Here’s some bad news for drivers of luxury cars and sport utility vehicles (SUVs) pumping the highest grade of gasoline: the premiums they pay against conventional fuel are getting more and more expensive. American and European refineries are scrambling to get enough octane to produce high-quality gasoline. There are a number of potential reasons for the shortage, including the aftermath of Russia’s war in Ukraine, the impact of US environmental regulations, and a lack of refining capacity.
The end effect is that it makes the fuel even more expensive than usual, when compared to conventional unleaded. In the US, the price gap is about 75 cents a gallon — about 15% more than in the same period last year — data from auto group AAA shows. In the UK, premiums have increased by 25% on a yearly basis, the most recent monthly data shows.
“Currently high-octane seasonal highs don’t bode well for a smooth transition to summer-spec gasoline,” said Callum Bruce, an analyst at Goldman Sachs Group Inc.
Refineries are in the process of transitioning to summer grade gasoline. Winter fuel contains more butane from natural gas processing to increase octane.
petroleum production
The octane number itself is a hydrocarbon, produced during the refining of crude oil, although consumers usually know about it through the so-called octane rating for gasoline. Higher values mean more stable fuel and less likely to cause engine knock. Vehicle manufacturers often recommend high-octane gasoline – the premium grade at the pump – to get the most performance out of a turbocharged or high-compression engine.
Even regular gasoline contains an octane rating. The shortage is not a problem, however, as there are more low-octane ingredients to make regular gasoline than there are high-octane fuels.
The European Union and the United Kingdom last month banned most imports of Russian petroleum products by sea, reducing the region’s supply of naphtha, a key ingredient in gasoline production. Meanwhile, the European petrochemical industry has cut supply of the octane booster as high energy costs and weak demand have limited operations.
According to consultant Energy Aspects Ltd.
Rising prices ‘explosive’
Separately, US “Tier 3” environmental regulations, which require lower sulfur content in gasoline, have created complications.
Compliance with the rules requires more rigorous treatment of naphtha and gasoline with hydrogen during refining. This process destroys the octane number, thus contributing to the shortage and helping to extend the value of premium gasoline to regular grade.
The gasoline sulfur standard for the rules went into effect in 2017. In 2020, fuel demand fell due to pandemic-related travel restrictions. The real impact of the regulations began to become apparent last year as gasoline consumption rebounded, according to analysts at Bank of America Corp.
“Meeting lower sulfur requirements comes at the expense of octane levels, which can contribute to higher prices for high-octane blend ingredients,” they said in a recent note. prices this summer.”
To be sure, there’s debate about what’s behind the octane deficiency. According to Robert Auers, director of Refined Fuel Analysis, a division of RBN Energy, the wide octane spread – the price difference between wholesale prices for premium and regular gasoline – is mainly due to a lack of work. oil filter capacity.
Due to the lost capacity, there were not enough reformer units to upgrade the low-octane naphtha, raising its octane level for use in the production of premium gasoline. That could eventually change when new refining capacity comes online this year. Auers added: “However, we have a moderate octane differential.
First published date: March 18, 2023, 3:31pm IST
