R-Squared Energy Blog

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Why Summer Gasoline Means Higher Prices

Spring is approaching, and gasoline prices are once again climbing. But you may not know that this ritual of climbing prices happens almost every year about this time. If you check the history of gasoline prices at the Energy Information Administration’s (EIA) website you can see that gasoline prices almost always rise between January and May.

The primary reason this happens is due to a seasonal switch in gasoline blends. There are two key (although not the only) specifications that refiners must meet for gasoline. The gasoline must have the proper octane, and it must have the proper Reid vapor pressure (RVP). While the octane specification of a particular grade is constant throughout the year, the RVP specification changes with the seasons. (See Refining 101: Winter Gasoline for a more detailed explanation of gasoline blends).

The RVP is based on a test that measures vapor pressure of the gasoline blend at 100 degrees F. Normal atmospheric pressure varies, but is usually around 14.7 lbs per square inch (psi). Atmospheric pressure is caused by the weight of the air over our heads. If a liquid has a vapor pressure of greater than atmospheric pressure, that liquid boils. For example, when you heat a pan of water the vapor pressure increases until it reaches atmospheric pressure. At that point the water begins to boil.

In the summer, when temperatures can exceed 100 degrees F in many locations, it is important that the RVP of gasoline is well below 14.7 psi. Otherwise, it can pressure up your gas tanks and gas cans, and it can boil in open containers. Gas that is vaporized ends up in the atmosphere, and contributes to air pollution. Therefore, the Environmental Protection Agency (EPA) has declared that summer gasoline blends may not exceed 7.8 psi in some locations, and 9.0 psi in others. The particulars vary, but key considerations are the altitude and motor vehicle density of a specific location.

The EPA publishes a schedule for the RVP transition:

Guide on Federal and State Summer RVP Standards for Conventional Gasoline Only

The schedule varies somewhat from region to region, but in general is as follows. After allowing vapor pressures as high as 15 psi in the winter, the limit drops starting on May 1st:

May: 9.0 psi
June – Sept. 15: 7/7.8 psi

More congested areas and hotter areas will tend to have a limit of 7.0 psi, while cooler climates generally opt for 7.8 psi. Some cooler climates maintain a 9.0 psi limit throughout the summer. One of the disadvantages of having different requirements for different areas is that summer gasoline is less fungible. This can cause price imbalances in different areas, and sometimes prevents product from flowing from one area into another to ease the shortage.

Refiners will start to pull down their inventory of winter gasoline well in advance of the May 1st deadline. On that date, all gasoline in the system has to meet the stricter requirements, and this “summer blend” is costlier to produce because it contains less butane.

Butane, which has an RVP of 52 psi, can be blended into gasoline in higher proportions in the winter because the vapor pressure allowance is higher. There are two advantages in doing this. First, butane is a cheaper blending component than most of the other ingredients. That makes fall and winter gasoline cheaper to produce.

But butane also adds to the total gasoline pool, so that means that gasoline supplies increase in the winter as more butane is added to the mix. Not only that, but this takes place after summer driving season, when demand typically falls off. These factors normally combine each year to reduce gasoline prices in the fall (even in non-election years). The RVP is stepped back down to summer levels starting in the spring, and this usually causes prices to increase.

One misconception some have is that they can save money by buying cheap gasoline in the winter and storing it for the summer. Remember that winter gasoline will pressure up as the weather heats up, and the contained butane will start to vaporize out of the mix. You will end up with less gasoline than you paid for, and that would also contribute to the air pollution problem that summer gasoline was designed to avoid.

If, on the other hand, you were to buy summer gasoline and try to store it until winter, you might find yourself having problems getting the fuel to ignite, due to the lower vapor pressure. This would be like putting a little bit of diesel in your gasoline – not very good for your car.

So how high might gasoline prices climb this spring? The EIA’s gasoline inventory database can provide some guidance. In the spring of 2007 gasoline prices spiked above $3.00 a gallon for the first time. But that year gasoline inventories also dropped sharply. Rapidly falling gasoline inventories are a good predictor of sharply higher gasoline prices. In the fall of 2005, Hurricane Katrica also caused a sharp drop in gasoline stocks, leading to an atypical fall price increase.

So far in 2010, gasoline inventories have been at very healthy levels. While some inventory draw down can be expected during the transition to summer gasoline, it is a pretty safe bet that the current high level of gasoline stocks will prevent a rapid escalation of prices this spring. I would expect no more than a mild price increase between now and summer, and at the current inventory levels it would not be surprising to see prices start to decline from present levels.

However if oil prices escalate, that could trump high gasoline inventory levels. This is why gasoline is presently about $1 more than it was last year at this time; oil prices were $30-$40 lower than they are now. But that’s a topic for a future essay.

March 7, 2010 Posted by | gasoline blending, refining, summer gasoline | Comments Off

Clarifying the Ethanol Blending Requirement

I have seen the question frequently arise as to whether the ethanol blending mandate is based on rigid numbers (e.g., 9 billion gallons in 2008) or whether it is actually a percentage requirement, and the number is an estimate based on projected gasoline sales. In other words, let’s say that hypothetically gasoline sales this year are only half the level of last year. Is the mandate still for 9 billion gallons, or does it drop to 4.5 billion gallons?

Also, I saw someone recently make the charge that refiners are underblending ethanol, and are likely to end the year in violation of the mandate. So, I also sought some clarification around this issue. I contacted Peter Gross at the EIA, who seemed to be their expert in this area. He was kind enough to reply, and clarified both issues:

9 billion gallons (and future levels) are mandated and not based on projected total gasoline sales. The scenario you mention of gasoline sales falling way off (10% at most maybe from last year), would still put the total motor gasoline consumption at more than 130 billion gallons (which includes the 9 billion gallons of ethanol) for the year. Thus, there is plenty of gasoline around even in this extreme case to absorb the ethanol and still not saturate the E10 market. In fact, 9 billion gallons of ethanol means 90 billion gallons of E10 which leaves over 40 billion gallons of conventional gasoline without ethanol.

