Commentaires reçus sur les modifications proposées au règlement sur le soufre dans le diesel

Industrie pétrolière

• Institut canadien des produits pétroliers
  
• Imperial Oil
  
• Northern Cross (Yukon) Limited
  
• Petro-Canada
  
• Suncor Energy Products Inc.
  
• Ultramar

Canadian Petroleum Products Institute

November 26, 2004

Mr. Bruce McEwen
Fuels Division
Oil, Gas and Energy Branch
Environment Canada
351 St. Joseph Blvd., 10th Floor
Gatineau, Quebec K1A 0H3

Subject: CPPI Response to Sulphur in Off Road Diesel Gazette 1 Regulations

Dear Bruce:

CPPI is pleased to comment on the October 2nd, 2004 Canada Gazette 1 "Regulations Amending the Sulphur in Diesel Fuel Regulations", which incorporate the new requirements for sulphur levels in off road, marine and locomotive diesel fuels. CPPI appreciates the efforts made by Environment Canada in adopting a straightforward approach which avoids all the complexities of the parallel U.S. rule. By adopting this simpler approach, and aligning sulphur levels and timing with the U.S., Canadian refiners will be able to meet the requirements without sacrificing their competitiveness position vis à vis the U.S. refiners. We view this as a "smart regulation".

CPPI finds the proposed regulations generally acceptable. We have concerns with specifics amendments, which we describe below. We have also reviewed the document for possible unintended adverse consequences which may arise from incorporating the non road requirements into the existing on road regulations.

General Comments

In terms of general comments, CPPI believes that revisions to the guidance document will have to be made to accompany the new regulations. Such a document is extremely useful in helping refiners implement the regulatory requirements. Examples of clarifications required include:

1. The validation of alternate test methods, as communicated in a July 21, 2004 letter posted on the Environment Canada website.

2. With the broadening of the diesel definition to include non-petroleum fuels such as bio-diesel and biodiesel blends, are the current alternate methods still valid or will new validation be required, and if so, using what Blend grade? (B1-B5, B20, B100?)

Also, we recommend that the cost benefit analysis in the RIAS, accompanying the regulations, incorporate the latest cost information. This latest data is included in the August 4, 2004 Purvin & Gertz report entitled "Economic and Environmental Impacts of Removing Sulphur from Canadian Gasoline and Distillate Production". Environment Canada was one of the sponsors of the report.

Specific Comments

1. Subsection 1. (1): we note that biodiesel fuel has been added to the definition of diesel. We agree with this, but the definition for biodiesel is missing in the regulations, and needs to be included. Both CGSB and the U.S. energy Bill offer acceptable definitions for this product (see attachment for these definitions)
   With the inclusion of biodiesel in the regulation does this imply that any biodiesel production facility will be treated the same as a refinery with all the same requirements?

   In addition, the definition of "diesel fuel" should be expanded to read: "... ... represented as diesel fuel, biodiesel fuel or biodiesel fuel blend." This will help clarify that both pure biodiesel - commonly called B100, and other grades being addressed by CGSB (B1-B5, B-20) are subject to the Sulphur and reporting requirements.

   The definition for "off-road engine" does not make it clear what is included and what is excluded, unlike Part 89 of the U.S. Code of Federal regulation. For example, according to the definition for "off-road engine" it would appear that a diesel engine that is part of a permanent installation is exempted. We doubt this was the intention. We suggest the definition be expanded to make it perfectly clear what engines this regulation is intended to cover (or exclude) and that it be consistent with the US EPA regulations. See attachment for more detail.

2. Section 3. (4) & (5): The grace period for meeting the 500 mg/kg sulphur level between point of production/ import to point of sale is 4 months, and 3 months for the 15 mg/kg sulphur level. These time periods should not be different, and in our view should both be 4 months, as per the U.S. rule (Note: the US rule has 4 different dates as follows: June 1 at refinery/import, Aug 1 at terminal, Oct 1 at retail and Dec 1 for in-use). Since in Canada, only production/import and point of sale are relevant, Oct 1 would appear consistent with the US rule and timing. In this case Section 3. (5) (a) would read "500 mg/kg from October 1, 2007 until September 30, 2010". And section 3. (5) b would specify "15 mg/kg after September 30, 2010".

