Refiners and pipelines throughout the country are transitioning to a sub-octane gasoline (typically 84-octane). The primary driver of this conversion is the Renewable Fuels Standard passed by Congress in 2005 that requires a refiner to off-set fossil fuel production with a renewable fuel such as ethanol. Pipelines in the United States are transitioning to sub-octane gasoline due to limited tank space at the terminal level. After September 16, 2013, it is anticipated that pipeline systems will convert to 84 sub-octane gasoline. This will include the terminals we pull products from. As a result, all sub-octane gasoline will require ethanol and/or premium unleaded in order to meet state octane minimums. This change will affect the mid grade 89 octane 10% ethanol or super unleaded gasoline we sell. The terminal change will require a three way blend of 84 octane (sub grade), 91 octane (premium), and ethanol to make the 89 octane 10% gas that we sell (the 87 octane non ethanol grade formerly blended with 10% ethanol to make the 89 octane 10% ethanol gasoline will no longer be available at the terminals). We will still be able to sell 89 octane 10% ethanol gasoline but the high price of the 91 octane that will be needed to blend with the sub grade and ethanol will increase the price of the 89 octane 10% ethanol gas. With today’s pricing the spread between 87 10% and 89 10% is 15 to 18 cents per gallon (using the three way blend) instead of the 2 cents you are seeing today. I expect the spread to be larger than that by mid September because the 91 octane gas is in short supply now and more will be used when this change takes place (which I anticipate will drive the cost up). The bottom line here is we expect the price spread between the 87 10% and the 89 10% gas to increase dramatically by mid September.
Steve Johnson
