More Octane Means More Pain if You Need Very Best Gasoline
by Jeffrey Bair (Bloomberg) One in seven cars a luxury model that may need higher octane; Refiners step up with extra capacity in Midwest, Gulf Coast — Premium gasoline for your luxury ride is set to cost even more in the coming months as the U.S. transitions to cleaner fuel.
With change it will get harder for refiners to keep the octane high enough to meet the needs of high-performance engines. That’s boosting demand for a key ingredient, known as alkylate, and threatening to add to the cost of filling up a Mercedes or Lamborghini.
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“We believe we’re seeing octane get more and more expensive,” Lane Riggs, chief operating officer at Valero Energy Corp., told analysts during the company’s second quarter earnings call.
About one in seven cars sold in the U.S. is a luxury model, according to auto analyst Kevin Tynan of Bloomberg Intelligence. Drivers of those cars could be paying as much as 72 cents more per gallon for premium gasoline than regular next year. AAA has the current spread between regular and premium at 57.6 cents per gallon.
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The new gasoline specifications, known as Tier 3, technically went into effect in 2017 but many refiners received a three-year waiver to the requirement to reduce sulfur and remove all but 10 parts per million of sulfur from fuel.
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“We attribute the non-compliance to the extensive use of valuable Tier 2 credits, small refinery exemptions and avoiding the negative effects and costs of full compliance under a profit maximization approach.”
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Most U.S. alkylate has 92 to 93 octane. It trades at a premium to 87-unleaded gasoline year round and it meets most summer specifications. READ MORE