24/12/30
Viewpoint: US midcon E15 shift looms again
Houston, 30 December (Argus) — A potential reformulation of gasoline in eight
midcontinent states to accommodate year-round 15pc ethanol gasoline (E15) could
lead to shortages in midcontinent fuel supply and an increase in retail prices
in 2025. Approaching the 2025 summer driving season, Illinois, Iowa, Minnesota,
Nebraska, Ohio, South Dakota, Wisconsin and, now, Missouri once again await the
US Environmental Protection Agency's (EPA) enforcement of compliance on their
exclusion from the 1-psi rule. The one-pound waiver in the Clean Air Act allows
for a 1 psi higher Reid Vapor Pressure (RVP), a more expensive specification for
9-10pc ethanol blend that allows gasoline during the summer to be 9 RVP. Opting
out would lead to the production of two separate grades of gasoline, the
standard summer 9 RVP CBOB and a new, non-waiver 7.80 RVP CBOB that could be
blended into E15. Many of the refiners and pipelines in the region would serve
states that have opted out of the waiver, and states that will remain within the
waiver and the lack of uniformity in specifications across the midcontinent
would likely cause difficulty in logistics for refiners and pipeline operators.
This new 7.80 RVP gasoline formulation would be a boutique grade CBOB that would
only be found in the midcontinent during the summer, adding to the difficulty of
producing the grade. The differences between the waiver and the non-waiver
grades of gasoline would be mostly contained to the summer driving season,
according to participants in the US midcontinent gasoline market. American Fuel
and Petrochemical Manufacturers (AFPM), a trade association for fuel makers,
again petitioned the EPA to delay the midcontinent governors' request until
2026. AFPM cited a new study by US consultancy Baker and O'Brien that forecast a
131,000 b/d decrease in CBOB production if the midcontinent states were to opt
out of the waiver. This would be the equivalent of a sustained refinery outage
in the region and could lead to supply-cost increases of 9-12¢/USG, up from an
estimated 8-12¢/USG a year earlier. Baker and O'Brien's study also indicated
that supply costs could be between $700mn and $1.2bn, with the lower end using
the 185 days of the summer driving season with no disruptions and the upper end
of the range assuming at least a two-week regional supply shortage. The study
also said that a delay until 2026 would allow for more time to implement the
capital investments needed to fully accommodate the change to non-waiver
gasoline in some of the states but noted that many of the improvements needed
would take two years to complete. Many refiners and pipeline operators are
hesitant to invest when a legislative solution could make the changes
unnecessary. US Gulf coast supply lines The US midcontinent relies on the US
Gulf coast to provide resupply in the event of a refinery outage in the region
or to accommodate increasing demand. The Explorer Pipeline which connects from
the US Gulf coast to the US midcontinent is one of the major pipelines to
deliver product into the region. Transit time on the pipeline for delivery to
the Chicago area is roughly two weeks. The US midcontinent in 2021-2024 averaged
receipts of 1.16mn bl/month of finished gasoline during the May-September summer
driving season, according to US Energy Information Administration data. The
arbitrage for shipping CBOB into the US midcontinent from the US Gulf coast is
already on average open across the summer. A change in formulations would likely
increase the need for product. Southern US midcontinent CBOB averaged an
8.33¢/USG premium to US Gulf coast product during the summer, over the
Explorer's 7.14¢/USG tariff for shipping product from Pasadena, Texas, to Tulsa,
Oklahoma. Chicago's Buckeye Complex CBOB averaged a 10.10¢/USG premium to its
Gulf coast counterpart, also over the 8.40¢/USG tariff for shipping. History of
delays The governors of Iowa, Nebraska, Illinois, Minnesota, Wisconsin,
Illinois, Kansas, South Dakota and North Dakota in 2022 requested an exclusion
from the 1-pound waiver in the Clean Air Act by claiming the waiver was
contributing to air pollution in those states, a request that would require
blendstocks for E10 and E15 sold in those states to be reformulated. The EPA
granted their request in February 2024, but delayed lifting the waiver for
summer 2024, following a slew of petitions from trade associations, refiners and
pipeline companies asking for delays. The measure is still pending. President
Joe Biden's administration avoided a potential disruption to seasonal E15 sales
by tapping emergency powers in April 2022 to allow for the sale of E15 during
the approaching summer, citing supply disruptions in the wake of Russia's
invasion of Ukraine. EPA issued similar emergency waivers ahead of summer in
2023 and 2024 to facilitate the sale of E15, using the waiver 9 RVP gasoline.
The US Congress is considering legislation options to avoid requirements to
reformulate gasoline. A stopgap government funding bill that would fund the
government through March included language to extend the one-pound waiver to E15
year-round and make the shift by the eight midcontinent states and the attached
reformulation unnecessary. But the E15 provision was pulled from the stopgap
funding bill following criticisms from President-elect Donald Trump and Telsa
chief executive Elon Musk . By Zach Appel Send comments and request more
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