3. Subsection 5. (1): This stipulates quarterly reporting for the life of the regulation. We recommend that quarterly reporting be required for 2 years after the compliance date and then be changed to annual reporting, as was done in the Benzene in Gasoline Regulations. This would mean that annual reporting could start August 31, 2008 for on road diesel.

4. Subsection 5. (4): The reporting requirement in this section has in practical terms not worked very well for on road diesel, and would be just as problematic when non-road diesel is added. There are 2 problems:

   1. Requirement (a) leads to "nil" reporting for imports - i.e. refineries who have no imported diesel in a given year, report "zero" imports just to avoid being called by regional offices as to why they haven't submitted their imports report.
      This problem could be avoided by amending Subsection 5. (1) to read: "Every person who produces or imports ... shall submit... a report ... within 45 days ... for each facility ... produces diesel fuel in that quarter (year, after August 31, 2008) ... and for each province into which the person imports diesel fuel in that quarter (year, after August 31, 2008) that contains ... set out in Schedule 1."

   2. The 15 day advance notice requirement (b) doesn't account for emergency situations where diesel must be imported and the luxury of 15 days advance notice is not available. Refiners accommodate this information request by registering in every province as importers and guessing at a volume, whether or not they plan to import product. If this part of the regulation doesn't change we expect the Industry will take the same approach.

5. Subsection 5. (7): Although there is no amendment connected with this section, the requirement is for production reports to be retained at the point of production. Some companies have government reports prepared at their central office, away from the point of production. It would seem reasonable that reports be retained where they are prepared. This request could be accommodated with a simple change as follows: "5. (7) A copy ... shall be maintained ... at the production facility or place of business in Canada or at the place of business of the importer ... under subsections (4) and (5)." This would also necessitate a change to Schedule 2, section 2 to include for producers, the street address where reports are kept (if different from the address of the production facility).

6. Subsection 6. (2): The dates will need to be aligned if the 4 month grace period requested in (3) above is granted.

7. Section 12: The January 1, 2006 start date for the regulation could cause a problem if a new report needs to be submitted for 1Q06, which is in advance of the June 1, 2006 production date for 15 mg/kg sulphur diesel. We recommend that the first report become due November 14, 2006 (45 days after the end of the quarter requiring 15 mg/kg diesel).

8. SCHEDULE 1: Sections 6. (b), (c), 7. (b), (c) should only apply until May 31, 2012.

9. SCHEDULE 2: The requirements to report on diesel fuel "for any other use" should be removed in Section 4, 10, 11. The regulations do not apply to these categories and would add unnecessary reporting burden. Furthermore refiners have no control over customer usage.

Closing Remarks

CPPI commends Environment Canada for producing these regulations, which will meet both the environmental objectives of the government and the economic well being of our industry. CPPI has been particularly pleased with the level of consensus that emerged during the period of consultation on this initiative. We would be pleased to meet with you at your convenience to further discuss our response.

Yours truly,

ATTACHMENT

1. BIODIESEL DEFINITIONS

1. CGSB:
   Biodiesel Ester - A fuel component comprised of mono-alkyl esters of long chain fatty acids derived from plant oils or animal fats. In its pure form, biodiesel is commonly designated as B100.

   Bxx - A fuel comprised of xx volume percent of a biodiesel ester mixed with petroleum diesel fuel.
   
   Biodiesel fuel blend: The biodiesel ester component Bxx is in the range of 1% to 20 % by volume (i.e. B1 to B20).

2. U.S. Energy Policy Act of 1992 (42 U.S.C 13220(f)) tax portion:
   The term 'biodiesel' means the monoalkyl esters of long chain fatty acids for use in diesel-powered engines which meet-
   A. The registration requirements for fuels and fuel additives established by the EPA under section 211 of the Clean Air act(42 U.S.C 7545), and
   B. The requirements of the American Society of Testing Materials D6751
   Biodiesel is further broken down into 'Agri-Biodiesel' (derived solely from virgin oils) and 'Recycled Biodiesel' (derived from non virgin oils and nonvirgin animal fats).

