The Oil Drum

63 comments on Refining 101: Summer Gasoline

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ThatsItImout on March 16, 2007 - 1:48pm

Robert,

Now to an issue dear to my own heart, Diesel fuel, and in particular, Ultra Low Sulfur Diesel (ULSD).

Several months ago, here on TOD, and in several other forums, including at my own small energy group, I made the argument that Diesel fuel would never again be as cheap as gasoline on a sustained basis, due to the need for increased hydrogen consumption extracted from natural gas, thus in effect making Diesel fuel now a "bi-fuel" in that it's price and supply is relient on both crude oil and natural gas.

So far, my argument has been born out. I have not seen Diesel at the pump cheaper than gasoline since ULSD was introduced (once or twice it has been dead equal in price, but only for a matter of hours).

The real test will be in the summer, when gasoline demand goes up, and Diesel prices usually fall, due to the decline in distillant production for heating oil. I have, by the way, also argued, as opposed to those who say we cannot possibly make any type of hydrogen industry work, that the refineries are already operating a hydrogen industry on a large scale, for the purpose of "de-sulfering" Diesel and even gasoline if the source crude is "sour" high sulfer.

What's your take on this discussion? I want to make sure everyone understands that I am in favor of clean Diesel and ULSD, I just feel that the EPA misjudged (as did everyone) what the price of natural gas would be now, back when they originally laid out the ULSD plan back in the late 1990's.

(brief aside, for the financial folks in the audience....did anyone see the twin wild spikes up in crude oil prices today (March 16) followed by a drop right back down the mean price for the day.....any guesses.....speculator longs trying to get a rally going and prop the price back up maybe?
If so the effort failed for the day.....what does this portend for outlying bets by speculators (over the next quarter, let's say?) Can they hold $50....which way will Saudi bet? Will the Saudi strong arm tactics on new member Angola and other older members be able to sustain oil above $50, or are we seeing the "bubble" pop, at least for awhile? Thoughts? :-)

Roger Conner Jr
Remember, we are only one cubic mile from freedom

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porsena on March 16, 2007 - 2:29pm

I made the argument that Diesel fuel would never again be as cheap as gasoline on a sustained basis
All bets are off in times of shortage. On Canada's west coast, ULS diesel today is several cents a litre less than regular. My local stations have regular for C$1.10, up eleven cents since the last time I bought gas. As with you, our diesel prices have previously been above regular for some time. However, a refinery fire in Ontario a few weeks back created gasoline shortages there and raised prices across the country, despite the West coast's independence of physical supply from Ontario.

I've also noticed those two oil price spikes and then the step down. It does look weird.

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jjhman on March 16, 2007 - 4:54pm

Diesel has been lower than regular gasoline here in Northern California for several weeks. I've wondered why as my assumption has been that the world wide mix of more heavy, sour oil would cause a long term increase in low sulfer diesel. Any ideas?

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OilcoEx on March 16, 2007 - 7:21pm

Refiners do indeed make a lot of hydrogen. First source is reformers that take low octane naphthas and rearrange the molecules to make branched and ringed molecules with much higher octanes. Lots of hydrogen excessed.

Second source for refineries with sour/heavy feeds is usually a steam reformer though a few have partial oxidation plants. Reformers feed nat gas or refinery made gas only if it is cheaper than some other feed like butane or light naphtha. Catalysts are optimized for specific feeds but you can get away with some fuel switching.

So nat gas is not a critical element in production of ULSD, but rather a cheaper feedstock only.

ULSD doesn't really take that much more H2 to make anyway. When you are starting with Arab Light diesel of 1.3% sulfur, knocking 13,000 PPM to 15 PPM vs 500 really isn't that big an increment on hydrogen (though it's larger than the straight ratio as you get other cracking as well when you go that severe). The problem refiners had was insufficient severity capability. You have to hit it pretty hard to get that last bit out.