The Alliance of Automobile Manufacturers (AAM) and the Engine Manufacturers Association (EMA) retained MathPro Inc. to assess the likelihood that the U.S. refining sector will produce enough ULSD to meet demand in the transition period (2006–2010)

The study examined the prospects for adequate ULSD supply in the transition period by addressing key technical and economic issues that will shape investment decisions in the U.S. refining sector. These issues involve both refining techno-economics and the nature and characteristics of regional markets for refined products.

The objective of the analysis was not to provide explicit predictions regarding investment decisions by individual refiners. Rather, it was to delineate the relevant refining techno-economics, regional diesel fuel markets, and prospective diesel fuel regulations, and to assess whether these driving forces are likely to promote (rather than deter) investment in ULSD production capacity for the transition period.

The study comprised analyses of four key technical and economic issues bearing on the prospects for capital investments by the U.S. refining sector to produce ULSD in the transition period.

• The unique nature of the diesel fuel market in PADD 4, in relation to those in PADDs 1, 2, and 3;
• The location and competitive position of refineries in PADDs 1, 2, and 3 that are likely to have high ULSD production costs;
• Prospects for multi-refinery projects that capture economies of scale for ULSD production; and
• The market prospects for and economics of downgrading refinery streams and products from highway to non-highway diesel fuel.

The analyses collectively support the proposition that ULSD supplies are likely to be sufficient to meet demand in the transition period.  In particular, most U.S. refineries are likely to find the economic driving forces for investment in ULSD capacity to be substantial, and (importantly) the alternatives to producing ULSD to be unattractive.  Most, if not all, U.S. refineries that now produce EPA diesel will have economic incentives to upgrade their facilities to produce ULSD and therefore are likely to do so.  Further, some refineries that do not now produce EPA diesel may have incentives to produce ULSD.