US gasoline markets are robust as the summer driving season continues, but several forces could lead to an octane shortage, speakers warned during a June 26 breakout session at the US Energy Information Administration's 2017 Annual Conference.
Automakers could rely on engine designs with higher compression ratios to comply with more-stringent fuel economy standards, speakers said. In turn, this would require gasoline with higher octane ratings.
"Ironically, we're not going to be using more fuel in the US in the next 5 years, but we'll need more octane, at least until more cars run on electricity," said Tom Kloza, global head of energy analysis at Oil Price Information Service, a division of IHS.
Kloza characterized current US gasoline markets as sloppy, with product exports coming to many refiners' rescue. "But nearly all the growth in this country's oil production is light crude which has a lot of condensate with naphtha that requires the addition of expensive octane enhances," Kloza said. "If super turbocharged engines represent 25% of the US fleet in 2025, there will be some big changes coming."
Both the Corporate Average Fuel Economy (CAFE) and the Renewable Fuel Standards (RFS) will influence gasoline quality, said Blake Eskew, vice-president, global consulting, at IHS Markit. They also could enable more-efficient engines and provide an incentive for higher ethanol blends, he said.
"The key question will be how refiners respond should octane levels be raised," Eskew said. Refined products aim to meet required specifications at the lowest possible cost, he noted. "Economic, component, and performance are complex," he said. "The reformer is a refinery's most critical unit because its operation can vary dramatically."
Diversity of properties
While octane and vapor pressure are the two main specifications, the diversity of properties is the refiner's biggest challenge, Eskew said. Marginal expenses typically drive refined product prices, and higher octane costs can cut into profits, he said.
"The RFS has a limit of 15 billion gal of corn-derived ethanol. We're pretty much there now," Eskew said. But he added that pressure to increase octane will remain because higher levels open avenues to more efficiency, which could create incentives for higher ethanol blends, he said. Refiners and manufacturers of engines for power tools and recreational equipment are resisting this because they believe it could damage those engines, Eskew said.
Octane demand and CAFE standards could make it necessary for refiners to produce their own octane, according to a third speaker, Max Pyziur, downstream projects director at Energy Policy Research Foundation Inc. "CAFE standards were a less-controversial alternative to a fuel consumption tax when they were enacted. But the harder work will occur between now and 2025 when they grow more aggressive," he said.
"What wasn't taken into account when CAFE standards were formulated was that fuel prices would be lower. The original program was calibrated when crude oil prices were high and expected to stay that way. That hasn't happened. We're in a period now where they are lower, and it looks as if they'll stay that way for a few years," Pyziur said.
Moving to electric vehicles would require an entirely new distribution system, Pyziur said. "Refiners would prefer higher octane levels with more-efficient gasoline engines, even if producing that fuel would take more trouble than not," Pyziur said. "Ironically, in this low fuel price era, sales of hybrid vehicles have gone up."
