US Tier 3 gasoline rules will likely reduce demand for naphtha as a gasoline blendstock in 2020, as blenders favor higher-octane alternatives to compensate for the octane lost in sulphur reductions.
US refiners must limit maximum sulphur content in gasoline to 10ppm by next year, in compliance with the Environmental Protection Agency's (EPA) Tier 3 mandates. The mandates were set in motion in 2017, but the deadline for compliance is 2020.
Sulphur reduction typically reduces the octane content of gasoline. This makes naphtha, which is low in octane, a less ideal blendstock compared with octane boosters such as alkylate and reformate.
Lower domestic demand from blenders in turn will further drive US naphtha producers to the export market.
An increasing amount of heavy virgin naphtha (HVN), full-range N+A (FRN), and light virgin naphtha (LVN) is expected to find its way to the Asia Pacific and Latin America next year.
Mexico typically buys two to three 270,000-300,000 bl cargoes of HVN each month. Colombia will also continue to buy maximum 9 PSI naphtha for use as crude diluent. Most of these requirements are expected to be fulfilled by US exporters.
While Latin American demand for US naphtha should persist, Asia Pacific is still the biggest and most attractive outlet for US naphtha. This has been true even after China's counter-sanctions on US naphtha imports cut flows there. More cargoes have been directed to Japan and Korea over the past year.
The Caribbean is also poised to take more US naphtha in 2020, with the restart of the St Croix refinery in the US Virgin Islands. The St Croix refinery will operate at around 200,000 b/d. Product out of the refinery will be marketed by BP.
St Croix can require up to 15,000-30,000 b/d of HVN to use as a reformer feedstock. This will likely be procured from the US. The facility will also produce and export light naphtha.
By Daphne Tan
