Hidden costs of Tier 3 gasoline hurt refiners’ gasoline production and profit margins

For the first time, US refiners are being challenged to meet the EPA’s Tier 3 10-ppm sulfur gasoline specification while making gasoline at full rates. This is causing an “octane/sulfur squeeze” which also puts the squeeze on gasoline production, crude flexibility and profit margin capture:

Many US refineries are under-equipped to make Tier 3 gasoline reliably and profitably when running at full speed. To meet demand for this most profitable product, they are making costly adaptations like purchasing gasoline, downgrading streams, and restricting otherwise profitable operations:

These costly adaptations chip away at margin in ways that don’t stand out on the income statement.

Here are 5 ways refiners have been hurt by Tier-3 impacts:

1) Unplanned downtime

This refiner took an unplanned outage on his FCC (fluidized catalyst cracking) train after only 6 months during a cycle that was supposed to last 5 years between FCC turnarounds. The cause was catalyst in the gasoline desulfurizer crapped out and had to be replaced when making 10-ppm Tier 3 (versus 30-ppm Tier 2) gasoline.

This refiner’s desulfurizer cycle life was reduced from 5 years to <2 years for unplanned catalyst replacement, jeopardizing planned future 5-year turnaround cycles.

2) Octane destruction

This refiner is losing 6 octane units instead of the expected <2 when desulfurizing FCC gasoline severely for Tier 3 gasoline, forcing foregone premium gasoline sales and/or purchase of (expensive) high-octane blend stocks.

Another refiner lost 10 octane versus expected <2 when feed sulfur was increased while making 10 ppm S gasoline.

3) Banning low-cost feeds

This refiner banned the use of (cheap) coker naphtha from his desulfurizer feed because it was unusable for making Tier 3 gasoline. Before, the coker naphtha was a high-octane, high margin component for making Tier 2 gasoline.

This refiner banned (cheap) straight run naphtha from his desulfurizer feed because it is too high in sulfur and causes octane destruction and short cycles when making Tier 3 gasoline. It is now routed to low value use.

4) Reduced gasoline production

This refiner reduced the gasoline/diesel cut point to reduce the sulfur of FCC gasoline, shifting higher-margin gasoline barrels to lower-margin diesel.

This refiner cut crude rate and gasoline production to prevent short cycles on his desulfurizer when making Tier 3 gasoline.

This engineer reported a new operating rule was established — when there’s a hiccup on the gasoline desulfurizer, immediately cut FCC feed rate because there’s no place to go with FCC gasoline.

5) Purchase high-octane blend stocks

US refiners are buying lots of (expensive) alkylate and reformate to make up for octane barrels destroyed in gasoline desulfurizers when making Tier 3 gasoline. This is a costly move, versus not destroying the octane barrels you made yourself in your FCC train.

In a nutshell:

Tier 3 has caused the gasoline desulfurizer to become the critical bottleneck in refiners’ highest-margin channel, which is making clean gasoline from low-cost feeds.

Recommendation

There are many ways to reduce these negative Tier 3 impacts. Capital investment is the best option, but that takes capital and time to implement. Refiners should be taking other steps now to optimize their gasoline desulfurizers, something that has not been a priority before.

Hoekstra Research Report 8

Our multi-client Tier 3 research provides a comprehensive understanding of the technical, regulatory, and economic aspects of Tier 3 gasoline production, the sulfur credit program, and how they affect your profitability. Those wanting a quick education on the Tier 3 issue should get 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 remedies that will immediately go to the bottom line and help reduce gasoline price. The report includes detailed pilot plant and commercial field test data, full detail of sulfur credit prices, process and economic models to help refineries quickly improve gasoline optimization, sulfur credit strategy and refining margin capture in the Tier 3 world.  You will also get the spreadsheet tools we developed that others are using now to help manage Tier 3 gasoline production and credit strategy.

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

George Hoekstra +1 630 330-8159