Prices Refined Product Margins Product Imports Refinery Investment Prices
Refined Product Margins
Product Imports
Refinery Investment
A fourth case was generated to determine the effects of requiring an ultra-low sulfur diesel for light duty diesel vehicles for the 30 percent case. If policies to encourage higher penetration levels of diesel-fueled vehicles are instituted, lower sulfur specifications may be required for on-road light duty vehicle (LDV) diesel fuel to reduce emissions and prolong the life of diesel catalytic converters. In this case, it was assumed that the sulfur specification for diesel was reduced to 50 ppm from 500 ppm for all diesel demanded by LDVs. It is technically possible for refiners to produce 50 ppm diesel, though only a small amount is produced in the United States. It was also assumed that diesel with 500 ppm sulfur would continue to be produced to satisfy demand from other diesel vehicles besides LDVs.
Demand for transportation diesels as a percent of total transportation diesel demand in the reduced sulfur case is summarized below.
Demand for Transportation Diesel 2005 - 2010
(percent)
2005 |
2010 |
2015 |
2020 |
|
| Low-Sulfur on-road Diesel | 74.5 | 64.0 | 57.5 | 54.8 |
| High-Sulfur off-road Diesel | 17.0 | 14.3 | 12.8 | 12.0 |
| Ultra-Low Sulfur on-road Diesel | 8.5 | 21.7 | 29.7 | 33.2 |
The primary difference in prices is in the average price for transportation diesel, which is $1.21 per gallon in 2020 compared to $1.17 in the 30 percent case and $1.18 in the AEO98 (Table 13 and Figure 16). The price is higher due to the addition of an ultra-low sulfur diesel fuel (50 ppm), with an expected price of $1.27 per gallon in 2020. The price for low-sulfur diesel (500 ppm) is $1.17 per gallon, the same price as in the 30 percent case if the WOP differential is removed. The prices for the other "light" products are slightly higher in the ultra-low sulfur case as compared to the 30 percent case when the prices are normalized to the same WOP. The price of jet fuel is 2.2 cents per gallon higher in the low sulfur case as compared to the 30 percent case. The price of gasoline is 0.7 cents per gallon higher than in the 30 percent case. The price of residential distillate is 0.2 cents per gallon lower than in the 30 percent case in year 2020. Jet fuel prices are affected by increased demand for ultra-low sulfur diesel because some of the low sulfur blending components that are used to make jet fuel are diverted to make ultra-low sulfur diesel. Additionally, these low sulfur components are produced by the relatively expensive additional hydrocracking capacity, which also applies upward pressure on the kerosene and diesel prices.
The product margins for most petroleum products in the ultra-low sulfur diesel case are similar to those of the 30 percent case, with the exception of the ultra-low sulfur diesel margins, which are about twice those of low-sulfur diesel in the 30 percent case due to the added costs associated with removing the sulfur in the distillate streams (Figure 17). While the margins are higher for the product (ultra-low sulfur diesel) that is displacing the relatively high margin gasoline, there is still some revenue loss due to the MPG efficiency benefits of diesel, which reduces product demand.
Gasoline imports in the low-sulfur case are about the same as the 30 percent case by 2020. Imports of jet fuel are about 250,000 barrels per day higher by 2020, due to more of the light kerosene feeds going into the production of ultra-low sulfur diesel (Table 14). Distillate imports are about 100,000 barrels per day lower than the 30 percent case by 2020 because there are more medium to low-sulfur feeds available for distillate production that would have been used for low-sulfur diesel provided to the LDV market. Low-sulfur diesel imports are also down by about 165,000 barrels per day from the 30 percent case by year 2020 because part of the demand for low-sulfur diesel from the 30 percent case is now ultra-low sulfur diesel, which is not available as an import.
Refinery investment in the ultra-low sulfur diesel case reflects the need for very low-sulfur distillate streams required to meet the 50 ppm sulfur specification for the LDV diesel (Figure 18). Total cumulative investment in distillate desulfurization capacity is actually less in this case as compared to the 30 percent case because distillate desulfurization capacity is replaced with investment in hydrocracking and hydrogen capacity to meet the more severe sulfur requirements of the ultra-low sulfur diesel. With this additional hydrocracking capacity cumulative investment is still considerably less (39 percent) than in the AEO98. Figure 19 displays the percent differences in cumulative refinery capacity investment to 2020 in the 30 percent and ultra-low sulfur diesel cases relative to the AEO98. Revenues per barrel of product decline by 5.1 percent compared to AEO98. Factoring in investment costs and operating and raw material costs results in net revenues per barrel of product produced 4.1 percent lower than AEO98.
To Appendix A: Petroleum Market Model Methodology
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February 2, 1999
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