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Ethanol and the
Economics of Octane The Superior Solution
Geoff Cooper
Renewable Fuels Association
October 20, 2017
Today’s Presentation
• What is octane and why is it important?
• Options for boosting octane in gasoline
• Ethanol’s octane advantage
• The economics of octane
2 Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
What is Octane? • Spark-ignition gasoline engines work by
compressing an air-fuel mixture and
then igniting the mixture (with a spark
plug) at a specific instant during the
cylinder’s compression stroke.
• A fuel’s octane number is the
standard measure of its ability to
resist pre-ignition (or “knocking”) in
the cylinder of a gasoline engine.
3
Chevrolet LT4
Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
Higher Octane = More Knock Resistance
4
• Pre-ignition occurs when there is too
much pressure in the combustion
chamber and the air/fuel mixture is
incorrect.
• This causes uneven combustion and
“knocking,” which can lead to poor
performance and engine damage.
• The higher the octane number, the
more compression the fuel can
tolerate without pre-igniting.
• Engines with high compression ratios
require high octane gasoline.
Normal combustion Premature combustion
Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
Measuring Octane
5
RON
MON
AKI
• Research Octane Number
• Knock resistance at low-load operations (e.g., highway driving)
• Posted on pump in most of the world (e.g., Europe and Asia)
• Motor Octane Number
• Knock resistance at high-load (e.g., acceleration, hauling)
• MON is always less than RON
• Anti Knock Index…also called (R+M)/2
• Equal to (RON + MON)/2
• Posted on the pump in North America
Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
Pure Component Octane
Versus Blending Octane
• Pure component octane:
– Anti-knock performance (RON or MON) of an individual, pure compound by itself
• Blending octane:
– Anti-knock performance (RON or MON) of a blending compound when it is a component of a gasoline blend
6 Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
U.S. Octane Standards for
Finished Gasoline
7
Gasoline Grade AKI
Premium 91-93
Mid-grade 89
Regular 87 Note: Octane standards are about 2 AKI points lower in some
states in the High Plains and Rocky Mountain region.
Octane standards in the U.S. are
set by individual states.
Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
International Octane Standards “Regular Grade”
8
91 RON
92 RON
92 RON
95 RON
91 RON
90 RON
95 RON
91 RON
92 RON
92 RON 95 RON
87 AKI (91 RON)
87 AKI (91 RON)
87 AKI (91 RON)
87 AKI (91 RON)
93 RON 93 RON
Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
Source: ICCT
95 RON
88 RON
Octane and Gasoline Blending • The “naturally occurring” octane in the crude oil fractions
that become gasoline is far less than what engines need.
• Refiners “create” the additional required octane by: – Carrying out chemical processes that “upgrade” low-octane
hydrocarbon molecules into high-octane molecules; and/or
– Purchasing and blending high-octane blendstocks.
• Making octane in the refinery is costly and energy intensive.
• Refiners must balance octane needs with other specifications and properties. – e.g., volatility, sulfur content, benzene content
9 Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
Key Hydrocarbon Refining Octane Sources
• Alkylate – Blending octane = 93-95 AKI
– Low volatility, no sulfur, no benzene
• Reformate – Blending octane = 87-100 AKI
– Low volatility, some sulfur, contains benzene
• Aromatics (Benzene, Toluene, Xylene) – Blending octane = 94-107 AKI
– Upgraded from reformate
• Butane – Blending octane 92-94 AKI
– Very high volatility
10 Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
Source: MathPro, Inc.
Ethanol’s Octane Advantage
11
• Ethanol’s pure component
octane number is 100 AKI.
• But it’s blending octane
number is 109-119 AKI,
depending on the octane
of the finished fuel.
• Ethanol’s blending octane
number is highest when
used with lower-octane
hydrocarbon blendstock. 108
110
112
114
116
118
120
86 87 88 89 90 91 92 93 94
Eth
an
ol's
Ble
nd
ing
Oc
tan
e (
AK
I)
Finished Gasoline Octane (AKI)
Ethanol's Blending Octane Number
Regular
Premium
Copyright © 2017 Renewable Fuels Association. All Rights Reserved. Source: MathPro, Inc.
Average
Ethanol’s Octane Advantage
12
84
93 94 95
101 104
107 110
114 117
70
75
80
85
90
95
100
105
110
115
120
GasolineBlendstock
n-Butane Alkylate Reformate Benzene Toluene Xylene MTBE Ethanol Methanol
Octa
ne N
um
ber
(AK
I)
Blending Octane Number (AKI) of Various Gasoline Octane Sources
Regular
grade
gasoline
(87 AKI)
Extremely
high
volatility
High toxicity
Banned in
26 states
Not approved
by automakers
Known
human
carcinogen
Copyright © 2017 Renewable Fuels Association. All Rights Reserved. Source: RFA; DOE; MathPro, Inc.
BTX Aromatics
Ethanol Blending in the Past
• Prior to circa 2002, ethanol was used mainly as a volume extender not as an octane enhancer.
– Refiners did not assume gasoline would be blended with ethanol downstream.
– Gasoline (E0) leaving the refinery already met state octane specifications.
