Regulatory gas pressure party – R*VP today!

Sandy Fielden, RBN Energy LLC

Next time you fill up with regular; spare a thought for what the product went through to make it into your tank. Before you got a chance to put the pedal to the metal, the tiger in your tank had to treat a digestive problem that was causing too much gas. It was all in honor of something called Reid Vapor Pressure (RVP) regulations. Today we open the window on the issue to air the pungent details. 

RVP stands for "Reid Vapor Pressure" a measure of gasoline volatility indicated in pounds per square inch (PSI) at 100 degrees Fahrenheit. The higher a gasoline's RVP the more quickly it evaporates. The RVP for gasoline should always be below normal atmospheric pressure or 14.7 PSI. If the RVP gets higher than 14.7-PSI fuel might evaporate in the gas tank on a hot day resulting in a vapor locked engine (car won’t start) or worse yet, an explosion. At the same time you need a certain RVP level in the winter when it gets cold or your car won’t start because the fuel won’t vaporize in the carburetor.

The Unites States Clean Air Amendment Act of 1990 mandated reductions in toxic emissions in geographic areas that did not meet required pollution control standards (mostly cities). A principal target of the legislation was reduced emissions from gasoline of volatile organic compounds (VOC), nitrogen oxides (NOx), and carbon monoxide (CO). All things being equal, these emissions increase in fuels with higher RVP levels.

The US Environmental Protection Agency (EPA) administers the Clean Air Act. To reduce auto emissions, particularly in polluted areas, the EPA has implemented gasoline volatility regulations establishing maximum allowable RVP levels for gasoline during the summer months – usually defined as June through September. Violations of the gasoline RVP regulations are subject to fines of up to $37,500 per day.

That all sounds like standard operational procedure for the EPA - but rest assured that things get complicated real quick from here on in. For starters the country gets divided up into areas – in some cases down to the county level and below. Each area gets its own version of the regulations. This creates an RVP quagmire.

To simplify this quagmire, you can probably divide the nation into about four buckets. We will start by discussing three of these buckets – the real bad guys, the do-gooders and the “could care less we don’t live in the city” guys. The real bad guys failed their pollution test. The do-gooders are States that want to do better even though they aren’t the worst polluters and the “could care less we don’t live in the city guys” don’t have a problem with pollution because no one else lives where they do.  Most of the rules apply to the real bad guys – they have to use EPA mandated reformulated gasoline (RFG) that has RVP limits built into the specification. They might also use something called RBOB (reformulated blend stock for oxygenate blending – and if you knew that already then may the Lord have mercy on your soul).

RBOB is basically RFG that can be safely mixed with ethanol (see A Market of Contradictions). The do-gooders have signed up to the same (federal) RFG program as the bad guys because it helps them sleep at night. The “could care less” guys can just use regular old gasoline that is now called conventional gasoline. What about the fourth bucket you ask? California is the fourth bucket. Nuf said.

The net result of all these RVP regulations is a large bingo game where every area of the country has its own RVP number that it is required to meet at certain times of the year. For the bad guy that generally means 7.0 RVP in the summer, the do-gooders can get away with 7.8 RVP in summer (depending on how far south they live). The “could care less” guys can drive around recklessly churning up 9.0 RVP gas all summer long. These RVP numbers are not just different by location, but can change with the fuel blend. If you blend ethanol into gasoline the RVP goes up. Since blending ethanol is considered the fuel equivalent of three Hail Mary’s, you get special dispensation to raise the RVP limit by 1 PSI if you use ethanol. Take a look at the table below to see the effect these rules have on one refiner – Marathon Petroleum – that publishes this table (one of 3 similar tables) on their website. The RVP levels are across the top (orange highlight).

Source:  Marathon website

There are 3 different RVP levels (7.0#, 7.8# and 9.0#) for both Marathon brand gasoline and the “Non Marathon Brand” gasoline that they sell to other retailers. Each RVP level can be blended to one of 6 flavors of gasoline corresponding to the notes at the bottom of the table in green. That makes 18 different blends in all – and this is just for premium gasoline – you can add another 18 for regular. Phew.

As you can imagine this jumble of blends and specifications causes innumerable challenges for the average refiner – regardless of whether he or she lives where the bad guys do. Here are a few that jump off the page:

  • Distribution: becomes a nightmare when all these different products have to be delivered to different locations by pipeline or truck. Even assuming some final blending at the terminal, the need to keep track of who gets what when where and why is mind-boggling. Especially when you consider that as the specifications change during the year, each location has to be ready with the new blend in time.
  • Blending Butane temptation: as we discussed in more detail in our NGL trading series (see Carbon Rich Trading High – Pricing and Trading NGLs Part I) during the winter, refiners blend greater amounts of butane into gasoline. The great thing about butane is that it is less expensive than gasoline (see chart below). The price of butane this year never rose above 75 percent of the price of gasoline. That means any time you can blend butane into gasoline you make more money. The problem with butane is that it’s RVP level is off the charts (52 PSI). That means you have to be careful how much butane you use in summer to keep the RVP level down. In winter you can use more butane but you still have to watch the RVP level carefully. Wily refiners spend a lot of time and make a lot of money, maxing out the butane content in their gasoline.

 

Source: NYMEX Gasoline Data  from Morningstar, Mont Belvieu TET Normal Butane from Opis

  • Alkylate: we are going to talk about alkylate in another upcoming blog, but suffice to say it costs more than butane and it’s what you blend in to gasoline to bring down the RVP level.
  • Trading: one of the primary tenets of trading is something called fungibility. It means that the product you are trading is standard enough that many counter parties are able to buy and sell it freely based on a clear specification. RVP levels make life a lot harder for gasoline traders and that drives up the price for everyone else.
  • Business operations: every transaction at every terminal demands a record is kept, every transaction demands a price. Everyday, our friends at OPIS collect terminal prices for gasoline and other fuels in over 300 cities and in most cases multiple terminals per city, all over the US. The number of different gasoline prices set each day, runs into the 100’s of thousands by the time you add up all the brands and blends out there. Keeps a lot of people busy.

That my friends a tiny peek into the wonderful world of RVP regulations. They make the planet a healthier place to live in and they keep a lot of bad guys in check. The implementation of RVP levels across the country is an amazing testament to superior US supply chain logistics. Refiners wrestle with the blending challenges on a daily basis. We all pay more at the pump. If the EPA invited refiners to a regulatory party, we are not sure how they would react – except they probably wouldn’t R*VP.

More from Sandy Fielden
Why will Bakken flaring not fade away?
In June 2012 Bakken oil production reached 660 Mb/d with 0.7 Bcf/d of associated natural gas. A third of that associated gas (32% or 0.22 Bcf/d) was flared at the wellhead. There are sound environmental and economic reasons why flaring occurs. In other States like Texas the percentage of flaring is tiny (0.5%). The answer to flaring is better infrastructure but huge investments in North Dakota could still not be enough to eliminate flaring.

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