It's Time for Summer Gasoline
Posted by Robert Rapier on April 19, 2008 - 10:00am
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 published a Top 10 list explaining the seasonal 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 Refining 101: 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 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 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 common misconceptions 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.
Transition Schedule
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 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 don't even require a reduction, and have a 9.0 psi limit throughout the summer.
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. This is a key reason that gasoline starts to become more expensive in the spring.
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.
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 as the weather turns warmer. 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.
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To put a Peak Oil spin on this, NGL (major source of butane) production is increasing and conventional crude oil and condensate (a lesser source of butane) is decreasing.
We can burn more of the increasing stuff in the winter but not in the summer.
In addition, the production mix of oils is shifting towards heavier (lower API) crude oils and I was wondering what this effect had on gasoline yields ?
Also, EU gasoline imports are a growing slice of USA gasoline supply. I think the Euros drive more in the summer as well. Will this also cause another squeeze on summer gasoline supply ?
Thanks,
Alan
I was under the impression that butane, like propane, could only be kept liquid under pressure.
Or why is propane (like butane, 30 years ago for me) always
delivered in pressurized containers?
See memmel's explanation downthread. Also, note that no matter what the temperature, all liquids have a vapor pressure of some sort - that's why they evaporate. This vapor pressure increases with increasing temperature. When you get to the boiling point, this vapor pressure equals atmospheric pressure and the liquid vaporizes off at a rate determined by how fast the heat is flowing in to the liquid. When you blend liquids, the individual vapor pressure of each component liquid is protated by that component's mole fraction concentration in the liquid. So, while pure butane's vapor pressure is above atmospheric pressure at room temperature, butane in solution with gasoline has a vapor pressure much lower, so you don't see bubbles of butane boiling out of the gasoline. It does evaporate out though.
FYI, pure butane has a boiling point of approx. 0 C or 32 F, IIRC, so that's why it's not used for heat and cooking like propane is. I think propane boils somewhere near -40 C / -40 F (where the two temperature scales cross).
Butane is commonly used for heating and cooking in various parts of the world. See e.g.:
http://es.wikipedia.org/wiki/Butano
It is easily compressed to a liquid for transport in areas outside the natural gas network.
A shift towards heavier crude can be totally compensated for by an increase in the complexity of refineries. This would add a small additional per barrel capital charge, but aside from highr prices shouldn't impact availability of gasoline over the longer term.
Summary of Weekly Petroleum Data for the Week Ending April 11, 2008
And here's what they were expecting:
The analysts at Platts are missing a major piece. It isn't that demand is necessarily increasing, but supply is definitely falling due to poor margins. And it has further to fall before things get interesting. If gasoline inventories continue to fall at this pace, then in May gasoline prices will start to make up some ground they lost when they failed to keep pace with oil prices.
This is what's disturbing. There was a total ~8 million barrel drop last week too. This totals 16 million barrels in two weeks. I haven't heard anything that could cause this (other than companies not doing refining). But if refineries aren't doing their refining, shouldn't crude stocks build??
I'm expecting another drop next week because of multiple supply disruptions this week... (hence I voted for $127 before $103)
Well ... crude stocks don't build because imports are way down. If this is because of voluntary restraint on buying this would mean in turn, if americans don't buy, the market elsewhere should be oversupplied, ie, stocks elsewhere should sore. Perhaps this is the case in China who have a project to build a SPR. It also seems, as the IEA said, that OECD stocks are less tight than last years. But still, the increasint price indicates that there are buyers at higher prices so even with america buying less, people are competing for what is produced.
My point is that refiners aren't going to let the inventory levels drop below minimum levels, and given what I believe is happening--importers bidding for declining net oil exports--refiners are caught between having to pay high prices for crude and the volume of refined product that consumers can and will buy at a price high enough to support buying expensive crude.
It's very much analogous to the problem that airlines have. Can they sell enough tickets at a high enough price to justify buying expensive jet fuel (and to replace their fleet as they retire older aircraft)?
Demand for oil should be going down with the end of the heating oil season and before the summer vacation season. It is becoming expensive to build inventories. Most publically traded major oil companies are in debt. The costs to borrow money in order to store oil are high and affect the after tax income of a company.
I imagine the price of gasoline will be going up in some areas on June 1.
Here's your reddit and digg links:
http://reddit.com/info/6fzw9/comments/ (env)
http://reddit.com/info/6fzy7/comments/ (sci)
http://digg.com/environment/It_s_Time_for_Summer_Gasoline
"Butane, which has an RVP of 52 psi, can be blended into gasoline..."
but were it not for the other heavier components in gasoline, butane would leave the scene running, winter or summer. would you please comment on this ?
