Breaking the Chains Part 2 – solutions for the Tier 3 gasoline octane-sulfur bottleneck
A meeting in Washington D.C.
In June 2022, U.S. Secretary of Energy Jennifer Granholm called senior refining executives to Washington DC asking for their recommendations on how to increase gasoline supply from U.S. refineries. To our knowledge, the only recommendation coming from that meeting was to relax sulfur specifications on fuels, including the new Tier 3 gasoline sulfur specification.
This raises the question,
What is the connection between a sulfur specification and the U.S. refining system’s gasoline supply capacity?
what is the connection between a sulfur specification and the U.S. refining system’s gasoline supply capacity?
Part 1 of this series showed how the market value of octane, measured by the difference between the pump prices of premium and regular gasoline, has gone straight up from a twenty cent differential to ninety cents per gallon over the past decade. Demand for octane has continued to grow steadily while a number of factors have been reducing octane supply and contributing to the increased price of octane. We then looked inside the refinery gate to see how gasoline is made, and focused on a critical refinery stream called fluid catalytic cracker (FCC) gasoline. It is produced in the FCC which is a chemical reactor that cracks big, worthless high sulfur oil molecules into valuable small gasoline molecules.
An overloaded little chemical reactor
FCC gasoline makes up 40% of the U.S. gasoline supply. It is an excellent base stock for blending finished gasoline except for one thing – it consists of broken pieces of big, otherwise worthless, high sulfur oil molecules, and those broken pieces still contain sulfur atoms that add to 200 to 5000 ppm of sulfur; and today, with Tier 3, only 10 ppm sulfur is allowed in U.S.-spec clean gasoline. So the FCC gasoline stream is desulfurized in another reactor which is called a hydrotreater because it desulfurizes by reacting the sulfur-containing pieces with hydrogen to make hydrogen sulfide, which is then separated, allowing the sulfur atoms to be recovered as valuable elemental sulfur at the refinery instead of converting them to sulfur oxide pollutants and blowing them to the air through our tailpipes.
Today, with Tier 3, the FCC gasoline hydrotreater must remove 99% of the sulfur from the refinery’s largest gasoline stream which is an extremely heavy load for that little reactor. And, by an unfortunate side reaction, an overloaded gasoline desulfurizer also destroys much of the octane quality of the FCC gasoline, and destroying the octane of 40% of your gasoline pool has consequences that translate into higher gasoline cost and lower gasoline production.
Because of Tier 3, this new sulfur-octane bottleneck is handcuffing gasoline production in 40% of U.S. refineries. And that is the back story on why the Tier 3 sulfur specification came up in that high-profile meeting with Jennifer Granholm.
So, because of Tier 3, this new sulfur-octane bottleneck is handcuffing gasoline production in 40% of U.S. refineries. And that is the back story on why the Tier 3 sulfur specification came up in that high-profile meeting with Jennifer Granholm.
Solutions
One solution, already on the table, is to relax the specification, as suggested by the refining execs. For example, if it were relaxed from 10 ppm to 30 ppm (where it effectively stood in 2019), that would break us free of the Tier 3 chains.
Solution 2, already implemented by 60% of US refineries, is to build a new FCC feed hydrotreater upstream of the FCC. This is a big, high horsepower hydrotreater that dwarfs the gasoline desulfurizer and gets most of the sulfur out of the big otherwise worthless molecules before they get cracked to gasoline in the FCC, and it does that without destroying any octane. This eliminates the overload on the gasoline desulfurizer, allowing it to do the finishing touches with minimal octane loss which is what it is designed for. Equally important, the FCC feed hydrotreater brings other big benefits in fuel production capacity, feed flexibility, and upgrade value. It costs $300 million for a typical refinery.
Solution 3 is to expand or revamp the FCC gasoline desulfurizer to reduce its octane loss. That costs less than $100 million and there are many well-proven variations on this theme that will at least loosen the Tier 3 chains.
Solution 4 is to build one of several new gasoline desulfurization processes which claim to perform better on the state-of-the art hydrotreating processes with lower capital cost and less octane loss. These new processes also cost less than $100 million but carry the risk of the unknown.
Solution 5 is to optimize gasoline production for the new Tier 3 world without investing new capital, which a few refineries have done with good success. This strategy requires a new focus on improving octane/sulfur performance by including gasoline desulfurization in refinery optimization models, using modern analytical methods to measure and minimize octane loss in the gasoline desulfurizer, and using the best available catalysts in the FCC and the gasoline desulfurizer. Modern analytical tools and advanced technology have been applied routinely to optimize important refinery units like the FCC itself, but, for several reasons, they are only now starting to be applied to gasoline desulfurizers. This solution is no substitute for a $300 million FCC feed hydrotreater but it requires no capital, costs less than $300 thousand, and gives outstanding benefit-to-cost results for any octane-constrained refinery in the new Tier 3 world.
Adapting in real time
Without such solutions, the gasoline desulfurizer now becomes a critical bottleneck in the refinery’s main gasoline production pathway which is the FCC train. In this situation, the refinery will adapt in real time by imposing more restrictive operating constraints, putting tighter limits on crude slates, re-routing low-value intermediate streams that were being cracked into gasoline, downgrading off-spec gasoline that had been marketable before, and purchasing expensive sulfur-free high octane blendstocks on the market. These and other workarounds are happening today in many U.S. refineries with often-hidden consequences that translate into lower production of U.S.-spec clean gasoline, more unplanned FCC-train downtime, more imports of sulfur-free high octane blendstocks, and more exports of off-spec gasoline, which is why the Tier 3 specification came up in the meetings in Washington D.C.
Sulfur credit strategy
Another adaptation strategy is to use Tier 3 sulfur credits to offset overages in a refinery’s annual average sulfur level. For example, a refinery hurting from octane destruction in an overloaded gasoline desulfurizer could produce 30 ppm sulfur FCC gasoline year-round instead of 10 ppm, sell that 30 ppm gasoline as on-spec U.S. clean gasoline in the U.S. market, and purchase credits to offset the 20 ppm overage. It could then back off on the severity of gasoline desulfurization and save lots of otherwise-destroyed octane. Who would sell those credits? Refiners who have earned them in previous years by making annual averages under 10 ppm and depositing them in their sulfur credit bank.
In the 3rd episode of this series, we will explain the sulfur credit system and analyze its history and current status in terms of the supply, demand, and price of sulfur credits.
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 industry expert in a day. Once you have become expertly informed of the problem, you can save your team years of research by buying Hoekstra Research Report 8. We saw this problem coming, gathered the required data, ran the simulations and analyzed the results so you and your team can immediately initiate well-informed strategies. 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.
George Hoekstra
George.hoekstra@hoekstratrading.com
+1 630 330-8159