2. OFF ROAD ENGINE DEFINITION

The US EPA 40 CFR Subpart A 89.2 nonroad engine definition paragraph (2) states :
An internal combustion engine is not a nonroad engine if:

1. the engine is used to propel a motor vehicle or a vehicle used solely for competition
   
2. not applicable in Canada (New Source Review exemption)
   
3. the engine is otherwise included in paragraph (1) (iii) of this definition remains or will remain at a location for more than 12 consecutive months.....
   Also, the US final rule (Federal Register, vol.69, no. 124, June 29, 2004 / Rules and Regulations) states, on pp 39041 that "the sulphur standards do not apply to:
   
   1. No. 1 distillate fuel used to power aircraft;
      
   2. No. 1 or No 2 distillate fuel used for stationary source purposes, such as to power stationary diesel engines, including boilers, or for heating
      
   3. Number 4, 5 and 6 fuels (residual fuels or residual blends, IFO Heavy Fuel Oil grade 30 or higher), used for stationary source purpose;
      
   4. Any distillate fuel with a T-90 distillation point greater than 700 F, when used in category 2 or 3 marine diesel engines. ...This include category 4,5 and 6, as well as fuels meeting ASTM specification DMB, DMC and RMA-10 and heavier.

Note: Some of the terms and units used in Canada are not identical to those used in the U.S.

Specifically, under (1) & (2) US "Type 1" (more correctly ASTM D975 Grade No. 1-D) equates to Type A in Canada, similarly US type 2 equates to Type B in Canada as defined in CAN/CGSB-3.517.

Under (4) the 700 deg F limit is 371 deg C (versus the T90 max of 360 deg C in the CGSB spec, currently in ASTM D975 the T90 max is 338 deg C - although there is a ballot out to move to 360 deg C).

Also under (4) Canada (CGSB) calls up the ISO Marine Fuel Standard (ISO 8217) which uses the same terminology as ASTM D 2069 (as the latter is just the ASTM equivalent of the former).

Similarly in Canada Types 4, 5 & 6 refer to CAN/CGSB-3.2 Heating Oil Types which defines them in the scope of this Standard.

Imperial Oil

November 29, 2004
Mr. Bruce McEwen
Head, Oil and Gas Section
Oil, Gas and Energy
Environment Canada
Place Vincent Massey
351 Saint-Joseph Blvd.
Gatineau, Quebec
K1A 0H3

Dear Bruce

Re: Imperial Oil Comments on the proposed regulations amending the Sulphur in Diesel Fuel Regulations

Imperial Oil is pleased to comment on the proposed regulations amending the Sulphur in Diesel Fuel Regulations, published in Canada Gazette part 1, October 2, 2004.

We continue to endorse the need for Canada to pursue its policy of aligning Canadian engine and fuel standards with those in the USA. Alignment with these standards ensures that Canadians benefit from leading engine emission reduction programs while also realizing the benefits of an integrated North American engine and fuels market. The proposed regulations continue the alignment on a North American basis of the sulphur content and correspond with the rules promulgated earlier in 2004 by the United States Environmental Protection Agency (EPA), for nonroad engines defined by the U.S. Code of Federal Registry (CFR) 40, part 89, as well as Locomotive and Marine (NRLM) engines.

Imperial Oil supports providing the lower Sulphur fuel (500 mg/kg) that is needed to enable the introduction of the new non-road diesel engine emission control technology, by mid-2007, followed by a further reduction to 15 mg/kg by mid-2010 for the nonroad engines, and by mid-2012 for the Locomotive and Marine

engine. While there is broad agreement with the policy of alignment for engines and fuels, the full environmental benefits are realized when the proposed ultra-low sulphur fuels are used in engines equipped with advanced emission control technologies. It is therefore imperative that the Minister introduces regulations, contemporary with the proposed amendment of the Diesel Fuel Regulations, establishing emission standards equivalent to those proposed in the USA. In combination, these regulations will keep Canada in the forefront of advanced transportation emission reduction programs while ensuring that both industry and consumers benefit from a competitive regulatory environment.

Imperial would also reiterate its support of the selected approach of amending the existing regulations, which received broad consensus endorsement during the 2003 consultation process. This should allow for timely passage of Gazette 2, a necessary step in order complete the planning activities required to meet the tight deadlines before the first step (June 2007) takes effect.

