After falling to 50% of last year’s level, US gasoline demand has picked up and is now approaching 70%.

For the first time, all North American refiners will be challenged to make 10 ppm sulfur gasoline in 2020 or else pay for expensive credits. The excerpt below from our 3-year study tells how under-prepared refiners are adapting to higher-than-expected octane destruction. Please contact me any time to get our Tier 3 report.

1        Adaptation

1.1      Without capital investment, octane loss can be made up other ways

Refiners who experience octane loss with Tier 3 will adopt various strategies to mitigate or replace lost octane: 

•          Purchase alkylate

•          Purchase toluene

•          Purchase sulfur credits

•          Downgrade FCC yields

•          Downgrade reformer yields

•          Downgrade gasoline streams

•          Restrict gasoline end point

•          Restrict feedstocks

•          Restrict black oil recycle

1.2      Refiners will adapt to new constraints

As of March 2020, gasoline suppliers are adapting in real time to get the pool down to 10 ppm sulfur at minimum cost with existing infrastructure. The necessary adjustments will be made, new constraints and bottlenecks will be encountered, and costs will be incurred.

These adaptations will take their toll on profits via lower gasoline and octane production, lower cracking margins, more unplanned downtime, and higher cash outlays for purchase of high-octane blending components and sulfur credits. The changes will have big impact on the distribution of oil downstream earnings in the next few years.

1.3      Remedies are limited and/or costly

Octane purchases, downgrades, and restrictions come at a cost.  It is not good business to generate octane barrels in your FCC process train, then immediately destroy them in the gasoline desulfurizer and replace them by buying octane barrels from someone else.  We know of refineries where this is happening now as a direct result of the Tier 3 specification.

The flexibility to process high sulfur heavy streams, coker distillates and black oils in the FCC train is very valuable to a refinery.  Because of Tier 3, many refiners are starting to restrict these streams from the FCC train, removing those highly profitable processing options. 

These restrictions reduce a refinery’s capacity to produce high value octane barrels from low value feeds. They can handcuff the whole FCC process train, constraining the main pathway for converting low value heavy oils to octane barrels.

In financial terms, they handcuff the ability to capture the crack spread which is the biggest factor for profitability. 

1.4      Improving gasoline desulfurizer octane/sulfur performance will bring benefits

The best and fastest way to restore lost octane is to not lose it in the first place.  There are opportunities to reduce octane loss in gasoline desulfurizers while producing Tier 3 gasoline through adjustments to feed, catalysts, and operations. 

These opportunities are enabled by use of modern analytical methods, knowledge of the reaction paths and quantified relationships that govern desulfurization and octane, and use of good octane models which are now packaged for easy application in spreadsheet models. 

There are also new processes and catalysts available that improve the inherent sulfur/octane selectivity of the process.

These opportunities are the emphasis of our Performance Curve Model which is the first of its kind and is available to anyone at negligible cost.

All the data, analysis, and models from our 3-year Tier 3 research project are in our multi-client annual reports which are available to anyone at a small fraction of the cost of the work.  If you believe Tier 3 is important to your company, then your company should get our reports!  Please contact George Hoekstra, george.hoekstra@hoekstratrading.com +1 630 330-8159, and request an offer letter and Table of Contents.