Changing Regulations Could Spur Pricier Midwest Gasoline This Summer
Refiners, marketers, retailers, pipeline operators and others across the gasoline supply chain may be impacted in the spring and summer of 2023 by a lower Reid Vapor Pressure (RVP) specification for CBOB in Midwest states.
RVP measures gasoline’s evaporation characteristics and, to limit pollution and reduce evaporative emissions, governmental regulations set limits for RVP. Those limits are lowest during the summer driving season, when higher temperatures lead to increased evaporation, amid concerns from EPA over smog levels.
This RVP spec change may lead to higher prices for summer gasoline in the region, as lower-RVP blendstocks are typically more expensive to produce than higher-RVP ones. Gasoline producers mix components to reach the desired specifications and octane for a given product, but some of those components raise RVP. So, when RVP is lower, producers have more limited options for blending and can use fewer of the “cheaper” blending components.
Unless a delay or other action is seen, CBOB will shift from 9.0-lb. RVP to 7.8-lb. RVP gasoline for several Midwest states.
A Push for E15 in the Midwest
This change stems from an ongoing effort by Midwest governors to put E10 (CBOB blended with 10% ethanol) on equal footing with E15 (CBOB blended with 15% ethanol) in their states year-round.
Blending with ethanol raises RVP, and currently, the EPA offers a 1-lb. RVP waiver for E10 from the summer driving period that spans June 1 to Sept. 15, meaning that E10 gasoline RVP limits are 1-lb. higher than for other gasoline. E15 is not covered in that same waiver.
Looking ahead to 2023, a group of Midwest governors in April 2022 asked the U.S. Environmental Protection Agency (EPA) to provide retail stations with the same year-round access to E15 as E10 in their states—through a request to the EPA to opt out of the E10 RVP waiver beginning in 2023.
Those states include Illinois, Iowa, Minnesota, Missouri, Nebraska, Ohio, South Dakota and Wisconsin.
But weren’t stations offering E10 and E15 in summer 2022? Yes, throughout the summer of 2022, the Biden administration provided a series of consecutive 20-day emergency waivers lifting summer restrictions on E15 sales to increase fuel supply after Russia invaded Ukraine in February 2022.
Why an RVP change for CBOB?
In effect, CBOB suppliers in the states that opted out of the E10 RVP waiver will be required to provide lower RVP CBOB for blending so that E10 can remain below the RVP limit.
Multiple Midwest market participants told OPIS that if this change does indeed go through, the RVP for CBOB across the region would switch from 9.0-lb. to a 7.8-lb. specification.
Because not all Midwest states signed the petition, fuel market sources said the waiver could create logistical issues for the Midwest market, especially for pipelines, which could be forced to move different CBOB RVP specifications during the summer months at the peak of driving season.
But sources in the region told OPIS that most Midwestern states likely would move to the lower 7.8-lb. RVP CBOB in this scenario.
Is this change certain?
A more permanent fix to the summertime prohibition on E15 has long been a legislative goal of the biofuel industry’s champions in Congress, but bills offering as much have routinely failed to progress to the president’s desk. That routine appeared to be nearing its end this fall upon news that two of the major biofuel and petroleum industry groups–the American Petroleum Institute and the Renewable Fuels Association–had agreed with others upon proposed language that could finally lift the restrictions on year-round E15 sales across the country. But that deal has yet to result in much legislative headway, which largely explains the governors’ decision to act in a more patchwork approach.
The request also faces efforts by those in the petroleum and retail station industries to see it delayed after several such groups, including the American Fuel & Petrochemical Manufacturers and the Energy Marketers of America, wrote to EPA Administrator Michael Regan in October expressing “serious concerns” with the request.
Regarding issuance of such a waiver, the groups said, “based on our expertise and understanding of fuels markets, and preliminary consultations with independent market experts, we believe that requiring a new fuel to be in place for the 2023 summer driving would result in an insufficient supply of gasoline for PADD 2, in particular,” the groups said.
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