Driving Discussions: Major Midcon Gasoline Movements

Senior Editor of US products, David Ruisard, joins Argus’ Blendstocks Reporter, Jason Metko, in this new episode.

They discuss changes upcoming to the US midcon gasoline market. 

Transcript

Jason: From Argus Media, this is "Driving Discussions," a podcast series where we focus on forces that affect North American road fuels. Greetings and salutations once again, I'm Argus' U.S. Gulf Coast Blendstocks reporter, Jason Metko. And on this edition of the series, we're sitting down with our senior editor of U.S. Products, David Ruisard, talking changes upcoming to the midcontinent gasoline market. Dave, welcome back to the presentation. I know it's been a while since you've last appeared on this series, but we appreciate you stopping by. A lot of changes going on here in the mid-con. Two specifically we wanna get into today, right?

David: Yes. We've got the first big change is in Denver, Colorado, and they are moving into using reformulated gasoline, which is a cleaner burning blend of fuel. The one problem is it's a little bit more expensive and trickier to make, but they will be using that in the Rocky Mountain, Denver market. And then over in the rest of the midcontinent, we've got a big change coming, where about half of the states are going to be moving their gasoline specifications to allow them to blend additional ethanol into their fuel supplies. So what they'll have on tap is E10, which is what we've all come to know over the last 20 years. And E15, which is a 15% ethanol blend. The big difference between them will be the blendstocks, which, as you know from covering blendstocks here at Argus, it's all about how do you brew up the blendstocks. And in this case, you're gonna have a blendstock that is ready for the RVP waiver and a blendstock that will not have the RVP waiver.

Jason: I wanna ask you about Denver first here. What specifically is forcing their hand to make this move?

David: Well, RFG is a cleaner-burning gasoline, and it's typically installed and removed based on air pollution. So, for instance, there's locations throughout the nation that we're using reformulated gasoline and no longer are...or a type of reformulated gasoline. And as they sort of clear out their emissions, tier 3 gasoline helped with a lot of these things. Then, they switched back to what we call conventional gasoline blendstock. So, Denver, greater Denver area will be using RFG gasoline, which is a little more expensive than conventional. And also, you know, they have a refinery right there.

Jason: Which has had some problems, though, recently.

David: It has. It has. And so when you have a refinery and you start having problems locally, you have to source outside of your area, which means they're gonna be dipping into Oklahoma and the Texas Panhandle, most likely, to sort of come up with incremental barrels as needed in that market.

Jason: He is our senior editor of U.S. products here at Argus, David Ruisard. Edition of "Driving Discussions." The midcon side of this, the rest of the midcon, as we're calling it, I would assume that...

David: The flatter states.

Jason: The flatter states, well, it's your words, not mine. The flatter states, I would assume their rationale is, "We have a lot more ethanol available."

David: Yes. So, you know, ethanol was originally brought in because they had so much corn, and you could extract ethanol blend it into fuel. And then, after the second Gulf War, at the start of the second Gulf War, we decided we were gonna try to use more ethanol because we were importing a lot of foreign oil. And now we're using a lot of ethanol because we use a lot of ethanol, right? So the way it works is, at times, ethanol could be cheaper to blend in than conventional all-mineral blendstocks into gasoline. And at times, it may not be. So it's gonna be very interesting because some of these states will be right next door to each other. For instance, North Dakota's going one way, and South Dakota is going the other way on this issue.

Jason: That's interesting.

David: And there could be these sort of choke points that come up, where you might have a problem with your regional refinery that is producing a specific grade of material, and suddenly, you can't get your hands on it. The other issue that might come up will be on the retail side. Because if you have a really large gasoline station with a big footprint and you might already have ethanol blending on site, you could kind of toggle between offering E10 and E15 based on the blending economics of what's gonna be the cheaper fuel. Meanwhile, the guy across the street might be stuck with the more expensive fuel until he empties out his tanks and does a reload. And he's constantly gonna have to be watching the market to decide which one he's gonna take. Because the retail side apparently is gonna be allowed to flip back and forth as needed.

Jason: So, is there any idea as to why there wasn't a full agreement between these states? Because it seems like they have very similar circumstances.

David: Yeah, it's interesting because Illinois' all in, Indiana's not. So what's the difference between Illinois and Indiana when... I mean, we know there's a difference, but you think about 'em, and you think just rows and rows of cornfields, you think they'd have the same sort of political moxie on an issue like this. So, we'll have to see how it plays out. And it is an election year.

Jason: It is. I was just gonna get to that. Wonder how that factors in going forward.

David: Well, there's been talk that maybe it gets postponed because of that. Because what if you install this, and suddenly gasoline prices are screaming high in your home state? You might have problems getting reelected.

Jason: We'll get our senior editor of U.S. Products, David Ruisard, out on this question. Sort of peer into your crystal ball, Dave, where do you see this going the next year?

David: I think it's going to be fairly confusing because I...

Jason: It already sounds confusing.

David: Well, the big issue's gonna be, you know, refiners, in particular, are still trying to figure out what they're gonna offer. They don't wanna be juggling multiple grades because that means you have to have multiple storage tanks on site. And, you know, I bet if they could have their way and if I could have my way, we'd probably just go to one gasoline specification for everyone east of the Rockies, and it'd be easier on refiners, it'd be easier on marketers, and it'd be easier on consumers because If you had a problem, you could just go to the refinery next door and fill up.

Jason: So why don't we do that?

David: It's complicated. We'll save that for next time.

Jason: We will save that for next time. We hope to have you back soon, Dave. Thank you for doing this.

David: No problem.

Jason: We do very much appreciate Dave's insights and look forward to welcoming him back on future episodes. And with that, we conclude yet another edition of "Driving Discussions," a production of Argus Media, a leading independent provider of energy and commodity pricing information. This reminder to check out our previous episodes in the series, and for more details on Argus' U.S. products coverage, we encourage you to visit argusmedia.com/us-products.