1.

Prepared by:

David C. Tamm

Gary N. Devenish

Daniel R. Finelt

Amelia L. Kalt

Report

Baker & O’Brien, Inc.

1333 West Loop South

Suite 1350

Houston, Texas 77027

Analysis of Gasoline Octane Costs

Prepared for

October 18, 2018
TABLE OF CONTENTS

U.S. Energy Information Administration - i -

1. NOTICE......................................................................................................1

2. EXECUTIVE SUMMARY ..............................................................................2

WHAT IS GASOLINE? ............................................................................................... 2

GASOLINE PROPERTIES AND SPECIFICATIONS........................................................ 2

POTENTIAL CHANGES IN OCTANE REQUIREMENTS ............................................... 3

GASOLINE COMPONENTS ....................................................................................... 3

GASOLINE CONSUMPTION...................................................................................... 4

GASOLINE PRODUCTION......................................................................................... 4

INTERNATIONAL GASOLINE MARKETS.................................................................... 5

PREMIUM TO REGULAR PRICE DIFFERENTIALS ...................................................... 5

CONCLUSIONS......................................................................................................... 6

3. INTRODUCTION.........................................................................................8

4. BACKGROUND.........................................................................................10

WHAT IS GASOLINE? ............................................................................................. 10

GASOLINE PROPERTIES AND SPECIFICATIONS...................................................... 11

4.2.1 OCTANE RATING ....................................................................................... 11

4.2.2 VOLITILITY AND DISTILLATION SPECIFICATIONS....................................... 13

REID VAPOR PRESSURE (RVP) ................................................................... 14

DISTILLATION ............................................................................................ 14

DRIVABILITY INDEX.................................................................................... 14

VAPOR-LIQUID RATIO ............................................................................... 15

4.2.3 SULFUR...................................................................................................... 15

4.2.4 BENZENE ................................................................................................... 15

4.2.5 MERCAPTANS............................................................................................ 15

4.2.6 GUM AND OXIDATION STABILITY ............................................................. 15

4.2.7 COLOR, NACE CORROSION, PHOSPHOROUS ............................................ 16

GOVERNMENT REGULATIONS .............................................................................. 16

4.3.1 LEAD PHASE-OUT ...................................................................................... 16

4.3.2 FEDERAL REFORMULATED GASOLINE....................................................... 17

4.3.3 METHYL-TERTIARY-BUTYL-ETHER PHASE OUT ......................................... 18

4.3.4 RENEWABLE FUELS STANDARD (RFS) ....................................................... 18

4.3.5 SULFUR REDUCTION ................................................................................. 19

4.3.6 MOBILE SOURCE AIR TOXICS (MSAT)........................................................ 19

4.3.7 OTHER STATE AND LOCAL REGULATIONS................................................. 19

POTENTIAL ENGINE DESIGN CHANGES................................................................. 20

4.4.1 HIGHER COMPRESSION ENGINES ............................................................. 21

4.4.2 DIRECT INJECTION..................................................................................... 22

4.4.3 TURBOCHARGERS ..................................................................................... 23
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GASOLINE COMPONENTS ..................................................................................... 23

4.5.1 COMPONENTS PRODUCED IN PETROLEUM REFINERIES .......................... 23

4.5.2 NON-REFINERY GASOLINE COMPONENTS................................................ 28

NATURAL-GAS LIQUIDS (NGL)................................................................... 28

STAND-ALONE ALKYLATION AND MTBE PLANTS...................................... 29

PETROCHEMICAL BY-PRODUCTS............................................................... 30

ETHANOL 30

PETROCHEMICAL MARKETS FOR GASOLINE COMPONENTS ................................ 32

SUMMARY............................................................................................................. 35

5. GASOLINE CONSUMPTION ......................................................................36

6. GASOLINE PRODUCTION .........................................................................43

REFINING CHANGES .............................................................................................. 44

CRUDE OIL QUALITY.............................................................................................. 48

ETHANOL............................................................................................................... 53

FINISHED GASOLINE COMPOSITION..................................................................... 53

COST OF INCREMENTAL OCTANE ......................................................................... 55

7. PREMIUM TO REGULAR PRICE DIFFERENTIALS ........................................58

RETAIL ................................................................................................................... 59

RACK...................................................................................................................... 61

SPOT ...................................................................................................................... 63

REGIONAL SUPPLY CHAIN ANALYSIS..................................................................... 67

7.4.1 CENTRAL ATLANTIC (PADD 1B)................................................................. 68

7.4.2 USGC ......................................................................................................... 71

7.4.3 CHICAGO ................................................................................................... 73

7.4.4 LOS ANGELES............................................................................................. 76

8. INTERNATIONAL GASOLINE MARKETS.....................................................79

OCTANE GRADES AND PRICE DIFFERENTIALS....................................................... 79

GASOLINE AND COMPONENT TRADE FLOWS....................................................... 80

OCTANE COSTS...................................................................................................... 81

9. CONCLUSIONS.........................................................................................84
TABLE OF CONTENTS

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TABLES

TABLE 1 – CRUDE OIL DISTILLATION PRODUCTS

TABLE 2 – REFINERY PRODUCED GASOLINE COMPONENTS

TABLE 3 – ETHANOL PROPERTIES

TABLE 4 – GASOLINE BLEND AKI-BARREL EXAMPLE

TABLE 4 – U.S. CAPACITY CHANGES

FIGURES

FIGURE 1 – PREMIUM TO REGULAR RETAIL PRICE DIFFERENTIAL

FIGURE 2 – 2016 U.S. PETROLEUM-BASED FUEL CONSUMPTION

FIGURE 3 – U.S. LIGHT DUTY GASOLINE VEHICLES IN OPERATION

FIGURE 4 – TIMELINE OF GASOLINE REGULATIONS

FIGURE 5 – U.S. GASOLINE REQUIREMENTS

FIGURE 6 – COMPRESSION RATIO VERSUS OCTANE REQUIREMENT

FIGURE 7 – EXAMPLE REFINERY CONFIGURATION

FIGURE 8 – U.S. NGL PLANT PRODUCTION

FIGURE 9 – U.S. ETHYLENE CRACKER EXPANSIONS

FIGURE 10 – PETROCHEMICAL FEEDSTOCKS

FIGURE 11 – U.S. AVERAGE FINISHED GASOLINE COMPOSITION SECOND QUARTER 2017

FIGURE 12 – FINISHED GASOLINE (INCUDING ETHANOL) CONSUMPTION BY PADD

FIGURE 13 – ETHANOL INCLUDED IN GASOLINE CONSUMPTION BY PADD

FIGURE 14 – PETROLEUM-BASED GASOLINE CONSUMPTION BY PADD

FIGURE 15 – FINISHED GASOLINE (INCLUDING ETHANOL) CONSUMPTION BY GRADE

FIGURE 16 – PETROLEUM-BASED GASOLINE CONSUMPTION BY GRADE

FIGURE 17 – U.S. FINISHED GASOLINE OCTANE CONSUMPTION

FIGURE 18 – U.S. GASOLINE PRODUCTION VERSUS PRODUCT SUPPLIED

FIGURE 19 – CRUDE OIL CHARGE BY PADD

FIGURE 20 – REFORMER UTILIZATION (ALL PADDS)

FIGURE 21 – SAMPLE YIELDS FROM CRUDE OILS

FIGURE 22 – U.S. CRUDE OIL PRODUCTION

FIGURE 23 – U.S. REFINERY CRUDE OIL MIX

FIGURE 24 – PADD 3 REFINERY CRUDE OIL MIX

FIGURE 25 – PADD 2 REFINERY CRUDE OIL MIX

FIGURE 26 – U.S. ETHANOL PRODUCTION

FIGURE 27 – U.S. FINISHED GASOLINE COMPOSITION (MILLION B/D)

FIGURE 28 – U.S. FINISHED GASOLINE COMPOSITION AND REFORMER SEVERITY

FIGURE 29 – COST OF INCREMENTAL OCTANE, U.S. GULF COAST

FIGURE 30 – OVERVIEW OF GASOLINE SUPPLY CHAIN

FIGURE 31 – U.S. RETAIL PREMIUM TO REGULAR GASOLINE DIFFERENTIAL

FIGURE 32 – U.S. RETAIL PREMIUM TO REGULAR GASOLINE DIFFERENTIAL BY PADD

FIGURE 33 – U.S. RACK PREMIUM-REGULAR GASOLINE DIFFERENTIAL

FIGURE 34 – RACK PREMIUM-REGULAR GASOLINE PRICE DIFFERENTIALS BY PADD

FIGURE 35 – PREMIUM-REGULAR PRICE DIFFERENTIALS SELECTED U.S. SPOT MARKETS
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FIGURE 36 – NET GASOLINE FLOWS

FIGURE 37 – AGGREGATE LIGHT OIL PRODUCTS FROM WOOD RIVER, DETROIT, AND 

 WHITING

FIGURE 38 – CENTRAL ATLANTIC RETAIL GASOLINE PRICES

FIGURE 39 – CENTRAL ATLANTIC PREMIUM-TO-REGULAR DIFFERENTIALS

FIGURE 40 – HOUSTON RETAIL GASOLINE PRICES

FIGURE 41 – HOUSTON PREMIUM-TO-REGULAR DIFFERENTIALS

FIGURE 42 – CHICAGO RETAIL GASOLINE PRICES

FIGURE 43 – CHICAGO-HOUSTON RETAIL GASOLINE PRICES

FIGURE 44 – CHICAGO PREMIUM-REGULAR DIFFERENTIALS

FIGURE 45 – LOS ANGELES RETAIL GASOLINE PRICES

FIGURE 46 – LOS ANGELES PREMIUM-REGULAR PRICE DIFFERENTIALS

FIGURE 47 – EU PREMIUM-REGULAR PRICE DIFFERENTIALS 

FIGURE 48 – REGIONAL GASOLINE BALANCE 

FIGURE 49 – REGIONAL SPOT OCTANE VALUES

FIGURE 50 – REGIONAL GASOLINE BALANCE

FIGURE 51 – GASOLINE IMPORTS/EXPORTS BY REGION

FIGURE 52 – U.S. GASOLINE EXPORT DESTINATIONS BY VOLUME

FIGURE 53 – EU GASOLINE CONSUMPTION

FIGURE 54 – DIESEL SHARE OF NEW CAR SALES

FIGURE 55 – EUROPEAN GASOLINE KEY FUEL PROPERTIES

FIGURE 56 – EUROPEAN GASOLINE CONSUMPTION BY GRADE AND ETHANOL CONTENT

FIGURE 57 – EUROPEAN OCTANE PRICING

FIGURE 58 – 2017 ASIA PACIFIC GASOLINE CONSUMPTION BY COUNTRY

FIGURE 59 – ASIA PACIFIC GASOLINE CONSUMPTION

FIGURE 60 – ASIA PACIFIC GASOLINE BALANCE BY COUNTRY

FIGURE 61 – ASIA PACIFIC RON AND SULFUR REQUIREMENTS

FIGURE 62 – ASIA PACIFIC GASOLINE CONSUMPTION BY RON

FIGURE 63 – SINGAPORE OCTANE COST PER BARREL

FIGURE 64 – PASSENGER CAR SALES IN CHINA

FIGURE 65 – INDONESIAN GASOLINE CONSUMPTION BY GRADE

FIGURE 66 – INDIA SHARE OF PASSENGER VEHICLE SHARES

FIGURE 67 – MEXICO GASOLINE SALES

FIGURE 68 – SELECTED U.S. AND MEXICO GASOLINE QUALITIES SPECIFICATIONS

FIGURE 69 – MEXICO GASOLINE TRADE BALANCE

FIGURE 70 – MEXICO GASOLINE PRICES EXCLUDING TAX AND DISTRIBUTOR FEES

FIGURE 71 – BRAZIL GASOLINE SALES BY DISTRIBUTORS, OIL EQUIVALENT BARRELS

FIGURE 72 – NET IMPORTS OF GASOLINE IN BRAZIL

FIGURE 73 – ARGENTINA GASOLINE CONSUMPTION

APPENDICES

APPENDIX A – GASOLINE SPECIFICATION REQUIREMENTS

APPENDIX B – INTERNATIONAL ANALYSIS
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1. NOTICE

This report was prepared by Baker & O’Brien, Inc. (Baker & O’Brien) using its own models and 

analysis. The opinions and findings in this report are based upon Baker & O'Brien's experience, 

expertise, skill, research, analysis, and related work to date. Forecasts and projections 

contained in this report represent Baker & O'Brien's best judgment utilizing its skill and expertise 

and are inherently uncertain due to the potential impact of factors or future events that are 

unforeseeable at this time or beyond Baker & O'Brien's control. In the event that additional 

information should subsequently become available that is material to the conclusions presented 

herein, Baker & O'Brien reserves the right to supplement or amend this report. Nothing in this 

report should be construed as a recommendation for or against implementing any policies and 

regulations. Baker & O'Brien expressly disclaims all liability for the use, disclosure, 

reproduction, or distribution of this report by or to any third party.
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2. EXECUTIVE SUMMARY

Since 2012, the average retail price differential between regular and premium gasoline in the 

United States increased from approximately 0.20 dollars per gallon ($/gal) – 0.30 $/gal to 0.53 

$/gal in 2017. The differential has roughly doubled in PADDs 1, 2, 3, and 4 from the range of

0.20 $/gal - 0.30 $/gal to 0.50 $/gal - 0.55 $/gal, with a more modest increase in PADD 5, from 

approximately 0.25 $/gal to 0.35 $/gal. The U.S. Energy Information Administration (EIA) 

retained Baker & O’Brien, Inc. to analyze the factors and conditions leading to the increased 

differentials.

WHAT IS GASOLINE?

Gasoline is a complex mixture of hydrocarbons and other chemical compounds used as fuel for 

spark-ignition internal combustion engines, primarily in light duty transportation vehicles (LDV). 

Gasoline in the United States must meet over a dozen individual specifications, which may vary 

both regionally and seasonally. Different gasoline “classes” (i.e., conventional or reformulated) 

are formulated to meet particular regional specifications. Moreover, each “class” of gasoline 

has different octane levels (i.e., regular or premium), as well as specifications that vary 

seasonally (i.e., Reid Vapor Pressure).

GASOLINE PROPERTIES AND SPECIFICATIONS

The gasoline octane rating measures its ability to withstand pre-ignition during compression in 

an engine cylinder. Gasoline octane is a critical factor in engine design. Engine performance 

and efficiency increase with increasing compression ratio. Engines with higher compression 

ratios require gasolines with higher octane ratings. In the United States, the posted gasoline 

octane rating is the average of two different testing methods, the Research Octane Number 

(RON) and the Motor Octane Number (MON). The average is referred to as the Anti-Knock 

Index (AKI). Most U.S. LDV are designed for regular, 87 AKI gasoline. Approximately 10% of 

vehicles require or recommend premium gasoline (91 AKI or higher).

To burn, liquid gasoline must be vaporized and mixed with oxygen (air). Since gasoline is a 

blend of hundreds of molecules with different characteristics, gasoline boils (vaporizes) over a 

range of temperatures and must be blended in a way that vaporization will occur over the entire 
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range of engine operating temperatures. Several specifications measure and control the 

vaporization performance of gasoline:

• Reid Vapor Pressure (RVP) 

• Distillation 

• Drivability Index (DI)

• Vapor-Liquid Ratio (V/L)

The EPA also sets limits on the sulfur and benzene content of finished gasoline. Other industry 

specifications limit the tendency and ability of the gasoline blend to foul, damage, or corrode 

gasoline storage facilities as well as components of the vehicles combustion and exhaust 

systems. These specifications include Gum, Oxidation Stability, Color, NACE Corrosion, and 

Phosphorous.

POTENTIAL CHANGES IN OCTANE REQUIREMENTS

The Energy Policy and Conservation Act enacted in 1975 required that the Department of 

Transportation (DOT) establish Corporate Average Fuel Economy (CAFE) standards setting the 

average new vehicle fuel economy that each manufacturer's fleet must achieve. Currently, 

CAFE standards require that average model year 2017 vehicles achieve approximately 40 miles 

per gallon (mpg), with model year 2025 vehicles projected to achieve approximate 51 mpg. 

These are calculated compliance fuel economy measures, so average on-road fuel economy 

would be lower. Automakers are considering technical solutions that include compression ratio 

increases and may require higher gasoline octane.

GASOLINE COMPONENTS

Petroleum refineries are the main source of finished gasoline and blendstocks for oxygenate 

blending (BOBs). Non-refinery blenders produce the balance using gasoline components also 

produced primarily in petroleum refineries. Other sources include natural gas processing plants, 

ethanol plants, and petrochemical plants. NGL production has almost doubled since 2010 and 

is equivalent to approximately 7% of 2016 finished gasoline consumption. Ethanol represents 

approximately 10 volume percent (vol%) of the finished gasoline consumed in the United States.
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GASOLINE CONSUMPTION

U.S. gasoline consumption averaged 9.3 million barrels per day (b/d) in 2016, an all-time high. 

However, excluding ethanol, the consumption of petroleum-derived (i.e., excluding ethanol) 

gasoline is still below the 8.9 million b/d peak reached in 2006. Regular gasoline comprises 

87% of all gasoline sold. Premium gasoline sales have increased slightly since 2012 to 

approximately 12% but remains well below historical peak levels of 18% seen in 2000. Thus, 

the total AKI demand for petroleum derived blending components also remains below the peak 

years of 2006 and 2007.

GASOLINE PRODUCTION

Between 2008 and 2016, U.S. gasoline production grew at an average rate of 1.6% per year, a 

rate faster than domestic consumption grew. The United States went from being a net importer 

to a net exporter of gasoline and gasoline components. In 2016, the total petroleum based 

gasoline production averaged 8.4 million b/d, the highest production over the past 16 years. 

This increase in gasoline production is a result of: 1) Changes at refineries; 2) Changes in crude 

oil quality; and 3) Increased ethanol usage.

The majority of refinery changes between 2010 and 2016 involved increasing crude throughput 

and increasing refinery distillate production. Crude distillation capacity increased 8%, while 

hydrocracking capacity increased by 26%. Hydrocrackers primarily produce distillates such as 

jet fuel and diesel, gasoline components, and feedstocks for other units. There were almost no 

capacity increases to units that primarily produce gasoline or high octane gasoline components. 

