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Ethanol, Gasoline, and ULSD Supply Issues in 2006

Ethanol, Gasoline, and ULSD Supply Issues in 2006. State Heating Oil and Propane Conference August 2006 John Hackworth Joanne Shore Energy Information Administration. Overview. MTBE to Ethanol Shift Challenges Progress to date Gasoline Supply Issues Refinery limitations

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Ethanol, Gasoline, and ULSD Supply Issues in 2006

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  1. Ethanol, Gasoline, and ULSD Supply Issues in 2006 State Heating Oil and Propane Conference August 2006 John Hackworth Joanne Shore Energy Information Administration

  2. Overview • MTBE to Ethanol Shift • Challenges • Progress to date • Gasoline Supply Issues • Refinery limitations • MTBE to ethanol issues • Import changes • ULSD Supply • Implementation so far • Areas to watch 2

  3. MTBE Elimination: Northeast & Texas Region served mainly by pipeline 3

  4. Eliminating MTBE and Replacing with Ethanol • MTBE mainly used in RFG (11.4% volume per gallon) • Both MTBE and ethanol have good octane and are clean • Issue is ethanol relative to MTBE. Ethanol has: • Higher blending RVP (VOCs problem) • Higher toxics (MSAT issue) • Higher affinity for water, which means shipping separately from petroleum and blending at terminals 4

  5. VOCs: Summer Gasoline Capability Loss When Switching from MTBE to Ethanol • RFG Outside of CA – net 5-6% loss • Lose 11% MTBE • Gain 10% ethanol • Lose 5% light ends to compensate for ethanol’s increased RVP • CARB RFG – net 10% loss • Lose 11% MTBE • Gain 6% ethanol • Lose 5% light ends to compensate for ethanol’s increase RVP • May also need small additional volume to compensate for lower energy of ethanol vs. MTBE • Longer term, refiners will make changes to compensate 5

  6. MTBE Bans Increased Ethanol Use CA, NY/CT 6

  7. Use of Ethanol-Blended Gasoline Increased in May as Industry Eliminated MTBE 7

  8. RFG Gasoline in 2006 • MTBE being eliminated and replaced with ethanol • About 130 KB/D of additional ethanol needed to replace MTBE • Added ethanol not all available from domestic production • Move ethanol from E10 sold in conventional gasoline markets and use in RFG • More ethanol imports? • May reduce RFG ethanol blend from 10% to 5.7% for a time • Ethanol distribution & terminal preparation challenges • Shift in RBOB supply to East Coast (Less East Coast production, more from Gulf Coast and imports) • RFG v. conventional gasoline differentials could be high – possible price surges 8

  9. “Room” for 400 KB/D of Ethanol 9

  10. Ethanol Production Increasing 10

  11. Historical Ethanol Imports 11

  12. Ethanol Generally Follows Gasoline Source: Bloomberg 12

  13. Gasoline Supply Issues • Lower utilization and higher imports • Focus on East Coast markets • Transition to ethanol • Imports (sources and volumes to meet demand) • Regional prices and implications 13

  14. Utilization Patterns Reflect Maintenance & Hurricanes Typical Range is 10-year average 1995-2004 +/- 2 standard deviations 14

  15. Total Gasoline Imports Year-to-Date Jan-May Note: Total gasoline is finished product plus blending components. Source: EIA, Form EIA-814 15

  16. Europe’s Diesel Use Exceeds Gasoline, & Gasoline Demand is Falling 16

  17. Europe’s Excess Gasoline Supply Is Growing 17

  18. Europe’s Domestic Light Product Supply Imbalance Grown Strongly since 1998 18

  19. U.S. Imports Growing and Blending Component Share Increasing 19

  20. Largest Gasoline Suppliers to U.S. (Thousand Barrels Per Day) 20

  21. U.S. Is Becoming More Important Destination for UK and Netherlands 21

  22. New York’s Recent Prolonged Discount to Gulf Coast Prices 22

  23. RBOB Showing Extra Strength in 2006 23

  24. Ultra-Low Sulfur Diesel (ULSD) • Few basics • Production so far • Things to watch Info website: www.clean-diesel.org 24

  25. Clean Fuel Quality Requirements & Supply • Gasoline • Low sulfur requirements • MTBE elimination • Import impacts • Ultra-Low Sulfur Diesel (ULSD) • ULSD requirements (trending to all USLD) • ULSD implementation • Implications for other distillate fuels 25

  26. ULSD Phase In Summary Notes: LM – Locomotive and Marine; ppm – parts per million Source: EPA Presentation ULSD Workshop Nov 2004 26

  27. As ULSD Requirements Grow, Non-ULSD Pool Shrinks & Production Issues Grow Source: EIA estimates derived from EPA planned capacity survey, EPA Regulatory Impact Analysis, EIA Sector Demand, EIA AEO 2006 distillate projections. 27

  28. ULSD Production Is Progressing Rapidly 28

  29. Diesel Production June 2005 vs Last Week June 2006 29

  30. Number of Refineries Producing Diesel By Sulfur Level Note: EPA data include all refineries. The EIA 6/30 reported data are from the weekly sample, which does not cover all refineries. 30

  31. ULSD Summary • Refinery production began in June. Refiners should average 80% for June through December. • Issues to watch • Distribution and contamination – next presentation • Kerosene/jet and winter diesel blending • Import availability • State interest in limiting heating oil sulfur content 31

  32. Wrap Up: Year of Record Fuel Prices • Record crude oil prices • High refinery limitations – hurricane and maintenance • Two difficult fuel specification changes – MTBE to ethanol and ULSD 32

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