Cost Efficiency

Cost Efficiency

 

Throughout the entire fuels production and distribution chain, differences in prices as small as a few cents per gallon drive business and consumption decisions. In emerging economies, as competition and competitiveness rises, margins tend to shrink, exponentially increasing cost sensitivity for all involved parties.

Within this increasingly competitive and cost-sensitive context, the demand for ethers—MTBE, in particular—is expected to grow significantly. In fact, over the next five years, ethers demand is expected to grow at a rate of 3-4 percent each year. Gasoline demand, as reference, is only expected to grow at 1-2 percent per year. This can be explained by two key facts:

  • With an average 38 cpg discount to its blend value, MTBE is the cheapest octane stream (compared to reformate and alkylate) in the US Gulf Coast, the region’s most prominent market of reference.

 

08

 

  • Unlike ethanol, MTBE can be incorporated into gasoline at any point in the fuels production and distribution chain. In other words, the continued use of MTBE does not demand significant investments in parallel and additional infrastructure development and maintenance to accommodate for ethanol’s hygroscopic and corrosive nature.

 

09

 

 

10

 

The upcoming, substantial growth in ethers demand can be explained by two key facts:

  • With an average 38 cents per gallon (cpg) discount to its blend value, MTBE is the cheapest octane stream (compared to reformate and alkylate) in the US Gulf Coast, the region’s most prominent market of reference. The prices vs blend value is a linear approximation of the unitary octane cost in each component. This is indicator is used by the refining industry to optimize its octane streams in terms of cost.
  • Unlike ethanol, MTBE can be incorporated into gasoline at any point in the fuels production and distribution chain. In other words, the continued use of MTBE does not demand significant investments in parallel and additional infrastructure development and maintenance to accommodate for ethanol’s hygroscopic and corrosive nature.

 

Two specific examples illustrate the additional infrastructure costs that ethanol use entail:

  • In Mexico, Pemex’s self-reported costs of implementing a limited regional pilot program for 498 million liters of ethanol per year in 17 out of 77 terminals (TARs) and 9 out of 32 states across Mexico is quite significant. It amounts to approximately USD $150 million, without generating any additional revenue. This amount does not add the additional maintenance costs and the costs of adapting service stations to be able to distribute ethanol-blended gasoline safely.
  • In Japan, the additional infrastructure investments to support a nation-wide ethanol program were estimated at USD $$3-6 billion dollars. This was one of the reasons why Japan decided to cap ethanol use at 3%, and largely chose ETBE as its primary fuel oxygenate.

 

 

Read More