Pure gasoline options shrink in South Dakota

Source: Cody Winchester, Argus Leader • Posted: Tuesday, May 29, 2012

gas octane

 A gasoline pump May 11 in Sioux Falls shows an octane rating of 87. Historically, anything east of Wall in South Dakota is supposed to have a minimum rating of 87. But the state will allow the sale of 85 octane statewide. / Elisha Page / Argus Leader

WHAT’S AN OCTANE RATING?

An octane rating is the measure of a gasoline’s ability to resist engine knock, rattling or pinging from premature ignition of the fuel-air mixture in the cylinders.

IN S.D.: A common fuel slate offers octane grades in regular (87), mid-grade (89) and premium (91 to 93), some blended with ethanol.

ILLEGAL: Blends with an octane rating of 85 typically have been sold west of Wall, but inspectors discovered during an investigation into mislabeling that 85-octane blends are illegal in South Dakota.

REMEDY: The South Dakota Department of Public Safety is proposing a rule to allow 85-octane blends to be sold statewide. An 85-octane gasoline is different from E85, a speciality blend for flex-fuel vehicles that contains 85 percent ethanol.

Sometime this summer, already-scarce blends of pure gasoline will become more rare in western South Dakota.

That’s because the largest refineries that supply the Plains Rocky Mountain Pipeline terminal in Rapid City, and therefore much of western South Dakota, soon will begin piping shipments of subgrade gasoline that will have to be blended with ethanol before it can be sold.

Drivers who prefer not to burn ethanol because they see a drag in fuel mileage will have fewer nonethanol choices. Already, more than 95 percent of the motor vehicle fuel sold in the U.S. contains ethanol, according to estimates from the Renewable Fuels Association.

Ethanol groups, for their part, worry that consumers who have engine problems after using the fuel will blame the ethanol rather than the low-grade gasoline with which it’s blended

Refiners claim the move purely is a business decision to lower the cost of complying with the Renewable Fuel Standard, a federal law that requires oil companies to blend biofuels into their products.

In any case, both the Sinclair Oil Co. refinery in Casper, Wyo., and the Exxon Mobil refinery in Billings, Mont., will begin shipping 82 octane gasoline to the Rapid City terminal this summer.

The subgrade fuel then would be blended with ethanol to boost its octane content to 85. For years, that has been the minimum rating for fuel sold in mountain states and higher-elevation markets in western South Dakota.

But in the wake of an ongoing investigation into mislabeled fuel in South Dakota, the Department of Public Safety and the Office of the Attorney General have determined that it is illegal to sell the 85 blend anywhere in the state.

Spreading lower ratings west to east

Historically, anything east of Wall was supposed to have a minimum rating of 87, according to technical standards that have been incorporated into state law. The proposal that emerged from an April meeting between state officials and representatives of oil companies, wholesalers and fuel stations, however, would allow the sale of 85 octane gas statewide.

This would expand the refiners’ market into the populous eastern side of the state and give supply-strapped wholesalers and retailers a new stock of fuel to tap.

The Rapid City terminal is building storage capacity for 82 octane and should be ready to accept shipments of the low-grade blend this summer, according to an April letter to Gov. Dennis Daugaard from Jack Barger, vice president for marketing and supply at Sinclair.

“The fact that Rocky Mountain Pipeline is altering its Rapid City terminal to accept 82 octane gasoline shipments … indicates other Rocky Mountain refiners believe this course is the most cost-efficient way to deliver to (sic) finished gasoline to consumers in western South Dakota,” Barger wrote.

Mark Holm, an economist at Exxon’s Billings refinery, affirmed this

“It’s certainly the trend,” he said. He referred further comment to a company spokeswoman, who said the company does not discuss its commercial agreements.

Pure gasoline supply expected to tighten

It’s unclear exactly how much pure gasoline will be available in the western third of South Dakota once refiners start shipping the 82 blend. Messages left with Plains Rocky Mountain Pipeline were not returned.

Sinclair ships 30 million gallons of fuel each year to Rapid City. The Exxon spokeswoman declined to say how much its Billings refinery ships. A refinery in Newcastle, Wyo., owned by Wyoming Refining Co. plans to continue shipping uncut 85-octane gasoline to Rapid City, but its capacity is one-half to one-third that of the larger refiners, vice president Bob Neufeld said at the governor’s meeting.

“The Rapid City terminal, which is the main distribution point for western South Dakota, is a tiny little tail on a great big dog in the rest of the Rocky Mountain position,” Neufeld said. “And that tiny little tail is not going to wag that dog.”

Big refineries cite high blending costs

Because the big refiners already have committed to shipping 82 octane for larger customers in the mountain states, they say shipping batches of higher-octane fuel to South Dakota — a relatively small market — would require them to mix in premium blends, which would be prohibitively expensive

“We just don’t have the ability to sell a clear product without having to buy RINS,” said Tom Taylor, Sinclair’s regional manager in Denver, referring to the federal market for Renewable Identification Numbers.

Potential influence on terminals in East

The question also persists of how the refineries that supply East River terminals will react to this new subgrade blend flowing into Rapid City, especially if 85 octane fuel is allowed statewide.

Ron Lamberty, senior vice president at the American Coalition for Ethanol, said the introduction of a cheap, low-grade fuel in Rapid City could nudge eastern terminals to lower their standards to compete.

“There’s always the possibility that the suppliers out here see what’s happening at one terminal in the Black Hills, where the oil companies said, that’s all we’re going to make — take it or leave it,” said Lamberty, who owns a retail station in Sioux Falls and one in White.

San Antonio-based Nustar, which owns a refined-products pipeline network with terminals in Aberdeen, Wolsey, Sioux Falls, Mitchell and Yankton, has no plans to lower its octane specifications, spokesman Greg Matula said. With the exception of its Jamestown North terminal in North Dakota, which sometimes takes deliveries of 84 blends, the company handles only 87 or 91 octane, he said

But Matula said Nustar would adjust its terminal specifications if its customers asked.

“We don’t dictate fuel specs to our shippers,” he wrote in an email.

“They ship whatever spec fuel is marketable in the region.”

Bob Meine, a spokesman for Magellan Midstream Partners, which has fuel terminals in Sioux Falls and Aberdeen, said it has no plans to change its specifications, either, but company officials plan to be “an active participant in the upcoming (85 octane) rulemaking process.”

 

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