– Ethanol was “splash-blended” far downstream of refinery in some locations (mostly Midwest).
– Result of “splash-blending” was gasoline with more octane than required to meet specifications for “regular grade.”
13 Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
Ethanol Blending Today • Regulations and policies significantly expanded the use of ethanol in 2002-
2010 timeframe.
– Winter oxygenated gasoline; Reformulated gasoline; State MTBE bans; RFS
• By 2010, most gasoline in the U.S. blended with 10% ethanol.
• Thus, refiners reconfigured operations to capture ethanol’s octane benefit and avoid octane “give-away.”
– Began widespread production of sub-octane gasoline Blendstocks for Oxygenate Blending (BOBs) designed for blending with 10% ethanol
– BOB + Oxygenate = Finished Fuel
14 Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
Blending Octane (AKI) Share of Blend Octane (AKI)
Regular grade BOB 84 90% 75.5
Ethanol 117 10% 11.7
Finished E10 87.2
Ethanol has rapidly emerged as a significant
source of octane in U.S. gasoline
15
84
85
86
87
88
89
2000 2002 2004 2006 2008 2010 2012 2014 2016
Octa
ne (
AK
I)
Octane Contribution from Ethanol, MTBE, and Refinery Hydrocarbons in U.S. Gasoline
Ethanol
Refinery
Hydrocarbons
MTBE
Pool Octane
Copyright © 2017 Renewable Fuels Association. All Rights Reserved. Source: MathPro, Inc.
The Economics of Octane • What is the economic value of octane?
– A common measure used in the U.S. is the “Premium-Regular Bulk Spread”
– Difference between bulk spot prices for premium (90 AKI) and regular grade (84 AKI) gasoline BOBs
• (PRM – REG)/6 pts AKI = value per AKI point of octane
– Considered by refiners to represent the market value of octane
– Good indicator of refining cost to produce incremental octane
16 Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
17
$-
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60Jan-0
5
Jun-0
5
No
v-0
5
Apr-
06
Sep-0
6
Feb
-07
Jul-0
7
De
c-0
7
Ma
y-0
8
Oct-
08
Ma
r-0
9
Aug-0
9
Jan-1
0
Jun-1
0
No
v-1
0
Apr-
11
Sep-1
1
Feb
-12
Jul-1
2
De
c-1
2
Ma
y-1
3
Oct-
13
Ma
r-1
4
Aug-1
4
Jan-1
5
Jun-1
5
No
v-1
5
Apr-
16
Sep-1
6
Feb
-17
Jul-1
7
$/G
allo
n
Premium-Regular Price Spread
Premium-Regular BOB Bulk SpreadSpread
($/Gal.)
PRM %
Increase
over REG
2005 0.11 7%
2006 0.17 9%
2007 0.16 8%
2008 0.15 6%
2009 0.14 9%
2010 0.11 5%
2011 0.14 5%
2012 0.24 9%
2013 0.25 9%
2014 0.26 10%
2015 0.26 16%
2016 0.18 13%
2017 0.21 14%
Annual Averages (Bulk)
Copyright © 2017 Renewable Fuels Association. All Rights Reserved. Source: EIA
18
$-
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60Jan-0
5
Jun-0
5
No
v-0
5
Apr-
06
Sep-0
6
Feb
-07
Jul-0
7
De
c-0
7
Ma
y-0
8
Oct-
08
Ma
r-0
9
Aug-0
9
Jan-1
0
Jun-1
0
No
v-1
0
Apr-
11
Sep-1
1
Feb
-12
Jul-1
2
De
c-1
2
Ma
y-1
3
Oct-
13
Ma
r-1
4
Aug-1
4
Jan-1
5
Jun-1
5
No
v-1
5
Apr-
16
Sep-1
6
Feb
-17
Jul-1
7
$/G
allo
n
Premium-Regular Price Spread
Premium-Regular BOB Bulk Spread Premium-Regular Retail SpreadSpread
($/Gal.)
PRM %
Increase
over REG
2005 0.21 12%
2006 0.24 12%
2007 0.25 11%
2008 0.26 11%
2009 0.27 15%
2010 0.27 12%
2011 0.27 9%
2012 0.28 9%
2013 0.29 10%
2014 0.33 12%
2015 0.45 24%
2016 0.47 29%
2017 0.52 28%
Annual Averages (Retail)
Copyright © 2017 Renewable Fuels Association. All Rights Reserved. Source: EIA
Value of Incremental Octane
19
$-
$0.005
$0.010
$0.015
$0.020
$0.025
$0.030
$0.035
$0.040
$0.045
$0.050
$/G
all
on
Value per Point of Octane (AKI) based on Bulk Prices
• Based on current
Premium–Regular BOB
bulk spread, each point
of incremental octane
(AKI) is worth 3.5 cents
per gallon to the refiner
• Ethanol’s current
theoretical octane value
is $1.05/gallon over 84
AKI BOB price!
• (114 – 84) x 3.5 cpg
Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
Why is the Value of Octane Increasing?
