NEWS FLASH – Valero says the Tier 3 gasoline sulfur spec is constraining US gasoline supply and increasing gasoline price

In this morning’s 3rd quarter earnings conference call, Valero executives were asked about possible steps to increase U.S. gasoline supply and reduce gasoline price. Their answer confirms Hoekstra Trading’s predictions that the Tier 3 gasoline sulfur specification is causing reduced gasoline supply and high gasoline prices in the US.

Here is that Q&A:

Connor Lynagh, analyst, Morgan Stanley

I wanted to return to a topic that you mentioned briefly earlier, which is the suggestion that you made to the administration on potential pathways for reducing fuel costs. I’m curious if you could just provide a little color on the things that the industry suggested.

Lane Riggs, Valero Energy President and Chief Operating Officer

Sure. I think — yes, this is Lane. So I think the — there’s two main ones, which was one was increasing or relaxing the sulfur spec on fuels. Many of the US refiners didn’t necessarily invest, in it looks like either making ultra-low sulfur diesel as much as maybe some others, or Tier 3 gasoline. So, consequently, they’re in a posture of having to export some of those — some gasoline and some diesel to markets around the world that can handle the sulfur.

This raises 2 questions:

1. Why have refining executives and financial analysts been mute on this topic since October 2019?
2. Why wouldn’t refiners take steps to increase yields, increase supply, and reduce price of the Tier 3 gasoline we all need today?

There are many steps refiners can take immediately and at low cost that don’t even require relaxing fuel sulfur specifications. The following recommendation has been posted on this blog and throughout the refining industry since 2016:

Recommendation

Every refining executive should have an 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 this 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.

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