I think your asking why it stays in the gasoline. The simple answer is its soluble in the other components. This lowers whats called the partial vapor pressure. A example is a carbonated drink obviously C02 is a gas but its soluble in water and forms complex with it. This does slowly leak out at room temperature but as you know from experience a carbonated drink can taste bubbly for quite a while after opening.
Solubility itself is just a type of fleeting chemical bonding quite similar to say balls of velcro being tumbled around. The solute sees the solvent as "sticky".
Sorry I'm not sure you where asking a question and I'm not sure how much chemistry you know.
this problem has plagued oil reservoir engineers since the science was invented.
most of them simply treat every oil as a "black oil" (composed of methane which obeys the real gas law and heavy components which are liquid in the reservoir and stock tank). compositional models dont seem to get the job done either.
back in the old days, that was the mid '70's, texaco used fugacity(sp?)to try to calculate the part that would be liquid, that didnt work either.
Here is the explanation of Raoult's law and vapor pressure in ideal and real solutions.
Raoult's Law
Precisely.
If 10% of the molecules are butane, the vapor pressure of the resulting solution will be 10% that of pure butane, plus 90% of whatever pressure is contributed by other ingredients (of lower VP). There will be some deviation from this idel, but I believe hydrocarbons are pretty close to theoretical.
hydrocarbon mixtures probably behave as ideal components at relatively low temperature and pressure (i.e. atmospheric). not true at higher temperatures and pressures.
Robert, your explanation may tell us why US gasoline might be more expensive in the summer months, but does it apply to the rest of the world as well?
WTI is up in price to record levels (along with all other benchmark crudes) even as utilisation of US refineries (and hence US demand?) is down, why?
The explanation certainly applies to those who wish to export gasoline to the U.S., since they have to meet the same specs. But I don't know that much about local specs around the world. I am guessing they are similar, especially for densely populated areas.
On your second paragraph, refinery utilization is low BECAUSE crude is at record prices, and gasoline didn't keep up. Margins have seriously eroded, which means refiners are cutting back. If margins today magically went to $20/bbl, you would see utilization next week jumping toward 90%.
"gasoline didn't keep up."
The question is why? If petroleum companies enjoy oligopoly, which they do, then what keeps them from raising gas price to match crude?
Gasoline imports were substantially higher than a year ago, which is why inventories got so high. They can only raise prices to what the market will bear, and on top of imports you have low refinery utilization which means if Exxon tries to raise prices, BP has the capacity to raise production and steal customers.
If inventories were low, you would see prices and refinery utilization both much higher.
I appreciate your replies to my nettlesome questions. I do understand the mechanics of price competition between companies in an oligopolistic market. Your answer, "They can only raise prices to what the market will bear," implies that the market cannot bear gasoline over $4. Perhaps the question ought to be, What set of conditions will cause petroleum companies to raise the retail price to over $4? (I am aware that this is already the case for some remote areas.)
Understand, though, that "the market" is the consumer at the margin. Plenty of people will pay $5 or even $10 for gasoline. But right now marginal demand is pretty soft at current prices. What will push prices higher? Inventories need to come down - which indicates that demand is now outstripping supply. That is in fact currently happening, but levels are still quite comfortable.
Last fall I was predicting $4 gasoline by Memorial Day, but started hedging in December when imports were coming in so strong. Had imports been where they were a year ago, we would probably see $5 gasoline right now because we spent almost a year hovering near the minimum. Had inventories not started coming up, gasoline prices would have raced ahead with oil prices.
In my neck of the woods (Seattle area), diesel is averaging close to $4.35 per gallon. A year ago a gallon was $3.00. I don't know much about refining, but isn't there money to be made directing spare refining capacity towards diesel production? Or is that simply not an option?
There is a little bit of flexibility between diesel and gasoline based on which crudes are purchased and how the refinery is run. But not a great deal. If they make diesel, they are going to make a lot of gasoline as well. But they are certainly trying to maximize diesel production to take care of these prices.
I wonder if you could say a little more about the issue of how much flexibility refiners have to switch between gasoline and diesel?
As you know, diesels are substantially more efficient than gasoline engines and Europe is moving towards diesel powered cars as a response to high oil prices. I read somewhere that 40% of the cars sold in Britain are diesel. I wonder if refiners will be able to keep pace with rising demand for diesel? Will the European move towards diesel backfire as demand outstrips supply and prices rise above gasoline?