The immediate problem is not that there will be enough gasoline to absorb the ethanol in 2008, 2009, and probably 2010; in these years the questions are “Is there enough infrastructure to send the ethanol to (and blend with gasoline in) as-of-yet untapped regions, esp. the southeast?” or “Will mounting political pressure over food/grain costs force the EPA to lower the mandate?” (witness Texas’s recent waiver application).

After 2011 EIA projects there will not be enough gasoline sold to absorb the ethanol as E10; then the big question becomes how does the U.S. absorb the excess; as E85? (currently the only legal option) or as E15/E20? (as of yet not fully tested). Can the EPA lower the mandate if the E85 infrastructure is inadequate or too costly and the E15/E20 option is not available? Yes, but again this probably would not happen until after the “blend wall” (i.e., saturated E10 market) has occurred.

All obligated parties (refiners and importers of refined fuel products) must satisfy their “renewable volume obligation” (RVO) which is essentially their share (based on how much fuel they produce or import) of the total renewable fuel that must be used (this year 9.0 billion gallons). Volumes of blended renewable fuel are assigned RINs (renewable identification numbers). If a particular party cannot blend their share, they may buy these RINs from parties that have over complied on their RVO (though some alternatives exist such as carrying a RIN deficit for one year or using one’s own excess RINs from the previous year). In any case, every year every obligated party is required to document its RINs and show that they have the same or more than their RVO to the EPA. If they don’t, they can carry a deficit as mentioned earlier or they will be penalized by the EPA.

Peter Gross
EIA, DOE
202-586-8822

To summarize, the ethanol mandate is based on a fixed number. Further, refiners can technically underblend, but they must make up for it by either buying credits from parties who overblend, or by carrying a deficit that they have to make up – or suffer penalties. Thus, they can underblend and not be in violation of the mandate, because there are provisions for that. If they don’t meet those provisions, they are in violation and are penalized.

July 17, 2008 Posted by | DOE, EIA, ethanol, gasoline blending | 21 Comments

Refining 101: Winter Gasoline

Originally posted a year ago today (9/14/06), this one is due for a bump since RVP transition is once again upon us. This is going to make product inventory forecasts a bit tricky over the next month or two as high RVP gasoline is purged from the system.

—————————-

Now, for something that I think will be non-controversial, and hopefully somewhat educational.

Every year in late summer, you will start hearing references in the media about the conversion to winter gasoline, such as the following (originally in the Bradenton Herald, but the link is long dead):

Motorists can thank a mild hurricane season in the Atlantic for the lower gas prices, according to the American Automobile Association.

Other factors include the end of the summer driving season and a cheaper winter fuel mix.

Gas stations sell a special, more expensive fuel blend during the summer to cut down on smog during hot months. Stations nationwide will start selling a less-expensive winter fuel blend Friday, which could lead to even lower prices, analysts said.

So what does this mean, and why does it make winter gasoline less expensive?

A Primer on Gasoline Blending

Gasoline is composed of many different hydrocarbons. Crude oil enters a refinery, and is processed through various units before being blended into gasoline. A refinery may have a fluid catalytic cracker (FCC), an alkylate unit, and a reformer, each of which produces gasoline blending components. Alkylate gasoline, for example, is valuable because it has a very high octane, and can be used to produce high-octane (and higher value) blends. Light straight run gasoline is the least processed stream. It is cheap to produce, but it has a low octane. The person specifying the gasoline blends has to mix all of the components together to meet the product specifications.

There are two very important (although not the only) specifications that need to be met for each gasoline blend. The gasoline needs to have the proper octane, and it needs to have the proper Reid vapor pressure, or RVP. While the octane of a particular grade is constant throughout the year, the RVP spec changes as cooler weather sets in.

The RVP is the vapor pressure of the gasoline blend when the temperature is 100 degrees F. Normal atmospheric pressure varies, but is usually around 14.7 lbs per square inch (psi). Atmospheric pressure is caused by the weight of the air over our heads. If a liquid has a vapor pressure of greater than local atmospheric pressure, that liquid boils. For example, when you heat a pot of water, the vapor pressure increases until it reaches atmospheric pressure. At that point, the water begins to boil.

In the summer, when temperatures can exceed 100 degrees F in many locations, it is important that the RVP of gasoline is well below 14.7. Otherwise, it can pressure up your gas tanks and gas cans, and it can boil in open containers. Gas that is boiled off ends up in the atmosphere, and contributes to air pollution. Therefore, the EPA has declared that summer gasoline blends may not exceed 7.8 psi in some locations, and 9.0 psi in others.

A typical summer gasoline blend might consist of 40% FCC gas, 25% straight run gas, 15% alkylate, 18% reformate, and 2% butane. The RVP of the gasoline blend depends on how much of each component is in the blend, and what the RVP is of each component. Butane is a relatively inexpensive ingredient in gasoline, but it has the highest vapor pressure at around 52 psi.

In a gasoline blend, each component contributes a fraction to the overall RVP. In the case of butane, if there is 10% butane in the blend, it will contribute around 5.2 psi (10% of 52 psi) to the overall blend. (In reality, it is slightly more complicated than this, because some components interact with each other which can affect the expected RVP). This means that in the summer, the butane fraction must be very low in the gasoline, or the overall RVP of the blend will be too high. That is the primary difference between winter and summer gasoline blends.

Why Prices Fall in the Fall

Winter gasoline blends are phased in as the weather gets cooler. September 15th is the date of the first increase in RVP, and in some areas the allowed RVP eventually increases to 15 psi. This has two implications for gasoline prices every fall. First, as noted, butane is a cheaper blending component than most of the other ingredients. That makes fall and winter gasoline cheaper to produce. But butane is also abundant, so that means that gasoline supplies effectively increase as the RVP requirement increases. Not only that, but this all takes place after summer driving season, when demand typically falls off.

These factors normally combine each year to reduce gasoline prices in the fall (even in non-election years). The RVP is stepped back down to summer levels starting in the spring, and this usually causes prices to increase. But lest you think of buying cheap winter gasoline and storing it until spring or summer, remember that it will pressure up as the weather heats up, and the contained butane will start to vaporize out of the mix.

