A recent change in gasoline specifications for the Denver, Colorado, area will likely usher in higher fuel prices for the more than 3mn residents of the region starting next year.
Conventional gasoline sales have been banned in the Denver metropolitan area since 7 November, with the US Environmental Protection Agency (EPA) now requiring reformulated gasoline. The shift in specifications follows an EPA ruling in November 2022 that said the region was not meeting federal ozone standards. Reformulated gasoline burns cleaner than its conventional counterpart, making it a more expensive fuel to refine.
For the winter months Denver gasoline prices will likely change little from years past. Reid Vapor Pressure (RVP) levels for reformulated gasoline will likely closely mimic those seen in nearby Group Three conventional gasoline prices at the southern US midcontinent.
But come summer, Denver area retailers and wholesalers will be required to sell 7.4 RVP reformulated gasoline, as opposed to a prior requirement of 7.8 RVP conventional fuel. This will likely widen Denver's premium to conventional prices in nearby regions.
Price dynamics could mimic US Gulf coast
The price dynamic in Denver could resemble spreads seen at the US Gulf coast.
Gulf coast 7.4 RVP RBOB, a reformulated blendstock, averaged a 16.76¢/USG premium to 9.0 CBOB from 14 March through 21 August this year, widening from a tighter range of 2.34¢/USG from January through mid-March, Argus assessments show.
Denver reformulated gasoline's premium to sub-octane gasoline prices in adjacent states such as Oklahoma and Kansas could be similar to spreads between Gulf coast CBOB and Gulf coast RBOB. The price of sub-octane conventional gasoline at Group Three, which encompasses the Magellan pipeline and storage system from Oklahoma through North Dakota and Minnesota, averaged a 12.992¢/USG premium to Gulf coast CBOB from 14 March through 21 August this year. Denver reformulated gasoline would likely push above Group Three sub-octane prices amid the switch to stricter specifications.
Market participants anticipate Denver's reformulated gasoline supply will come from a combination of shipments from the midcontinent and Gulf coast, as well as from Suncor's 103,000 b/d refinery in nearby Commerce City, Colorado.
Finished gasoline consumption in the Rocky Mountain region — which includes the Denver area — averaged 344,600 b/d from May through September of this year, US Energy Information Administration (EIA) estimates show. Approximately 76,500 b/d of gasoline blending components and finished gasoline were shipped from the midcontinent during that stretch, some of which likely originated at the Gulf coast. Market participants think the amount of fuel shipped from the midcontinent and Gulf coast will increase amid the shift to reformulated fuel.
Midcontinent supply concerns
Other gasoline changes also loom across the nearby midcontinent region, which faces a potential shift in the RVP specifications for CBOB that may affect refiners' abilities to supply RBOB to Denver.
Eight midcontinent states — Illinois, Iowa, Minnesota, Missouri, Nebraska, Ohio, South Dakota and Wisconsin — filed a petition this year to rescind the longstanding RVP waiver for 10pc ethanol in gasoline, which would lead to the reformulation of the blendstocks used to produce both 10pc and 15pc ethanol.
This spring the EPA proposed approving the request from the eight states with an effective date of 28 April 2024, but the administration has yet to make an official ruling.
Refiners may have difficulty supplying both Denver RBOB and low RVP CBOB to Nebraska, Iowa and other states in the northern midcontinent, with potential shifts in formulation possibly cutting crude runs, according to an independent study by energy consultant Baker and O'Brien.
Additionally, segments of the Magellan products pipeline system that run into Colorado are persistently allocated with little room for more product, according to several market participants.
