U.S. EPA announces the U.S. gasoline pool met the Tier 3 10-ppm sulfur standard in 2021

The U.S. EPA has released the average gasoline sulfur number for U.S. gasoline in 2021. It is 10.04 parts per million (ppm) sulfur. This complies almost exactly with the Tier 3 standard requirement of 10 ppm.

2020 was the first year the Tier 3 standard was fully in-place and U.S. refineries over-achieved with a final reading of 8 ppm. But refineries were running half-speed back then and that made it easy. In 2021, they were challenged to continue meeting it while moving back to full speed and that was accomplished, right on the nose:

Congratulations to all involved! It marks the successful completion of a 16-year journey that included 10 years of development and study followed by a 6-year phase in, with collaboration across many segments of government and private industry to accomplish the U.S.’s newest clean fuels goal.

Expected benefits for Tier 3 were $5-18 billion per year, as detailed in this excerpt from a 2019 EPA presentation:

Excerpt from “A Regulator’s View”, a presentation by Paul Machiele, Director, Fuel Center, Office of Transportation and Air Quality, EPA at OPIS Future Fuels and Octane Forum Las Vegas, NV Oct 24, 2019

The estimated refining compliance cost of 0.65 cents per gallon is attributable mostly to octane destruction that occurs when you desulfurize gasoline. But that was known to be highly uncertain and it assumed U.S. refiners would invest from $2-6 billion in new and revamped refining units during the phase-in, and that investment did not occur. I believe the actual octane destruction and refining costs are many times higher than 0.65 cents per gallon, as detailed in blog posts on this site in the blog category gasoline desulfurization for Tier 3.

2022 and 2023 will prove to be even more challenging in terms of Tier 3’s impact on refining costs and gasoline price, especially next spring and summer. We won’t know the 2022 average sulfur number for many months. But we do know the octane market is tight – just check the pump price differential between premium and regular gasoline next time you fill up, that is the best single measure of the retail market value of octane.

Another indicator of a tight octane market is the recent surge in the price of Tier 3 sulfur credits.

In June 2022, U.S. Energy Secretary Jennifer Granholm called top refining executives to Washington asking for their recommendations to increase gasoline supply and reduce gasoline price. To our knowledge, the only recommendation coming from that meeting was to relax this Tier 3 specification. That’s another sign the Tier 3 spec is taking its toll on U.S. gasoline supply and price.

All the above is covered in this blog, and there is much more behind my belief that 0.65 cent/gallon cost estimate was way low. Those interested should get my short book covering the regulatory, technical, and economic aspects of Tier 3.

Hoekstra Trading LLC