And that’s why gasoline prices generally fall back in the fall, and spring forward in the spring.

September 14, 2007 Posted by | gas prices, gasoline blending, refining, winter gasoline | 5 Comments

Refining 101: Winter Gasoline

Originally posted a year ago today (9/14/06), this one is due for a bump since RVP transition is once again upon us. This is going to make product inventory forecasts a bit tricky over the next month or two as high RVP gasoline is purged from the system.

—————————-

Now, for something that I think will be non-controversial, and hopefully somewhat educational.

Every year in late summer, you will start hearing references in the media about the conversion to winter gasoline, such as the following (originally in the Bradenton Herald, but the link is long dead):

Motorists can thank a mild hurricane season in the Atlantic for the lower gas prices, according to the American Automobile Association.

Other factors include the end of the summer driving season and a cheaper winter fuel mix.

Gas stations sell a special, more expensive fuel blend during the summer to cut down on smog during hot months. Stations nationwide will start selling a less-expensive winter fuel blend Friday, which could lead to even lower prices, analysts said.

So what does this mean, and why does it make winter gasoline less expensive?

A Primer on Gasoline Blending

Gasoline is composed of many different hydrocarbons. Crude oil enters a refinery, and is processed through various units before being blended into gasoline. A refinery may have a fluid catalytic cracker (FCC), an alkylate unit, and a reformer, each of which produces gasoline blending components.

Alkylate gasoline, for example, is valuable because it has a very high octane, and can be used to produce high-octane (and higher value) blends. Light straight run gasoline is the least processed stream. It is cheap to produce, but it has a low octane. The person specifying the gasoline blends has to mix all of the components together to meet the product specifications.

There are two very important (although not the only) specifications that need to be met for each gasoline blend. The gasoline needs to have the proper octane, and it needs to have the proper Reid vapor pressure, or RVP. While the octane of a particular grade is constant throughout the year, the RVP spec changes as cooler weather sets in.

The RVP is the vapor pressure of the gasoline blend when the temperature is 100 degrees F. Normal atmospheric pressure varies, but is usually around 14.7 lbs per square inch (psi). Atmospheric pressure is caused by the weight of the air over our heads. If a liquid has a vapor pressure of greater than local atmospheric pressure, that liquid boils. For example, when you heat a pot of water, the vapor pressure increases until it reaches atmospheric pressure. At that point, the water begins to boil.

In the summer, when temperatures can exceed 100 degrees F in many locations, it is important that the RVP of gasoline is well below 14.7. Otherwise, it can pressure up your gas tanks and gas cans, and it can boil in open containers. Gas that is boiled off ends up in the atmosphere, and contributes to air pollution. Therefore, the EPA has declared that summer gasoline blends may not exceed 7.8 psi in some locations, and 9.0 psi in others.

A typical summer gasoline blend might consist of 40% FCC gas, 25% straight run gas, 15% alkylate, 18% reformate, and 2% butane. The RVP of the gasoline blend depends on how much of each component is in the blend, and what the RVP is of each component. Butane is a relatively inexpensive ingredient in gasoline, but it has the highest vapor pressure at around 52 psi.

In a gasoline blend, each component contributes a fraction to the overall RVP. In the case of butane, if there is 10% butane in the blend, it will contribute around 5.2 psi (10% of 52 psi) to the overall blend. (In reality, it is slightly more complicated than this, because some components interact with each other which can affect the expected RVP). This means that in the summer, the butane fraction must be very low in the gasoline, or the overall RVP of the blend will be too high. That is the primary difference between winter and summer gasoline blends.

Why Prices Fall in the Fall

Winter gasoline blends are phased in as the weather gets cooler. September 15th is the date of the first increase in RVP, and in some areas the allowed RVP eventually increases to 15 psi. This has two implications for gasoline prices every fall.

First, as noted, butane is a cheaper blending component than most of the other ingredients. That makes fall and winter gasoline cheaper to produce. But butane is also abundant, so that means that gasoline supplies effectively increase as the RVP requirement increases. Not only that, but this all takes place after summer driving season, when demand typically falls off.

These factors normally combine each year to reduce gasoline prices in the fall (even in non-election years). The RVP is stepped back down to summer levels starting in the spring, and this usually causes prices to increase. But lest you think of buying cheap winter gasoline and storing it until spring or summer, remember that it will pressure up as the weather heats up, and the contained butane will start to vaporize out of the mix.
And that’s why gasoline prices generally fall back in the fall, and spring forward in the spring.

September 14, 2007 Posted by | gas prices, gasoline blending, refining, winter gasoline | Comments Off

Refining 101: Winter Gasoline

Originally posted a year ago today (9/14/06), this one is due for a bump since RVP transition is once again upon us. This is going to make product inventory forecasts a bit tricky over the next month or two as high RVP gasoline is purged from the system.

—————————-

Now, for something that I think will be non-controversial, and hopefully somewhat educational.

Every year in late summer, you will start hearing references in the media about the conversion to winter gasoline, such as the following (originally in the Bradenton Herald, but the link is long dead):

Motorists can thank a mild hurricane season in the Atlantic for the lower gas prices, according to the American Automobile Association.

Other factors include the end of the summer driving season and a cheaper winter fuel mix.

Gas stations sell a special, more expensive fuel blend during the summer to cut down on smog during hot months. Stations nationwide will start selling a less-expensive winter fuel blend Friday, which could lead to even lower prices, analysts said.

So what does this mean, and why does it make winter gasoline less expensive?

A Primer on Gasoline Blending

Gasoline is composed of many different hydrocarbons. Crude oil enters a refinery, and is processed through various units before being blended into gasoline. A refinery may have a fluid catalytic cracker (FCC), an alkylate unit, and a reformer, each of which produces gasoline blending components. Alkylate gasoline, for example, is valuable because it has a very high octane, and can be used to produce high-octane (and higher value) blends. Light straight run gasoline is the least processed stream. It is cheap to produce, but it has a low octane. The person specifying the gasoline blends has to mix all of the components together to meet the product specifications.