The U.S. refining crude slate quality changed significantly between 2012 and 2016. Refinery 

consumption of “light” shale crude and condensate more than doubled, reaching 20% of the 

total (from 10%). As the amount of light crude oil processed increased, production of low 

octane light straight-run naphtha also increased, refineries compensated for this by increasing 

reformer utilization and severity.

EIA data indicate that spare reformer capacity is still available in most PADDs implying that the 

U.S. refining industry has capacity to produce incremental octane. The cost of producing 

incremental octane was calculated using two approaches and was shown to be less than the 

market price of octane.
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INTERNATIONAL GASOLINE MARKETS 

Gasoline, gasoline components, and feedstocks (e.g. naphtha) used to make gasoline are 

global commodities that are frequently traded between regions and countries. The U.S. East 

Coast (PADD 1) and U.S. Gulf Coast (PADD 3) markets are particularly integrated with other 

markets in the Atlantic Basin. Large quantities of gasoline and gasoline components from 

Canada and Europe are imported into PADD 1. At the same time, even larger quantities are 

exported from PADD 3 primarily to Africa and Latin America.

PREMIUM TO REGULAR PRICE DIFFERENTIALS

Gasoline is distributed from refineries by a variety of methods and supply chain components 

owned and operated by a wide range of commercial interests. Owners include not only refining 

and marketing companies but also other independently owned and managed entities, such as 

transport companies, traders, marketers, and blenders that specialize in particular supply chain 

functions. 

Finished gasoline is bought and sold at multiple points in the supply chain. The retail price that 

the consumer sees is usually set by the owner/operator of the individual retail outlet. Retail 

owners/operators purchase finished gasoline from bulk terminals on either a delivered tank 

wagon basis or at the rack price. Refiners, traders, and others also buy and sell finished 

gasoline and components in the spot market upstream of the bulk terminals. Spot market prices 

are more closely tied to refinery and blending costs than rack or retail prices.

The retail price differential between premium and regular has widened significantly over the past 

seven years, reaching over $0.50/gallon ($/gal) in September 2017. There is a significant 

regional variation with PADD 1 having the highest differential and PADD 5 the lowest.

The major U.S. petroleum product spot markets are the United States Gulf Coast (USGC) and 

New York Harbor (NYH). From 2010 through 2016, spot market premium to regular differentials 

in the USGC (PADD 3) and NYH (PADD 1) generally trended together. Prices in these two spot 

markets are indicative of refining costs and product availability in the Atlantic Basin. Smaller 

spot markets exist in Chicago (PADD 2) and the West Coast (PADD 5).
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The NYH and USGC spot market data show a number of spikes in the premium to regular price 

differential beginning in 2011 and through 2015. It is most likely that these spikes were a result 

of changes in product cost and availability. The spot market differential spikes resulted in 

increased premium to regular differentials at the retail level. After each of these spot market 

spikes, the spot market differential declined more rapidly than at the wholesale and retail levels.

CONCLUSIONS 

This study tested the premise that retail premium to gasoline differentials have risen due to 

increased refining costs or long-term structural shortages of the high octane gasoline 

components. The analysis did not support either of these conjectures. Instead it appears that 

asymmetric price transmission (known colloquially as the rocket and feathers hypothesis) is 

responsible. The rocket and feathers phenomenon, in which retail gasoline prices increase 

rapidly when costs increase but decrease much more slowly when costs decrease, has been 

observed previously in refined product prices. There is general agreement among studies that 

the phenomenon is common and that there is a statistically significant difference between the 

speed of upward movements and the speed of downward movements in gasoline prices relative 

to input costs (i.e. crude prices). Since the studies differ in the statistical methods they use, 

estimates of the length of time it takes for the gasoline-crude price spread to return to a normal 

level vary widely.

A possible explanation for the slower price decline rate is the existence of search and 

adjustment costs. For the most part, discovering the lowest price after a market change 

requires physically visiting different retail outlets. This implies a cost to finding the station with 

the best price and a tradeoff between search costs and price discovery. This tradeoff would 

cause consumers to stick with their normal outlet at first, then gradually discover locations with 

better prices and switch.

The search and adjustment cost theory implies lower price elasticity immediately after a market 

change. Each retail outlet can quickly raise pump prices to recover wholesale cost increases 

without losing sales to other stations. If a spike in wholesale prices is temporary, retail outlets 

will only slowly feel pressure to lower prices because the cost of search will, therefore, tend to 

keep consumers with their normal supplier. As consumers gradually acquire more information 
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about prices in different locations, retailers will be forced by competition to lower prices but with 

a lag based on how quickly consumers gain additional information.

While the regular-premium price differential has been increasing since 2014, absolute gasoline 

prices fell dramatically starting in 2014, as crude prices plummeted from over $100/barrel (b) in 

June 2014 to approximately $50/b at the end of 2016. The drop in absolute prices coincides 

with an increase in premium gasoline consumption as a percentage of total gasoline sales. It 

appears that the marginal premium gasoline buyer is more sensitive to the absolute price of 

premium gasoline than to the price differential to regular gasoline. This implies that premium 

gasoline is a separate market from regular gasoline.

Higher search costs to discover premium prices relative to search costs for regular prices could 

also help explain why premium prices decline more slowly than regular prices. This would be 

the case if retail premium prices are less transparent to the consumer. In many instances, only 

the regular gasoline price is advertised on the street, so consumers must physically drive into 

the retail outlet to determine the premium price of gasoline. The theory that high search costs 

have an impact is supported by the data from Los Angeles. In this market, retailers must 

display prices, for all grades of gasoline, prominently on the street. Los Angeles showed 

essentially no change in the retail differential across the 2010 to 2016 period. PADD 5 on 

average showed the smallest increases in premium to regular differentials of all the PADDs.

A detailed analysis of price asymmetry and search costs was outside the scope of this study.
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3. INTRODUCTION

Beginning around 2012, the retail price difference between regular grade gasoline, typically an 

87 Anti-Knock Index (AKI), and premium grade gasoline, typically 91 AKI to 93 AKI, has steadily 

increased in all Petroleum Administration for Defense Districts (PADDs) (Figure 1). For the total 

United States during 2017, the average retail price differential between regular and premium 

gasoline averaged 0.53 dollars per gallon ($/gal). In PADDs 1, 2, 3, and 4, the current 

differential is approximately double what it was in 2010 and 2011 (0.50 $/gal - 0.55 $/gal versus

0.20 $/gal - 0.30 $/gal). The differential has increased at a slower rate in PADD 5 (from 

approximately 0.25 $/gal to 0.35 $/gal).

FIGURE 1

PREMIUM TO REGULAR RETAIL PRICE DIFFERENTIAL

Source: U.S. Energy Information Administration
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 9

The United States (U.S.) Energy Information Administration (EIA) has retained Baker & O’Brien, 

Inc. (Baker & O’Brien) to analyze the factors and conditions that have resulted in increased 

differentials. The period studied was 2010 through 2016.

Baker & O’Brien made extensive use of its PRISM Refining Industry Analysis modeling system

in the performance of this study. The PRISM model is based on publicly-available information

and Baker & O'Brien's industry experience and knowledge. No proprietary or confidential 

refining company information is solicited or included in the PRISM modeling results. The results 

are estimates, and actual outcomes could vary.

Baker & O’Brien subcontracted to EMC-Energy Market Consultants (UK) Ltd., part of the FGE 

Group (FGE) and Hedges & Company (Hedges) for portions of the analysis presented in this 

report. Dr. W. David Montgomery also assisted Baker & O’Brien in the analysis and 

preparation of this report.

 

PRISM is a trademark of Baker & O'Brien, Inc. All rights reserved.
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4. BACKGROUND

WHAT IS GASOLINE?

Gasoline is a complex mixture of chemical compounds used as fuel for spark-ignition internal 

combustion engines. In 2016, gasoline represented 47% of total U.S. finished petroleum-based 

fuel consumption (Figure 2). In the United States, gasoline is the predominate fuel for light duty 

transportation vehicles. It is also used for other modes of transportation (i.e., boating) and in 

small engines such as lawnmowers.

FIGURE 2

2016 U.S. PETROLEUM-BASED FUEL CONSUMPTION1

Sources: EIA, Baker & O’Brien Analysis

 

1 Excludes ethanol and other bio-fuels.

Gasoline

47%

Distillate

20%

Hydrocarbon Gas 

Liquids

13%

Jet Fuel

8%

Other

12%
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GASOLINE PROPERTIES AND SPECIFICATIONS

Finished gasoline sold in the United States must meet over a dozen individual specifications. 

These specifications vary both regionally and seasonally. The term “class” is used in this report 

to describe gasoline that meets the specifications for a particular region (i.e., conventional 

gasoline or reformulated gasoline). Within each class, there are different grades which vary in 

octane rating (i.e., regular or premium). Some specifications are constant throughout the year

for a class, while others (i.e., RVP) change seasonally. The term “finished gasoline” refers to 

gasoline that meets all specifications for retail sales. The terms “components” and 

“blendstocks” refer to products that may be used to produce finished gasoline. One special 

group of blendstocks is Blendstocks for Oxygenate Blending (BOBs). BOBs are blended so that 

they meet finished gasoline specifications when a predetermined quantity of ethanol (usually 

10%) is added.

4.2.1 OCTANE RATING

Octane rating measures a fuel’s ability to withstand compression without pre-igniting. In a 

gasoline engine, a fuel-air mixture is compressed by the piston moving upward in each cylinder. 

As it is compressed, the fuel-air mixture temperature rises. After the spark plug fires, the 

expanding vapor and flame propagates through the cylinder, further increasing the temperature 

and pressure of the remaining uncombusted fuel-air mixture. A combination of heat and 

pressure can cause the mixture to ignite (in the cylinder) before the spark plug fires, or before 

the propagating flame reaches the mixture. This pre-ignition results in the characteristic 

knocking or pinging sound and can lead to engine damage. The compression ratio (the ratio of 

the maximum volume of a cylinder to its minimum volume) of an engine has increased with 

engine design to improve efficiency. However, as the compression ratio increases, the peak 

pressure and temperature increase, and consequently the tendency of gasoline to pre-ignite 

also increases. Therefore, engines with higher compression ratios may require gasolines with 

higher octane ratings. Engine manufacturers specify the Octane Number Requirement (ONR) 

of each engine based on engine design factors and in-use conditions.
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Two different methods are used to measure octane ratings. The Research Octane Number 

(RON) method tests fuel at low engine loads by comparing it under variable compression ratios 

to mixtures of the reference fuels isooctane (100 RON) and normal heptane (0 RON). In most 

of the world, the RON is what is posted on the retail station pump. The second method, the 

Motor Octane Number (MON), is similar to RON testing but at a higher engine load. The 

arithmetic average of RON and MON (RON plus MON divided by two; (R+M)/2) is known as the 

Anti-Knock Index (AKI). The AKI is what is posted at retail station pumps in North America.

Most North American light-duty gasoline fueled vehicles (LDV) are designed to operate using 

regular gasoline with an AKI of 87.

2 For approximately 10% of these LDVs, the manufacturer’s 

owner’s manual requires or recommends premium gasoline (AKI of 91 or higher). Engine 

designs that require higher AKI gasoline can result in higher vehicle fuel economy, better 

performance, or both. EPA allows manufacturers to certify vehicle fuel economy using either 87 

AKI or 91 AKI gasoline. Premium recommended vehicles are certified using 91 AKI gasoline, 

but do not require 91 AKI for daily driving.

Between 2010 and 2016, the total number of light duty vehicles in operation in the United States

increased from 233 million to 273 million. Between 2010 and 2014, premium recommended or 

premium required vehicles (based on owner’s manuals) comprised between 11.5% and 11.7% 

of the total fleet (Figure 3). In 2015 and 2016, the count of these “premium” vehicles declined 

and the percentage of the fleet decreased to 10.7% and 9.6%, respectively.

 

2 In some regions of the United States, regular gasoline with AKI ratings of 85 or 86 is sold. In other 

regions, premium gasoline with AKI ratings of 92 or 93 is sold. AKI requirements in certain mountain 

regions are generally lower, based on previous studies that indicated knock tendencies in carbureted 

engines decreased at high altitudes.
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FIGURE 3

U.S. LIGHT DUTY GASOLINE VEHICLES IN OPERATION

Source: Hedges & Company. Includes vehicles with gross weight up to 10,000 pounds.

Modern light-duty vehicles sold in the United States are equipped with knock sensors and 

computer controlled ignition systems that compensate for the use of gasoline with a subspecification AKI rating. The use of sub-specification gasoline will likely result in loss of 

performance and fuel economy, but the driver may not experience any noticeable knock.3

4.2.2 VOLITILITY AND DISTILLATION SPECIFICATIONS

To burn, gasoline must be vaporized and mixed with oxygen (air). Since gasoline is a blend of 

hundreds of molecules with different characteristics, gasoline does not boil at one temperature

but over a range. Gasoline must be blended in a way that vaporization will occur over the entire 

range of operating temperatures, beginning with cold starts. Several specifications are used to 

measure and control the vaporization performance of the blend.

 

3 Baker & O’Brien does not recommend purchasing gasoline that does not meet the AKI requirements or 

recommendations of the manufacturer as stated in the owner’s manual.
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REID VAPOR PRESSURE (RVP)

Vapor pressure is the pressure exerted by the vapor in a liquid-vapor mixture at a specified 

temperature. Reid Vapor Pressure (RVP) measures vapor pressure of a gasoline blend at 100

degrees Fahrenheit (°F). If the RVP of a gasoline blend is too high, some components may 

escape when exposed to the atmosphere (e.g., when filling up the car at the gas station). If the 

RVP is too low, starting the engine at low temperatures may be a problem.

U.S. Environmental Protection Agency (EPA) regulations require the RVP of summer gasoline 

blends not to exceed 7.8 pounds per square inch, absolute (psia) in some regions, and 9.0 psia 

in others. Some state and local authorities implemented even lower RVP specifications of 7.0 

psia during the summer season. Winter gasoline blends are phased in as the weather gets 

cooler. The first increase in RVP occurs on September 15 and, in some areas, the allowed RVP 

eventually increases to 15 psia.

DISTILLATION

The temperature range over which the gasoline mixture boils is known as the distillation profile. 

The gasoline’s distillation profile directly impacts engine performance, from its cold start and 

warm up behavior, to its ability to provide power and acceleration, to its fuel economy on both 

short and long trips. Gasoline specifications limit the temperature ranges at which 10% (T10), 

50% (T50), and 90% (T90) of the gasoline boils. These specifications vary by season and 

class, similar to RVP.

DRIVABILITY INDEX

The Drivability Index (DI) is another measure of how the gasoline will perform over the entire 

range of operating temperatures. The DI is a function of the distillation profile and ethanol 

content. The DI formula is:

DI = 1.5(T10) + 3.0(T50) + (T90) + 2.4(ethanol volume percent)4

DI specifications vary with gasoline class and season in the range of 850 to 1,275.

 

4 T10, T50, and T90 must be in °F.
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VAPOR-LIQUID RATIO

The vapor-liquid ratio (V/L) measures the temperature at which the vapor volume is 20 times the 

liquid volume. The V/L specification was intended to prevent gasoline from vaporizing in the 

fuel line (vapor-locking). The vapor-lock problem has largely been eliminated by the relocation 

of fuel pumps from the engine compartment to the fuel tank but the specification remains. 

Higher V/L values indicate greater protection against vapor lock. V/L specifications vary 

between 95°F and 140°F with the season.

4.2.3 SULFUR

As of January 1, 2017, EPA’s Tier 3 regulations require most U.S. gasoline producers and 

importers to meet an annual 10 parts per million (ppm) average sulfur limit on all gasoline 

produced. For refiners, the 10 ppm limit applies at the point where gasoline leaves the refinery. 

Individual batches can have up to 80 ppm sulfur at the refinery and up to 95 ppm downstream of 

the refinery (See Section 4.3).

4.2.4 BENZENE

EPA rules limit the average benzene content of all gasoline produced by each refining company 

to 0.62 volume percent (vol.%). Refiners may use averaging, banking, and trading of benzene 

credits to meet the benzene limit. U.S. reformulated gasoline must also meet a 1.3 vol.% limit 

that applies to every gallon produced (See Section 4.3). California has its own gasoline 

benzene limits that are stricter than the federal standard.

4.2.5 MERCAPTANS

Mercaptans are foul-smelling sulfur compounds that can also damage fuel-system components 

and lead to excessive sulfur-dioxide emissions.

4.2.6 GUM AND OXIDATION STABILITY

The specifications for Gum and Oxidation Stability ensure that the gasoline will not form solid, 

insoluble deposits (gums) during storage, where gasoline may be exposed to the atmosphere 

for extended periods of time. Gums can form and cause fouling throughout the vehicle fuel 

system, from the tank to the engine.
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4.2.7 COLOR, NACE CORROSION, PHOSPHOROUS

These specifications limit levels of contaminants that can foul, damage, or corrode components 

of the vehicle’s combustion and exhaust system.

GOVERNMENT REGULATIONS

Passage of the Clean Air Act (CAA) in 1970 triggered increased federal government 

involvement in gasoline specifications. These have become increasingly stringent over time

(Figure 4). As of 2017, major federal gasoline regulations reformulated gasoline include 

requirements, renewable fuel standards (RFS), and restrictions on sulfur, mobile source air 

toxics (MSAT), and RVP. In 1970, California already had a program in place to tighten gasoline 

specifications. The CAA allows the EPA to exempt California from federal regulations if 

California has standards that are stricter. As a result, California is not subject to the federal 

Reformulated Gasoline (RFG), sulfur, and MSAT regulations discussed in sections 4.3.2, 4.3.4, 

4.3.5, and 4.3.6.

FIGURE 4

TIMELINE OF GASOLINE REGULATIONS

4.3.1 LEAD PHASE-OUT

Tetraethyl lead (TEL) was extensively used as an octane improver prior to passage of the CAA. 

In 1975, automobile manufacturers introduced first-generation catalytic converters on vehicle 
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exhaust systems to reduce vehicle emissions. Unleaded gasoline is introduced at the same 

time, since lead was found to cause disintegration of these catalytic converters. Use of leaded 

gasoline in vehicles with catalytic converters was prohibited. The use of TEL steadily 

decreased over time, as the vehicle population turned and other methods including methyltertiary-butyl-ether (below) were used to maintain gasoline AKI. In 1996, EPA banned TEL from 

motor gasoline.

