11-09-2020

US refiners behind schedule to meet Tier 3 gasoline standard face costly adaptations

At recent industry forums, refining process expert, George Hoekstra, presented a detailed argument that much work remains for US refiners to profitably meet the Tier 3 gasoline standard, which requires no greater than an annual average of 10ppm sulfur, beginning in 2020.

At the root of the problem is octane destruction, which occurs as a side reaction when desulfurizing FCC gasoline, the main source of octane barrels.  What’s more, octane loss accelerates exponentially as refiners push their desulfurizers to make 10ppm gasoline.  The octane loss is typically much greater than refiners expect, and can afford, as octane barrels are very valuable today.  In fact, octane demand and price have increased steadily over the last five years, and the trend is likely to continue.  So, octane destruction, at a time when demand and price are up, takes a heavy toll on downstream profits as octane is a key source of refining profitability and is growing in importance.  If the profit margin on octane continues its long uptrend and refiners have not positioned themselves well to meet this 10 ppm requirement reliably and profitably, they will be hurt financially.

Hoekstra Trading has the knowhow and resources to help refiners avoid the Tier 3 octane loss predicament. They have done the research, including pilot plant data, commercial field test data, technical data not previously available to the industry, spreadsheet models, as well as market data and analyses to help refiners improve octane-sulfur performance.

Key to their offer is a Performance Curve Model to help decision makers maximize desulfurization while minimizing octane loss. Combined with a detailed analysis of fuel feeds (the Hoekstra “blood test”), the Performance Curve spreadsheet model aids in decisions regarding capital investment, licensors, process design, feeds, cutpoints, catalysts, refinery optimization, and overall Tier 3 strategy.  Using Hoekstra Trading’s tools, refiners can see exactly what is happening inside their units and make accurate performance estimates and better decisions for Tier 3 gasoline.

How have these tools worked in practice?

Hoekstra Trading worked with a refinery to arrive at the best decision for improving their Tier 3 gasoline economics.  In 2017, field tests on the  gasoline desulfurizer showed unacceptably high octane loss when making 10 ppm sulfur gasoline.  The refinery purchased Hoekstra Trading’s Tier 3 gasoline research report and used the Hoekstra “blood test” and Performance Curve Model to see exactly what was causing the octane loss and quantify the economic benefits for options to reduce it. The field test and modeling analysis showed that, without capital investment, the refinery would experience $25 million/year in octane destruction, with octane valued at cost-to-replace by increasing reforming severity.  The market value of that octane loss would be $75 million/year (NOTE:  That’s at US average retail value of $4.50/octane-barrel).

The analysis pointed to a clear conclusion.  The addition of a naphtha splitter would reduce the octane destruction by 1.5 octane and allow a strategy of generating and banking Tier 3 credits.

With this analysis, they quickly and easily justified a unit revamp to add a splitter.  Within one month a project was funded and underway.  The revamped unit was started up in 2019. The refinery is now making 7.5 ppm sulfur Tier 3 gasoline and banking valuable Tier 3 credits.

In other cases, refiners have improved octane performance quickly and without investing capital to save 1.5 octane and accumulate a bank of credits, instead of credit liabilities, using the Hoekstra field test methods and tools.

Tier 3 is the future in the USA.  Its effect on profits have yet to be measured.  Astute refiners are getting ahead of the game by better managing octane-sulfur performance for the new world of Tier 3 gasoline.