Advanced BioFuels USA

(Turner Mason and Company/U.S. Grains Council) There is only one grade of gasoline in Nigeria, a 91 RON regular. The gasoline is generally supplied from refineries in Western Europe and tankered to Nigeria. Nigeria has eight domestic refineries, four larger facilities with a combined capacity of 424 MBPD and four micro-refineries which have a total capacity of 24 MBPD. The larger refineries have run at low rates in recent years. The most promising outlook for the future rests with the startup of the Dangote refinery in Olokola in 2023. The massive 650 MBPD facility will be inaugurated this year, but substantial output is not expected until next year. The Olokola refinery will be the largest single train refinery in the world.

The role of oxygenates and biofuels in the global transportation fuel mix is steadily growing. While there are a number of fuels in these two categories, ethanol is the only fuel which is in both. As such, ethanol not only assists in the combustion process and reduces carbon monoxide emissions but is also a renewable biofuel which reduces the production of greenhouse gases. In addition to these benefits, the blending of ethanol in most years will reduce the cost of gasoline while the blending of other oxygenates will increase the cost. Figure I-1 is a comparison of the costs of ethanol delivered to Nigeria from the U.S. with spot Northwest European prices for gasoline1. These values are the average of prices from January 2012 through the first half of 2022. As can be seen from Figure I-1, delivered ethanol prices were lower than 91 RON gasoline by $4.54 per barrel.

In addition to the significant economic benefits, the use of ethanol also creates other operational and strategic gains. Ethanol is generally added to gasoline with a computerized in-line blending system which can reduce octane give-away and ensure proper octane requirements are met. The use of ethanol also reduces the concentration of contaminants, like sulfur, and undesired compounds, such as benzene and other aromatics. There are also strategic advantages with ethanol in the form of a diversification of the transportation fuel supply. This is accomplished by moving away from petroleum and by increasing the geographic sources of supply.

Economic Benefits

The direct economic benefits of ethanol come in three forms: 1) lower ethanol pricing which reduces the blended gasoline price, 2) higher ethanol octane which reduces the required subgrade octane, and 3) the use of ethanol creates dilution benefits. As seen in Figure I-1, ethanol is generally priced lower than regular gasoline with the result that the addition of ethanol will reduce the cost of the blended fuel. The higher the concentration of ethanol, the greater the price reduction. The value of these pricing reductions for each concentration of ethanol is seen in the first column of Table I-1.

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The third economic improvement is derived from the dilution benefits of ethanol. Nigeria’s fuel specifications are less stringent than most other countries, but the nation is working toward tightening these requirements. Ethanol contains no benzene or aromatics and essentially no sulfur. While ethanol will not achieve the desired improvements by itself, it does represent a highly economic first step and could substantially reduce refinery investments to achieve the balance of the objectives. Turner, Mason & Company (TM&C) has estimated the financial impact of these dilution benefits at $0.15 to $0.60 per barrel.

In addition to the scenario of blending ethanol into clear gasoline (E0), TM&C also calculated the economic benefits of

transitioning from a 10% MTBE blend to the various ethanol grades. These benefits are shown in the second column of Table I-1. The pricing improvements are greater in this case due to the higher MTBE prices, but the octane contributions are lower as MTBE has a higher RON than the gasoline grades but less than that of ethanol2. In total, the MTBE to E5/E10/E15/E20 cases produce lower economic benefits than the E0 to the E5/E10/E15/E20 cases. This indicates there is value in utilizing MTBE but even a greater economic gain in utilizing ethanol. These two cases are described in greater detail in Sections IV and V.

Strategic Benefits
Not all of the benefits of ethanol blending can be quantified, but are real, nonetheless. The first of these is the ability to diversify the transportation fuel sources. Crude oil, and as a result gasoline prices, tend to be highly volatile. This volatility is generally much greater than that of ethanol prices. Transitioning 10% or more of the gasoline sourcing to ethanol will reduce the dependence on crude oil and its corresponding volatility. The second component of diversification is related to geography. Incremental global crude oil is often supplied by politically unstable countries: such as Iraq, Iran, and Venezuela. Sourcing transportation fuels from the U.S. helps to insulate against unexpected political disruptions.

A second strategic benefit results from aligning with global trends. In the last decade, many countries have seen an increase in octane requirements. The U.S. has experienced an octane consumption increase of 0.12 RON, Mexico has seen a 0.5 RON increase, while Indonesia has had a 2.0 RON gain. Many other countries are also increasing their octane requirements in line with the trend of producing higher Euro grade fuels (Table I-3). The higher Euro gasoline grades require higher RONs, and lower sulfur, benzene, and aromatic levels. Current Nigeria specifications are similar to Euro II or Euro III gasoline.

Other countries have also increased octane requirements in recent years and this trend is expected to continue into the near future. Ethanol and other additives are currently being used to enhance gasoline octanes around the world. For the last ten years, ethanol has proven to be the least costly method to increase octane. Figure I-2 compares the cost to increase regular gasoline by one RON using each of the three compounds3. While ethanol would reduce the cost of regular gasoline by approximately $0.14 per barrel per RON, the use of other additives would increase the cost between $0.62 and $1.16 per barrel.

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Conclusions
Because of the uncertainty of global politics and the volatility of oil prices, diversifying the transportation fuel sources would seem to be a rational decision. The validity of this approach is further validated by a decade of recent history which concludes that not only will the blending of ethanol increase the octane pool and improve the quality of the gasoline by reducing sulfur and benzene levels, but it can accomplish all of these objectives while reducing the cost of the gasoline at the same time. This is a feat no other additive can achieve.

While this report has quantified many of the benefits of blending ethanol, the basis of this analysis is best described as preliminary. Actual savings will be related to a series of variables related to the actual refining and blending capabilities of Nigeria as well as the strategic objectives of the country. As such, a second analysis of the full ethanol blending potential is recommended which is tailored to the capabilities and objectives of Nigeria and conducted with the government of Nigeria or NNPC.

1 S&P Global Platts quotations, TM&C.

2 Cleaner Fuels for Latin America with MTBE and ETBE Advanced Gasoline Components, LyondellBasell.

3 TM&C Octane Cost Analysis.

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TABLE OF CONTENTS
I. Executive Summary …………………………………………………………………………………………… 3
Economic Benefits ……………………………………………………………………………………….. 4
Strategic Benefits…………………………………………………………………………………………. 5
Conclusions ………………………………………………………………………………………………… 6
II. Introduction ……………………………………………………………………………………………………………………. 7
III. Background and Scope ……………………………………………………………………………………… 8
IV. Benefits of E5/E10/E15/E20 Compared to E0 ………………………………………………………… 9
Ethanol Pricing Effects …………………………………………………………………………………………….. 9
Octane Effects …………………………………………………………………………………………… 10
Dilution Effects …………………………………………………………………………………………… 11
Total Cost Reduction Benefits ……………………………………………………………………… 12
Vapor Pressure ………………………………………………………………………………………….. 13
V. Benefits of Ethanol Blends versus MTBE ……………………………………………………………. 15
VI. Global Octane Requirements …………………………………………………………………………… 18
VII. Gasoline Market Overview ………………………………………………………………………………… 20
Gasoline Market ………………………………………………………………………………………… 20
Gasoline Specifications ………………………………………………………………………………. 21
VIII. Glossary of Terms ……………………………………………………………………………………………………….. 23
IX. Turner, Mason & Company Qualifications …………………………………………………………………… 24