In closing, Imperial Oil fully endorses the recommendations and comments made by CPPI in their submission dated November 26, 2004.

Yours truly

Northern Cross

December 1, 2004

Fuels Division,
Air Pollution Prevention Directorate,
Environmental Protection Service,
Department of the Environment,

Ottawa, ON
K1A 0H3

Attention: Bruce McEwen

Dear Mr. McEwen:

Re: Regulations Amending the Sulphur in Diesel Fuel Regulations

Thank you for the opportunity to comment on above mentioned proposed regulations. Please find outlined below some background regarding the activities of Northern Cross (Yukon) Limited ("NCY") in northern Canada, the impact of the proposed regulations and finally comments will respect to implementation.

1. Background

   NCY operates 3 Significant Delivery Licences (SDL) in the Eagle Plains area of north central Yukon. One of these SDL's is an oil and gas discovery called the Chance SDL. There are 3 suspended oil wells on the Chance SDL all of which have been production tested. There reserves are unique in that they are the only discovered oil reserves in Yukon and the only oil reserves in Northern Canada accessible by all weather highway, the Dempster Highway. While these oil reserves are limited and not enough to support large scale development or removal to southern Canada they do have the potential to supply a very significant part of the petroleum products to Yukon, and perhaps parts of Alaska and the N.W.T. This represents an opportunity to add value to a resource from production through transportation, processing, distribution and end use entirely within the north providing energy self sufficiency, economic benefits and reduce overall emissions In 1999 NCY undertook a significant field program to do completion and testing work on the Chance wells, but also to deliver oil for chemical analysis and test marketing in Yukon. Produced oil was trucked to the Brewery Creek mine near Dawson City and the diesel power generating plant in Whitehorse. A part of the oil was also sent to the Alberta Research Council for a complete refinery assay. NCY subsequently completed a refinery feasibility study jointly with the Yukon Territorial Government. The purpose of the work was to evaluate the technical and economic feasibility of producing petroleum products in the North. The focus was on off road diesel as the first product to be produced. There is considerable demand for this product in Yukon and the Chance crude oil lends itself very well to diesel production.

2. Impact of Proposed Regulations

   NCY has been working for some 7 years and spent some $4 million on bringing this project forward. The field production of crude oil and upgrading to off road diesel is expected to commence in late 2005 or early 2006. The proposed regulations have been brought forward well after work on this project has begun and after process selection has been substantially completed. Our technical review indicates that the proposed specifications can be met by building modular expansions of both capacity and process capability over time.

   Upstream production operations must be carefully matched to downstream operations in both capacity and timing to ensure a balanced, integrated project. It is important to control the size, cost and complexity of the crude oil upgrading process in the early stages of development of both the process facility and the crude production facilities.

   NCY is planning an initial 79.5 m³/d (500 b/d) processing facility matched to crude production facilities of similar size. The capacity would be increased in 79.5 m³/d (500 b/d) increments up to a nominal (397.5 m³/d 2500 b/d) capacity. Process capability would likewise be incrementally added to improve product yields, number of products and product specification. Confidence in long tern crude oil production capacity will grow with cumulative produced volumes and provide the economic justification to increase downstream capacity. This measured approach to facility additions upstream and downstream is critical to a balanced, successful project.

3. Specific Requests

   NCY requests that some minor flexibility be provided in the 500 mg/kg sulphur specification for 2007 providing for product up to 750 mg/kg provided commercially reasonable efforts are made to comply with the 500 mg/kg limits. NCY requests such flexibility until 2010 for off road diesel and 2012 for rail and marine diesel. NCY expects to have hydrogenation facilities in place to meet the 15mg/kg specifications with the time frame above. This will require significant capital investment.

While NCY is referencing a specific project it is suggested that the above flexibility be applied to any other facilities north of 60 degrees.

The project described has been under active development for several years and would provide significant benefits to the local population. In addition to economic benefits, employment, taxes, royalties and energy self sufficiency it is expected the project would substantially reduce GHG emissions by drastically reducing the distances products are transported. The processing facility will also be designed to handle waste oil reducing the environmental risks associated with its direct combustion or disposal by other means.

Thank you for your consideration of the foregoing and 1 would be pleased to respond to any questions or comments you may have.