There are two very important (although not the only) specifications that need to be met for each gasoline blend. The gasoline needs to have the proper octane, and it needs to have the proper Reid vapor pressure, or RVP. While the octane of a particular grade is constant throughout the year, the RVP spec changes as cooler weather sets in.

The RVP is the vapor pressure of the gasoline blend when the temperature is 100 degrees F. Normal atmospheric pressure varies, but is usually around 14.7 lbs per square inch (psi). Atmospheric pressure is caused by the weight of the air over our heads. If a liquid has a vapor pressure of greater than local atmospheric pressure, that liquid boils. For example, when you heat a pot of water, the vapor pressure increases until it reaches atmospheric pressure. At that point, the water begins to boil.

In the summer, when temperatures can exceed 100 degrees F in many locations, it is important that the RVP of gasoline is well below 14.7. Otherwise, it can pressure up your gas tanks and gas cans, and it can boil in open containers. Gas that is boiled off ends up in the atmosphere, and contributes to air pollution. Therefore, the EPA has declared that summer gasoline blends may not exceed 7.8 psi in some locations, and 9.0 psi in others.

A typical summer gasoline blend might consist of 40% FCC gas, 25% straight run gas, 15% alkylate, 18% reformate, and 2% butane. The RVP of the gasoline blend depends on how much of each component is in the blend, and what the RVP is of each component. Butane is a relatively inexpensive ingredient in gasoline, but it has the highest vapor pressure at around 52 psi.

In a gasoline blend, each component contributes a fraction to the overall RVP. In the case of butane, if there is 10% butane in the blend, it will contribute around 5.2 psi (10% of 52 psi) to the overall blend. (In reality, it is slightly more complicated than this, because some components interact with each other which can affect the expected RVP). This means that in the summer, the butane fraction must be very low in the gasoline, or the overall RVP of the blend will be too high. That is the primary difference between winter and summer gasoline blends.

Why Prices Fall in the Fall

Winter gasoline blends are phased in as the weather gets cooler. September 15th is the date of the first increase in RVP, and in some areas the allowed RVP eventually increases to 15 psi. This has two implications for gasoline prices every fall. First, as noted, butane is a cheaper blending component than most of the other ingredients. That makes fall and winter gasoline cheaper to produce. But butane is also abundant, so that means that gasoline supplies effectively increase as the RVP requirement increases. Not only that, but this all takes place after summer driving season, when demand typically falls off.

These factors normally combine each year to reduce gasoline prices in the fall (even in non-election years). The RVP is stepped back down to summer levels starting in the spring, and this usually causes prices to increase. But lest you think of buying cheap winter gasoline and storing it until spring or summer, remember that it will pressure up as the weather heats up, and the contained butane will start to vaporize out of the mix.

And that’s why gasoline prices generally fall back in the fall, and spring forward in the spring.

September 14, 2007 Posted by | gas prices, gasoline blending, refining, winter gasoline | 3 Comments

Refining 101: Summer Gasoline

Just what is summer gasoline? Twice a year, in the fall and in the spring, you hear about the seasonal gasoline transition. However, most people probably don’t understand what this actually means. AAA recently provided a Top 10 list explaining the recent rise in gasoline prices, and summer gasoline checked in at #7:

7. The summer blend switchover. This transition from winter-blend to summer-blend fuel, a concoction that causes less smog, occurs every spring. It causes a dip in gasoline supplies as refineries in the U.S. shut down temporarily to retool their production facilities.

That’s only partially correct, and is probably the extent of most people’s understanding of this transition. But given that I am very keen that people should understand the energy industry, it is worth a review, and a layman’s explanation. I explained the details behind this transition in Here Comes Winter Gasoline. But let’s review some concepts.

There are two key (although not the only) specifications that refiners must meet for gasoline. The gasoline needs to have the proper octane, and it needs to have the proper Reid vapor pressure (RVP). While the octane of a particular grade is constant throughout the year, the RVP spec changes with the seasons.

The RVP is based on a test that measures vapor pressure of the gasoline blend at 100 degrees F. Normal atmospheric pressure varies, but is usually around 14.7 lbs per square inch (psi). Atmospheric pressure is caused by the weight of the air over our heads. If a liquid has a vapor pressure of greater than normal atmospheric pressure, that liquid boils. For example, when you heat a pan of water, the vapor pressure increases until it reaches atmospheric pressure. At that point, the water begins to boil.

In the summer, when temperatures can exceed 100 degrees F in many locations, it is important that the RVP of gasoline is well below 14.7. Otherwise, it can pressure up your gas tanks and gas cans, and it can boil in open containers. Gas that is vaporized ends up in the atmosphere, and contributes to air pollution. Therefore, the EPA has declared that summer gasoline blends may not exceed 7.8 psi in some locations, and 9.0 psi in others. The particulars vary, but key considerations are the altitude and motor vehicle density of a specific location. The EIA summarizes the key points:

As gasoline evaporates, volatile organic compounds (VOC’s) enter the atmosphere and contribute to ozone formation. Gasoline’s propensity to evaporate is measured by Reid vapor pressure (RVP). In order to control VOC emissions, the Federal Clean Air Act Amendments of 1990 require that all gasoline be limited to an RVP maximum of 9.0 psi during the summer high ozone season, which the Environmental Protection Agency (EPA) established as running from June 1 to September 15. The Act also authorized the EPA to set more stringent standards for nonattainment areas. As a result, EPA limits areas designated as “high volatility non-attainment” to a maximum RVP of 7.8 psi during the high ozone season. Some States elected to require even more stringent restrictions to achieve local clean air goals, and require 7.2- and 7.0-psi gasolines.

Butane, which has an RVP of 52 psi, can be blended into gasoline in higher proportions in the winter because the vapor pressure allowance is higher. There are 2 advantages in doing this. First, butane is a cheaper blending component than most of the other ingredients. That makes fall and winter gasoline cheaper to produce. But butane is also abundant, so that means that gasoline supplies increase in the winter because more butane is thrown into the mix. Not only that, but this all takes place after summer driving season, when demand typically falls off. These factors normally combine each year to reduce gasoline prices in the fall (even in non-election years). The RVP is stepped back down to summer levels starting in the spring, and this usually causes prices to increase.