4.3.2 FEDERAL REFORMULATED GASOLINE

In response to the 1990 Clean Air Act Amendments, EPA required that the nine worst ozone 

non-attainment areas (classified as extreme or severe) be supplied with RFG. The original 

metropolitan areas included were Baltimore, Chicago, Hartford, Houston, Los Angeles, 

Milwaukee, New York City, Philadelphia, and San Diego. Other ozone non-attainment areas 

(classified as serious, moderate, or marginal) could "opt-in" to the RFG program upon request of 

that state's governor to EPA. As of January 1, 2018, portions of 17 states and the District of 

Columbia require RFG.

5

There were various phases to the RFG program, including a series of computer models that 

predicted engine emissions based on the physical and chemical properties of the gasoline. The 

emissions categories predicted by the model included volatile organic compounds (VOCs), 

toxics, and nitrogen oxides (NOx). The program required RFG to meet specific reductions in 

each category relative to the average gasoline produced in 1990 (the “baseline gasoline”). 

Additionally, each refinery was required to use the models to prove that their non-RFG gasoline 

was no worse than the baseline period. The latest version, introduced in 1998, is known as the 

Complex Model.

6

The program originally required that RFG contain oxygenates such as ethanol or methyl-tertiarybutyl-ether (MTBE). Oxygenates are molecules that contain oxygen. Combustion reactions, 

such as the reaction that occurs in a vehicle engine, require a fuel source (the gasoline), an 

 

5 Reformulated Gasoline. (August 7, 2018), Retrieved from https://www.epa.gov/gasolinestandards/reformulated-gasoline

6 EIA, “Refiners Switch to Reformulated Gasoline Complex Model”, Jan 9, 1998, www.eia.doe.gov.
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ignition source (the spark from a spark plug), and oxygen (supplied by the air). If insufficient 

oxygen is available to fully “complete” the combustion step, undesirable by-products such as 

VOCs and carbon monoxide (CO) are produced. Adding oxygenates to the gasoline increases 

the amount of available oxygen and has been shown to decrease VOC and CO emissions. 

RFG no longer requires oxygenates, although almost all RFG contains ethanol.

4.3.3 METHYL-TERTIARY-BUTYL-ETHER PHASE OUT

MTBE is a high octane, low RVP oxygenate that was first added to gasoline in 1979 when EPA

granted a waiver for up to 7.0 vol.% MTBE in gasoline. A second waiver in 1988 increased the 

allowable volume to 15.0 vol.%. In the 1990s, MTBE was the predominate oxygenate used by 

refiners and blenders. In 2000, EPA drafted plans to phase out MTBE’s use over four years. 

California banned its use in 2004, with a number of other states following suit. In 2006, the 

Energy Policy Act (passed in 2005) rescinded the oxygenated gasoline requirement in federal 

RFG, after which MTBE was completely removed from U.S. gasoline.

4.3.4 RENEWABLE FUELS STANDARD (RFS)

The Energy Policy Act of 2005 included a Renewable Fuels Standard (RFS). That law required 

7.5 billion gallons of renewable fuel to be blended into gasoline by 2012. Shortly thereafter, the 

Energy Independence and Security Act of 2007 dramatically expanded the RFS by requiring 

that 36 billion gallons of renewable fuel be blended into gasoline by 2022. Most of the ethanol is 

blended to 10 vol.% of the finished gasoline (E10), but there is a smaller volume of gasoline 

containing up to 83% ethanol (E85). In 2012, EPA approved the use of 15% ethanol blends 

(E15) in model year 2001 and newer LDV. However, most car manufacturer warranties do not 

permit the use of E15, and E15 adoption remains very low. According to EIA, total sales of E15 

and E85 comprise less than 0.4% of fuels used in gasoline-burning engines.

7

With the low adoption of E85 and E15 gasoline, refiners are increasingly challenged to meet the 

mandated RFS blending volumes. Since the maximum ethanol content for most finished 

gasoline is 10%, refiners must sell more gasoline each year to meet the annual RFS targets. If 

 

7 EIA, Today in Energy, “Almost all U.S. Gasoline is blended with 10% ethanol,” May 4, 2016.
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the RFS mandated volume exceeds 10% of the expected gasoline production, it will be difficult 

for refiners to comply with the mandate. This is known as the ethanol “blend wall.” In 2016, the 

RFS requirement equated to approximately 10.1% of gasoline production.

4.3.5 SULFUR REDUCTION

Sulfur is naturally present in gasoline and other petroleum products. Sulfur in gasoline impairs 

the effectiveness of emission control systems and contributes to air pollution. The Tier 2 

gasoline sulfur program, finalized in 2000, reduced the gasoline sulfur content by up to 90%, 

enabling the use of new emission control technologies in cars and trucks. Requirements for use 

of low-sulfur gasoline became effective in model year 2004. The Tier 3 program finalized in 

2014 sets new vehicle emissions standards and lowers the gasoline sulfur content to a 

maximum average of 10 ppm beginning in 2017 for most refiners and by 2020 for all refiners.

4.3.6 MOBILE SOURCE AIR TOXICS (MSAT)

MSAT Phase 1 became effective in 2002 and limited the amount of benzene in both RFG and 

conventional gasoline. MSAT Phase 1 was refinery specific and prohibited credit trading but 

allowed carry over of credits for one year. In February 2007, EPA finalized the MSAT Phase 2

rule. Phase 2 limited benzene in each refiner or blender’s total gasoline pool8 to an annual 

average of 0.62 vol.% beginning January 1, 2011, for most, and January 1, 2015, for small 

refiners. The program included averaging, banking, and trading provisions. With 

implementation of MSAT Phase 2, refiners were no longer required to meet the Complex Model 

toxics test for the Federal RFG program.

4.3.7 OTHER STATE AND LOCAL REGULATIONS

Some states set requirements for gasoline sold state-wide or in selected areas. This often 

includes reduced RVP. Winter season use of oxygenates was required in some regions. Since 

these fuels are unique to small areas they are often called "boutique fuels." Besides California, 

states with unique gasoline specifications include: Arizona, Colorado, Georgia, Hawaii, Indiana, 

 

8 Combined conventional, RFG, reformulated BOB, and conventional BOB.
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Michigan, Minnesota, Missouri, New Mexico, Ohio, Oregon, Pennsylvania, Utah and Washingon

(Figure 5). The uncolored “conventional” gasoline areas in the figure are generally subject to a 

set of specifications published in ASTM International standard D4814.

FIGURE 5

U.S. GASOLINE REQUIREMENTS AS OF JANUARY 20189

POTENTIAL ENGINE DESIGN CHANGES

In 1975, Congress enacted the Energy Policy and Conservation Act. It included a requirement 

that the Department of Transportation (DOT) establish Corporate Average Fuel Economy 

(CAFE) standards setting the average new vehicle fuel economy that each manufacturer's fleet 

must achieve. DOT delegated responsibility for developing these standards to the National 

Highway Traffic Safety Administration (NHTSA). In April 2010, the Supreme Court ruled that 

 

9 Source: U.S. Gasoline Requirements. (January 2018), Retrieved from https://www.api.org/oil-andnatural-gas/wells-to-consumer/fuels-and-refining/gasoline/us-gasoline-requirements. Kentucky opted 

out of the RFG program effective July 1, 2018, therefore the Kentucky RFG areas shown in the map no 

longer require RFG.
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DOT’s authority to regulate CAFE did not preclude EPA from developing separate rules for 

carbon dioxide (CO2) emissions from motor vehicles. The Supreme Court suggested that DOT 

and EPA could coordinate their rule-making to achieve both the fuel economy and CO2 

emissions objectives.

In April 2010, DOT and EPA published their first joint CAFE/CO2 rule covering model years 

2012 through 2016. This was followed in 2012 with a rule covering model years 2017 through 

2025. As a result of a “mid-term” review EPA has deemed that part of the 2012 rule is 

inappropriate and changes are currently pending.

To meet these standards, automakers are considering range of technical solutions including but 

not limited to:

1. Higher compression ratios

2. Direct injection

3. Turbocharging and downsizing

4.4.1 HIGHER COMPRESSION ENGINES

Compression ratio is the maximum volume in an engine cylinder (when the piston is at bottom 

dead center) to the minimum volume within the cylinder (when the piston is at top dead center). 

The higher an engine's compression ratio, the more mechanical energy it converts from the 

combustion of a fixed amount of fuel and air. Compression raises the temperature within the 

cylinder and can cause pre-ignition or knock (see Section 4.2.1). Higher compression ratios

require higher octane gasoline (Figure 6).
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FIGURE 6

COMPRESSION RATIO VERSUS OCTANE REQUIREMENT

Source: Changes in Gasoline IV, Renewable Fuels Foundation, June 2009, p. 4

4.4.2 DIRECT INJECTION

Direct injection technology sprays fuel directly into a gasoline engine’s combustion chambers 

instead of its intake ports. The Japanese-market Mitsubishi Galant was the first car to combine 

direct injection with computer-controlled injectors in 1996. Injecting fuel directly into the cylinder 

during the compression stroke reduces cylinder temperature due to the cooling effect of the 

vaporizing fuel. This reduces octane requirements at constant compression ratios. Direct 

injection requires higher cost engine components than conventional port fuel injection because 

the cylinder pressures are 1,500 psia to 3,000 psia rather than 60 psia to 115 psia in port fuel 

injection, and the injectors must withstand the pressure and heat of combustion.
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4.4.3 TURBOCHARGERS

Turbochargers use some of the energy in the engine exhaust gas to compress the intake air. 

This increases the amount of oxygen in the cylinder, allowing more fuel to be burned in each 

cycle. Smaller, turbocharged engines can raise fuel economy while meeting or exceeding the 

power and torque of larger naturally aspirated engines. However, the increased compression 

can lead to engine knock. Use of higher-octane gasoline can offset the increased risk of engine 

knock caused by increasing engine compression.

GASOLINE COMPONENTS

Petroleum refineries are the main source of finished gasoline, BOBs, and other gasoline 

components. Other sources include natural gas processing plants, ethanol plants, standalone 

component production facilities, and petrochemical plants.

4.5.1 COMPONENTS PRODUCED IN PETROLEUM REFINERIES

All refineries are different. They have different unit configurations and capacities, physical 

locations, and economic drivers. Although no single example can capture all of the possible 

combinations and permutations of processing units that comprise a petroleum refinery, a

simplified example schematic of a high conversion refinery10 is shown in Figure 7.

 

10 Note: In the example refinery shown in Figure 7, kerosene and diesel are shown as a combined 

straight run (SR) distillate stream and AGO is not shown.
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FIGURE 7

EXAMPLE REFINERY CONFIGURATION

Crude oil processing in petroleum refineries begins with distillation units that fractionate crude 

oil into product streams (Table 1). The crude distillation products are mixtures of hydrocarbons 

that boil over specific temperature ranges. Depending on the quality of the crude oil, the crude 

distillation products contain varying amounts of contaminants. In modern refineries, most of 

these distillation products require additional processing in conversion units.

Hydrogen

Atm

Crude 

Unit

Naphtha HDS 

Reformer

HDS 1

VGO 

Hydrotreater FCC

Alkylation

Cat Poly

H2 SMR 

Plant

Hydrocracker

Coker

Atm

Crude 

Unit

Vac

Crude 

Unit

HDS 2

Train 1 

LowSulfur 

Crude Oil

Hydrogen for Nat Gas

Hydrocracker, 

HDS units

LCO to HDS2 or 

Hydrocracker

Coker C5+ naphtha

naphtha

SR naphtha

SR distillate

LVGO

HVGO

Vac Resid

SR 

naphtha

LVGO

HVGO

SR distillate

Coker

Hvy Gasoil

Naphtha

Vac

Crude 

Unit

Vac Resid

Coker

Gasoil

LCO from FCC

Petcoke

Distillate 

Blending

Gasoline 

Blending

C4=, IC4

C3=

Hydrocracker 

Diesel

Reformate

Asphalt

Isomerization LSR naphtha Isomerate Butane

Train 2 

HighSulfur 

Crude Oil

Hydrogen

Hydrogen

Hydrogen

Blending
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TABLE 1

CRUDE OIL DISTILLATION PRODUCTS

Distillation Product Typical Boiling Range, ̊F Typical Disposition

Light hydrocarbons 85 and less Refinery fuel, propane, liquefied 

petroleum gas (LPG) sales and 

gasoline blending

Light straight run (LSR) 

naphtha

85 to 185 Isomerization unit, 

petrochemical feedstock, or 

gasoline blending

Heavy (SR) naphtha 185 to 350 Reformer unit, petrochemical 

feedstock, or gasoline blending

Kerosene 350 to 500 Treating unit, sales as jet fuel or 

kerosene, or other fuel blending

Diesel 500 to 640 Hydrotreating unit, diesel or 

heating oil blending

Atmospheric gas oil (AGO) 640 to 680 Hydrotreating, fluid catalytic 

cracking unit (FCC) or 

hydrocracking unit

Light vacuum gas oil (LVGO) 680 to 800

Heavy vacuum gas oil

(HVGO)

800 to 1050

Vacuum resid 1050 and greater Coker, resid hydrocracking or 

solvent deasphalting unit, 

asphalt or fuel oil blending

The lightest distillation products include normal butane (nC4), isobutane (iC4), propane (C3), 

and fuel gas. The only one of these that is typically blended into gasoline is nC4, which has a 

high RVP that limits the amount that can be blended, particularly during the lower RVP summer 

season. Therefore, summer gasoline blends typically contain less nC4 than winter blends. 

Excess nC4 may be sold or stored in the summer for blending during the winter. LPG is 

typically recovered and sold. Lighter components are routed to refinery fuel gas systems.

Atmospheric gas oil (AGO), light vacuum gas oil (LVGO), and heavy vacuum gas oil (HVGO)

contain large hydrocarbon molecules and have limited uses as finished products. Some 

refineries produce lubricants from these distillation products but in most refineries, they are 

“cracked” into smaller molecules that can be blended into finished products like gasoline, jet 

fuel, and diesel. Fluid catalytic cracking (FCC) and hydrocracking units are used for this 

purpose.

FCC units produce a range of products from light hydrocarbons to diesel and a heavy residual 

product. The light hydrocarbons are similar to those listed above except that they also include 
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propylene (C3=) and butylenes (C4=). C3= is often sold as a petrochemical feedstock to plants 

that make polypropylene or other polymers. C4= is sometimes sold as a petrochemical 

feedstock, but more frequently it is processed in refinery alkylation or catalytic polymerization 

(cat poly) units to produce gasoline components. C3= is sometimes fed to alkylation and cat 

poly units. In the cat poly process, two C3= or C4= molecules are combined to make one 

gasoline molecule. In the alkylation process, one C3= or C4= molecule is combined with one 

iC4 molecule to make one gasoline molecule. One of the gasoline molecules produced in the 

alkylation process is isooctane. Isooctane has a MON, RON, and AKI of 100 (see Section 

4.2.1).

FCC naphtha(s) are blended to gasoline (desulfurization may be required). The desulfurization 

process typically results in a loss of RON anywhere between one to five octane numbers, 

necessitating increased blending with high octane blendstocks. FCC diesel or light cycle oil 

(LCO) can be hydrotreated and then blended into finished diesel or it can be hydrocracked to 

increase gasoline production. Hydrocracking units produce naphtha(s) that can be blended 

directly into gasoline or sent to other units for further upgrading before blending. Hydrocracking 

units also produce LPG that can be sold, iC4, and nC4. Depending on the design and operating 

conditions, hydrocracking units can also produce kerosene for jet fuel blending, diesel fuel, and 

FCC feed.

Many U.S. refineries also include process units to convert vacuum residual (resid) into higher 

value products. Common technologies for this include solvent deasphalting, resid 

hydrocracking, and coking. The example refinery shown above includes a coking unit.

Coking units produce products that can be blended into gasoline and diesel, although additional 

processing is required. They also produce a heavy gas oil stream than can be fed to the FCC 

or hydrocracker.

The example refinery (Figure 7) also includes a reformer and isomerization unit. These units 

rearrange atoms within naphtha molecules to produce molecules with higher octane ratings. 

Reformers remove hydrogen atoms and rearrange the hydrocarbon molecules, to form

“aromatic” molecules including benzene, toluene, and xylenes. These aromatics have high 

octane ratings when used in gasoline and are also have uses as petrochemical feedstocks.
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As previously mentioned, EPA regulations limit the amount of benzene in gasoline (Section 

4.2.4). Refiners use several different strategies to limit the benzene produced in reformers or 

remove it from the product. Isomerization units increase octane ratings of LSR but also 

increase its RVP, limiting the use of isomerization units in increasing the octane ratings of 

finished gasoline.

In FCC and hydrocracking units, most of the products have lower densities than the feed.

Therefore the total volume of products exceeds the volume of the feed. This is known as 

volume gain. In reforming, alkylation, and cat poly units, there is a volume loss (total product 

volume is less than total feed volume). Since nearly all refinery feedstocks and products in the 

United States are sold on a volume (not mass) basis, the volume gain or loss can have a 

significant impact on the overall profitability of a refinery or individual operating unit. 

Additionally, since most refinery unit feedstocks and product prices are highly dependent on the 

crude oil price, the magnitude of the volume gain (or loss) impact can change based on crude 

oil prices.

Table 2 summarizes the gasoline blending components that are produced in petroleum 

refineries. The highest octane blending components are alkylate, reformate, and nC4.

11 Both 

alkylate and reformate have relatively low RVPs, making them excellent blending components. 

nC4’s high RVP limits its use, particularly in the summer. 

 

11 A small amount of iC4 blending may occur, but iC4’s higher vapor pressure limits the volume, and iC4 

typically has much higher value as feedstock into an alkylation unit.
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TABLE 2

REFINERY PRODUCED GASOLINE COMPONENTS

4.5.2 NON-REFINERY GASOLINE COMPONENTS

Non-refinery sources of gasoline components include natural-gas liquids (NGL) plants, 

standalone alkylation and MTBE plants, petrochemical plant by-products, and ethanol plants. 

With the exception of ethanol, these sources represent a relatively small volume of the overall 

gasoline pool. The RVP, AKI, and sulfur levels of these components vary widely, limiting the 

amount that can be blended.

