US gasoline spec change devalues alkylate

US alkylate values are taking a nosedive this month relative to gasoline and Nymex futures prices because summer gasoline blenders are turning away from the component after the US ended testing for aromatics.

Alkylate, which has low aromatic content suitable for blending volatile organic compound (VOC)-controlled RBOB, finds itself out of favor now that the VOC standards are no longer required by the US government.

The premium for US Gulf coast alkylate over Colonial pipeline conventional gasoline narrowed this week to 8.5¢/USG, down from 15¢/USG in mid-January and 35¢/USG a year earlier.

The US Environmental Protection Agency (EPA) streamlined its regulation for RBOB this year, including removing testing requirements for aromatics. Previously VOC-controlled summer RBOB will only need to meet a maximum 7.4RVP specification, in addition to sulphur and benzene limits.

Alkylate's allure dimmed as US gasoline producers began to prepare for the switch to the newly streamlined summer RBOB specification, which begins in March. Instead of alkylate, which was previously prized for its low-aromatic content, blenders are turning to other high-octane blendstocks such as reformate and raffinate.

A similar dynamic is unfolding in New York Harbor, where alkylate is valued at 4¢/USG above Nymex RBOB futures this week, down from premiums of 6¢/USG in mid-January and 28.5¢/USG in early February 2020.

In addition to the EPA's streamlined regulation, rising naphtha prices also are keeping alkylate demand and prices down. Naphtha is a sub-octane component that typically complements high-octane blendstocks like alkylate. Pricier naphtha — largely a result of low crude runs and robust export demand — has eroded blend margins, making alkylate less attractive.

Finally, a flatter forward curve for gasoline also is discouraging blenders from building an inventory of alkylate and other components. The March-April Nymex RBOB contango has hovered below 10¢/USG this week, compared with nearly 17¢/USG in early February 2020. Since contango measures the price gain for holding onto product, a narrower contango discourages stockpiling.

In the long run, the removal of aromatic testing requirements is likely to keep alkylate values low throughout the summer, even with a wider contango or more affordable naphtha.

No one wants to own high octane blendstocks unless they can be worked into the new summer RBOB gasoline specification, a market source said.

By Chunzi Xu and Stephanie Crawford