Tier 3 Q&A Part 3

These questions were asked during recent industry conferences:

Are there any services that are reporting Tier 3 sulfur credit market prices?

•The prices are confidential and hard to get

•The best way is direct involvement in actual transactions

•OPIS and Argus Media offer data for $.

•There are very few inter-company trades

•Our client group has data going back to 2016

•Our data includes primary and secondary sources

•The curve credit price vs. time is in our reports

Which is more critical for octane loss, percent desulfurization or absolute ppm sulfur in the product?

•We use absolute sulfur

•Because we know which sulfur compounds are the limiting ones

•The ppms of those limiting sulfurs determine severity requirements

•The amount of other (easy) compounds just adds irrelevant scatter

Does better gasoline desulfurization catalyst mean lower reactor temperature?

•A more active catalyst means lower initial reactor temperature

•A more selective catalyst means better octane retention per unit of catalyst activity

•Usually, a more selective catalyst means lower olefin saturation/desulfurization rate ratio

What is the most frequent improvement done based on your models?

•Optimizing cut points to get best octane/sulfur selectivity

•Simulating end point cutting effects on octane/sulfur selectivity

•Evaluating and choosing among capital investment options

•Developing octane/sulfur representation for LP models

•Evaluating and deciding optimal start of run activity

•Evaluating and deciding sulfur credit strategy

What is the cost of compliance for different processing methods?

•It depends mostly on the hydroprocessing capabilities of the FCC train

•Refineries with a feed pretreater and post treater have lowest cost

•Refineries with just a pretreater or just a post treater have higher cost

•The cost of replacing lost octane will be measured in $billions/year 

Could the low estimated cost of compliance have assumed investments in FCC pretreat?

•Yes, that is a big part of the reason for the 5-fold error

•Another big reason is US refiners have more variable crude slates

•And we feed coker and other nasty streams to FCCs

•Other contributing factors are given in our reports

Were there major investments to get to Tier 2?

•Yes

•Tier 2 (30 ppm S) was enacted Feb 10, 2000 and phased in 2004-2006

•93 new FCC-train hydroprocessing units were installed in the USA

What do you mean by “there’s been no net investment” in FCC train hydroprocessing capability for Tier 3?

•This refers to the distribution of FCC-trains in three  categories: 
1. Refineries with feed pretreat + gasoline posttreat
2. Refineries with feed pretreat only
3. Refineries with gasoline posttreat only

•The 2014 expectation was that capital investments would be made

•They would shift this distribution substantially toward category 1

• Investment was nowhere near the 82 projects / $3 billion expected

•Most of them were tweaks compared to the big upgrades expected

•Some capabilities were lost

•The net result is no change among the 3 categories of capability

What went wrong to cause underinvestment in FCC-train hydrotreaters for Tier 3?

•The root cause was bad information on incremental octane loss

•This was known to be the most critical and least certain factor

•0.5 octane loss was accepted with no substantiation

•Our pilot plant tests showed much higher octane loss

•Field tests on 14 units verified our pilot plant findings

•The correct number is 2.5 octane loss, five times higher

•The difference means higher compliance costs by $billions/year

Are US refineries tight on octane supply?

•Yes.

•In the RefComm webinar poll, July 2020, there were 9 responses:

•44% are tight on octane

•33% are not tight on octane

•22% don’t know

•In the AFPM Summit webinar poll, August 2020, there were 20 responses:
•45% are tight on octane
•25% are not tight on octane
•30% don’t know

Are events going on that impact gasoline pools and make octane balances go off tilt?

•Yes

•Many constraints must be met simultaneously in gasoline processing and blending

•Tier 3 reduces gasoline production and destroys octane barrels

•Deep desulfurization for Tier 3 causes 5 times more octane loss than was expected

•It is not easy or cheap to replace that many octane barrels.

Didn’t refiners foresee that deeper desulfurization would destroy octane?

•Yes

•But it was underestimated by a factor of five

•This is crucial because octane loss was the biggest factor for estimating Tier 3 cost

•And octane loss was the least certain cost factor

•We found no hard data supporting the estimated octane loss of 0.5

•That was a big reason for our three-year research project

•Our pilot plant and field tests show typical octane loss is 2.5

Is 2.5 octane loss really what refiners are seeing today?

•Yes

•Many refineries are starting to hurt from Tier 3 octane loss

•2.5 is a typical number for US refineries making 10 ppm sulfur

•Many refineries are losing more than 2.5

•0.5 octane loss is a best-case

•This is confirmed by many field tests we have done since 2016

•It hurts profits because octane is very valuable and its price keeps rising

Anticipating Tier 3

As always, refining executives are dealing today with important and urgent issues (like safety, reliability, turnarounds, and survival!).  The industry is shedding thousands of people and internal planning capabilities are not what they were.

No longer can every refiner have its own proprietary expertise on everything.  For those who don’t, it’s increasingly valuable to use focused, third-party research which is readily available and underutilized by refiners who are accustomed to going it alone.

Hoekstra Trading has a different take on Tier 3 gasoline and sulfur credits.   It has been a major focus for us since 2015.  Our client group uses shared resources and external networks to dig deep, get critical data, and develop understanding that enables early, well-informed decisions that reduce risk.

None of our Tier 3 research is proprietary. Our multi-client reports are available immediately to anyone at negligible cost (see references 6, 7, 8 in the digitalrefining.com article or contact me any time!).

They enable refining decision makers to check their understanding, ensure they are well-informed on the issue, anticipate foreseeable outcomes, and act before things boil over into a crisis. 

George Hoekstra +1 630 330-8159 george.hoekstra@hoekstratrading.com

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