NATURAL-GAS LIQUIDS (NGL)

Natural gas extracted from the ground often contains LPG, iC4, nC4, and natural gasoline (also 

known as pentanes plus or C5 plus) that are recovered from the “wet” natural gas in processing 

plants. Natural gasoline is similar to refinery produced light straight run (LSR). It is a low 

octane, relatively high RVP blendstock (Table 2). Butane (nC4) has high octane ratings, but its 

high RVP limits the amount that can be blended into gasoline. Production of nC4 and natural 

gasoline from U.S. NGL plants has grown over this decade due to increased natural gas 

AKI RVP

(R+M)/2 psia

Normal Butane Distillation 90 to 92 70 to 74 2 to 6 RVP, V/L

Light Straight Run 

Naphtha Crude Distillation 60 to 66 10 to 13 10 to 500+ Octane, RVP, V/L

Heavy Naphtha

 (non-hydrotreated)

Crude Distillation, 

Coker, Hydrocracker 58 to 64 1 to 1.5 40 to 500+ Octane, Sulfur

Reformate Reformer 87 to 95 2 to 3 2 to 6 DI, T50, Benzene

FCC Gasoline 

(non-hydrotreated) FCC 82 to 87 1 to 2 10 to 500+ Sulfur (if untreated)

Alkylate Alkylation Unit 90 to 96 4 to 5 5 to 15 None

Isomerate Isomerization Unit 78 to 83 7.8 to 8.5 1 to 10 RVP

Blending Quality: Highly Favorable

Favorable

Neutral

Unfavorable

Highly Unfavorable

Process Unit Source Sulfur 

ppm Component Limiting GasolineSpec
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production from shale formations (Figure 8). Total NGL plant nC4 and natural gasoline 

production are equal to about 7% of the 2016 finished gasoline consumption. 

FIGURE 8

U.S. NGL PLANT PRODUCTION

Source: U.S. Energy Information Administration, Monthly Natural Gas Liquids Report.

STAND-ALONE ALKYLATION AND MTBE PLANTS

Currently all alkylation units are located in petroleum refineries, but at least one major refiner 

(Marathon Petroleum) is considering an investment to build a stand-alone alkylation complex 

located in the Appalachian region to utilize the natural gas liquids produced from the Marcellus 

shale formation. In the 1990s, there were several stand-alone MTBE plants. Since MTBE was 

phased out in the United States, remaining MTBE production is used for export to countries that 

still use it in gasoline.

0

100

200

300

400

500

600

700

800

900

Jan-10

Jun-10

Nov-10

Apr-11

Sep-11Feb-12

Jul-12

Dec-12

May-13

Oct-13

Mar-14

Aug-14

Jan-15

Jun-15

Nov-15

Apr-16

Sep-16Feb-17

Mb/d

Normal Butane

Natural Gasoline
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PETROCHEMICAL BY-PRODUCTS

Some petrochemical plants produce by-products that are blended into gasoline. These include 

pyrolysis gasoline from olefins plants and raffinate from aromatics plants. They represent a very 

small fraction of the total gasoline pool.

ETHANOL

The use of ethanol in U.S. gasoline is mandated by the RFS (Section 4.3.4 above). Almost all 

ethanol is produced from a fermentation process using starch or sugar crops as the feedstock. 

The RFS also mandates that specific quantities of ethanol be produced from “cellulosic” 

feedstocks, but technologies to meet these requirements have not developed in accordance 

with the legislated schedule.

Ethanol has a high AKI (~99.5) that is beneficial in gasoline blending. It also raises the RVP of 

the finished gasoline, and is highly miscible in water, both of which are undesirable (Table 3). 

Ethanol contains about 30% less energy per gallon than petroleum-based gasoline,12 which 

reduces fuel economy. Beginning in 1992, conventional E10 summertime blends were granted 

a waiver to exceed the normal summer RVP standards by 1 psia. RFG and higher level ethanol 

blends, such as E15, have not received this waiver.

 

12 The energy content of petroleum-based gasoline is typically around 114,000 Btu/gallon, Changes in 

Gasoline IV, Renewable Fuels Foundation, June 2009.
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TABLE 3

ETHANOL PROPERTIES13

Ethanol has an affinity for water and can cause corrosion in pipelines, so finished E10 gasolines 

cannot be shipped in pipelines to wholesale terminals. Therefore, ethanol is typically blended 

with BOBs (Section 4.2) at wholesale terminals as the gasoline is loaded into tank trucks for 

delivery to retail sales locations. The BOBs produced at refineries are blended so that the 

finished gasoline (with ethanol) sold at the pump will meet the required specifications. Most 

refiners and blenders account for ethanol’s high AKI and RVP by producing BOBs with lower 

AKIs and lower RVPs than specified for finished gasoline.

Considering ethanol’s positive impact on AKI and negative impacts on RVP and energy content, 

every 100 gallons of ethanol added to the total gasoline pool at constant RVP and energy 

consumption does the following:

 

13 Ethanol Properties retrieved from 

http://www.iea.amf.org/content/fuel_information/ethanol/e10/ethanol_properties

Property Value

Research Octane Number (RON) 120-135

Motor Octane Number (MON) 100-106

Vapor Pressure Increase to 

gasoline RVP :

10% - 20% of Blend + 1.0 psi

Miscibility in Water High

Energy Content, Btu/gallon 77,300

Blending Quality: Highly Favorable

Favorable

Neutral

Unfavorable

Highly Unfavorable
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 32

1. Reduces petroleum-based gasoline consumption by 70 gallons (18 gallons of 

butane and 52 gallons of other components)

2. Increases total finished gasoline consumption by 30 gallons

3. Raises the AKI of the resulting blend by 1.2- 3.2 AKI?

The AKI increase may allow refiners to lower reformer throughput or severity.

PETROCHEMICAL MARKETS FOR GASOLINE COMPONENTS

Petrochemical plants consume refinery and NGL plant products, and produce intermediate and 

finished petrochemical products. Thus petrochemical facilities “compete” with refineries for 

certain feedstocks and intermediate products, some of which are highly desirable gasoline 

blendstocks. The primary intermediate petrochemical products are aromatics and olefins. 

Aromatics (benzene, toluene, and xylene [BTX]) are used to make a wide variety of consumer 

products, from dyes and detergents to synthetic fibers. BTX is recovered from reformate (see 

Section 4.5.1). Toluene and xylene have excellent gasoline blending characteristics (high 

octane, low RVP) and the petrochemical and gasoline markets compete for these products. 

Olefins, (ethylene, C3=, and C4=) are used to make plastics, synthetic rubber, and fibers. C3= 

and C4= are potential feedstocks to alkylation and polymerization units that produce highoctane blending components. The petrochemical markets compete with the gasoline market for 

these products.

Ethane produced in NGL plants is an important olefin plant feedstock, particularly in the United 

States. In the United States, the surge in natural gas production has led to an increase in 

ethane supply. Many U.S. ethylene producers are taking advantage of the abundance of lowcost ethane to expand their ethylene production capacity (Figure 9).
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 33

FIGURE 9

U.S. ETHYLENE CRACKER EXPANSIONS

Source: U.S. Energy Information Administration, Today in Energy, January 29, 2015.

Some olefin plants use nC4, natural gasoline, naphtha, and vacuum gas oil as feedstocks for 

the production of olefins. All of these products are used in refineries to produce gasoline 

(Section 4.5.1) and the two industries compete for these feedstocks. In the rest of the world, 

naphtha is the dominant olefin plant feedstock, representing over 50% of the global market 

[including the United States] (Figure 10). U.S. refiners on the coasts have the option of 

exporting some of their naphtha production instead of using it to produce gasoline. This is an 

economic decision that will vary by refinery and will depend on prevalent market conditions.
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 34

FIGURE 10

PETROCHEMICAL FEEDSTOCKS

Source: FGE
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 35

SUMMARY

Finished gasoline in the United States is primarily comprised of components produced in 

petroleum refinery conversion units. The combination of FCC naphtha and reformate make up 

over 50% of the gasoline pool (Figure 11). Some feedstocks to refinery conversion units and 

some gasoline components have alternative uses in the petrochemical industry.

FIGURE 11

U.S. AVERAGE FINISHED GASOLINE COMPOSITION

SECOND QUARTER 201714

Source: Baker & O’Brien PRISM database

 

14 The majority of what is labeled LSR in the chart is refinery produced, but this category also includes 

natural gasoline.
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 36

5. GASOLINE CONSUMPTION

U.S. finished gasoline consumption has steadily increased since 2012, reaching approximately 

9.3 million barrels15 per day (b/d), or over 390 million gallons per day, in 2016 (Figure 12) and 

surpassing the previous high consumption mark set in 2007. PADD 1 is the largest consumer,

accounting for approximately 35% of demand in 2016, followed by PADD 2 with 29%.

FIGURE 12

FINISHED GASOLINE (INCLUDING ETHANOL) CONSUMPTION BY PADD

Source: U.S. Energy Information Administration, Product Supplied.

 

15 A barrel is 42 gallons.

0

1

2

3

4

5

6

7

8

9

10

million b/d

PADD 5

PADD 4

PADD 3

PADD 2

PADD 1
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 37

The volume of ethanol in finished gasoline increased dramatically from 2000 through 2010. 

Since 2010, ethanol consumption has continued to increase but at a slower rate and stood at 

approximately 915,000 b/d (Figure 13), just below 10% of total finished gasoline consumption. 

More than 60% of this ethanol was consumed in PADDs 1 and 2.

FIGURE 13

ETHANOL INCLUDED IN GASOLINE CONSUMPTION BY PADD16

Source: U.S. Energy Information Administration, Supply and Disposition Balance; Baker & O’Brien Analysis

 

16 Ethanol blending by PADD is not provided prior to 2004 for the majority of the PADDs. Therefore, the 

U.S. average ethanol blend percentage has been applied to all PADDs, excluding PADD 2, from 2000-

2004.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

 -

 0.100

 0.200

 0.300

 0.400

 0.500

 0.600

 0.700

 0.800

 0.900

 1.000

million b/d

% of Pool

PADD 5

PADD 4

PADD 3

PADD 2

PADD 1

% Ethanol
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 38

Excluding ethanol, the consumption of petroleum-based gasoline and BOBs is still below the 8.9 

million b/d peak reached in 2006 (Figure 14).

FIGURE 14

PETROLEUM-BASED GASOLINE CONSUMPTION BY PADD

Sources: U.S. Energy Information Administration, Supply and Disposition Balance; Baker & O’Brien analysis

0

1

2

3

4

5

6

7

8

9

10

million b/d

PADD 5

PADD 4

PADD 3

PADD 2

PADD 1
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 39

Finished gasoline consumption by grade is dominated by regular, with 8.1 million b/d in 2016, 

nearly 87% of total consumption (Figure 15). Premium accounted for approximately 1.1 million 

b/d in 2016 or 11% of consumption. Consumption growth has primarily been in regular 

gasoline, increasing by 1.3% per year on average between 2000 and 2017. Midgrade gasoline 

consumption has seen a dramatic decline, from a high of 786,000 b/d in 2000 to 177,000 b/d in 

2016, or 8.9% per year. Premium gasoline consumption declined between 2000 and 2008 but 

increased between 2012 and 2016. However, the premium gasoline consumption of 1.07 

million b/d in 2016 is still lower than the peak levels observed between 2000 and 2003.

FIGURE 15

FINISHED GASOLINE (INCLUDING ETHANOL) CONSUMPTION BY GRADE17

Sources: U.S. Energy Information Administration, Monthly Report of Prime Supplier Sales of Petroleum Products 

Sold for Local Consumption; Baker & O’Brien Analysis

Excluding ethanol, petroleum-based regular gasoline and BOB consumption grew between 

2000 and 2007, declined through 2012, and then grew again through 2016 (Figure 16). The 

overall compound average growth rate for regular gasoline and BOB since 2000 is 0.7% per 

 

17 EIA defines regular as an AKI of 85 to less than 88, midgrade 88 to less than 91, and premium 91 and 

higher. Ethanol blending into the different grades of gasoline is assumed to be equal (e.g., 10%

ethanol is blended into regular and premium grades). 

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

 -

 1

 2

 3

 4

 5

 6

 7

 8

 9

 10

million b/d

Premium

Midgrade

Regular

% Premium
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 40

year, with 2016 consumption still lower than the peak achieved in 2007. Midgrade gasoline and 

BOB consumption has declined every year since 2000, with an average decline rate of 9.4% per 

year. Petroleum-based premium gasoline and BOB experienced some growth from 2012 to 

2016 after steadily declining from 2000 through 2008.

FIGURE 16

PETROLEUM-BASED GASOLINE CONSUMPTION BY GRADE

Sources: U.S. Energy Information Administration, Monthly Report of Prime Supplier Sales of Petroleum Products 

Sold for Local Consumption; Baker & O’Brien Analysis

0

1

2

3

4

5

6

7

8

9

10

million b/d

Premium

Midgrade

Regular
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 41

Another way to look at gasoline consumption is to multiply the AKI of the gasoline consumed by 

the volume, resulting in a quantity of “AKI-barrels.” AKI-barrel consumption initially peaked in 

2007, dropped through 2012, then began increasing again. In 2016, AKI-barrel consumption 

exceeded the 2007 peak, but with ethanol supplying a much larger share. In 2016, the 

consumption of petroleum based AKI-barrels produced in refineries remained less than the peak 

years of 2006 and 2007 (Figure 17).

FIGURE 17

U.S. FINISHED GASOLINE OCTANE CONSUMPTION18

Sources: U.S. Energy Information Administration, Monthly Report of Prime Supplier Sales of Petroleum Products

Sold for Local Consumption; Baker & O’Brien Analysis

 

18 AKI Assumptions: Regular = 87, Mid-grade = 89, Premium = 92. Ethanol = 114.95

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

200

300

400

500

600

700

800

900

AKI-Barrels, million b/d

Petroleum Components MTBE+TAME Ethanol % Ethanol
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 42

In 2016 ethanol contributed 13% of the total AKI-barrel supply , even though it contributed only 

10% of the volume (Table 4).

TABLE 4 

2016 GASOLINE AKI-BARREL BALANCE

Volume, barrels AKI-barrels

barrels % of Total AKI AKI-barrels % of Total

Ethanol (10% blend) 100 10% 115 11,500 13

Components (CBOB) 900 90% 84 75,600 87

Total Blend 1000 100% 87.1 87,100 100
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 43

6. GASOLINE PRODUCTION

Gasoline production increased between 2000 and 2004, declined through 2008, then increased 

every subsequent year. Between 2008 and 2016, U.S. gasoline production grew at an average 

rate of 1.6% per year, a rate faster than domestic consumption grew. The United States went 

from being a net importer to a net exporter of gasoline and gasoline components. The 

increased production was primarily in PADDs 2 and 3. In 2016, the total petroleum-based 

gasoline production averaged 8.4 million b/d, the highest production over the last 16 years

(Figure 18). This increase in gasoline production is a result of various factors including:

1. Changes at refineries (capacity additions, configuration improvements, and utilization

increases)

2. Changes in crude oil quality

3. Increased ethanol usage

FIGURE 18

U.S. GASOLINE PRODUCTION VERSUS PRODUCT SUPPLIED

Sources: U.S. Energy Information Administration, Product Supplied; U.S. Energy Information Administration, Monthly 

Refinery Report Baker & O’Brien Analysis. EIA’s “Product Supplied” is used as an estimation of domestic 

consumption

 -

 1

 2

 3

 4

 5

 6

 7

 8

 9

 10

million b/d

Ethanol

PADD 5

PADD 4

PADD 3

PADD 2

PADD 1

Product Supplied
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 44

REFINING CHANGES

Based on their individual perceptions of economic conditions, refiners invest in projects to 

expand capacity and optimize their configuration. Between 2010 and 2016, atmospheric 

distillation capacity increased by approximately 8% (Table 4), with most of the capacity increase 

coming from the Marathon Garyville and Motiva Port Arthur expansions. Those two projects 

were early in the time period and designed to process heavy, sour crude oil. More recent 

expansion has been targeted at processing light, sweet crude oil from the shale formations

(Section 6.2).

In PADD 2, there were three major projects designed to increase heavy crude processing 

through installation of delayed cokers and modifications or replacement of crude units. These 

were at WRB’s Wood River, Illinois, refinery (December 2011), Marathon Petroleum’s Detroit, 

Michigan, refinery (November 2012), and BP’s Whiting, Indiana (October 2013) facility. 

Additional hydrotreating capacity was also included in the projects. Although the crude capacity 

increases associated with these projects were not great, they resulted in a significant change in 

crude processing capability and light product (gasoline, jet fuel, and diesel) make.

Beyond the crude oil and coker capacity increases, there were several large hydrocracker 

projects in the 2010 through 2016 period including new units at Valero’s Port Arthur and St. 

Charles refineries (60,000 b/d each). Hydrocracking capacity increased 26% over the period. 

Hydrocrackers produce gasoline components, jet fuel, diesel, and feedstocks for other units

(Section 4.5.1). Most of the 2010-2016 hydrocracker projects focused on increasing diesel

production and taking advantage of low natural gas and hydrogen costs.19

Process units that produce high octane gasoline components include alkylation, catalytic 

polymerization, catalytic reforming, and to a lesser extent, C5/C6 isomerization. The aggregate 

capacity change in these types of process units has been small.

 

19 Hydrocrackers consume natural gas and hydrogen that is produced from natural gas.
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 45

TABLE 5

U.S. CAPACITY CHANGES

Process Unit 2010 Capacity, Mb/d 2016 Capacity, Mb/d Difference, Mb/d

Atmospheric Crude Oil

Distillation

17,333 18,723 1,390

FCC Unit 5,649 5,622 (27)

Alkylation 1,157 1,189 32

Catalytic Polymerization 61 59 (2)

Catalytic Reforming 3,588 3,665 77

C5/C6 Isomerization 492 531 39

Hydrocracking 1,763 2,222 459

Source: Baker & O’Brien PRISM database
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 46

While crude oil distillation capacity increased 8% from 2010 to 2016, refinery crude oil 

throughput increased just over 10% (Figure 19). The growth in crude oil throughput occurred 

primarily in PADDs 2, 3, and 4. PADD 3 saw the greatest increase at approximately 1 million 

b/d from 2010 to 2016, largely a result of the Motiva and the Marathon projects. PADD 2 also 

saw a significant increase in throughput (approximately 500,000 b/d) mainly due to increased 

capacity utilization. As crude oil throughput increased, gasoline and distillate production 

increased 11% and 17%, respectively, leading to increased net exports of finished petroleum 

products.

