Hidden costs of Tier 3 gasoline hurt refiners’ profit margin capture
For the first time, US refiners are being challenged to meet the EPA’s Tier 3 10-ppm sulfur gasoline specification while making gasoline at full rates. This is causing an “octane/sulfur squeeze” which also puts the squeeze on gasoline production, crude flexibility and profit margin capture:
Many US refineries are under-equipped to make Tier 3 gasoline reliably and profitably when running at full speed. To meet demand for this most profitable product, they are making costly adaptations like purchasing gasoline, downgrading streams, and restricting otherwise profitable operations:
These costly adaptations chip away at margin in ways that don’t stand out on the income statement.
Here are 5 ways refiners have been hurt by Tier-3 impacts:
1) Unplanned downtime
This refiner took an unplanned outage on his FCC (fluidized catalyst cracking) train after only 6 months during a cycle that was supposed to last 5 years between FCC turnarounds. The cause was catalyst in the gasoline desulfurizer crapped out and had to be replaced when making 10-ppm Tier 3 (versus 30-ppm Tier 2) gasoline.
This refiner’s desulfurizer cycle life was reduced from 5 years to <2 years for unplanned catalyst replacement, jeopardizing planned future 5-year turnaround cycles.
2) Octane destruction
This refiner is losing 6 octane units instead of the expected <2 when desulfurizing FCC gasoline severely for Tier 3 gasoline, forcing foregone premium gasoline sales and/or purchase of (expensive) high-octane blend stocks.
Another refiner lost 10 octane versus expected <2 when feed sulfur was increased while making 10 ppm S gasoline.
3) Banning low-cost feeds
This refiner banned the use of (cheap) coker naphtha from his desulfurizer feed because it was unusable for making Tier 3 gasoline. Before, the coker naphtha was a high-octane, high margin component for making Tier 2 gasoline.
This refiner banned (cheap) straight run naphtha from his desulfurizer feed because it is too high in sulfur and causes octane destruction and short cycles when making Tier 3 gasoline. It is now routed to low value use.
4) Reduced gasoline production
This refiner reduced the gasoline/diesel cut point to reduce the sulfur of FCC gasoline, shifting higher-margin gasoline barrels to lower-margin diesel.
This refiner cut crude rate and gasoline production to prevent short cycles on his desulfurizer when making Tier 3 gasoline.
This engineer reported a new operating rule was established — when there’s a hiccup on the gasoline desulfurizer, immediately cut FCC feed rate because there’s no place to go with FCC gasoline.
5) Purchase high-octane blend stocks
US refiners are buying lots of (expensive) alkylate and reformate to make up for octane barrels destroyed in gasoline desulfurizers when making Tier 3 gasoline. This is a costly move, versus not destroying the octane barrels you made yourself in your FCC train.
In a nutshell:
There are many ways to reduce these negative Tier 3 impacts. Capital investment is the best option, but that takes capital and time to implement. Refiners should be taking other steps now to optimize their gasoline desulfurizers, something that has not been a priority before.
Hoekstra Research Report 8
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