Behind the Battle for Octane

by Denton Cinquegrana (Oil Price Information Service(OPIS)) What you need to know as the refining, agricultural and auto industries gear up to vie for their piece of a multi-billion-dollar market -- Premium gasoline has clearly become a sought-after commodity for U.S. drivers. After an extended period of relatively mild consumer cost differences, premium gasoline prices have vaulted over those for regular grade — signaling a jump in demand.

Read this free e-book and learn:
• Price and demand factors that have helped put premium gasoline on stronger footing.
• How government programs have impacted octane’s fortunes.
• The options for octane enhancement from the standpoint of refiners, the agricultural
sector and natural gas liquids producers. READ MORE

Excerpt from book: Oil market experts say wider spreads between regular and premium unleaded are expected to continue through the next decade, creating opportunities for those who can effectively boost
octane in the multi-billion-dollar global motor fuels market.

As well, the government-imposed removal of sulfur and benzene from gasoline increased refining costs and — as a side effect — also reduced the octane of some gasoline blendstocks.

The Environmental Protection Agency capped benzene in reformulated gasoline at 1.0% volume in 1995. Then, MSAT2 (Mobile Source Air Toxins) regulations reduced benzene in all U.S. gasoline to below 0.62% volume earlier this decade. Removal of sulfur and benzene according to Federal Gasoline Sulfur Standards and MSAT regulations results in an octane loss of roughly 0.6 points.

However, the advent of the Renewable Fuels Standard, mandating the use of ethanol as an oxygenate additive, offered a saving grace for the hydrocarbon side of the fuel slate.

Ethanol has an octane rating of roughly 112 points. When added as a gasoline blendstock for oxygenated blending, it results in an octane boost about equivalent to what was lost with the removal of MTBE.

As mentioned in the previous section, ethanol has been doing some heavy lifting in recent years. A straightforward increase of ethanol in gasoline (20%-25%) may be the simplest answer.

It would be a boon to the agricultural sector, but would certainly be met with opposition from other key stakeholders in the energy space.

At the same time, total refining capacity has been on the rise, but not all refining capacity is created equal.

U.S. refining capacity growth has been impressive, as more than 1 million b/d of total capacity has been added so far this decade. However, the amount of key process units for gasoline output and high-octane blendstocks has been largely flat over this period of time.

One of those key high-octane components is alkylate, and the amount of projects on the books to build more alkylate units is slim. With only a handful of projects proposed, a meaningful boost to supply is not in the offing. A key deterrent to alkylate projects is cost. For example, Valero is looking to build a 13,000-b/d alkylation unit at its Houston refinery and the price tag is reportedly in the $300 million area.

The permitting process for building a new alkylation unit is also daunting. Because the process to make alkylate uses hydrofluoric or sulfuric acid — very dangerous and potentially deadly chemicals — permitting is not easy.

Besides help from the traditional refining process, there is a handful helpful gas liquids that boost octane. The boom in production in that sector may ultimately become a more significant portion of the octane pool.

Isobutane stands to be one of the key NGLs for boosting octane, and, in the wintertime, normal butane can be a cheap octane booster. But in summer-grade gasoline, normal butane does not work in higher quantities due to its elevated Reid Vapor Pressure content.

The shale process has brought about an abundance of the gasoline-blending components naphtha and natural gasoline. However, the naphtha and natural gasoline that come with shale production is considered to be lower quality as it has a low-octane rating. READ MORE