HUGE SUPPLY/DEMAND INCREASES SEEN IN OXYGENATE FORECASTS

Anne K. Rhodes
Refining/Petrochemical Editor

Industry originally projected that oxygenate supply would not be able to meet the demand created by U.S. oxygenated and reformulated gasoline mandates.

Those projections have been reversed in two recent industry reports-one from Chemical Market Associates Inc. (CMAI) and one from Pace Consultants Inc.

Pace's report, by Paulo Nery and Nathan Sims, predicts gasoline and oxygenates demand, and examines the role ethanol may play in changing those values. CMAI's report estimates captive supply and demand of butylenes and oxygenates.

PACE'S REPORT

Oxygenates are entering the domestic gasoline market this winter as a result of the 1990 U.S. Clean Air Act Amendments. Methyl tertiary butyl ether (MTBE) is the most important oxygenate, although ethanol, ethyl tertiary butyl ether (ETBE), and tertiary amyl methyl ether (TAME) are gathering market strength.

Ethanol's strength is derived from President Bush's ruling granting a waiver to reformulated gasoline containing ethanol. This waiver allows ethanol blends to have a vapor pressure 1 psi higher than other types of gasoline. (The 1 psi is the vapor pressure increase corresponding to a 10% ethanol blend.)

The waiver applies only to reformulated gasoline and is limited to 30% of the total reformulated gasoline market in northern U.S. cities. Governors of those states, however, will have the option of raising that market share if it is offset by compensating reductions in gasoline Rvp.

To make gasoline for ethanol blends, refiners will have to reduce the vapor pressure of gasoline sold in nine ozone nonattainment cities from 8.1 to 7.8 psi, says Pace. Additionally, this favorable treatment of ethanol may cut into MTBE's market share.

The American Petroleum Institute and several environmental groups oppose Bush's action. Several industry sources say one or more of these groups may file suit against the U.S. Environmental Protection Agency for violation of the "reg-neg" agreement if the postelection administration enacts the order. The outcome of such law suits would certainly affect ethanol's market standing.

Southern states' Governors will also be able "opt in" to as much as 20% of the reformulated gasoline market, according to a recent report by National Petroleum Refiners Association. The volatility of that gasoline will be cut from 7.2 psi to 7.0 psi.

As ethanol is far more expensive to produce than MTBE, its usage can only be economic after special subsidies and tax credits are taken into account. In addition, ethanol has high water solubility, which prevents ethanol blends from being shipped in common carrier pipelines.

According to the American Petroleum Institute, ethanol causes more smog than gasoline-based fuels.

The Bush Administration estimates that blending ethanol into reformulated gasoline will add only $25 million to refiners' costs, and about 0.344/gal to pump prices. These figures may be understated when all subsidies, tax credits, and environmental costs are taken into consideration.

ETBE

ETBE will begin to play an important role in gasoline blending, particularly after Chevron's announcement that it would test ETBE gasoline in Southern California and may consider adapting its MTBE plants for ETBE production (OGJ, Sept. 28, p. 2).

Pace says conversion of ethanol to ETBE may ultimately be the best way for refiners to optimize their MTBE plants. ARCO Chemical Co. recently decided to produce ETBE at Coastal Refining & Marketing Inc.'s 12,000 b/d MTBE plant, under long-term lease to ARCO (OGJ, Sept. 7, p. 35).

ETBE has a lower vapor pressure than MTBE and consequently will contribute less to pollution. ETBE can be produced in MTBE plants by reacting isobutylenes-an MTBE feedstock-with ethanol.

TAME

TAME production and usage is still very limited. Refiners normally produce this product by reacting isoamylenes from the fluid catalytic cracker (FCC) with methanol. TAME makes use of light-boiling isoamylenes from FCC gasoline, thereby reducing FCC gasoline vapor pressure.

TAME has found more acceptance with European refiners as an easier route than alkylation to higher octanes. Pace says U.S. refiners are showing a tendency to favor alkylating isoamylenes, in view of the greater availability of isobutane in this country. A negative aspect of TAME is its strong and unpleasant odor.

MTBE MARKET

MTBE availability for this winter's requirements had been of concern to the industry following passage of the U.S. Clean Air Act Amendments. The most recent inventory reports, however, indicate supplies to be plentiful.

