US low-sulphur gasoline blending components have weakened in recent months, pressuring Tier 3 sulphur credits to an historic low.
Standard sulphur credits fell to $312.5/mn USG in late October, down from $3,250/mn USG a year earlier and the lowest since Argus began assessing the credits in August 2017. The 90pc decline in credit prices started with a steep drop in the early months of the Covid-19 pandemic and have continued to fall as low-sulphur blending components become more affordable.
US Environmental Protection Agency (EPA) Tier 3 gasoline regulations limit gasoline sulphur content to 10ppm, down from 30ppm previously. The program requires producers and importers of gasoline with more than 10ppm sulphur to acquire sulphur credits for compliance on an annualized basis. Parties who produce or import gasoline with less than 10ppm sulphur can generate credits.
Lower fuel consumption as a result of the pandemic cut demand for credits, steadily depressing their value on the spot market. Cheaper low-sulphur blending components further capped prices for sulphur credits.
High-octane gasoline blendstocks such as alkylate, raffinate and reformate have declined to the lowest price in about four months, as lower fuel demand from the pandemic and economic recession overwhelmed earlier expectations of stronger demand for these low-sulphur components. The process of removing sulphur for T3 compliance tends to erode octanes in gasoline, limiting most sub-octane blendstocks including most naphthas.
As alkylate, raffinate and reformate prices have fallen, they have become more affordable for blending gasoline with maximum 10ppm sulphur while also reducing the cost of achieving compliance on the credit market. Alkylate and reformate have dropped by more than 40pc from a year ago while raffinate values have come off by about 36pc.
Significantly cheaper sulphur credits, in turn, suppressed prices and demand for light sweet naphtha, which is suitable for blending T3-compliant gasoline due to a relatively low sulphur content in the 10-50ppm range.
Gasoline blenders in the past month have paid premiums ranging from 2-4¢/USG for lower sulphur naphtha as a blend component, depending on the sulphur level, down from February premiums in the 8-10¢/USG range.