Yours truly,

Petro-Canada

November 26, 2004

Bruce McEwen - Chief, Fuels Division
Oil, Gas and Energy Branch
Environment Canada
351 St. Joseph Blvd.
Gatineau, Quebec K1A 0H3

Attention: Mr. Bruce McEwen

Subject: Comments on October 2, 2004 Canada Gazette 1 "Regulations Amending the Sulphur in Diesel Fuel Regulations"

Petro-Canada is pleased to comment on the October 2nd, 2004 Canada Gazette 1 "Regulations Amending the Sulphur in Diesel Fuel Regulations", which incorporate the new requirements for sulphur levels in off road, vessel and locomotive diesel fuels. Petro-Canada is an active member of the Canadian Petroleum Products Institute (CPPI) and agrees with the response that you received from them in their letter dated November 26, 2004. We would like to reinforce several of the topics raised in CPPI's letter.

On the positive side, Petro-Canada finds the proposed regulations generally acceptable. We appreciate the efforts made by Environment Canada in adopting a straightforward approach which avoids all the complexities of the parallel U.S. rule.

We have concerns with a few specific amendments, which, while included in the CPPI letter, we wish to restate as noted below.

Under Section 3, (4) & (5), the grace period for meeting the 500 mg/kg sulphur level between point of production/ import to point of sale is 4 months, and 3 months for the 15 mg/kg sulphur level. These time periods should not be different, and in our view should both be four months, as per the U.S. rule.

Under Subsection 5. (1), quarterly reporting is stipulated for the life of the regulation. We recommend that quarterly reporting be required for 2 years after the compliance date and then be changed to annual reporting, as was done in the Benzene in Gasoline Regulations. This would mean that annual reporting would start no sooner than August 31, 2008 for on road diesel.

Under Schedule 2, the requirements to report on diesel fuel "for any other use" should be dropped in Sections 4, 10, and 11. The regulations do not apply to these categories and would add unnecessary reporting burden. Furthermore, refiners have no control over customer usage.

Thank you again for the opportunity to provide our views in this regard.

Yours truly,

Suncor Energy

2004 December 1

Mr. Bruce McEwen
Fuels Division
Oil, Gas and Energy Branch
Environment Canada
351 St. Joseph Blvd., 10th Floor
Gatineau. Quebec K1A 0H3

Dear Bruce,

Re: Suncor Energy Products Inc. (SEPI) response to:

Canada Gazette Part 1- October 2, 2004

• Regulations Amending the Sulphur in Diesel Fuel Regulations

As an active member of the Canadian Petroleum Products Institute (CPPI), SEPI has participated in preparing the CPPI response to this Gazette 1 notice, which you will soon receive. SEPI fully supports this CPPI response.

Sincerely,

Ultramar

Lévis, le 30 novembre 2004

ENVIRONNEMENT CANADA
M. Bruce McEwen, ing.
Direction du pétrole, du gaz et de l'énergie
Direction générale de la prévention de la pollution atmosphérique
Place Vincent Massey, 10ième étage
351, boulevard St.-Joseph, suite 1002
Gatineau (Québec) K1A 0H3

Dossier : Projet de règlement pour la réduction de la teneur en soufre du carburant diesel hors route

Monsieur,

Ultramar Ltée, en temps que membre de l'Institut Canadien des Produits Pétroliers, souscrit aux commentaires que l'ICPP vous transmettra sur le projet de règlement de la teneur en soufre du carburant hors route au Canada.

Nous apprécions entre autres :

• Que les dates de la mise en vigueur de ce nouveau règlement s'harmonise avec celles du début de la mise en vigueur d'un règlement similaire aux États-Unis.
• Que les réductions de la teneur en soufre se fassent à date fixe et pour le « pool » des produits visés et qu'il n'y ait pas de mise en vigueur progressive comme c'est le cas aux États-Unis.

Nous sommes convaincus que les modalités d'application de ce règlement vous permettront d'atteindre vos objectifs de réduction d'émissions atmosphériques plus rapidement tout en nous permettant de planifier, d'une façon ordonnée, les changements importants requis à nos installations de production et minimiser les changements requis dans nos réseaux de distribution.

Veuillez agréer, Monsieur, nos salutations distinguées.