FIGURE 19

CRUDE OIL CHARGE BY PADD

Source: Baker & O’Brien PRISM database

EIA compiles and reports domestic refinery catalytic reformer throughput but not alkylate 

production. Baker & O’Brien’s PRISM modeling of the domestic refining industry leads us to 

conclude that alkylation unit throughput is being maximized across the country. On the other 

hand, the EIA data indicate that reformer units are not fully utilized (Figure 20). The seasonal 

variation is due to seasonal changes in gasoline demand and seasonal RVP changes that 

impact the amount of butane added to the blends. Capacity utilization has increased but 

0

2

4

6

8

10

12

14

16

18

Crude Oil Charge, million b/d

PADD 5

PADD 4

PADD 3

PADD 2

PADD 1
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 47

remains at relatively low levels. While there is some variation in utilization across the PADDs (± 

5% utilization), none of the individual PADDs show annual utilization exceeding 80%. 

Assuming the data collected by EIA is correct, the U.S. refining industry has spare capacity to 

produce higher octane gasoline.

FIGURE 20

REFORMER UTILIZATION (ALL PADDS)

Source: U.S. Energy Information Administration, Monthly Refinery Report.

60%

65%

70%

75%

80%

85%

90%

Utilization
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 48

CRUDE OIL QUALITY

Crude oil quality varies widely, from light (low density) 20 sweet (low sulfur content) to heavy 

(high density) sour (high sulfur), with many grades in between. Individual refineries are 

generally designed to operate optimally with specific types of crude oil and changes in crude oil 

quality impact refinery gasoline production.

Domestic production increased by approximately 3.5 million b/d between 2011 and 2016, with 

the incremental production primarily light and sweet crude oil from the Eagle Ford and Bakken 

regions with a high LSR content (Figure 21 and Figure 22). This has directly impacted domestic 

refinery component production and the “recipe” of the domestic gasoline pool. As previously 

discussed, LSR is a low octane blending component with a relatively high RVP (Table 2). It is 

not an ideal gasoline blending component.

FIGURE 21

SAMPLE YIELDS FROM CRUDE OILS

 

20 In this report, crude oil density is discussed in terms of API gravity. On the API gravity scale, a low 

number represents heavy (high density) crude oil and a high number represents light (low density) 

crude oil.
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 49

FIGURE 22

U.S. CRUDE OIL PRODUCTION

Source: U.S. Energy Information Administration, Petroleum Supply Annual

0

1

2

3

4

5

6

7

8

9

10

2010 2011 2012 2013 2014 2015 2016

million b/d

Total U.S. Domestic Crude Oil Production

LSR Content
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 50

Domestic refiners increased their shale crude oil inputs and reduced imports of light and 

medium gravity sweet crude oil. This resulted in a significant shift in the overall composition of 

the domestic refinery feed slate. Shale and light domestic crude oils, typically in the 40 API - 50 

API range, increased from 10% to 20% of the U.S refinery slate, displacing imported crude oils 

in the 27 API - 40 API range, such as Brent and various low-sulfur West African crude oils 

(Figure 23).

FIGURE 23

U.S. REFINERY CRUDE OIL MIX

Source: Baker & O’Brien PRISM database
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 51

The two districts with the largest crude oil refining capacity, PADDs 2 and 3, had the largest 

percentage increases in 40 API - 50 API crude oil processing (Figures 24 and 25). As light 

crude oil processing increased in PADD 3, the average gravity of crude oil processed in the 

PADD increased by more than 1.5 API.

FIGURE 24

PADD 3 REFINERY CRUDE OIL MIX

Source: Baker & O’Brien PRISM database
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 52

PADD 2 had simultaneous increases in light and heavy (20 API-27 API) crude oil processing, 

largely due to investments at BP Whiting, Marathon Detroit, and WRB Wood River. The 

increase in heavy crude oils more than offset the impact of light crude increases on the average 

crude oil gravity for the PADD, which decreased by over 1.5 API.

FIGURE 25

PADD 2 REFINERY CRUDE OIL MIX

Sources: Baker & O’Brien PRISM database
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 53

ETHANOL

The volume of ethanol blended into gasoline increased dramatically from 2000 through 2010, 

but the rate of increase has slowed in this decade (Section 5 Figures 12 and 13). It increased

by 14% from 2010 to 2016 and stood at 914,000 b/d in 2016.

FIGURE 26

U.S. ETHANOL PRODUCTION

Source: U.S. Energy Information Administration, Monthly Oxygenates Telephone Report.

Ethanol’s blending properties and impact on the quality and quantity of the finished gasoline 

pool are discussed in Section 4.5.2.

FINISHED GASOLINE COMPOSITION

The increase in light crude oil processing impacted the refinery produced gasoline components

(Figures 27 and 28). The “Other” category in Figures 27 and 28 includes butane, LSR, naphtha, 

and natural gasoline. The seasonal variability is due to the RVP specification changes (Section 

0.000

0.200

0.400

0.600

0.800

1.000

1.200

million b/d

PADD 1

PADD 2

PADD 3

PADD 4

PADD 5
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 54

4.2.2). In the winter, refiners can blend more high-RVP components such as butane and LSR. 

During 2016, the average quantity of these components in the gasoline pool was over 650,000

b/d greater than the 2010 average, an increase of over 85%.

FIGURE 27

U.S. FINISHED GASOLINE COMPOSITION

Source: Baker & O’Brien PRISM database

Refiners have off-set the additional low-octane LSR and naphtha through increased ethanol 

blending, as well as increased Reformer severity (Figure 28) and throughput. Additionally, 

spare refinery reformer capacity appears to be available to manage current and future octane 

requirements (Section 6.1, Figure 20). 

FIGURE 28

U.S. FINISHED GASOLINE COMPOSITION AND REFORMER SEVERITY

 -

 1

 2

 3

 4

 5

 6

 7

 8

 9

 10

10Q110Q210Q310Q411Q111Q211Q311Q412Q112Q212Q312Q413Q113Q213Q313Q414Q114Q214Q314Q415Q115Q215Q315Q416Q116Q216Q316Q4

million b/d

Reformate FCC Naphtha Alkylate Ethanol Isomerate Other
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 55

Source: Baker & O’Brien PRISM database

COST OF INCREMENTAL OCTANE

Octane costs and values are often described in terms of dollars per octane-barrel ($/AKI-b).21 

To measure the cost of producing incremental octane, we calculate the cost of producing an 

incremental barrel of premium gasoline (CTP) by raising reformer severity (Figure 29, red and 

black lines). The market value of octane is calculated by dividing the price differential between 

premium and regular gasoline by the difference in octane rating (Figure 29, blue bars).

 

21 The concept of octane-barrels is discussed in Section 5.

86

87

88

89

90

91

92

93

94

95

96

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

10Q110Q210Q310Q411Q111Q211Q311Q412Q112Q212Q312Q413Q113Q213Q313Q414Q114Q214Q314Q415Q115Q215Q315Q416Q116Q216Q316Q4

Composition Severity, RON

Reformate FCC Naphtha Alkylate

Ethanol Isomerate Other

Reformer Severity
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 56

FIGURE 29

COST OF INCREMENTAL OCTANE, U.S. GULF COAST

Source: Platts, OPIS, and Baker & O’Brien Analysis

The USGC spot market is very active, connected to other markets in the Atlantic Basin, and 

octane market values react quickly to changes in production costs and supply interruptions 

(Section 7.3). The spot market value of the octane closely tracks the incremental octane cost

through the 2010 to 2016 period.

Octane costs appear to have reached a peak in in 2012/2013 and slowly decreased back down 

to early 2011 levels by 2016. The falling costs, starting in 2013, is a result of declining naphtha 

(reformer feedstock) prices relative to gasoline largely due to the change in the U.S. refinery 

crude slate and subsequent increased naphtha supply (Section 6.2).

The increasing differentials between premium and regular gasoline seen at the retail levels are 

not solely due to sustained high costs of producing incremental octane and premium gasoline. 

0.00

0.50

1.00

1.50

2.00

2.50

3.00

10Q110Q210Q310Q411Q111Q211Q311Q412Q112Q212Q312Q413Q113Q213Q313Q414Q114Q214Q314Q415Q115Q215Q315Q416Q116Q216Q316Q4

$/AKI-b

Spot Market AKI Value Premium CTP AKI Value Premium CTP, Annualized
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 57

Although octane CTP spiked several times between 2012 and 2016, costs have been trending 

down since 2013.

In summary:

1. Reformer economics are one of the primary determinants of the incremental cost of 

octane (Section 6.1),

2. Changes to refinery crude slates have increased supplies of low octane LSR and 

reformer feedstocks (naphtha) (Section 6.2), and decreased their cost,

3. Spare refinery reformer capacity for converting the additional naphtha into high 

octane components has and continues to exist (Section 6.1, Figure 20), 

4. Through a combination of higher reformer throughput and modest increases in 

reformer severity (Figure 28), refiners have been able to convert the additional 

naphtha into high octane components,

5. Evidence of this can be found in the fact that the difference between premium and 

regular gasoline at the spot level, or the first point of sale, has not increased, but in 

fact has declined since 2013.
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 58

7. PREMIUM TO REGULAR PRICE DIFFERENTIALS

Gasoline is distributed from refineries by pipelines, marine tankers, barges, railcars, and tank 

trucks. A wide range of commercial interests own and/or operate the different supply chain 

components. Owners include not only refining and marketing companies but also other 

independently owned and managed entities, such as transport companies, traders, marketers, 

and blenders that specialize in particular supply chain functions.

FIGURE 30

OVERVIEW OF GASOLINE SUPPLY CHAIN

Finished gasoline is bought and sold at multiple points in the supply chain. The retail price that 

the consumer sees is usually set by the owner/operator of the individual retail outlet. These are 

typically small or medium size businesses that own one or more outlets. These retail outlets 

include both branded and unbranded operations. In branded operations, the owner/operator of 

the location has a marketing agreement with the company owning the brand (often a refining 

company), but the owner/operator sets the retail price. The company sets the retail gasoline 

price only in locations owned and operated by a refining company.
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 59

Retail owner/operators purchase finished gasoline from bulk terminals on either a delivered tank 

wagon basis or at the rack price. In the latter case, the retail owner/operator is responsible for 

transporting the gasoline to the retail location. There are separate rack prices for branded and 

unbranded gasoline.

Refiners, traders, and others also buy and sell finished gasoline and components in the “spot 

market” upstream of the bulk terminals. These transactions are typical for quantities of 1 million 

gallons or more. Spot market prices are more closely tied to refinery and blending costs than 

rack or retail prices.

The remainder of this section of the report will discuss the historical price differential between 

premium and regular gasoline at retail, rack, and spot markets.

RETAIL 

Retail price data are available through several public data sources such as EIA and the Bureau 

of Labor Statistics (BLS), as well as a variety of private and trade organizations. Retail price 

data are collected by EIA through a telephone survey of a sample of approximately 800 retail 

gasoline outlets every Monday.22 Retail price data are also collected by the BLS since the 

gasoline price index makes up one of the components of the Consumer Price Index (CPI). Data 

for the gasoline index are collected by BLS economic assistants over 1,000 selected outlets in 

87 metropolitan statistical areas across the country.

The EIA and BLS price surveys show very similar premium to regular gasoline price differentials 

(PRdiff) (Figure 31). Both series show that the PRdiff has widened significantly over the past 

seven years, reaching nearly 0.50 $/gal at the end of 2016.

 

22 The reported price includes all taxes and is the pump price paid by a consumer as of 8:00 a.m. 

Monday. The price data are used to calculate weighted average price estimates at the city, state, 

regional, and national levels using sales and delivery volume data from other EIA surveys and 

population estimates from the Bureau of Census. 
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 60

FIGURE 31

U.S. RETAIL PREMIUM TO REGULAR GASOLINE DIFFERENTIAL

Sources: U.S. Energy Information Administration, Motor Gasoline Price Survey; Bureau of Labor Statistics

While the premium to regular price differential has increased in all regions, there is significant 

geographical variation in the differential, with PADD 1 having the highest differential and PADD 

5 the lowest (Figure 32).

0.00

0.10

0.20

0.30

0.40

0.50

0.60

Jan-2010

Jul-2010

Jan-2011

Jul-2011

Jan-2012

Jul-2012

Jan-2013

Jul-2013

Jan-2014

Jul-2014

Jan-2015

Jul-2015

Jan-2016

Jul-2016

Jan-2017

$/gal

US Retail - EIA US Retail - BLS
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 61

FIGURE 32

U.S. RETAIL PREMIUM TO REGULAR GASOLINE DIFFERENTIAL BY PADD

Source: U.S. Energy Information Administration, Motor Gasoline Price Survey;

RACK

Rack prices include the delivered fuel cost, all other costs, and a profit for the owner/operator 

Rack sales prices are collected by EIA and commercial data providers such as OPIS, DTN, and 

Platts. The EIA data are volume weighted and only considers refiner rack sales and does not 

include other companies that participate in rack sales.

23 OPIS, DTN, and Platts provide more 

differentiation on reformulated versus conventional gasoline, but are not volume weighted. 

 

23 Collected on Form EIA-782A “Refiners’/Gas Plant Operators’ Monthly Petroleum Product Sales 

Report.” Within that report, rack level sales are reported including wholesale truckload sales or smaller

batches of gasoline where the title transfers at the terminal.

0.00

0.10

0.20

0.30

0.40

0.50

0.60

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

Sep-14

Jan-15

May-15

Sep-15

Jan-16

May-16

Sep-16

Jan-17

Octane Spread, $/gal

PADD 1

PADD 2

PADD 3

PADD 4

PADD 5
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 62

Despite the differences in methodology, OPIS/DTN and EIA rack PRdiffs follow the same trend 

of widening from 0.15 $/gal – 0.20 $/gal to 0.40 $/gal – 0.45 $/gal between 2010 and late 2015, 

with some moderation into 2016 (Figure 33). 

FIGURE 33

U.S. RACK PREMIUM–REGULAR GASOLINE DIFFERENTIAL24

Source: U.S. Energy Information Administration, Refinery Gasoline Prices by Grade and Sales Type

While the rack PRdiff has increased in every PADD, regional variation exists. The average rack 

PRdiff started in a range of approximately 0.15 $/gal – 0.20 $/gal in early 2010 in all PADDs. 

Through 2016 the PRdiff increased more rapidly in PADDs 1, 2, and 3. PRdiff increases in 

PADDs 4 and 5 were smaller. The average PRdiff in PADD 5 only increased to approximately 

0.25 $/gal while PADDs 1-3 reached highs near 0.40 $/gal – 0.50 $/gal (Figure 34).

 

24 The OPIS/DTN data series includes approximately 100 locations and is an of all gasoline classes (i.e., 

reformulated and conventional) and includes both finished gasoline and BOB prices.

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

Sep-14

Jan-15

May-15

Sep-15

Jan-16

May-16

Sep-16

$/gal

OPIS/DTN Rack Sample EIA Refiner Rack
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 63

FIGURE 34

RACK PREMIUM–REGULAR GASOLINE PRICE DIFFERENTIALS BY PADD

Sources: OPIS, DTN, and Baker & O’Brien Analysis

SPOT

The spot market refers to high volume (25,000 barrels to 300,000 barrels) one-time transactions

dictating delivery of petroleum products or crude oil in the near future. These markets are in 

regions with clusters of refineries and/or terminals. They react quickly to changes in refining 

costs and capacity. The major U.S petroleum product spot markets are the USGC and NYH. 

Prices for individual transactions are usually not disclosed publicly. Several companies survey 

traders in these markets and publish daily assessments of market prices. Spot market prices 

are also published for Chicago, “Group 3,” Los Angeles, San Francisco, Seattle, and the Pacific 

Northwest. There are fewer spot transactions in these markets and additional caution should be 

exercised when drawing conclusions from the quoted prices.

For the period 2010 through 2016, spot market PRdiff in the USGC (PADD 3) and NYH (PADD 

1) have generally trended together. The PRdiff in Chicago (PADD 2) and Los Angeles (PADD 

5) started the decade in line with the USGC and NYH but have diverged (Figure 35). On a 

three-month moving average basis, the USGC and NYH reformulated blendstock for oxygenate 

0.00

0.10

0.20

0.30

0.40

0.50

0.60

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

Sep-14

Jan-15

May-15

Sep-15

Jan-16

May-16

Sep-16

$/gal

PADD 1

PADD 2

PADD 3

PADD 4

PADD 5
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 64

blending (RBOB) markets increased to an average differential of 0.20 $/gal – 0.25 $/gal before 

declining in 2016. However, the Chicago PRdiff continued to climb through 2017, while the Los 

Angeles market didn’t begin climbing until 2015, well after the increases in the other markets.

FIGURE 35

PREMIUM–REGULAR PRICE DIFFERENTIALS 

SELECTED U.S. SPOT MARKETS

Sources: Platts,OPIS, and Baker & O’Brien analysis

The linkage (or absence of) between pricing in the spot markets can be attributed to similarities 

or differences in refining costs and the ability to quickly transport product between markets. 

PADD 3 supplies more gasoline to PADD 1 than is produced in PADD 1 refineries. PADD 3 is 

also the largest external supplier of gasoline to PADDs 2 and 4 (Figure 36).

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

Sep-14

Jan-15

May-15

Sep-15

Jan-16

May-16

Sep-16

$/gal

NYH Cargo RBOB Prem-Reg (3M MA) USGC Pipeline RBOB Prem-Reg (3M MA)

LA Pipeline CARBOB Prem-Reg (3M MA) Chicago Pipeline RBOB Prem-Reg (3M MA)
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 65

FIGURE 36

NET GASOLINE FLOWS25

Large pipelines move refined products from PADD 3 to PADD 1 and directly connect the USGC 

and NYH spot markets. Gasoline also moves by barge and ship to PADD 1 and the NYH spot 

market. The NYH and USGC spot markets also interact with international markets for 

petroleum products. This is primarily with refineries and markets throughout the Atlantic Basin. 

With all of the interconnections, it is not surprising that prices in these two spot markets tend to 

follow similar patterns.

Pipelines and barges also connect PADD 2 and the Chicago spot market to PADD 3 and the 

USGC spot market. However, there have been changes in these markets over the 2010 to 

2016 period. The WRB, Marathon, and BP heavy oil projects (Section 6.1) and other smaller 

 

25 The raw EIA data on PADD to PADD transfers shows 375,000 b/d moving from PADD 1 to PADD 2. 

These are pipeline volumes that originate in PADD 3 and transit through PADD 1 on their way to 

Tennessee in PADD 2. They are shown as a PADD 3 to PADD 2 movement in this figure. 
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 66

projects increased light oil products26 production in PADD 2 and particularly in the Chicago 

market (Figure 37). During this time period, two major pipelines that shipped gasoline from the 

USGC to the Chicago area reversed flow and now ship NGLs from PADD 2 to the USGC.

