Slide 14 of 17
Notes:
- Why has there been such a large RFG price increase in the Chicago/Milwaukee areas?
- There is no one answer. A large part of the price reaction to the region’s low stocks stems from the small size of this market, the unique nature of the area’s summer-grade ethanol-blended Phase II RFG, and a difficult transition from the winter to the summer grade gasoline.
- The RFG market in the Midwest is about 13% of the Midwest total gasoline market, compared to the East Coast, where RFG represents about 38%. A small market has fewer nearby options for product when any problems occur. Furthermore, because RFG is relatively expensive to produce, the industry has a disincentive to store extra product.
- The special gasoline blend used in this area during the summer is produced at refineries and sent to terminals near the local market to be combined with ethanol in order to produce the finished RFG. While that special blend can be produced on the Gulf Coast by a few refineries and shipped to Chicago and Milwaukee terminals, it is both a difficult and relatively expensive material to produce and a long trip to the final destination. Thus, an initial price runup does not immediately bring in new supplies from outside the region.
- The complexity of the transition from winter to summer grade gasoline also contributed to the problem. Many storage tanks had to be drained completely before the new summer-grade product could be added in order to preserve the clean fuel qualities. This exposed the area to very low stocks during the transition. Also some refineries produced less RFG blending component volumes this year than last and others produced more, which required market distribution adjustments.
- Contributing to the problem are the uncertainties surrounding supply that result from the temporary West Shore pipeline shutdown and the UNOCAL patent, which is lending uncertainty to all RFG producers.
