US gasoline spec change broadens blending options

US environmental regulatory changes for RBOB next year will mean increased blending flexibility and wider options for importers, particularly those supplying an increasingly short New York Harbor market.

The regulation change by the US Environmental Protection Agency will remove volatile organic compound (VOC) and aromatic testing requirements for RBOB, among other requirements. Benzene, sulphur and RVP limits will be the only requirements to remain.

The removal of aromatic specifications will make it easier to blend reformate to make RBOB, while alkylate, another octane-booster, will become less attractive. For sub-octane blendstocks, heavy naphtha will become a more attractive gasoline blendstock with the removal of aromatic specifications.

A combination of reformate and heavy naphtha could open opportunities to blend butane or natural gasoline for summer gasoline grades. Previously VOC-controlled RBOBs will now conform to a single 7.4 RVP specification. Butane blending has been thus far limited to winter grades due to its high RVP.

The removal of VOC requirements for summer RBOB could mean higher fungibility between RBOB and CBOB, meaning they could be more closely interchangeable, with the main difference being RVP. Pricing for the two grades could approach parity as well. RBOB and CBOB prices have tended to converge in the winter, for non-VOC controlled RBOB.

Increased blending options will also mean thinner margins for blenders who specialize in VOC-controlled RBOB production and storage.

More import opportunities

Increased flexibility for blending RBOB next year will come at a time when the region is more reliant on imports than ever.

The New York Harbor market lost more refining capacity this year to poor margins, after losing its largest refinery last summer. PBF reduced its 180,000 b/d Paulsboro, New Jersey, refinery by 85,000 b/d as of this month. Philadelphia Energy Solutions officially shut its 330,000 b/d Philadelphia refinery in February this year after a fiery explosion took the facility down last summer.

For the remaining refineries, poor margins this year has capped run rates at low levels. New York Harbor refiners operated at below 70pc in the September-November period, according to data from the US Energy Information Administration (EIA).

While the pipeline arbitrage to ship gasoline from the Gulf coast to New York Harbor has been periodically open on paper, shipping volumes on the Colonial pipeline has not been able to cover shorts in the New York Harbor market as efficiently as imports.

As importers will no longer have to meet aromatic specifications on gasoline cargoes next year, traders are expecting more finished RBOB cargoes from Europe, replacing some CBOB flows.

Indian refiner Reliance will likely replace some of its alkylate exports to New York Harbor with RBOB or other blending components as alkylate becomes less attractive without restrictions on aromatics. Brazil will have a greater pool of blendstocks to choose from in exporting to New York Harbor as well.

Colombia will have the option to move more heavy and full-range naphtha to New York Harbor. But Colombia has sent more diesel to the US Atlantic coast than naphtha this year, and channeling more domestic naphtha production into its diluent pool for pipeline transportation of heavy sour crude.

By Chunzi Xu, Stephanie Crawford and Daphne Tan