FIGURE 37

AGGREGATE LIGHT OIL PRODUCTS FROM WOOD RIVER, DETROIT, AND WHITING

Source: Baker & O’Brien PRISM estimate

PADD 5 is somewhat of an “island” with limited pipeline and logistical connections to the major 

refining centers in the rest of the country. PADD 5 is also “long” gasoline and must export 

excess product to foreign markets. Thus, PADD 5’s exhibits mostly independent pricing 

behavior and has limited inter-relationships with the rest of the country. Structural shortages in 

PADD 5 would be filled by water-borne deliveries from the Asian refiners or Gulf Coast refiners 

(which have the extra shipping costs of going through the Panama Canal). These structural 

shortages can also result in extended periods of high pricing, as transportation costs and 

delivery times from external markets are relatively high.

 

26 Combined gasoline, BOB, jet/kerosene, and diesel fuel.

0.000

0.100

0.200

0.300

0.400

0.500

0.600

0.700

0.800

2010 2011 2012 2013 2014 2015 2016

million b/d
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 67

REGIONAL SUPPLY CHAIN ANALYSIS

The following series of charts show retail (or “consumer”) gasoline prices and how the PRdiff 

builds across the supply chain in four key markets. As previously mentioned, the USGC spot 

market PRdiff tends to reflect current refinery economics for producing incremental premium 

gasoline. The NYH spot market is well connected to the Atlantic basin would be expected to 

also track refinery economics, but since a significant portion of the product in that market in 

produced on the USGC and in Europe, supply disruptions can cause spikes. Premium gasoline 

trading in other spot markets reflects smaller volumes and it is less certain that the spot 

differential tracks refining costs in those regions. In the bar charts, the spot market PRdiff is 

represented by the blue bar.

The wholesale and retail PRdiffs reflect both the costs to produce premium and regular gasoline 

and the supplier’s abilities to mark-up each of the grades. The PRdiff at the wholesale rack 

normally is greater than the spot market PRdiff, indicating that wholesale marketers earn a 

greater profit margin on premium gasoline than they do on regular. The red bars in charts that 

follow are the amount of this extra margin. When the red bar drops below zero, it indicates that 

the wholesale profit margin on premium is less than the margin on regular. It does not mean 

that wholesalers are losing money on premium sales.

The green bars show the extra profit margin that retailers earn on premium relative to their profit 

margin on regular. The sum of the three stacked bars is the PRdiff that the consumer sees at 

the pump. The black line on each chart shows the percentage of the total PRdiff that is 

attributed to marketing (the wholesale rack plus retailer PRdiffs, the “consumer PRdiff”) as 

opposed to refining costs.

To summarize, the spot USGC PRdiffs reflect refiner cost to produce difference between the 

gasoline grades. The rack PRdiff and wholesale PRdiffs reflect those costs and additional 

mark-up marketers receive for premium versus regular gasoline.
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 68

7.4.1 CENTRAL ATLANTIC (PADD 1B)

From September 2010 to May 2011, the average retail price of both regular and premium 

gasoline in the Central Atlantic region (including New York) rose by roughly 1.30 $/gal driven 

largely by world oil prices.

FIGURE 38

CENTRAL ATLANTIC RETAIL GASOLINE PRICES

Source: U.S. Energy Information Administration, Motor Gasoline Price Survey

The difference between the gasoline prices is deconstructed in Figure 39. During this period, 

the NYH spot market PRdiff increased from about 0.10 $/gal to approximately 0.20 $/gal, but 

most of this increase was not immediately passed through to consumers. The increase in retail 

prices from 2010 to 2011 coincides with a drop in total gasoline consumption, but premium 

sales as a percentage of total sales remained relatively constant (Section 5 Figure 15).

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Jan-2010

May-2010

Sep-2010

Jan-2011

May-2011

Sep-2011

Jan-2012

May-2012

Sep-2012

Jan-2013

May-2013

Sep-2013

Jan-2014

May-2014

Sep-2014

Jan-2015

May-2015

Sep-2015

Jan-2016

May-2016

Sep-2016

Jan-2017

$/gal

PADD 1B Regular PADD 1B Premium
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 69

FIGURE 39

CENTRAL ATLANTIC PREMIUM-TO-REGULAR DIFFERENTIALS

Sources: U.S. Energy Information Administration, Motor Gasoline Price Survey; Platts; OPIS; DTN; and Baker & 

O’Brien Analysis

Through the remainder of 2011 and into 2012, the spot PRdiff hovered around 0.20 $/gal and 

the consumer PRdiff increased slightly. Starting in April 2012, the spot PRdiff moved up over a 

period of six months to nearly 0.37 $/gal in September 2012. Since that time, the spot PRdiff 

has trended down, with a couple of interrupting spikes. The average spot PRdiff in 2016 was 

0.14 $/gal.

In September 2012, when the spot PRdiff reached 0.37 $/gal, the consumer PRdiff was just 

0.31 $/gal. As the spot PRdiff declined, the consumer PRdiff remained in the 0.30 $/gal to 0.35 

$/gal range through September 2014. Marketers were retaining a larger share of the total 

PRdiff. Total gasoline consumption increased from 2012 through 2014, with premium 

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

Jan-2010

May-2010

Sep-2010

Jan-2011

May-2011

Sep-2011

Jan-2012

May-2012

Sep-2012

Jan-2013

May-2013

Sep-2013

Jan-2014

May-2014

Sep-2014

Jan-2015

May-2015

Sep-2015

Jan-2016

May-2016

Sep-2016

$/gal

NYH Spot (Prem-Reg, RBOB) PADD 1B Rack (Prem-Reg, All Formulations)

PADD 1B Retail (Prem-Reg, All Formulations)
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 70

maintaining a fairly constant percentage of the total (Section 5 Figure 15). The increase in the 

PRdiff did not affect premium’s market share.

Beginning in June 2014, gasoline prices (and oil prices generally) began a steep decline. Retail 

gasoline prices in the Central Atlantic region bottomed out in February 2016. As prices fell, 

regular gasoline prices fell faster than premium, the consumer PRdiff grew, and the share of the 

consumer PRdiff attributable to marketing increased. In 2015 and 2016, gasoline consumption 

increased. Premium gasoline consumption increased both in volume and as a percentage of 

total gasoline sales. It appears that the decline in absolute gasoline prices impacted premium 

consumption more than the price difference between premium and regular.
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 71

7.4.2 USGC

Given the interconnectivity of the USGC and Central Atlantic markets (Section 7.3), it is not 

surprising that the USGC story is very similar to what happened in the Central Atlantic. From 

September 2010 to May 2011, the average retail price of both regular and premium gasoline in 

the region rose by roughly 1.30 $/gal, but the consumer PRdiff remained in the 0.25 $/gal to 

0.30 $/gal range. The portion of the PRdiff attributable to marketing dropped to 17% in May 

2011.

FIGURE 40

HOUSTON RETAIL GASOLINE PRICES

Source: U.S. Energy Information Administration, Motor Gasoline Price Survey

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Jan-2010

May-2010

Sep-2010

Jan-2011

May-2011

Sep-2011

Jan-2012

May-2012

Sep-2012

Jan-2013

May-2013

Sep-2013

Jan-2014

May-2014

Sep-2014

Jan-2015

May-2015

Sep-2015

Jan-2016

May-2016

Sep-2016

$/gal

Houston Regular Houston Premium
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 72

FIGURE 41

HOUSTON PREMIUM-TO-REGULAR DIFFERENTIALS

Sources: U.S. Energy Information Administration, Motor Gasoline Price Survey; Platts; OPIS; DTN; and Baker & 

O’Brien Analysis

In September 2014 and October 2014, the spot PRdiff briefly spiked to almost 0.43 $/gal. 

Marketers passed through some, but not all, of this increase to consumers. The consumer 

PRdiff was just over 0.47 $/gal in October 2014. During this period, retail gasoline prices were 

falling rapidly. Premium prices dropped more slowly than regular. Retail prices continued to 

fall, reaching a bottom of 1.50 $/gal for regular in February 2016. With retail premium prices 

declining more slowly than regular, the consumer PRdiff reached 0.57 $/gal in February 2016. 

Marketers accounted for 61% of the consumer PRdiff.

The spot PRdiff continued to decline and remained at less than 0.20 $/gal for most of 2016, 

while the consumer PRdiff stayed in the 0.55 $/gal to 0.60 $/gal range. Premium gasoline 

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

Jan-2010

May-2010

Sep-2010

Jan-2011

May-2011

Sep-2011

Jan-2012

May-2012

Sep-2012

Jan-2013

May-2013

Sep-2013

Jan-2014

May-2014

Sep-2014

Jan-2015

May-2015

Sep-2015

Jan-2016

May-2016

Sep-2016

$/gal

Spot Prem-Reg, RBOB Rack Additional Prem-Reg, RBOB

Retail Additional Prem-Reg, All Formulations Consumer Prem-Reg, All Formulations
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 73

consumption increased both in volume and as a percentage of total gasoline sales. It again 

appears that premium consumption was impacted more by the decline in absolute prices than 

the differential between premium and regular.

7.4.3 CHICAGO

The pattern for retail prices in Chicago is similar to the Central Atlantic and USGC but with an 

upward basis.

FIGURE 42

CHICAGO RETAIL GASOLINE PRICES

Source: U.S. Energy Information Administration, Motor Gasoline Price Survey

The Chicago market is connected with the USGC by two major pipelines, Explorer and Texas 

Eastern (Section 7.3). From 2010 through 2016, Chicago regular gasoline retail prices 

remained 0.40 $/gal to 0.45 $/gal over Houston prices. There has been a gradual increase in 

this differential. The Houston to Chicago retail premium price differential was approximately 

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Jan-2010

May-2010

Sep-2010

Jan-2011

May-2011

Sep-2011

Jan-2012

May-2012

Sep-2012

Jan-2013

May-2013

Sep-2013

Jan-2014

May-2014

Sep-2014

Jan-2015

May-2015

Sep-2015

Jan-2016

May-2016

Sep-2016

$/gal

Chicago Regular Chicago Premium
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 74

0.30 $/gal in 2010 (below the location differential for regular). It gradually increased across the 

period to 2016, faster than the regular differential, and by end of 2016 was over 0.50 $/gal.

FIGURE 43

CHICAGO-HOUSTON RETAIL GASOLINE PRICES

Source: U.S. Energy Information Administration, Motor Gasoline Price Survey

There is a spot petroleum products market in Chicago, but the volumes traded are smaller than 

the USGC or NYH markets. It is not clear that conclusions can be drawn about the spot PRdiff 

in this market (Section 7.3). The consumer PRdiff was in the 0.21 $/gal to 0.24 $/gal range from 

2010 through July 2012. That July there was a small fire at a coker in the BP Whiting refinery 

that coincided with a turnaround at the Marathon Robinson refinery. This was followed in 

September by a two-month shutdown of the Marathon Detroit refinery to complete their heavy 

oil project. It is possible, that these events caused the rack PRdiff to spike (Figure 44). The 

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

Jan-2010

May-2010

Sep-2010

Jan-2011

May-2011

Sep-2011

Jan-2012

May-2012

Sep-2012

Jan-2013

May-2013

Sep-2013

Jan-2014

May-2014

Sep-2014

Jan-2015

May-2015

Sep-2015

Jan-2016

May-2016

Sep-2016

$/gal

Chicago-Houston Regular Chicago-Houston Premium

Linear (Chicago-Houston Regular) Linear (Chicago-Houston Premium)
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 75

consumer PRdiff rose rapidly during this period to over 0.30 $/gal and then remained in the 0.30 

$/gal to 0.35 $/gal range until 2014.

FIGURE 44

CHICAGO PREMIUM-REGULAR DIFFERENTIALS

Sources: U.S. Energy Information Administration, Motor Gasoline Price Survey; OPIS; DTN; and Baker & O’Brien 

Analysis

As in the Central Atlantic and USGC, starting in 2014, gasoline prices declined rapidly but 

premium prices fell slower than regular. Despite the increase in the consumer PRdiff, premium 

gasoline sales grew on an absolute and percentage of total sales basis. In 2016, the consumer 

PRdiff leveled out at 0.65 $/gal to 0.70 $/gal.

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

Jan-2010

May-2010

Sep-2010

Jan-2011

May-2011

Sep-2011

Jan-2012

May-2012

Sep-2012

Jan-2013

May-2013

Sep-2013

Jan-2014

May-2014

Sep-2014

Jan-2015

May-2015

Sep-2015

Jan-2016

May-2016

Sep-2016

$/gal

Rack Prem-Reg, RFG Retail Additional Prem-Reg, All Formulations

Consumer Prem-Reg, RFG
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 76

7.4.4 LOS ANGELES

The West Coast, especially California, is often described as an island when it comes to energy 

pricing dynamics. It has limited connectivity to the other domestic markets (Section 7.3) and 

unique product specifications in California. Los Angeles gasoline prices generally follow the 

trends in the other markets, based on world oil prices, but the absolute price is higher than the 

other markets. The impact of the February 2015 explosion and fire at the ExxonMobil Torrance 

refinery had a clear impact on gasoline prices in this market.

FIGURE 45

LOS ANGELES RETAIL GASOLINE PRICES

Source: U.S. Energy Information Administration, Motor Gasoline Price Survey

Unlike the other markets discussed above, the Los Angeles market has not seen the dramatic 

increases in the consumer PRdiff.

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Jan-2010

May-2010

Sep-2010

Jan-2011

May-2011

Sep-2011

Jan-2012

May-2012

Sep-2012

Jan-2013

May-2013

Sep-2013

Jan-2014

May-2014

Sep-2014

Jan-2015

May-2015

Sep-2015

Jan-2016

May-2016

Sep-2016

$/ gal

L.A. Regular L.A. Premium
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 77

FIGURE 46

LOS ANGELES PREMIUM-REGULAR PRICE DIFFERENTIALS

Sources: U.S. Energy Information Administration, Motor Gasoline Price Survey; OPIS; DTN; and Baker & O’Brien 

Analysis

Los Angeles showed essentially no change in the retail differential across the 2010 to 2016 

period. PADD 5 on average showed the smallest increases in premium to regular differentials 

of all the PADDs. A unique facet of the California retail market is that retailers must display 

prices for all grades of gasoline prominently on the street. 27 Consequently, drivers would be 

able to “price shop” for premium prices before selecting a station. This may increase the 

 

27 California Business & Professional Code, Division 5, Chapters 14 and 15, and California Code of 

Regulations, Title 4, Division 9, Chapters 6, 7, and 8.

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

Jan-2010

May-2010

Sep-2010

Jan-2011

May-2011

Sep-2011

Jan-2012

May-2012

Sep-2012

Jan-2013

May-2013

Sep-2013

Jan-2014

May-2014

Sep-2014

Jan-2015

May-2015

Sep-2015

Jan-2016

May-2016

Sep-2016

$/gal 

LA Spot+Rack (Prem-Reg, RFG) LA Retail (Prem-Reg, All Formulations)

LA Consumer(Prem-Reg, RFG)
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 78

competition for premium gasoline sales between wholesalers, and reduce their “pricing power” 

for premium gasoline.
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 79

8. INTERNATIONAL GASOLINE MARKETS

Gasoline, gasoline components, and feedstocks used to make gasoline (i.e., naphtha) are 

global commodities frequently traded between regions and countries. International gasoline 

markets were reviewed to determine whether the increasing PRdiff seen in the United States is 

a global phenomenon or if there were any major changes to the supply costs, demand, or 

gasoline flows in international markets that could impact U.S. gasoline costs. 

OCTANE GRADES AND PRICE DIFFERENTIALS

In most of the world, retail gasoline octane quality is specified in terms of RON instead of the 

AKI used in North America (Section 4.2.1). The primary octane specification in North America is 

87 AKI (U.S. regular gasoline). In the rest of the world, the primary specification is (or is moving 

to) 95 RON. Gasoline with a 95 RON typically will have a 90 AKI to 91 AKI,28 meeting the EIA 

definition of premium. In most U.S. markets, the premium gasoline supplied is in the range of 

91 AKI to 93 AKI. In European (EU) and some other markets, limited volumes of 98 or higher 

RON gasoline are sold. EU premium 98 RON gasoline is similar in octane quality to a 93 AKI 

U.S. premium gasoline.

In markets such as Japan and Europe, most automobiles require 95 RON gasoline and very few 

require anything greater than 95 RON. This is a significantly different situation than the United 

States. In the United States, roughly 90% of the LDV fleet requires regular gasoline (87 AKI),

and the remainder requires premium (91AKI or greater; Section 4.2.1). In the United States, 

consumption of premium gasoline is driven both by vehicle requirements and consumer 

preference. In the rest of the world, consumption of high octane gasoline (greater than 95 RON) 

is almost exclusively the result of consumer preference.

In many countries, retail prices are controlled by governments and not useful for comparing

retail octane pricing. In other markets, obtaining reliable retail pricing data for the small volume 

of gasoline that exceeds 95 RON is difficult. FGE did identify reliable retail pricing data for 95 

 

28 RON ratings are typically 4 to 5 numbers higher than AKI ratings for the same finished gasoline.
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 80

and 98 RON gasoline for Germany. In recent history, the price differential between these 

grades at retail is close to and sometimes below the spot market differential in Northwestern 

Europe (Figure 47). This is clearly different than what has been observed on the USGC and 

U.S. East Coast (USEC) (Section 7.4). European retail markets appear to have a limited ability 

to sustain premium prices markedly higher than the spot value, possibly because 98 RON 

gasoline is a consumer preference instead of a vehicle requirement.

FIGURE 47

EU PREMIUM-REGULAR PRICE DIFFERENTIALS

GASOLINE AND COMPONENT TRADE FLOWS

The United States is the world's largest gasoline consumer and has historically been a net 

importer of gasoline and gasoline components. However, with the steady growth of ethanol 

blending and refinery throughput, U.S. imports fell while exports rose. In 2016, the United 

States became a net exporter of gasoline. Today the largest importers of gasoline are Africa 

and Latin America. Europe continues to be the world’s largest gasoline exporter (Figure 48).

