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Thursday, 01/12/2023Published by: George Hoekstra
Senior refining executives were called to Washington, DC, in June, around the time U.S. gas prices hit their high-water mark for the year, as the government sought recommendations about how to increase the supply of gasoline. One suggestion made to Secretary of Energy Jennifer Granholm was to relax sulfur specifications on fuels, including the Tier 3 gasoline sulfur specifications. But what is the connection between those rules and the U.S. refining system’s ability to produce gasoline? In today’s RBN blog, we explain how the Tier 3 rules constrain gasoline supply capacity in the U.S. and discuss ways to break free from those chains.
In Part 1 of this series, we detailed how the retail “price” of octane — the primary yardstick of gasoline quality and price — has marched steadily higher over the past decade, led by a market now impacted more by demand than production costs. Just as octane demand has been increasing, however, a number of factors have been tamping down octane supply and recently spurred a run-up in the retail price of octane, measured by the difference between the pump prices of premium and regular gasoline, which has gone from a 20-cent differential to about 80 cents per gallon. In Part 2, we focused on a critical refinery stream called fluid catalytic cracker (FCC) gasoline. It is produced in the FCC (see dashed black oval in Figure 1), a chemical reactor that “cracks” high-sulfur oil molecules into valuable gasoline molecules. FCC gasoline (labeled as FCC naphtha) makes up 40% of the U.S. gasoline supply.
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