Secretary of Energy, oil CEOs discuss relaxing sulfur specs?

In Valero Energy’s earnings conference call yesterday, analyst Jason Gabelman asked about the June 23, 2022 meeting between refining executives and U.S. Energy Secretary Granholm on the possibility of fuel export bans and ways to increase domestic gasoline supply and reduce price. Here is an excerpt:

Jason Gabelman, Director, Cohen

All right. Were there any potential solutions that you and the representatives you met with saw eye-to-eye on?

Jason Gabelman,

Joe Gorder, Valero Chairman and Chief Executive Officer

Yes. I think one of the things was RVP change.

Joe Gorder

Lane Riggs, Valero President and Chief Operating Officer

RVP and relaxing sulfur specs, that was essentially I think the major — ongoing policy there’s essentially an initiative that you could give, it would help maybe —

Lane Riggs

RVP and relaxing sulfur specs

Lane Riggs, Valero Energy President and Chief operating officer

This is the first time since 2019 I have heard a refining C-Suite executive mention the Tier 3 gasoline sulfur specification in reference to its impact on the refining business.

My interpretation is that some (or all??) of the nearly 1 million barrels per day of gasoline being exported to points south of the U.S. border exceed the Tier 3 gasoline sulfur specification of 10 ppm sulfur, i.e. those barrels do not meet U.S. clean gasoline specifications and are too high in sulfur to be sold in the U.S.

If this is true, two important implications are:

1) US domestic gasoline supply could be increased and gasoline price decreased immediately by relaxing the Tier 3 specification to the 2019 level of 30 ppm.

2) U.S. refiners who cannot make Tier 3 gasoline reliably and profitably should take the necessary steps to do so to improve refining margin capture. This can be done easily with straightforward application of existing refining technology and well-proven scientific methods.

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 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. 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, investment decisions, 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 credits spike.