I know that some crudes yield relatively more diesel, but for any particular crude I'm not sure how much the refinery can do to change the amount of diesel produced. The two areas of flexibility would seem to be in the product blending and the cat cracker. Can cat crackers be modified to produce substantially more diesel than they do today, maybe with a different catalyst, or will it be necessary to totally rebuild the refinery with something like a hydrocracker?
All the people buying diesel cars to save money are in for a very nasty surprise if the global refining system is unable to produce additional diesel required.
Good question.
In just coming back from Europe, in France diesel was a bit cheaper than regular gas and in England diesel was only 7 pence more than regular gas.
Most of the cars in France including our rental were diesels. Not sure why such a large difference in pricing between countries. At least in France the whole country seems supportive of diesels.
Nice Work Robert:
Since we regulate this stuff, one things I've noticed over the years is how fast the stock change has accelerated into the summer blend (we have four major terminals on the pipelines and spur). When I was working with EXXON and API 15-20 years ago, the stock change took place over 6-8 weeks. Now it happens in less than a month for most of these terminals. It's a function of tank and pipeline management and a decrease in the number of storage tanks (which I also used to remove in a previous life as well as the 3-12 foot lens of gasoline sitting on the top of the water table once the tanks were removed).
There is also, from an "ozone season" standpoint, no penalty for having the low RVP gasoline into the fall.
Robert,
Thank you for the refresher.
Does anyone know if EIA's site has a chart that illustrates the YOYear changes in demand for gasoline? A chart that tracks the 4-week average of gasoline demand growth that's published in the Weekly Petroleum Status Report?
Thanks,
Ghawier
Is that what you are looking for?
Looks pretty average to me, why are all the producers sweating over a drop in demand?
Yes Spudw, but actually i should have stated that I was looking for a chart that tracks gasoline demand since the seventies.
Thanks for the reply, that looks like it came from the eia site, where was it?
It came from here, at page bottom, http://tonto.eia.doe.gov/oog/info/twip/twip_gasoline.html
Robert, thanks for the explanation, very easy to understand for laymen like myself. I am curious about diesel prices and use, as well as the breakdown generally from a barrel of crude? Also, how prices change due to extra processes like cracking? And why diesel prices are currently so much higher than gasoline? Finally, is it likely that diesel prices would ever go about 30% higher than gasoline?
Diesel and gasoline have gotten out of whack for a couple of reasons. One is that Europe has excess gasoline capacity, but not excess diesel capacity, so they can put gasoline into the U.S. market. But the bigger factor, in my opinion, was the ultra-low-sulfur-diesel requirement. Producing ULSD decreases the diesel yield, and the extra equipment decreases the reliability. So diesel supplies are more fragile than they used to be.
Here's a link to an article that says the prices now are only a glimpse of higher prices to come. http://finance.yahoo.com/tech-ticker/article/11413/High-Oil-Prices%3F-Yo...
Last year, we had the MTBE to ethanol phase out (ethanol being used to sub for MTBE to meet clean air state laws), so the refinery turnarounds had more of an impact on the availability of refining capacity. Each refining company approached the problem differently, based on circumstance: http://nexant.ecnext.com/coms2/gi_0255-129/Impact-of-MTBE-Phaseout-on.html
This year, the ethanol switch is a non-issue. I was surprised prices were not higher last year.
RR,
Thanks so much for the information. You're definitely one of most valuable contributors in this forum. I just wish Wall Street analysts have a fraction of your knowledge.
Oil will go much higher because most of them (Wall Street analysts) bark at the wrong tree, all the times.
I do feel sorry for the general public as the result of high energy prices.
If I understand right, as soon as gasoline prices in the USA start to climb to a reasonable level, say $5, considering current high oil price, then it will kill oil demand by a considerable amount in the USA, say 5-10% or 1-2 million barrels/day, as in trucking industry and airlines currently, as motorists will cut back and car pool. The Chinese will then take up the slack of course and oil prices and demand will just keep on climbing.
"The Chinese will then take up the slack of course.."
Only as long as they can. I don't think it's reasonable to assume that they can just keep buying forever, as much as they are eager to grow right now. They have to balance their sheets, too.
Considering we're basically neck and neck, it's also reasonable to expect that somewhere in China someone involved in economizing his usage is explaining why that's not a pointless effort, because every barrel he saves, the US, Canada, England or Australia will just eat up anyway.
Bob
Thanks Robert for the explanation of seasonal RVP. I wonder if you might know how RVP and octane relate. I suspect that refiners keep RVP as high as allowable by seasonal regulations for engine driveability reasons but control octane with other components that may or may not affect RVP.
