Here’s bad news for drivers of luxury and performance cars pumping the best quality gasoline: the premium they pay over regular fuel is getting more expensive.
American and European refiners are scrambling to get enough octane to make high-quality gasoline. There are several potential reasons for the shortfall, including the fallout from the Russian war in Ukraine, the impact of US environmental regulations and lack of refining capacity.
The net effect is that it makes the fuel even more expensive than usual, compared to regular unleaded. In the United States, the price gap is about 75 cents per gallon, about 15% higher than the same time last year, according to data from the auto group. AAA to show. In the UK, the premium has widened by 25% on an annual basis, according to the most recent monthly data.
“The current record seasonal strength in octane prices does not bode well for a smooth transition to summer-spec gasoline,” said Goldman Sachs Group Inc. analyst Callum Bruce.
Refiners are switching to summer gasoline. Winter fuel contains more butane natural gas treatment to increase the octane number.
Gasoline production
Octane itself is a hydrocarbon, produced during the refining of crude oil, although consumers in general know it thanks to what is called the octane number of gasoline. A higher value means the fuel is more stable and less likely to cause engine knock. Automakers often recommend high-octane gasoline—the higher grades at the pump—for optimum performance from turbocharged or high-compression engines.
Even regular gasoline contains octane. However, the shortfall should not be a problem since there are more low octane components available to make regular gasoline than high octane fuel.
The European Union and the United Kingdom last month banned most maritime imports of Russian petroleum products, cutting the region’s supply of naphtha, a key ingredient in making gasoline. Meanwhile, the European petrochemical industry has reduced the supply of octane-boosting additives as high energy costs and weak demand have held back operations.
The loss of these Russian raw materials is critical for gasoline markets this year, according to consultant Energy Aspects Ltd.
“Explosive” prize winnings
Additionally, US “Tier 3” environmental regulations, which require lower sulfur content in gasoline, have created complications.
Compliance with the rules requires more severe hydrotreatment of naphtha and gasoline during refining. The process destroys octane, thus contributing to a shortage and helping to expand the value of premium gasoline to regular grade.
The Sulfur in Gasoline Standard for Rules came into effect in 2017. In 2020, fuel demand plummeted due to pandemic-related travel restrictions. The true effects of the regulations began to become clear last year as gasoline consumption picked up, according to analysts at Bank of America Corp.
“Compliance with lower sulfur requirements comes at the expense of octane levels, which likely contributed to the price spike for high-octane blend components,” they said in a recent note. “This momentum is expected to continue into 2023 and could lead to a similar explosive rise in gasoline prices this summer.”
Admittedly, there is some debate about what lies behind the lack of octane. According to Robert Auers, director of Refined Fuels Analytics, a division of RBN Energy, the wide octane gaps – the price difference between the wholesale prices of premium gasoline and regular gasoline – were mainly due to a shortage refining capacity.
Due to lost capacity, there are not enough reformer units to upgrade low octane naphtha to increase its octane levels for use in making premium gasoline. That could eventually change as new refining capacity comes online this year. “Still, we have octane gaps that remain moderately wide,” Auers added.