There are some misconceptions that I often seen repeated about this seasonal transition. One is that it is the reason that spring and fall maintenance are done. That is not the case. Most, if not all refineries can carry out this transition without shutting down or interrupting production. The reason that maintenance is done in the spring and fall is that it provides a combination of moderate weather (the inside of a vessel can be unbearable in the summer) and off-peak demand. Vessels must be inspected, new equipment must be installed, catalyst change-outs occur, etc. This is similar to tuning up your car to keep it in proper running condition. But the seasonal maintenance is unrelated to the gasoline transition. In fact, for reasons I won’t get into here, seasonal maintenance often complicates the transition.

Another misconception that some have is that they can save money by buying cheap gas in the winter and storing it for the summer. Remember that winter gasoline will pressure up as the weather heats up, and the contained butane will start to vaporize out of the mix. You will end up with less gasoline than you paid for, and you will be contributing to the air pollution problem that summer gasoline was designed to avoid. If, on the other hand, you were to buy summer gasoline and try to store it until winter, you might find yourself having problems getting the fuel to ignite, due to the lower vapor pressure. This would be like putting a little bit of diesel in your gasoline – not very good for your car. So buy and use gasoline in the correct season.

The Politics of Ethanol Blending

I should also mention a bit about ethanol blending. The blending of ethanol into the gasoline pool has been controversial because (among other things) it increases the vapor pressure of gasoline blends. This has resulted in the need for a 1 psi waiver for ethanol-containing fuels. From the previously linked EIA report:

As a part of the Clean Air Act Amendments, conventional gasoline containing 10 percent ethanol was allowed to exceed the Federal RVP maximums by 1 psi.

This of course means that ethanol will exacerbate smog at certain times of the year, and has resulted in a campaign by Senator Diane Feinstein to limit ethanol blending in California:

California contends its refineries can make clean-burning gasoline without oxygenates such as ethanol or MTBE. In fact, California’s Sen. Diane Feinstein contends ethanol’s volatility may be the cause for increasing smog levels in Southern California since the waiver was denied and more ethanol was added to the state’s gasoline supply.

Recently, Feinstein asked the EPA and the California Air Resources Board to investigate the impact of ethanol-blended gasoline on California’s air quality.

She said air quality in the South Coast Air Quality Management Zone has gotten worse this year compared to last and “the switch to ethanol-blended gasoline is considered one of the main culprits in increased ozone.”

“Since ethanol’s volatility increases smog, particularly in the summer, I believe we need to look carefully at its impact on air quality,” said the senator.

However, it looks like she is losing this battle for political reasons:

In the face-off between California and Corn Belt states over ethanol, California lost again this month. Federal officials concede that the corn-based fuel additive can increase smog and soot pollution from vehicles. But in a ruling shocking in its disregard for public health, the U.S. Environmental Protection Agency refused for a second time to scrap the rule requiring California to blend ethanol in its gasoline.

The EPA conceded that California air quality officials are right about ethanol’s polluting effect in summer. Nonetheless, in its tortured ruling, the federal agency said California had not “clearly demonstrated” that the ethanol requirement would delay or interfere with the state’s ability to meet federal clean air standards. Incredibly, the ruling said that even if California had demonstrated that the ethanol rule prevented the state from meeting clean air standards, the EPA “would deny the waiver.” Why? “This reduction in the use of ethanol would undermine the potential benefits vis a vis energy security and support for rural and agricultural economy that Congress expected” from its ethanol rule.

The EPA ruling’s effect is to increase payouts to one special interest, Midwest corn producers. For that California endures higher gasoline prices and dirtier air.

California cannot afford to let this assault on public health, fairness and common sense stand. U.S. Sen. Dianne Feinstein, D-Calif., has persuaded the Senate Energy Committee to add a clause to a pending energy bill that would exempt California from the ethanol rule during summer months. All the state’s elected officials should join her in that fight.

All energy issues seem to be completely entangled with politics, and the sad fact is that the politics often trump the science. Ethanol blending is a perfect example where we are willing to exempt certain pollution issues “for the greater good.”

Conclusion

Hopefully that was an easy-to-understand explanation of the seasonal gasoline transition in the U.S. The purpose of the transition is to curb pollution, but as the last section demonstrates the politics often interfere with the original intent. Now the next time you hear “season gasoline transition”, you will know exactly what they are talking about and what the expected impact on supply and price will be.

March 16, 2007 Posted by | ethanol, gasoline blending, refining, summer gasoline | 14 Comments

Refining 101: Summer Gasoline

Just what is summer gasoline? Twice a year, in the fall and in the spring, you hear about the seasonal gasoline transition. However, most people probably don’t understand what this actually means. AAA recently provided a Top 10 list explaining the recent rise in gasoline prices, and summer gasoline checked in at #7:

7. The summer blend switchover. This transition from winter-blend to summer-blend fuel, a concoction that causes less smog, occurs every spring. It causes a dip in gasoline supplies as refineries in the U.S. shut down temporarily to retool their production facilities.

That’s only partially correct, and is probably the extent of most people’s understanding of this transition. But given that I am very keen that people should understand the energy industry, it is worth a review, and a layman’s explanation. I explained the details behind this transition in Here Comes Winter Gasoline. But let’s review some concepts.

There are two key (although not the only) specifications that refiners must meet for gasoline. The gasoline needs to have the proper octane, and it needs to have the proper Reid vapor pressure (RVP). While the octane of a particular grade is constant throughout the year, the RVP spec changes with the seasons.

The RVP is based on a test that measures vapor pressure of the gasoline blend at 100 degrees F. Normal atmospheric pressure varies, but is usually around 14.7 lbs per square inch (psi). Atmospheric pressure is caused by the weight of the air over our heads. If a liquid has a vapor pressure of greater than normal atmospheric pressure, that liquid boils. For example, when you heat a pan of water, the vapor pressure increases until it reaches atmospheric pressure. At that point, the water begins to boil.