Simply asked, "Does summer 87 octane fuel have a higher RVP that summer 93 octane?"
Thank you,
Octane can be adjusted in a number of ways, and is pretty independent of RVP. Refiners try to control both right to the spec. They want the RVP as close to the maximum as possible, and the octane as close to the minimum. Varying from those specs costs them money.
Don't you suppose that 550,000 bpd of Ethanol that we're using is having an effect on gasoline prices?
Nive explanation RR.
Interesting that we don't see a big hullabaloo in the media over refinery capacity this year as of yet. Sliding into May at roughly 81% versus around 90% last year at this time.
It was supposedly a Huge factor contributing to the price rise last May wasn't it? Hehe.
Regular is just under $3.50 here in NW Indiana near Chicago. I hear it is over $3.50 on the other side of the line. Going to be another interesting driving season it looks like, sigh. When will it breach $4? Or will the $3.70/3.80 range hurt demand too much for this summer?
Most people I talk to have really been streamlining their driving habits. The Far East picking up the slack in demand versus production? I see a lot of articles about spot shortages over their the last couple of months. It seems to be picking up in intensity also. It would be nice to have good data on this issue.
I have the feeling we are starting to edge down off of the peak just a bit. But of course no one can let numbers like that see the light of day quite yet. It is still manageable.
The refinery utilization numbers versus product/crude inventories are most interesting.
One thing is for sure... I'll make fewer trips to the lake (Michigan) this summer. The 80 mile round trip would cost considerably more than last year. And as far as our market goes I suppose we might get very close to $4.00 per gallon but I doubt we'll top that this summer unless there's some major supply disruption. I read somewhere that demand in California is down almost 3% after the gas hit $3.40 a gallon. If the rest of the country reacts the same way we might witness a temporary slowdown or even decrease of the gas price. We're in for a bumpy ride the next couple of years.
cassini-
Fuel is already $4.00 per gallon in the Bay Area---
Still traffic and jams.
Maybe some demand destruction, but not noticeable.
I live in Marin, which is the most affluent county in California, and gas prices have not been a issue.
Well, people still need to commute to work. That is the issue in the
San Francisco Bay Area. We have people driving all the way from Stockton to work in San Jose -- about a 3hrs round-trip each day.
High home price pushed people further and further away from their work place. Our government doesn't seem to care to answer these basic and critical questions.
A 5 or even 10% demand destruction is possible in my opinion since some of the trips almost all of us make are "pleasure trips". We go to the beach, we go to the movies, we go to see family members a couple of hundred miles away. That's the type of driving everyone can cut on. But you are right - traffic jams will not magically disappear and we won't be driving on roads without gas guzzling trucks and SUVs. Consider this: I had the "chance" to grow up in eastern Europe during the late 80s and turbulent 90s. Gas was in the 2 to 3 dollar range back then and people's incomes were at least 5 times less that what people make in the US and guess what... traffic jams day and night. The average American spent about 5% of their income on gasoline (http://money.cnn.com/2007/11/13/news/economy/gas_burden/index.htm). People with low incomes will be hit first be we still have a long way to go before we see a visible demand destruction.
Yeah in NYC they just raised the subway fare while rejecting congestion pricing. To go to visit my cousin in Brooklyn is about 17 miles RT from where i live in Harlem. It's about $3 in gas and maybe 40 minutes travel time RT average. On the subway it is over $4 and maybe an hour (I know, i know about the other costs but my car really has very little of this :96 jetta;so far have changed a $6 part in the last six mo.) Sometimes i take the subway,sometimes i drive ,usually based on whether i am in the mood to watch people or prefer to see the scenery buzzing by on the FDR. There's no disincentive to driving.
Matt
RR,
Do the regulators take into account in some way the average elevation on the different parts of the country? Colorado, for instance, has a rather lower atmospheric pressure than Florida. How does the actual mean atmospheric pressure affect the optimization?
Yes, the mountain states generally have lower RVP requirements.
My car seemed to be getting vapor lock the first real warm day of the year ,last week. Could this have been from using winter gas? If never had this problem w/ the car before.
Matt
Yes, that's very possible, especially if the situation resolved itself.
Yeah it totally did. Was stalling out every couple minutes that day (was like 80 in NYC for first tinme;around 1st week of april) Took me like 3 hours to make my way up town. Even got stalled on the FDR where there was no breakdown lane once. I really wanted to be somewhere else then. Nothing since then.Had let that tank run down toward bottom with some injector cleaner and then filled it all the way up the other day. Has been fairly warm and no problems at all. Thanks for your attention.
Matt