The Looming Octane Shortage?

December 28, 2015 |

BD TS 122915 octane cover smIn a time of rising gasoline demand and targets for higher engine efficiencies, the world could use more octane.

What about ethanol, and what about iso-octane itself? The Digest looks at the economics and the supplies.

Over the summer in the US, falling gasoline prices led to a well-understood though not always rational consumer response: premium gasoline sales began to spike. In 2011, 9.0% of gasoline sales represented premium fuels; as of the latest (October) date from the En4rgy Information Administration, premium’s share has risen to 11.3 percent, a jump of 25 percent. The primary distinction between premium and regular is that it has higher octane levels (in the US, 91 vs 87).

Premium eliminates engine knock in hgih-performance vehicles that have high compression engines. For most vehicles, however, it is just more expensive and that’s about it. Overall, premium fuel sells right now for almost 30 cents more per gallon, so it’s been a small windfall for refiners, though it has prompted a bit of a scramble for reformate or other additives that boost octane levels.

In the longer-term, octane demand may grow far more sharply and for reasons that are more mechanical than psychological. In short, the migration to higher-compression engines that offer higher fuel efficiency.

The World Oil Outlook

As the Organization of Petroleum Exporting Countries reports in its annual World Oil Outlook:

Longer term, the indications are that vehicle fuel efficiency trends and mandates will curb gasoline demand growth, but this will also encourage or require higher octane fuels because of a shift toward higher-compression-ratio engines. In Europe, the 95 RON gasoline is used as the primary fuel, with 98 RON gasoline for the small proportion of vehicles still needing higher octane. European vehicle manufacturers are understood to have expressed interest in the potential for EU biofuels initiatives to increase the supply of gasoline at 98 or even 100+ RON by using ethanol in higher concentration to boost octane. A stable and sufficient supply would enable them to purpose-design more fuel-efficient cars and other light duty vehicles to run on the very high octane gasoline…Thus, there is momentum towards achieving broad-scale supply and use of 95 RON fuel.

At the same time, gasoline is going through a long-term trend toward desufurization — for health and air quality reasons. The challenge there is that taking the sulfur out of FCC gasoline drops the octane rating by 1-2.5.

Around the world we may well expect to see a return to MTBE, but not in the United States, where the additive has been the star of some high-priced lawsuits and settlements over groundwater contamination.

Ethanol and E30

Which brings us to ethanol, where interest is growing among a number of auto manufacturers in an E30 engine that will raise RON ratings into the 100 range and make possible the high-compression engines that will support efficiency efforts — alongside the light-weighting of vehicles. Ethanol’s RON rating of 120-135 makes gives a 95-100 RON gasoline working from 85-octane gasoline blendstock with a 30% ethanol component.


Another possibility? There’s biobased isooctane, which Global Bioenergies has a process for and hopes to build a first commercial plant in the next few years. By definition, isooctane has a 100 octane rating, and as a 100% drop-in candidate it can easily be used in any blend ratio. And, Gevo has a process for making isooctene, which has much of the same appeal when it comes to octane ratings.

So, why isn’t the global refining industry making lots of isooctane?

In the Digest, Ronan Rocle and David Gogerty of Global Bioenergies observed in June:

Isooctane is currently derived from the dimerization of isobutene followed by hydrogenation. Another method to produce isooctane would be alkylation of isobutene by isobutane. But additional [production] steps results in isooctane and alkylate products that are, on average, 25% and 15% more costly than gasoline, respectively, with the big driver in isooctane price being the requirement for isobutene as part of the production process.  This is where bio can have a large added value—bio-engineered microbes are great at producing specific products such as isobutene. 

How much can high octane fuel be worth as an additive, compared to gasoline itself?

In the US, we see the value of the blendstock around $2.69 per gallon. That’s a heft premium to gasoline. How’s that? Let’s take the example of a 13% blend of isooctane, compared to E0 gasoline.

Initial blendstock price: Add $0.05 in margin (starting with low-cost 85-octane stock instead of 87-octane)
RIN value: Add $0.10 (with E0 gasoline, you have to buy an offsetting RIN to meet renewable fuel requirements).
Fuel value: Add $0.20 (E0 gasoline sells for $0.20 more per gallon than E10 renewable fuel)
Net added value:$0.35 for a 13% blendstock — that’s $2.92 in value for the additive, per gallon.

It could be even better. Gevo reports that the price of isoctene in the EU is in the $7-$10 range.

How much can high-blends of ethanol be worth as an additive, compared to gasoline itself?

In the US, we see the value of the blendstock around $2.69 per gallon. That’s a heft premium to gasoline. How’s that? Let’s take the example of a 20% blend of ethanol, compared to E10 regular unleaded gasoline.

Initial blendstock price: Subtract $0.05 in margin (starting with 87-octane instead of low-cost 85-octane stock)
RIN value: Add $0.0375 (with E15, you get 50% more RIN value than with E10).
Fuel value: Add $0.30 (E0 gasoline sells for $0.20 more per gallon than E10 renewable fuel)
Net added value: $0.2875 for E15 blendstock — that’s $1.92 in value for the additive, per gallon.

Given that the January 2016 ethanol contract is pricing today at $1.39 on the Chicago Board of Trade, there’s a real arbitrage opportunity available for the intrepid fuel merchant.

The Bottom Line

One of the most important ways to value renewable fuels is in their performance attributes — not just for their renewable sources. In a world where engine efficiencies must head north — the higher they go, the more value there is for additives that fill the resultant octane shortage.

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