it does not give a cost. So that is left out of my numbers above and would probably increase it significantly. The links you posted showing a $.05-.25 increase seem to include this added costs, but it does not say.

Also, I never gave my estimate because I did not know enough to give one. I was just stating what the article I linked stated was the added cost of the hydrotreating process alone.


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