In the summer, when temperatures can exceed 100 degrees F in many locations, it is important that the RVP of gasoline is well below 14.7. Otherwise, it can pressure up your gas tanks and gas cans, and it can boil in open containers. Gas that is vaporized ends up in the atmosphere, and contributes to air pollution. Therefore, the EPA has declared that summer gasoline blends may not exceed 7.8 psi in some locations, and 9.0 psi in others. The particulars vary, but key considerations are the altitude and motor vehicle density of a specific location. The EIA summarizes the key points:

As gasoline evaporates, volatile organic compounds (VOC’s) enter the atmosphere and contribute to ozone formation. Gasoline’s propensity to evaporate is measured by Reid vapor pressure (RVP). In order to control VOC emissions, the Federal Clean Air Act Amendments of 1990 require that all gasoline be limited to an RVP maximum of 9.0 psi during the summer high ozone season, which the Environmental Protection Agency (EPA) established as running from June 1 to September 15. The Act also authorized the EPA to set more stringent standards for nonattainment areas. As a result, EPA limits areas designated as “high volatility non-attainment” to a maximum RVP of 7.8 psi during the high ozone season. Some States elected to require even more stringent restrictions to achieve local clean air goals, and require 7.2- and 7.0-psi gasolines.

Butane, which has an RVP of 52 psi, can be blended into gasoline in higher proportions in the winter because the vapor pressure allowance is higher. There are 2 advantages in doing this. First, butane is a cheaper blending component than most of the other ingredients. That makes fall and winter gasoline cheaper to produce. But butane is also abundant, so that means that gasoline supplies increase in the winter because more butane is thrown into the mix. Not only that, but this all takes place after summer driving season, when demand typically falls off. These factors normally combine each year to reduce gasoline prices in the fall (even in non-election years). The RVP is stepped back down to summer levels starting in the spring, and this usually causes prices to increase.

There are some misconceptions that I often seen repeated about this seasonal transition. One is that it is the reason that spring and fall maintenance are done. That is not the case. Most, if not all refineries can carry out this transition without shutting down or interrupting production. The reason that maintenance is done in the spring and fall is that it provides a combination of moderate weather (the inside of a vessel can be unbearable in the summer) and off-peak demand. Vessels must be inspected, new equipment must be installed, catalyst change-outs occur, etc. This is similar to tuning up your car to keep it in proper running condition. But the seasonal maintenance is unrelated to the gasoline transition. In fact, for reasons I won’t get into here, seasonal maintenance often complicates the transition.

Another misconception that some have is that they can save money by buying cheap gas in the winter and storing it for the summer. Remember that winter gasoline will pressure up as the weather heats up, and the contained butane will start to vaporize out of the mix. You will end up with less gasoline than you paid for, and you will be contributing to the air pollution problem that summer gasoline was designed to avoid. If, on the other hand, you were to buy summer gasoline and try to store it until winter, you might find yourself having problems getting the fuel to ignite, due to the lower vapor pressure. This would be like putting a little bit of diesel in your gasoline – not very good for your car. So buy and use gasoline in the correct season.

The Politics of Ethanol Blending

I should also mention a bit about ethanol blending. The blending of ethanol into the gasoline pool has been controversial because (among other things) it increases the vapor pressure of gasoline blends. This has resulted in the need for a 1 psi waiver for ethanol-containing fuels. From the previously linked EIA report:

As a part of the Clean Air Act Amendments, conventional gasoline containing 10 percent ethanol was allowed to exceed the Federal RVP maximums by 1 psi.

This of course means that ethanol will exacerbate smog at certain times of the year, and has resulted in a campaign by Senator Diane Feinstein to limit ethanol blending in California:

California contends its refineries can make clean-burning gasoline without oxygenates such as ethanol or MTBE. In fact, California’s Sen. Diane Feinstein contends ethanol’s volatility may be the cause for increasing smog levels in Southern California since the waiver was denied and more ethanol was added to the state’s gasoline supply.

Recently, Feinstein asked the EPA and the California Air Resources Board to investigate the impact of ethanol-blended gasoline on California’s air quality.

She said air quality in the South Coast Air Quality Management Zone has gotten worse this year compared to last and “the switch to ethanol-blended gasoline is considered one of the main culprits in increased ozone.”

“Since ethanol’s volatility increases smog, particularly in the summer, I believe we need to look carefully at its impact on air quality,” said the senator.

However, it looks like she is losing this battle for political reasons:

In the face-off between California and Corn Belt states over ethanol, California lost again this month. Federal officials concede that the corn-based fuel additive can increase smog and soot pollution from vehicles. But in a ruling shocking in its disregard for public health, the U.S. Environmental Protection Agency refused for a second time to scrap the rule requiring California to blend ethanol in its gasoline.

The EPA conceded that California air quality officials are right about ethanol’s polluting effect in summer. Nonetheless, in its tortured ruling, the federal agency said California had not “clearly demonstrated” that the ethanol requirement would delay or interfere with the state’s ability to meet federal clean air standards. Incredibly, the ruling said that even if California had demonstrated that the ethanol rule prevented the state from meeting clean air standards, the EPA “would deny the waiver.” Why? “This reduction in the use of ethanol would undermine the potential benefits vis a vis energy security and support for rural and agricultural economy that Congress expected” from its ethanol rule.

The EPA ruling’s effect is to increase payouts to one special interest, Midwest corn producers. For that California endures higher gasoline prices and dirtier air.

California cannot afford to let this assault on public health, fairness and common sense stand. U.S. Sen. Dianne Feinstein, D-Calif., has persuaded the Senate Energy Committee to add a clause to a pending energy bill that would exempt California from the ethanol rule during summer months. All the state’s elected officials should join her in that fight.

All energy issues seem to be completely entangled with politics, and the sad fact is that the politics often trump the science. Ethanol blending is a perfect example where we are willing to exempt certain pollution issues “for the greater good.”

Conclusion

Hopefully that was an easy-to-understand explanation of the seasonal gasoline transition in the U.S. The purpose of the transition is to curb pollution, but as the last section demonstrates the politics often interfere with the original intent. Now the next time you hear “season gasoline transition”, you will know exactly what they are talking about and what the expected impact on supply and price will be.