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

Sep-14

Jan-15

May-15

Sep-15

Jan-16

May-16

Sep-16

$/ON-b

EU Spot 98-95 Retail Additional, Germany
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 81

FIGURE 48

REGIONAL GASOLINE BALANCE

Sources: FGE, Baker & O’Brien Analysis

The USEC (PADD 1) and Gulf Coast (PADD 3) markets are particularly integrated with other 

markets in the Atlantic Basin. Large quantities of gasoline and gasoline components from 

Canada (approximately 150,000 b/d) and Europe (approximately 330,000 b/d) are imported into 

PADD 1. At the same time, even larger quantities are exported from PADD 3 (Section 7.3,

Figure 36), primarily to Africa and Latin America. Because of this dynamic, PADD 1 and PADD 

3 spot market prices tend to react to supply and demand changes across the entire Atlantic 

Basin.

OCTANE COSTS

Spot market prices in major trading hubs (e.g., Singapore and Northwestern Europe) would be 

expected to reflect incremental refining costs just as they do on the USGC (Section 6.5). 

Singapore is the major gasoline market for the Asia Pacific region and posts spot prices for 92, 

95, and 98 RON gasoline. In the Asia Pacific region, about 52% of gasoline sold is between 91 

(2.0)

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

2010 2011 2012 2013 2014 2015 2016

Net Exports <--- million b/d ---> Net Imports

US

Middle East

Africa

Latin America

Canada

FSU

Asia Pacific

Europe
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 82

and 94 RON and 24% of gasoline sold is 94 RON or higher (roughly equivalent to 90 or higher 

AKI). The overall RON of the Asia Pacific gasoline pool is increasing as governments move 

away from lower RON gasoline to 95 RON.

The USGC29 and Northwest Europe (NWE) spot markets are closely connected (Section 7.3). 

As previously discussed, spot market octane values on the USGC track local refining costs 

(Section 6.5). From 2010-2016, NWE spot octane values have generally tracked the USGC 

market with a couple of noticeable lags in 2011-2013 and again in late 2015-2016 (Figure 49).

FIGURE 49

REGIONAL SPOT OCTANE VALUES

 

29 Spot Octane costs in the USGC and NYH markets are roughly the same (Figure 35).

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

10Q110Q210Q310Q411Q111Q211Q311Q412Q112Q212Q312Q413Q113Q213Q313Q414Q114Q214Q314Q415Q115Q215Q315Q416Q116Q216Q316Q4

$/ON-b

EU Spot USGC Spot
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 83

Sources: FGE, Baker & O’Brien Analysis

The analysis indicates that the U.S. cost to produce octane is the primary determinant of the 

spot PRdiff in the United States, and international markets do not appear to have a marked 

impact on the spot PRdiff. Each of the U.S., European, and Asia-Pacific markets has unique 

supply-demand dynamics. Europe is “long” gasoline and exports significant volumes of 

gasoline to PADD 1, but European refiners tend to have higher operating costs and may not 

have the ability to set octane prices in U.S. markets. Moreover, almost all EU premium gasoline 

demand is due to consumer preference and not vehicle requirements. Asian refiners, 

meanwhile, have limited access to the NYH gasoline hub in PADD 1. Thus, the small volume 

reaching the U.S. market has limited or no impact. 

A detailed review of international gasoline markets is presented in Appendix B.
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 84

9. CONCLUSIONS

Since 2012, the average retail price differential between regular and premium gasoline in the 

United States increased from approximately 0.20 $/gal – 0.30 $/gal to 0.53 $/gal in 2017. In this 

report, many factors that influence the pump prices of gasoline and the price differentials 

between different gasoline grades (PRdiff) were examined. Gasoline is a complex chemical 

mixture with stringent quality specifications and is subject to extensive regulation (Section 4). 

Reductions in allowable sulfur levels in gasoline in the United States and other markets have 

and will continue to reduce the octane rating of some gasoline components (4.5.1). This 

reduction in sulfur and octane supply increases the cost of gasoline production but is not a 

major factor in the observed increase in PRdiff.

U.S. gasoline markets, particularly those east of the Rockies, are interconnected with 

international markets (Section 7.3). Gasoline is a widely traded commodity bought and sold in 

open, transparent markets around the world. Excluding North America and Europe, gasoline 

demand has been increasing (Appendix B). Latin American demand, in particular, surged 

during the 2012 to 2016 period, as have U.S. exports to that region. Octane specifications have 

been increasing and sulfur specifications are being reduced in many international markets 

(Appendix B). These changes may have and may continue to have an impact on U.S. gasoline 

prices but are not a major factor in the increases in U.S. PRdiff.

After five years of decline, U.S. gasoline consumption increased 1.4% annually from 2012 

through 2016, reaching an all-time high in 2016 (Section 5, Figure 17). However, 2016 demand 

only marginally surpassed the 2007 peak. From 2012 to 2016, premium gasoline consumption 

increased approximately 1.7% annually but remained well below levels seen, between 2000 and 

2003 (Section 5, Figure 16). AKI-barrel consumption saw a similar annual increase during the 

2012 through 2016 period but only just returned to peak levels reached in 2007 (Section 5, 

Figure 17). Because of increased ethanol blending, petroleum-based AKI-barrel consumption is 

still below the 2007 peak. Major changes in U.S. gasoline demand have not occurred and are 

likely not a significant factor in the increasing PRdiff.

Premium gasoline sales are primarily driven by vehicle engine requirements. As vehicle 

manufacturers modify engine designs to meet future CAFE standards (Section 3), engine 
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 85

compression can be expected to continue to increase. Increasing compression ratios should

directionally lead to increased AKI demand from the gasoline pool (Section 4.4.1, Figure 6). 

However, this does not appear to be the case yet, as the share of “premium-only” vehicles 

appears to have plateaued at 12% of the LDV fleet since 2012 and started declining in 2015 

(Section 4.2.1, Figure 3). Vehicle engine design changes through 2016 have not had a material 

impact on premium gasoline demand, the overall octane balance, or the PRdiff.

From 2010 through 2016, domestic gasoline production increased 1.6% annually, exceeding 

domestic demand growth, and the United States became a net gasoline exporter in 2016

(Section 6). From 2010 through 2016, U.S. refinery crude oil throughput increased 10% due to 

a combination of capacity and utilization increases. During this period, the quality of the crude 

oil processed also changed (Section 6.2). Light, sweet crude processing more than doubled, 

and the proportion of naphtha, natural gasoline, and other lighter, low-octane components in the 

final gasoline pool increased by over 80% (Section 6.4, Figure 27). 

Reforming units have traditionally acted as the swing octane supply in refineries. As octane 

requirements increased from both the increasing gasoline production and the need to blend the 

additional low-octane components in the gasoline pool, reformer utilization (Section 6.1, Figure 

20) and severity (the RON of produced reformate; Section 6.4, Figure 28) both increased. 

Despite this, ample reformer capacity remains, with 2016 utilization ranging between 73% -

80%. Due to the abundant supply of naphtha, refiner costs to produce premium gasoline from 

regular gasoline and reformate have declined since 2014, closely matching the spot market 

PRdiff (Section 6.5, Figure 30).

The NYH and USGC spot market data (Section 7.4.1 and Section 7.4.2) show a number of 

spikes in the premium to regular price differential beginning in 2011 through 2015. These spot 

markets react quickly to supply changes, not only in the United States, but the entire Atlantic 

Basin (Section 7.3). Therefore, it is most likely that these spikes were a result of changes in 

product cost and availability. The spot market differential spikes resulted in increased premium 

to regular differentials at the retail level. After each of these spikes, the differential in the spot 

market declined more rapidly than at the retail level.

The phenomenon of retail gasoline prices rising rapidly, when costs increase and then falling 

back much more slowly when costs decline, has been observed previously and has been 
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 86

named the rocket and feathers hypothesis. Research30 into this hypothesis has focused on the 

crude versus retail gasoline price spread, but the price spreads between grades at various 

points in the supply chain have not been studied. There is general agreement among studies 

that the phenomenon is common and that there is a statistically significant difference between 

the speed of upward movements and the speed of downward movements in retail gasoline 

prices. Since the studies differ in the statistical methods they use, estimates of the length of 

time it takes for the gasoline-crude price spread to return to a normal level vary widely.

It is clear that, during periods of low crude oil price volatility; there is a substantial and 

detectable lag. A sampling of price data between January 1991 and September 1995 indicates 

that it took about five weeks for the gasoline price to decline by 50% of the change in the crude 

price and about five months for the price changes to converge.

31 These findings about the 

consistent appearance of the rocket and feathers hypothesis provide no explanation of what 

causes it, although they are very useful as a basis for short-term forecasting of gasoline prices 

after a price spike.

A possible explanation is based on the existence of search and adjustment costs. Although 

some real-time reports of regular gasoline retail prices are available online, for the most part,

discovering the lowest price after a market change requires physically visiting different retail 

outlets. This implies a cost to finding the outlet with the best price and a tradeoff between 

search costs and price discovery. This tradeoff would make consumers willing to stick with their 

normal outlet at first, then gradually discover locations with better prices and switch.

The search and adjustment cost theory implies lower price elasticity immediately after a market 

change, as each retail outlet can at first raise pump prices by its full wholesale cost increase 

without losing sales to other outlets. If the spike in wholesale prices is temporary, retail outlets 

will only slowly feel pressure to lower prices because the cost of search tends to keep 

 

30 Asymmetries in the Oil-Gasoline Price Relationship, Matteo Manera, September 29, 2015 EIA 

Presentation, and Behavior and Determinants of Petroleum Product Prices, Louis H. Ederington, 

Chitru S. Fernando, Thomas K. Lee, Scott C. Linn, and Seth A. Hoelscher, September 29, 2015 EIA 

Presentation.

31 Oil price volatility and the asymmetric response of gasoline prices to oil price increases and decreases, 

Stanislav Radchenko, August 2004, Figure 8.
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 87

consumers with their normal supplier. As consumers gradually acquire more information about 

prices in different locations, retailers will be forced by competition to keep lowering prices but 

only with a lag based on how quickly consumers gain additional information. 

While the regular to premium price differential has been increasing since 2014, absolute 

gasoline prices fell dramatically starting in 2014, as crude prices plummeted from over $100/b in 

June 2014 to approximately $50/b at the end of 2016. The drop in absolute prices coincides 

with an increase in premium consumption as a percentage of total gasoline sales (Section 5,

Figure 9). It appears that the marginal premium buyer is more sensitive to absolute price of 

premium than to the price differential to regular gasoline. This implies that premium is a 

separate market from regular.

Higher search costs to discover premium prices relative to search costs for regular prices could 

also help explain why premium prices decline more slowly than regular prices. This would be 

the case if retail premium prices are less transparent to the consumer. In many instances, only 

the regular gasoline price is advertised on the street, so consumers must physically drive into 

the retail outlet to determine the premium price. The theory that high search costs have an 

impact is supported by the data from Los Angeles. In this market, retailers must display prices 

for all grades of gasoline prominently on the street. 32 Los Angeles showed essentially no 

change in the retail differential across the 2010 to 2016 period. PADD 5, on average, showed 

the smallest increases in premium to regular differentials of all the PADDs.

Price asymmetry and search costs are possible explanations for increasing premium-regular 

differentials, but a detailed analysis of these factors was outside the scope of this study.

A review of the European market indicates that this is not a global occurrence but appears to be 

somewhat unique to the major U.S. markets.

 

32 California Business & Professional Code, Division 5, Chapters 14 and 15, and California Code of 

Regulations, Title 4, Division 9, Chapters 6, 7, and 8.
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 88

APPENDICES
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 89

APPENDIX A

GASOLINE SPECIFICATION REQUIREMENTS

Average Knock Index

Sulfur, wt.%

RVP, psia

Benzene, vol.%

Color

NACE Corrosion

Mercaptan Sulfur, wt.%

Existing Gum, mg/100 ml

Gravity, °API

Oxidation Stability, minutes

Phosphorous, g/gal

Driveability Index

Distillation Temperature (10 vol.%, 50 vol.%, 90 vol.%, and Endpoint), °F 

Vapor/Liquid Ratio
Analysis of Gasoline Octane Cost

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APPENDIX B

INTERNATIONAL ANALYSIS

Gasoline, gasoline components, and feedstocks used to make gasoline (i.e., naphtha) are 

global commodities that are frequently traded between regions and countries. The U.S. East 

Coast (PADD 1) and Gulf Coast (PADD 3) markets are particularly integrated with other markets 

in the Atlantic Basin. Large quantities of gasoline and gasoline components from Canada and 

Europe are imported into PADD 1. At the same time, even larger quantities are exported from 

PADD 3 primarily to Africa and Latin America (Section 8.2 Figure 36). Due to this dynamic, 

PADD 1 and PADD 3 spot market prices tend to react to supply and demand changes across

the entire Atlantic Basin.

In most of the world, retail gasoline octane quality is specified in terms of RON instead of the 

AKI used in North America (Section 4.2.1). The predominate octane specification in North 

America is 87 AKI (U.S. regular gasoline). In the rest of the world, the predominate specification 

is (or is moving to) 95 RON. Gasoline with a 95 RON typically will have a 90 to 91 AKI, meeting 

the EIA definition of premium. In most U.S. markets, the premium gasoline supplied is in the 

range of 91 AKI to 93 AKI. In European and some other markets, limited volumes of 98 RON 

gasoline are sold. These are similar in octane quality to a 93 AKI U.S. premium gasoline.
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 91

CHANGES IN GLOBAL GASOLINE MOVEMENTS

At over 9 million b/d, the United States is the world’s largest gasoline consumer and was 

historically a net importer of gasoline. However, with the steady growth of ethanol blending and 

refinery throughput, U.S. imports fell while exports rose. In 2016, the United States became a 

net exporter of gasoline. Today the largest importers of gasoline are Africa and Latin America. 

Europe continues to be the world’s largest gasoline exporter (Figure 50 and Figure 51).

FIGURE 50

REGIONAL GASOLINE BALANCE

Sources: FGE, Baker & O’Brien Analysis

(2.0)

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

2010 2011 2012 2013 2014 2015 2016

Net Exports <--- million b/d ---> Net Imports

US

Middle East

Africa

Latin America

Canada

FSU

Asia Pacific

Europe
Analysis of Gasoline Octane Cost

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FIGURE 51

GASOLINE IMPORTS/EXPORTS BY REGION

Source: FGE

Latin America represents the largest destination for U.S. gasoline exports (Figure 52). Most 

regular grades in these markets match the U.S. 87 AKI requirement. Brazil and Argentina blend 

larger amounts of ethanol (up to 27% and 12%, respectively), reducing the octane requirements 

of any imported BOBs. 

(1.2)

(1.0)

(0.8)

(0.6)

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

Middle

East

Asia

Pacific

FSU Latin

America

Africa Europe US Canada

Net Exports <--- million b/d ---> Net Imports

2010

2011

2012

2013

2014

2015

2016
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 93

FIGURE 52

U.S. GASOLINE EXPORT DESTINATIONS BY VOLUME

Source: U.S. Energy Information Administration, Exports

EUROPE

The tax-incentivized dieselization trend has significantly contributed to a fundamental change in 

Europe’s road fuel demand structure. The shift from gasoline to diesel began some 25 years 

ago and led to a major demand decline for gasoline as well as a shortage of diesel production in 

the European Union (EU). Gasoline demand continues to decline while diesel demand is on the 

rise. In addition, alternative fuel vehicles continue to grow in Europe. In 2016, alternative fuel 

vehicles accounted for 4.2%33 of the total EU’s vehicle population. European gasoline 

consumption has declined since 2010 by 217,000 b/d to approximately 2 million b/d in 2016 

(Figure 53). 

 

33 Fuels Europe Statistical Report 2017.

0

100

200

300

400

500

600

700

800

900

1,000

2010 2011 2012 2013 2014 2015 2016

Mb/d

Other Europe Canada Caribbean Latin America
Analysis of Gasoline Octane Cost

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FIGURE 53

EU GASOLINE CONSUMPTION

Source: FGE

The gap between gasoline and diesel taxes in Europe is quite unique in the world and is the 

main reason why diesel engines have taken off in Europe and not worldwide. Ravaged postwar Europe needed tax revenues. Gasoline was used by those people who were able to afford 

a car; hence, governments started to tax gasoline. Diesel was used by trucks and lightly taxed 

or, in some countries, not at all. During the 1990s, fuel efficiency benefits of diesel vehicles 

were used by European countries to further enhance tax incentives for diesel versus gasoline 

powered vehicles. The gap in tax levels for diesel and gasoline paid by motorists can be 

significant and varies by country. “Although the gap has decreased over time, in 2014, the 

sales-weighted average gap was more than €0.14/liter. In some member states, such as the 

Netherlands, the difference is even €0.28/l. Only the UK has a policy in place to ensure that 

diesel and petrol are taxed at the same level.”

34 Because today the majority of the passenger 

 

34 Europe’s Tax Deals for Diesel, October 2015, Transport & Environment, Carlos Calvo Ambel.

0.0

0.5

1.0

1.5

2.0

2.5

2010 2011 2012 2013 2014 2015 2016

million b/d
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 95

vehicle fleet in Europe uses diesel engines, Europe is traditionally short diesel while long 

gasoline. The dieselization of the car fleet in Europe increased between 1990 and 2011, with 

some stabilization and decline through 2016. Diesel vehicles accounted for over 50% of EU 

new car sales in 2016 (Figure 54).

FIGURE 54

DIESEL SHARE OF NEW CAR SALES

Source: FGE

Recent concerns with environmental emissions from diesel engines have led to a rethinking in 

the use of diesel powered passenger vehicles in Europe. In recent years, sales of new diesel 

powered cars have been falling in Europe's key markets as customers react to a backlash 

against the powertrain following Volkswagen Group's emissions-cheating scandal. For 

example, the market share of diesel vehicles in France fell below 50% in 2017 for the first time 

since 2000, after reaching a record penetration level of 73% in 2012.35

 

35 Automotive News Europe, October 1, 2017, Diesel Sales Fall in Key Europe Markets, Peter Sigal.

0%

10%

20%

30%

40%

50%

60%

70%

80%

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

EU Germany France Italy Spain UK
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Gasoline specifications in Europe have also gone through a series of changes over the years 

(Figure 55) but, at a minimum, gasoline is required to have 95 RON and 85 MON (equivalent to 

AKI 90 in the United States, meeting the EIA definition of premium.) 

FIGURE 55

EUROPEAN GASOLINE KEY FUEL PROPERTIES

Source: FGE

European octane demand is overwhelmingly 95 RON / 85 MON, at over 94.2% share (Figure 

56). 98 RON accounts for 5.5% share of demand. 91 RON / 81 MON has 0.3% share but is 

predominantly only consumed in Denmark. Notably, no current production car requires 98 RON 

gasoline; it is purely a marketing option with demand driven by consumer sentiment.

