Wasting Away Again in Butane Blendingville - Making the Most of Butane in the Gasoline Pool

Normal butane is an important gasoline blendstock, with a great combination of high octane and relatively low cost. It also has a high Reid vapor pressure, or RVP, which is a good news/bad news kind of thing because while regulators allow higher-RVP gasoline — that is, gasoline with higher levels of butane — to be sold during the colder months of the year, they forbid its sale during the warmer months, thereby forcing butane levels in gasoline to be kept to a minimum. As we discuss in today’s RBN blog, air-quality regulations and seasonal shifts in butane blending may add complexity to gasoline production and marketing, but they also create opportunities to increase gasoline supply and earn substantially larger profits through much of the year. 

You might say that maximizing the profitability of motor gasoline production and sales is akin to running a five-star restaurant — a surprisingly complicated endeavor that requires a mix of knowledge, planning and skill, not to mention a heightened awareness of the seasons and how they impact your ingredients. Gasoline is, after all, one of the most complex hydrocarbon products out there, with as many as a dozen specifications — each with its own characteristics, such as octane, RVP, distillation points, aromatics, olefins, etc. — that when combined need to meet the exacting standards of regulators and, at the same time, turn as fat a financial return as possible. And, to keep things interesting, the allowable RVP level ratchets down each spring and up in late summer (often to different levels in different markets, and even at different dates), providing savvy refiners, midstream companies and marketers with select, seasonal opportunities to significantly goose their bottom line (often by many millions of dollars a year) by blending in as much low-cost, high-RVP butane as the standards for specific areas will allow.

There’s a lot to unpack here before we get to our main topic: namely, how gasoline market players optimize their butane blending to maximize profits. We’ll begin with the well-known fact that, for many decades now, the Environmental Protection Agency (EPA) has regulated gasoline to improve air quality and protect public health. The primary goals of the agency’s regulations, which are based on the Clean Air Act, are to minimize toxic emissions and to reduce smog, or ground-level ozone. Vapors from gasoline contribute to smog formation, especially during warmer weather, so the EPA regulates gasoline’s RVP — a measure of how easily gasoline evaporates — with stricter (lower) RVP limits from late spring to late summer and somewhat relaxed (higher) limits the rest of the year. The lower RVP limits during warmer months also help prevent vapor lock, which can make it difficult to start your car, SUV or pickup, and the higher limits during the colder months ensure that gasoline can combust easily even at low temperatures.

Because certain parts of the U.S. face more serious challenges regarding smog than others, EPA sets national baseline standards for RVP in gasoline — 9 pounds per square inch (psi) during the warmer months — but also has designated areas where even stricter limits are enforced. As you might expect, these include densely populated, traffic-choked metropolitan areas like Los Angeles, New York City and Chicago, but also many less populated areas where the weather is warmer for longer and/or where geographical features such as mountain ranges can trap pollutants, thereby making lower RVP limits necessary.