March 16, 2007 Posted by | ethanol, gasoline blending, refining, summer gasoline | Comments Off

Refining 101: Summer Gasoline

Just what is summer gasoline? Twice a year, in the fall and in the spring, you hear about the seasonal gasoline transition. However, most people probably don’t understand what this actually means. AAA recently provided a Top 10 list explaining the recent rise in gasoline prices, and summer gasoline checked in at #7:

7. The summer blend switchover. This transition from winter-blend to summer-blend fuel, a concoction that causes less smog, occurs every spring. It causes a dip in gasoline supplies as refineries in the U.S. shut down temporarily to retool their production facilities.

That’s only partially correct, and is probably the extent of most people’s understanding of this transition. But given that I am very keen that people should understand the energy industry, it is worth a review, and a layman’s explanation. I explained the details behind this transition in Here Comes Winter Gasoline. But let’s review some concepts.

There are two key (although not the only) specifications that refiners must meet for gasoline. The gasoline needs to have the proper octane, and it needs to have the proper Reid vapor pressure (RVP). While the octane of a particular grade is constant throughout the year, the RVP spec changes with the seasons.

The RVP is based on a test that measures vapor pressure of the gasoline blend at 100 degrees F. Normal atmospheric pressure varies, but is usually around 14.7 lbs per square inch (psi). Atmospheric pressure is caused by the weight of the air over our heads. If a liquid has a vapor pressure of greater than normal atmospheric pressure, that liquid boils. For example, when you heat a pan of water, the vapor pressure increases until it reaches atmospheric pressure. At that point, the water begins to boil.

In the summer, when temperatures can exceed 100 degrees F in many locations, it is important that the RVP of gasoline is well below 14.7. Otherwise, it can pressure up your gas tanks and gas cans, and it can boil in open containers. Gas that is vaporized ends up in the atmosphere, and contributes to air pollution. Therefore, the EPA has declared that summer gasoline blends may not exceed 7.8 psi in some locations, and 9.0 psi in others. The particulars vary, but key considerations are the altitude and motor vehicle density of a specific location. The EIA summarizes the key points:

As gasoline evaporates, volatile organic compounds (VOC’s) enter the atmosphere and contribute to ozone formation. Gasoline’s propensity to evaporate is measured by Reid vapor pressure (RVP). In order to control VOC emissions, the Federal Clean Air Act Amendments of 1990 require that all gasoline be limited to an RVP maximum of 9.0 psi during the summer high ozone season, which the Environmental Protection Agency (EPA) established as running from June 1 to September 15. The Act also authorized the EPA to set more stringent standards for nonattainment areas. As a result, EPA limits areas designated as “high volatility non-attainment” to a maximum RVP of 7.8 psi during the high ozone season. Some States elected to require even more stringent restrictions to achieve local clean air goals, and require 7.2- and 7.0-psi gasolines.

Butane, which has an RVP of 52 psi, can be blended into gasoline in higher proportions in the winter because the vapor pressure allowance is higher. There are 2 advantages in doing this. First, butane is a cheaper blending component than most of the other ingredients. That makes fall and winter gasoline cheaper to produce. But butane is also abundant, so that means that gasoline supplies increase in the winter because more butane is thrown into the mix. Not only that, but this all takes place after summer driving season, when demand typically falls off. These factors normally combine each year to reduce gasoline prices in the fall (even in non-election years). The RVP is stepped back down to summer levels starting in the spring, and this usually causes prices to increase.

There are some misconceptions that I often seen repeated about this seasonal transition. One is that it is the reason that spring and fall maintenance are done. That is not the case. Most, if not all refineries can carry out this transition without shutting down or interrupting production. The reason that maintenance is done in the spring and fall is that it provides a combination of moderate weather (the inside of a vessel can be unbearable in the summer) and off-peak demand. Vessels must be inspected, new equipment must be installed, catalyst change-outs occur, etc. This is similar to tuning up your car to keep it in proper running condition. But the seasonal maintenance is unrelated to the gasoline transition. In fact, for reasons I won’t get into here, seasonal maintenance often complicates the transition.

Another misconception that some have is that they can save money by buying cheap gas in the winter and storing it for the summer. Remember that winter gasoline will pressure up as the weather heats up, and the contained butane will start to vaporize out of the mix. You will end up with less gasoline than you paid for, and you will be contributing to the air pollution problem that summer gasoline was designed to avoid. If, on the other hand, you were to buy summer gasoline and try to store it until winter, you might find yourself having problems getting the fuel to ignite, due to the lower vapor pressure. This would be like putting a little bit of diesel in your gasoline – not very good for your car. So buy and use gasoline in the correct season.

The Politics of Ethanol Blending

I should also mention a bit about ethanol blending. The blending of ethanol into the gasoline pool has been controversial because (among other things) it increases the vapor pressure of gasoline blends. This has resulted in the need for a 1 psi waiver for ethanol-containing fuels. From the previously linked EIA report:

As a part of the Clean Air Act Amendments, conventional gasoline containing 10 percent ethanol was allowed to exceed the Federal RVP maximums by 1 psi.

This of course means that ethanol will exacerbate smog at certain times of the year, and has resulted in a campaign by Senator Diane Feinstein to limit ethanol blending in California:

California contends its refineries can make clean-burning gasoline without oxygenates such as ethanol or MTBE. In fact, California’s Sen. Diane Feinstein contends ethanol’s volatility may be the cause for increasing smog levels in Southern California since the waiver was denied and more ethanol was added to the state’s gasoline supply.

Recently, Feinstein asked the EPA and the California Air Resources Board to investigate the impact of ethanol-blended gasoline on California’s air quality.

She said air quality in the South Coast Air Quality Management Zone has gotten worse this year compared to last and “the switch to ethanol-blended gasoline is considered one of the main culprits in increased ozone.”

“Since ethanol’s volatility increases smog, particularly in the summer, I believe we need to look carefully at its impact on air quality,” said the senator.

