Global Ethanol Summit panel focuses on the economics of octane

By Matt Thompson | October 15, 2019

Day two of the inaugural Global Ethanol Summit began with a discussion about the economic benefits of blending ethanol in gasoline.

Renewable Fuels Association president and CEO Geoff Cooper began the panel with a discussion about what octane is and how its used by refiners in the U.S. “Really, prior to about 2002, ethanol was used as a volume extender, not an octane booster in the U.S.,” Cooper said, adding that’s also how it’s used in several countries around the globe right now. However, he said, that changed in the U.S. in the early 2000s as regulations expanded ethanol’s use, which resulted in a 10 percent blend by 2010. “Ethanol has rapidly emerged as a significant source of octane in U.S. gasoline,” he said.

The benefits of that increased use of ethanol include a reduction in aromatics and olefins in the U.S. gasoline supply. MTBE has also been virtually phased out, Cooper said.

He also spoke about the economic benefit U.S. refiners have seen by using ethanol. Outlining a hypothetical value calculation, Cooper said, “Each point of octane has been worth about 4 cents to the refiner.” He added, “I think this really underscores that ethanol has a tremendous value with its octane.”

Dave Hirshfeld, co-founder and president of MathPro Inc., a consulting firm that specializes in the analysis of the petroleum industry and transportation fuels, further discussed the economics of ethanol’s octane. He told his audience that “octane requirements around the world are creeping up.” The reason, he said is two-fold. “In developed countries it’s happening because there is a continuing tightening of environmental standards,” he said. Those standards have caused automakers to produce vehicles with higher compression ratios. Those engines, he said, operate best on higher octane fuel.

“In the developing countries the issue is a little bit different,” Hirshfeld said. The driver in those countries are economic conditions. Income and GDP growth in those regions results in vehicle fleet changes, for which higher octane is required, he said.

He also spoke to the economic benefit U.S. refiners have realized by blending ethanol. He said “by using ethanol as an octane enhancer, refiners have reduced the octane of refinery-produced gasoline by about 3 AKI numbers. That’s a big deal for refiners.”

Another advantage ethanol offers to refiners is that it helps to offset the effects of removing sulfur from fuel. There have been regulations prompting refiners to remove sulfur from their fuel, but the process to do that also destroys octane, he said. But, by blending ethanol and using it as a cheap source of octane, “a lot of the economic penalty has been minimized by the use of ethanol,” he said.

“It’s been a substantial economic value for the U.S. refining sector over the last century,” Hirshfeld said.

The panel’s final presenter, Hagan Rose, director of international sales and marketing for Eco-Energy Inc., an ethanol marketer, told attendees that while policy and support of domestic markets drive the demand for octane, its biggest demand driver is its price. “I think we can all see that ethanol is a cheap, powerful solution to deliver that octane.” He added that U.S. marketers are finding ways to make it easier for other countries to receive U.S. ethanol.