Industry estimates that the Nov. I inventory target of 25 million bbl was reached at the end of September. This has been reflected in weak MTBE spot prices, which are currently some 15/gal below the June 1992 price of 96/gal.

Pace estimates MTBE demand will grow ten-fold from the 35,000 b/d 1991 average, to 450,000 b/d in 1995. In 1993, MTBE requirements are estimated to be 3.3% of total gasoline demand. The MTBE share is expected to reach 6% of gasoline demand by 1995, when reformulated gasoline reaches its full effect.

Table I shows Pace's gasoline demand forecast through 1997, together with a breakdown of the gasoline components necessary to meet demand. MTBE spot prices for 1991 and 1992, as well as Pace's price forecast through 1997, are also shown in this table.

Fig. 1 presents Pace's forecast of MTBE and ethanol demand, as a percentage of gasoline demand, for 19912001.

The ethanol usage values in Table 1 and Fig. 1 do not reflect the possible impact of Bush's ethanol ruling. By 1996, Pace expects ethanol consumption for gasoline to increase by approximately 50% over these projections displacing about 14% of MTBE demand, or 50,000 b/d, if the Bush ruling remains in place after Clinton takes office early next year.

The great controversy is whether oxygenates do more harm than good to the environment. Too much oxygen promotes the formation of nitrogen oxides (NO.), which cause smog.

In California, the oxygen content in reformulated gasoline has been restricted to 2.0 wt %. This equates to about 11 vol % MTBE in the gasoline blend. The rest of the U.S. still limits oxygen to 2.7 wt %, or 15 vol % MTBE.

It is quite possible, according to Pace, that as the U.S. Environmental Protection Agency learns more about the effects of oxygenates, stricter limits may be placed on their use. This will obviously reduce demand and lower MTBE prices.

CMAI'S REPORT

Chemical Market Associates Inc. estimates that world demand for "contained" isobutylene will increase at an average rate of 8.7%/year from 1991 through 1996. This, and other conclusions regarding butylenes markets, were reported in CMAI's 1992 World Butylenes Analysis.

CMAI defines contained isobutylene as the isobutylene in refinery or chemical plant streams. An example is "raffinate-l," the olefin product from extraction or selective hydrogenation of butadiene.

CMAI projects the production of isobutylene by isobutane dehydrogenation to increase at an annual rate of 42% for 1991-1996 (Fig. 2). New additions to capacity for the selective hydrogenation of butadiene will result in a growth rate of 80.4%/year for contained isobutylene supply via that route.

MTBE

By far the greatest demand for contained isobutylene will be for the manufacture of MTBE. CMAI forecasts this demand to grow at 20.9%/year, while consumption of contained isobutylene for the manufacture of MTBE will increase to more than 12 million metric tons in 1996.

Another interesting prediction is that the availability of contained isobutylene for alkylation or fuel will decline at an average 6.0%/year for 1991-1996, falling from 5.8 million metric tons/year in 1991 to 4.2 million tons/year in 1996.

Demand for MTBE is forecast to increase at an average annual rate of 23.6% for the period, and capacity will increase from more than 10 million tons/year in 1991 to 22.6 million tons/year in 1996 (Fig. 3). Operating rates will fluctuate from a low of 73% in 1991 to a high of 83% in 1996, says CMAI.

The analysis also finds that methanol demand for the manufacture of MTBE will grow from 2.7 million tons/year in 1991 to more than 6.8 million tons/year in 1996.

MTBE produced from refinery FCC isobutylene will increase from 1.9 million tons/year in 1991 to 5.1 million tons/year in 1996, for an average annual growth rate of 21.5% (Fig. 4). Production of MTBE via the dehydrogenation of isobutane to isobutylene is forecast to increase at 42.0%/year, according to the report.

World trade in MTBE will increase from 970,000 tons/year in 1991 to 4.4 million tons/year in 1996, for an average annual growth rate of 35.3%.

NORMAL BUTYLENES

CMAI's analysis also finds that the production of contained normal butylenes will increase at an average annual rate of 13.3% from 1991 to 1996, growing from 8.4 million tons/year in 1991 to 15.7 million tons/year in 1996. Use of contained normal butylenes for the manufacture of butene-I is expected to show the largest growth rate, and consumption for this purpose will total 430,000 metric tons in 1996.

The quantity of normal butylenes available for alkylation or fuel will increase from slightly more than 5.4 million tons/year in 1991 to more than 12.4 million tons/year in 1996.