In addition, ethanol blending in gasoline is far more limited in Europe than it is in the United 

States (Figure 56). The EU has a 2020 target for 10% of total road transport fuels to be 

biofuels; however, this is under re-consideration in light of various environmental and social 

concerns associated with biofuels, such as, rising food prices and deforestation.
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FIGURE 56

EUROPEAN GASOLINE CONSUMPTION BY GRADE AND ETHANOL CONTENT

Source: FGE

Comparing 95 RON and 98 RON spot pricing in Europe shows that the value of octane has 

increased since 2009, similar to the United States, while the price of crude oil has fallen. 

Octane values have increased from about 1 $/RON-b to 2.75 $/ RON-b as of 2017 (Figure 57, 

blue line represents octane cost while the red dashed line represents the crude cost). Unlike 

the U.S (Section 6.5, Figure 29), octane costs have not dropped back down to 2011 levels. 

Although Europe does supply gasoline to PADD 1 in the United States, the U.S. spot octane 

costs reflect the economics of the U.S. Gulf Coast (PADD 3) refineries, and not European 

differentials.
Analysis of Gasoline Octane Cost

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FIGURE 57

EUROPEAN OCTANE PRICING

Source: FGE

ASIA

Gasoline consumption in Asia is estimated to exceed 7 million b/d 2017, with China and India 

accounting for 52% of the region’s gasoline demand (Figure 58). Japan, Indonesia, and 

Australia round up the top five consumers in the region and together, with China and India, 

account for 78% of regional consumption.

0

20

40

60

80

100

120

140

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Jan-09

Jun-09

Nov-09

Apr-10

Sep-10Feb-11

Jul-11

Dec-11

May-12

Oct-12

Mar-13

Aug-13

Jan-14

Jun-14

Nov-14

Apr-15

Sep-15Feb-16

Jul-16

Dec-16

May-17

Oct-17

Brent, $/b

$/RON-b

Octane cost (98vs95RON) Reformate (vs 95RON) Brent (RHS)
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 99

FIGURE 58

2017 ASIA PACIFIC GASOLINE CONSUMPTION BY COUNTRY

Source: FGE

Gasoline consumption in Asia grew robustly between 2010 and 2016, from 4.9 million b/d to 6.8 

million b/d, or 5.5% per year (Figure 59). The strongest gasoline growth on a percentage basis 

China

44.0%

Japan

12.8%

Indonesia

8.2%

India

8.5%

Australia

4.5%

Malaysia

4.5%

South Korea

3.1%

Others

14.4%

Taiwan

2.6%

Thailand

2.7%

Vietnam

2.0%

Pakistan

2.3%

Philippines

1.5%

Others

2.0%

New Zealand

0.8%

Singapore

0.3%

Hong Kong

0.2%
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 100

was experienced in Pakistan, China, and India, while the lowest consumption growth was in the 

mature economies of Japan, Australia, and New Zealand.

FIGURE 59

ASIA PACIFIC GASOLINE CONSUMPTION

Source: FGE

Asia has been structurally long in gasoline, with a surplus moving in a narrow 200,000 b/d range 

from 2010 to 2016. Countries such as China, India, Singapore, South Korea, and Taiwan are 

long while Indonesia, Australia, Malaysia, Pakistan, and others are short. While China’s 

gasoline supplies have shored recently, balances of several key Southeast Asian countries are 

getting increasingly tighter. Asian gasoline surplus should continue to fall in the next two years, 

and the region is expected to transition to a new importer on or before 2020.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0

1

2

3

4

5

6

7

8

2010 2011 2012 2013 2014 2015 2016

Percentage Change YoY

million b/d
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FIGURE 60

ASIA PACIFIC GASOLINE BALANCE BY COUNTRY

Source: FGE

Gasoline specifications have become increasingly more restrictive in the Asia Pacific region as 

the countries move toward cleaner gasoline. Specifications such as minimum octane levels, 

sulfur contents, and benzene content have tightened since 2003. Several countries are 

expected to continue reducing sulfur content over the next three years as they move towards 

Euro IV specifications (Figure 61). These markets may no longer be as extensively used as a 

“home” for low-quality or undesirable blending components. Moreover, the desulfurization 

process typically results in a loss of RON anywhere between one to five octane numbers, 

necessitating increased blending with high octane blendstocks.

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2010201120122013201420152016201720182019202020212022202320242025

Net Exports <--- millino b/d ---> Net Imports

China Indonesia Australia India Malaysia Pakistan

Singapore South Korea Taiwan Others Asia
Analysis of Gasoline Octane Cost

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FIGURE 61

ASIA PACIFIC RON AND SULFUR REQUIREMENTS

Source: FGE

RON 91 grade and above accounts for roughly 52% of total gasoline consumption in 2017, 

versus 38% in 2010, as countries such as China, Indonesia, Pakistan, and Bangladesh moved 

away from lower RON gasoline in recent years (Figure 62). In addition, several countries 

including China, Philippines, Singapore, Taiwan, Thailand, Pakistan, Sri Lanka, and Bangladesh 

moved to lower sulfur specifications.
Analysis of Gasoline Octane Cost

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FIGURE 62

ASIA PACIFIC GASOLINE CONSUMPTION BY RON

Source: FGE

Octane costs per barrel saw a small surge in the Singapore spot market36 between 2010 and 

2012 as some key Asian markets shifted away from lower RON gasoline. Eventually, the cost 

came down to reach a low of 0.88 $/b/ON this year as refiners added considerable capacity to 

their reforming and isomerization units in recent years (Figure 63). China was a game changer 

as substantial deep processing units came online along with MTBE and alkylation units. The 

increase in consumption for higher RON gasoline was largely met by higher supplies as Asian 

refiners boosted their ability to produce higher RON gasoline. This kept octane price premiums 

range bound.

 

36 The Singapore spot market is the major market for the Asia Pacific region.

39%

24% 19%

38%

52%

55%

23% 24% 26%

0%

20%

40%

60%

80%

100%

2010 2017 2020

Percentage of Consumption by grade

> RON 94

RON 91-94

 < RON 91

Forecast
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FIGURE 63

SINGAPORE OCTANE COST PER BARREL

Source: FGE. Note: Price spread between FOB Singapore RON 95 gasoline and RON 92 gasoline

CHINA

In line with economic growth, China’s gasoline consumption has been increasing robustly in 

recent history, at times over 10% year-over-year (YoY). The robust consumption growth was 

largely due to a rapidly increasing car fleet, establishing China as one of the world’s largest 

vehicle markets (Figure 64).

FIGURE 64

PASSENGER CAR SALES IN CHINA

Source: FGE

 0.70

 0.75

 0.80

 0.85

 0.90

 0.95

 1.00

 1.05

 1.10

2010 2011 2012 2013 2014 2015 2016 2017

$/RON-b

0%

5%

10%

15%

20%

0

5

10

15

20

25

30

2010 2011 2012 2013 2014 2015 2016 2017

million units

Passenger Car Sales % growth (RHS)
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After reaching approximately 14% in 2015, China’s gasoline consumption growth has 

moderated somewhat and is projected to grow by less than 5% in 2017. Increased promotion of 

electric vehicles, partial withdrawal of tax incentives on light cars, and the growing popularity of 

alternative forms of transport such as high-speed rail and air travel has impacted China’s 

gasoline consumption.

China formally implemented the National Standard IV (NS-IV-equivalent to Euro-IV) fuel 

specification in 2014. Subsequently, the NS-V specification was officially rolled out nationwide 

in 2017; several more-developed cities had already adopted the new standard earlier, with 

Beijing the first to do so in May 2012. 

As the country imposed more stringent sulfur standards in accordance to NS-V, octane 

specifications for gasoline were lowered to the lowest octane grade and changed to 89 RON 

from 90 RON while the regular grade was lowered to 92 RON from 93 RON. This emphasizes 

China’s commitment to cutting sulfur emissions but compromises the octane rating. This 

reduction in gasoline octane specification is attributed to continued high demand growth for 

gasoline coupled with Chinese refineries configured to maximize diesel compared to gasoline 

leading to gasoline supply issues. The 92 RON grade is most widely available, although 

consumption of the higher octane grades is increasing. 

China plans to move to a nation-wide NS-VI standard (Euro-VI equivalent) by mid-2020. The 

country typically implements fuel specification changes in stages across the country, with the 

stricter NS-VI standard already introduced in Beijing since January 2017.

INDONESIA

Indonesia’s gasoline consumption grew at an average rate of 9.0% per year between 2008 and 

2013, largely as subsidized gasoline prices spurred the growth of discretionary driving. After the 

subsidy reduction and eventual removal in January 2015, annual consumption growth receded

to the 1%-2%.

Two-wheelers make up roughly half of the country’s total gasoline consumption. Motorcycle 

sales saw an 8.8% YoY decline in 2016 and have continued declining into 2017. However, car 

sales grew by 7.1% YoY in the same two year period.
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Indonesia traditionally sells three grades of gasoline: 88 RON (Premium), 92 RON (Pertamax) 

and 95 RON (Pertamax Plus). In July 2015, Pertamina launched a new 90 RON grade 

(Pertalite). Consumption has grown strongly since introduction, at the expense of the 88 RON

grade (Figure 65). 

FIGURE 65

INDONESIAN GASOLINE CONSUMPTION BY GRADE

Source: FGE

Indonesia remains the last major importer of low octane gasoline in Asia. As long as the 

refineries remain configured for low octane gasoline production, Indonesia likely won’t legislate 

to move to a higher octane on the retail side.

INDIA

India’s gasoline consumption has grown significantly since 2010, from 326,000 b/d to 551,000

b/d in 2016. Rapid expansion in vehicle ownership and increasing affluence of the middle class 

population underpinned a strong 8% consumption growth between 2000 and 2010.

Gasoline retail prices were deregulated in 2011, which led to a shift in the car purchase trend. 

Consumers started buying more diesel-cars, as diesel was still subsidized. The move 

dampened gasoline consumption growth between 2011 and 2014. However, the trend reversed 

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Percentage of Consumption

RON 90

RON 95

RON 92

RON 88

Forecast
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 107

in 2014 when India deregulated diesel prices. The differential between gasoline and diesel 

dropped from 1.40 US$/gal in 2012 to as low as 0.79 US$/gal in 2014. 

The share of gasoline cars in the overall passenger vehicle sales grew from 48% in 2012 to 

about 74% by 2016, resulting in an increase of gasoline consumption over the past few years 

(Figure 66). Lower oil prices provided additional impetus to consumption growth as 

discretionary driving surged in the price sensitive market. 

FIGURE 66

INDIA SHARE OF PASSENGER VEHICLE SHARES

Source: FGE

Although the growth in passenger car sales took the spotlight, the two-wheeler segment will 

remain the main growth driver in the medium term. Roughly 60% of India’s gasoline 

consumption is from the two-wheeler segment. India's demonetization move in the first quarter 

of 2017 dampened sales of two-wheelers, contracting gasoline consumption. Since then, the 

effects of demonetization have waned, and we have seen vehicle sales rebounding. Sales of 

two-wheelers are estimated to grow by 12.9% YoY to touch 20 million units in 2017.

India moved to BS IV (equivalent to Euro IV) nationwide in April 2017 and is planning to skip 

Euro V and move directly to Euro VI by April 2020. The emphasis has always been on sulfur 

reduction in transport fuels. There was limited movement in RON ratings; the country mandated 

91 RON gasoline in 2005, making a move from lower 88 RON. 91 RON remains the widely 

40%

52%

42% 37% 34%

26%

60%

48%

58% 63% 66%

74%

2011 2012 2013 2014 2015 2016

Diesel Cars Petrol Cars
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 108

retailed grade since then, although both supply and consumption for premium octane gasoline is 

trending up on consumer preference.

MEXICO

Gasoline consumption in Mexico has been relatively stable since 2012 at approximately 

800,000 b/d (Figure 67). Gasoline consumption declined slightly between 2012 and 2014 from 

803,000 b/d to 776,000 b/d, before rebounding in 2015 and 2016.

FIGURE 67

MEXICO GASOLINE SALES

Source: Pemex

Gasoline in Mexico comes in two grades: Pemex Magna and Pemex Premium. Magna and 

Premium are similar to regular and premium in the United States with an AKI of 87 and 91, 

respectively (Figure 68). As in the United States, some specifications vary regionally in Mexico. 

Ethanol blending is allowed in gasoline in areas other than Mexico City, Guadalajara, and 

Monterrey. The maximum allowable content was raised by Mexico’s energy regulator, Comision 

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2012 2013 2014 2015 2016 2017-9

Mb/d

Pemex Magna (AKI 87) Pemex Premium (AKI 91)
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 109

Reguladora de Energia, in 2017 from 5.8% to as much as 10%. In some regions, MTBE, ETBE,

and TAME37 are allowed.

FIGURE 68

SELECTED U.S. AND MEXICO GASOLINE QUALITY SPECIFICATIONS38

U.S. Gulf Coast Mexico(1)

Seasonal RVP Specs Yes Yes

Max Winter RVP PSI 13.5 7.8-11.5

Regular Octane (R+M)/2 87 87

Premium Octane (R+M)/2 93 91

Renewables Required Yes No

MTBE Blended No Yes

Sulfur, Per Gallon Max - PPM 80 80

Sulfur, Average Max 10 30

Aromatics, Vol % Max 50 25-32

Sources: U.S. EPA, Mexico NOM-016-CRE-2016, Baker & O’Brien research. (1) The range on some specifications is 

due to regional variation within Mexico.

Mexico has six refineries but is structurally short gasoline39 requiring increasing levels of imports 

(Figure 69). Net imports increased from 326,000 b/d in 2012 to nearly 640,000 b/d in 2016, with 

the majority (~66%) of the imports coming from the United States.

 

37 Ethyl tert-butyl ether and tert-amyl methyl ether, respectively.

38 RVP and aromatics specifications vary regionally in Mexico.

39 Mexico refineries suffer from historical low capital investment leading to frequent outages and low 

refinery utilization.
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 110

FIGURE 69

MEXICO GASOLINE TRADE BALANCE

Source: Pemex

The energy industry in Mexico is currently going through deregulation and petroleum prices are 

moving toward a market pricing structure throughout 2017. Pemex publishes the value of 

domestic sales of refined petroleum products which exclude the Special Tax on Production and 

Services, VAT and distributor commission, enabling analysis of country level realized gasoline 

prices for Magna and Premium grades. The differential between Magna and Premium grades 

widened from 0.14 $/gal in 2012 to 0.41 $/gal in 2015 before declining in 2016 and 2017 (Figure 

70).
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 111

FIGURE 70

MEXICO GASOLINE PRICES EXCLUDING TAX AND DISTRIBUTOR FEES

Sources: Pemex, Federal Reserve Bank of St. Louis

BRAZIL

Gasoline consumption in Brazil, including ethanol blending, increased from 428,000 b/d in 2010 

to 636,000 b/d in 2014 (Figure 71). Consumption faltered in 2015 as Brazil’s economy declined 

between 2014 and 2015 but rebounded in 2016.

0.14 0.12 0.19

0.41

0.29

0.15

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2012 2013 2014 2015 2016 2017-9

$/gal

Difference

Pemex Magna

Pemex Premium
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 112

FIGURE 71

BRAZIL GASOLINE SALES BY DISTRIBUTORS, OIL EQUIVALENT BARRELS40

Source: Agencia National do Petroleo (ANP)

Brazil is the second largest producer and consumer of ethanol in the world after the United 

States, and flex-fuel vehicles account for 60% of the total domestic fleet.41 Brazil introduced an 

ethanol-use mandate in 1977, and the blend percentage has increased steadily over time. As of 

2016, the mandate stood at 27%, but blends can vary between 18% and 27.5%.42 The flex-fuel 

vehicle fleet can run on gasoline, ethanol (Hydrous), or a mixture of the two (gasoline and 

anhydrous ethanol).

 

40 Large volumes of ethanol are included in Brazilian finished gasoline. ANP adjusts the actual volumes 

for the lower energy content of ethanol (Section 4.5.2) and reports the equivalent petroleum based 

gasoline consumption.

41 https://www.eia.gov/beta/international/analysis.cfm?iso=BRA.

42https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Biofuels%20Annual_Sao%20Paulo%20ATO

_Brazil_8-12-2016.pdf.

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2010 2011 2012 2013 2014 2015 2016

Mb/d
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 113

Brazil became a net importer of gasoline in 2011 (Figure 72). In 2012, net imports of gasoline 

were over 60,000 b/d.

43 Since then net imports have moderated averaging approximately 

40,000 b/d.

FIGURE 72

NET IMPORTS OF GASOLINE IN BRAZIL

Source: ANP

Petrobras markets four types of gasoline: Regular, Petrobras Grid, Premium, and Petrobras 

Podium. Regular gasoline has an AKI of 87 and up to 50 ppm sulfur. Petrobras Grid gasoline 

has an AKI of 87 and max sulfur of 50 ppm but has friction-reducing additives. Premium 

gasoline has an AKI of 91 and up to 50 ppm sulfur. Petrobras Podium has an AKI of 97 and up 

to 30 ppm sulfur. 

In the 1990s, Brazil liberalized its energy market and subsidies were removed through 2001.

 

43 This is largely due to increasing gasoline demand and a lack of capital investment in existing Brazilian 

refineries for expansions. Instead, Brazil focused on crude oil production investments rather than 

refining investments.

-80

-60

-40

-20

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20

40

60

80

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

M b/d

Imports

Exports

Net
Analysis of Gasoline Octane Cost

U.S. Energy Information Administration Page 114

ARGENTINA

Gasoline consumption in Argentina increased from 133,000 b/d in 2012 to 151,000 b/d in 2016 

(Figure 73). Consumption faltered in 2014 but rebounded in 2015.

FIGURE 73

ARGENTINA GASOLINE CONSUMPTION

Sources: U.S. Energy Information Administration, International Energy Statistics; USDA

In 2006, the Argentine Congress passed a law which mandated the use of biofuels starting in 

2010. Ethanol blending grew between 2009 and 2017 from 0.1% to 11.6% by volume and the 

current mandate is for 12% ethanol by volume.44 The biofuels industry in Argentina is 

supportive of higher blends, similar to Brazil and Paraguay, but the government has not 

implemented blends at higher levels.

 

44https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Biofuels%20Annual_Buenos%20Aires_Arge

ntina_7-17-2017.pdf.

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2012 2013 2014 2015 2016

Mb/d