The octane-sulfur squeeze continues to constrain U.S. gasoline production and refining profits

An “octane-sulfur squeeze” is occurring in 2022 because refiners are desulfurizing gasoline more severely than in the past to comply with the new Tier 3 gasoline sulfur specification (10 ppm sulfur max). Higher desulfurization severity is reducing gasoline octane much more than refiners had been expecting which is causing product downgrades and lower production of on-spec gasoline.  

Some refiners see the 10 ppm specification as a hard limit that is never to be exceeded.  But the sulfur credit system provides flexibility to produce higher sulfur gasoline and save octane. 

Our recent calculation of the octane/sulfur tradeoff for one refinery showed that purchase of $2 million of sulfur credits would immediately return at least $16 million in octane benefits to the refinery.

The topic of Tier 3’s impact on U.S. gasoline supply reportedly came up in discussions between refining CEOs and the Biden administration in June, indicating refiners are aware the Tier 3 specification is constraining U.S gasoline supply.

We know many refinery employees are are aware of opportunities to relieve the squeeze but their companies have been slow to mobilize and capture them. When they start updating their gasoline strategies for Tier 3, gasoline production and refining profitability improve.  

Recommendation

Every refining executive should have a comprehensive understanding of the technical, regulatory, and economic aspects of Tier 3 gasoline, the sulfur credit program and how they affect your business. Those wanting a quick education on the Tier 3 issue should get the short book, Gasoline Desulfurization for Tier 3 Compliance, which will make you an expert in a day. Once you have become expertly informed of the problem, you can save yourself and your team years of research by buying Hoekstra Research Report 8. We saw the problem coming, gathered the required data, ran the simulations and analyzed the results so you and your team can concentrate on initiating informed strategies that will immediately go to the bottom line. The report includes detailed pilot plant and commercial field test data, full detail of sulfur credit pricing, spreadsheet models to help improve gasoline optimization, investment decisions, sulfur credit strategy and refining margin capture in the Tier 3 world. 

Don’t get caught panic buying after the credits spike.