20
Constrained
Supply
Increased
Demand
• Increased volume of light
tight oil (LTO) and
condensate
• Produces lower quality
gasoline blendstock (more
low-octane naptha)
• Octane loss from tighter
sulfur standards
• Refining industry slow to add
octane-producing capacity
• Higher domestic demand
for all gas grades
• Demand for premium is
rising (as share of total)
• Higher compression
and turbo charging
• Increased export
demand for gasoline and
high-octane blendstocks
0%
4%
8%
12%
16%
20%
Jan-9
2
Jan-9
4
Jan-9
6
Jan-9
8
Jan-0
0
Jan-0
2
Jan-0
4
Jan-0
6
Jan-0
8
Jan-1
0
Jan-1
2
Jan-1
4
Jan-1
6
Premium Share of Total U.S. Gasoline Sales
Copyright © 2017 Renewable Fuels Association. All Rights Reserved. Source: EIA, MathPro, Inc.
Ethanol Consistently Priced Below RBOB Gasoline
21
$(1.50)
$(1.00)
$(0.50)
$-
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
Jan-1
0
Apr-
10
Jul-1
0
Oct-
10
Jan-1
1
Apr-
11
Jul-1
1
Oct-
11
Jan-1
2
Apr-
12
Jul-1
2
Oct-
12
Jan-1
3
Apr-
13
Jul-1
3
Oct-
13
Jan-1
4
Apr-
14
Jul-1
4
Oct-
14
Jan-1
5
Apr-
15
Jul-1
5
Oct-
15
Jan-1
6
Apr-
16
Jul-1
6
Oct-
16
Jan-1
7
Apr-
17
Jul-1
7
Oct-
17
$/G
all
on
Ethanol and RBOB Nearby Futures Prices, 2010-
Ethanol-RBOB Spread
RBOB
Ethanol
Copyright © 2017 Renewable Fuels Association. All Rights Reserved. Source: CME
22
100
150
200
250
300
350
400
Jan 2
01
2
Apr
20
12
Jul 201
2
Oct 20
12
Jan 2
01
3
Apr
20
13
Jul 201
3
Oct 20
13
Jan 2
01
4
Apr
20
14
Jul 201
4
Oct 20
14
Jan 2
01
5
Apr
20
15
Jul 201
5
Oct 20
15
Jan 2
01
6
Apr
20
16
Jul 201
6
Oct 20
16
Jan 2
01
7
Apr
20
17
Jul 201
7
Oct 20
17
Cen
ts/G
allo
n
Ethanol, Reformate, Alkylate, MTBE Spot Prices
Reformate (Houston) MTBE (USGC) Alkylate (Houston) Ethanol (Chicago)
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Jan 2
01
2
Apr
20
12
Jul 201
2
Oct 20
12
Jan 2
01
3
Apr
20
13
Jul 201
3
Oct 20
13
Jan 2
01
4
Apr
20
14
Jul 201
4
Oct 20
14
Jan 2
01
5
Apr
20
15
Jul 201
5
Oct 20
15
Jan 2
01
6
Apr
20
16
Jul 201
6
Oct 20
16
Jan 2
01
7
Apr
20
17
Jul 201
7
Oct 20
17
Cen
ts/B
len
din
g O
cta
ne P
oin
t (A
KI)
Cents/Gallon Cents/Octane Point (AKI)
Ethanol Priced Far Below Other Octane Sources
Source: Argus Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
Ethanol Priced Far Below Other Octane Sources
23 Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
• University of Illinois analysis
compares ethanol prices to an
average price for the BTX
aromatics from 2007-2017.
• “Over the entire period, the
price premium of the
aromatics relative to ethanol
averaged $1.06 per gallon.”
Source: Irwin, S., and D. Good. "On the Value of Ethanol in the Gasoline Blend." farmdoc daily (7):48, Department of Agricultural and
Consumer Economics, University of Illinois at Urbana-Champaign, March 15, 2017.
24 Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
152.3
253.7
• Argus reports weekly market
prices and a calculated
“octane blending value”
for various octane sources.
• In addition to octane
number, the “octane
blending value” formula
takes into account energy
density, RVP, and other
important blending factors.
Ethanol Priced Far Below Other Octane Sources
Proof of the Ethanol Advantage
25 Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
• QuikTrip station in Kansas on April 7, 2017
• 87 AKI ethanol-free gasoline priced 20%
above 87 AKI E10 and just 1.5% below 91
AKI premium E10!
• Buc-ee’s station in Texas on June 27, 2017
• 87 AKI ethanol-free gasoline priced 53%
above 87 AKI E10 and 22% above 93 AKI
premium E10!
Summary • Octane is a critical consideration for efficient operation of
spark-ignition engines
• Refiners can meet octane standards by “creating” octane at the refinery or purchasing octane boosters from other sources – Producing octane at the refinery is costly and energy intensive
• Demand for octane is increasing globally; supply is tightening
• Ethanol is a superior octane booster due to its: – Extremely high RON and blending octane numbers;
– Economic competitiveness; and
– Benign effects on the environment and human health
26 Copyright © 2017 Renewable Fuels Association. All Rights Reserved.
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