However, it looks like she is losing this battle for political reasons:

In the face-off between California and Corn Belt states over ethanol, California lost again this month. Federal officials concede that the corn-based fuel additive can increase smog and soot pollution from vehicles. But in a ruling shocking in its disregard for public health, the U.S. Environmental Protection Agency refused for a second time to scrap the rule requiring California to blend ethanol in its gasoline.

The EPA conceded that California air quality officials are right about ethanol’s polluting effect in summer. Nonetheless, in its tortured ruling, the federal agency said California had not “clearly demonstrated” that the ethanol requirement would delay or interfere with the state’s ability to meet federal clean air standards. Incredibly, the ruling said that even if California had demonstrated that the ethanol rule prevented the state from meeting clean air standards, the EPA “would deny the waiver.” Why? “This reduction in the use of ethanol would undermine the potential benefits vis a vis energy security and support for rural and agricultural economy that Congress expected” from its ethanol rule.

The EPA ruling’s effect is to increase payouts to one special interest, Midwest corn producers. For that California endures higher gasoline prices and dirtier air.

California cannot afford to let this assault on public health, fairness and common sense stand. U.S. Sen. Dianne Feinstein, D-Calif., has persuaded the Senate Energy Committee to add a clause to a pending energy bill that would exempt California from the ethanol rule during summer months. All the state’s elected officials should join her in that fight.

All energy issues seem to be completely entangled with politics, and the sad fact is that the politics often trump the science. Ethanol blending is a perfect example where we are willing to exempt certain pollution issues “for the greater good.”

Conclusion

Hopefully that was an easy-to-understand explanation of the seasonal gasoline transition in the U.S. The purpose of the transition is to curb pollution, but as the last section demonstrates the politics often interfere with the original intent. Now the next time you hear “season gasoline transition”, you will know exactly what they are talking about and what the expected impact on supply and price will be.

March 16, 2007 Posted by | ethanol, gasoline blending, refining, summer gasoline | 27 Comments

Here Comes Winter Gasoline

Now, for something that I think will be non-controversial, and hopefully somewhat educational. About this time every year, you will start seeing references in the media about the conversion to winter gasoline. A recent story from The Bradenton (FL) Herald mentioned winter gasoline blends in a story about falling gas prices:

Motorists can thank a mild hurricane season in the Atlantic for the lower gas prices, according to the American Automobile Association.

Other factors include the end of the summer driving season and a cheaper winter fuel mix.

Gas stations sell a special, more expensive fuel blend during the summer to cut down on smog during hot months. Stations nationwide will start selling a less-expensive winter fuel blend Friday, which could lead to even lower prices, analysts said.

So what does this mean, and why does it make winter gasoline less expensive?

A Primer on Gasoline Blending

Gasoline is composed of many different hydrocarbons. Crude oil enters a refinery, and is processed through various units before being blended into gasoline. A refinery may have a fluid catalytic cracker (FCC), an alkylate unit, and a reformer, each of which produces gasoline blending components. Alkylate gasoline, for example, is valuable because it has a very high octane, and can be used to produce high-octane (and higher value) blends. Light straight run gasoline is the least processed stream. It is abundant and cheap to produce, but it has a low octane. The gasoline blender has to mix all of the components together to meet the product specifications.

There are two very important (although not the only) specifications that need to be met for each gasoline blend. The gasoline needs to have the proper octane, and it needs to have the proper Reid vapor pressure, or RVP. While the octane of a particular grade is constant throughout the year, the RVP spec changes as cooler weather sets in.

The RVP is the vapor pressure of the gasoline blend when the temperature is 100 degrees F. Normal atmospheric pressure varies, but is usually around 14.7 lbs per square inch (psi). Atmospheric pressure is caused by the weight of the air over our heads. If a liquid has a vapor pressure of greater than normal atmospheric pressure, that liquid boils. For example, when you heat a pot of water, the vapor pressure increases until it reaches atmospheric pressure. At that point, the water begins to boil.

In the summer, when temperatures can exceed 100 degrees F in many locations, it is important that the RVP of gasoline is well below 14.7. Otherwise, it can pressure up your gas tanks and gas cans, and it can boil in open containers. Gas that is boiled off ends up in the atmosphere, and contributes to air pollution. Therefore, the EPA has declared that summer gasoline blends may not exceed 7.8 psi in some locations, and 9.0 psi in others.

A typical summer gasoline blend might consist of 40% FCC gas, 25% straight run gas, 15% alkylate, 18% reformate, and 2% butane. The RVP of the gasoline blend depends on how much of each component is in the blend, and what the RVP is of each component. Butane is a relatively inexpensive ingredient in gasoline, but it has the highest vapor pressure at around 52 psi. In a gasoline blend, each component contributes a fraction to the overall RVP. In the case of butane, if there is 10% butane in the blend, it will contribute around 5.2 psi (10% of 52 psi) to the overall blend. (In reality, it is slightly more complicated than this, because some components interact with each other which can affect the expected RVP). This means that in the summer, the butane fraction must be very low in the gasoline, or the overall RVP of the blend will be too high. That is the primary difference between winter and summer gasoline blends.

Why Prices Fall in the Fall

Winter gasoline blends are phased in as the weather gets cooler. September 15th is the date of the first increase in RVP, and in some areas the allowed RVP eventually increases to 15 psi. This has two implications for gasoline prices every fall. First, as noted, butane is a cheaper blending component than most of the other ingredients. That makes fall and winter gasoline cheaper to produce. But butane is also abundant, so that means that gasoline supplies effectively increase as the RVP requirement increases. Not only that, but this all takes place after summer driving season, when demand typically falls off. These factors normally combine each year to reduce gasoline prices in the fall (even in non-election years). The RVP is stepped back down to summer levels starting in the spring, and this usually causes prices to increase. But lest you think of buying cheap winter gasoline and storing it until spring or summer, remember that it will pressure up as the weather heats up, and the contained butane will start to vaporize out of the mix.

And that’s the true tale of why gasoline prices fall back in the fall, and spring forward in the spring.

Postscript

I will be traveling for the next few days, and unable to answer any comments. If you have a specific question about this post, I will respond on 9-18.

September 14, 2006 Posted by | gas prices, gasoline blending, refining, winter gasoline | 10 Comments

   

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