Energy Economics
Applied Optimization

Since 1990, MathPro Inc. has completed scores of engagements, for clients in the U.S., Canada, and Europe. Here are summaries of some of our more noteworthy studies. The summaries are arranged roughly in reverse chronological order.

In most instances, the reports that we produced in these engagements are available from the client organizations (either on request or via their web sites).

For faster searching, please use the dropdown below to select the category/topic that might be of interest to you.

  • Effects on the U.S. Refining Sector's CO2 Emissions of Possible Changes in the U.S. Crude Slate and Product Slate
    Categories: Refining Economics, Refinery Energy Use and CO2 Emissions
    • Effects on the U.S. Refining Sector's CO2 Emissions of Possible Changes in the U.S. Crude Slate and Product Slate

      The International Council on Clean Transportation (ICCT) retained MathPro Inc. to assess the effects of possible changes in the U.S. refining sector's crude slate and product slate on the sector's CO2 emissions.

      The analysis had two parts:
      • Development of a set of seven prospective U.S. crude slates (ranging from very heavy to very light, reflecting with different proportions of Canadian bitumen crudes, U.S. light crudes from shale formations, and water-borne imported crudes) and six prospective refined product slates (spanning a range of gasoline/distillate ratios, a range of bio-fuels volumes, and different refined product specifications) for 2025
      • Application of MathPro's linear programming model of the U.S. refining sector to estimate the U.S. refining sector's energy use and CO2 emissions in 2025 for over forty (40) scenarios, with each scenario representing a unique combination of a prospective crude slate and a prospective product slate
      In addition to the estimates of the refining sector's energy use and CO2 emissions, the study also produced quantitative estimates of (i) investments in new refining capability, by process type (e.g., coking, hydrocracking); and (ii) significant changes in refinery operations (including total crude volumes, refined product and by-product yields) and economics (including marginal prices of the primary refined products) for each scenario.

      The results of the analysis indicated that (i) as expected, refinery energy use and CO2 emissions increase with increasing crude oil density and sulfur content, (ii) these effects are most pronounced with the heavy, sour crude slates and least so for the lighter, sweeter crude slates, and (iii) the range of variation of and CO2 emissions across the range of crude slates - from very heavy to very light - is on the order of 20%-25%.
  • Historical and Projected Emissions of CO2 in the U.S. Refining Sector
    Categories: Gasoline Sulfur Control, Federal Clean Fuels Program, Refining Economics
    • Historical and Projected Emissions of CO2 in the U.S. Refining Sector

      A major integrated oil company retained MathPro Inc. to analyze historical and projected future patterns of crude oil utilization, energy use, and CO2 emissions in the U.S. refining sector. The analysis had three parts:
      • Collection and analysis of historical data (1986-2010) on crude oil consumption, additions to conversion capacity, energy use, and CO2 emissions in the U.S. refining sector
      • Development of four projections of the U.S. crude oil slate in 2025 - a baseline slate similar to the current U.S. crude slate, and three others containing larger proportions of higher density, higher sulfur crudes than the current or any previous U.S. crude slates

        The latter three cases reflected aggressive assumptions regarding the volumes of heavy Canadian crudes in the U.S. crude slate in 2025.
      • Linear programming modeling of the U.S. refining sector to estimate total annual energy consumption and CO2 emissions in 2025, for the four projected U.S. crude oil slates - both with and without consideration of the more stringent fuel sulfur standards scheduled to be in place by 2025
      To make the analysis and its results more accessible to a non-technical audience, MathPro also prepared a tutorial on petroleum refining fundamentals to accompany the report on the analysis.

      The primary work product of the analysis was a technical paper, Analysis of Energy Use and CO2 Emissions in the U.S. Refining Sector, With Projections to 2025, published in the professional journal, Environmental Science & Technology (April 2012, Volume 46, Issue 7, Page 3697, DOI:10.1021/es204411c).
  • Refining Economics of a National Low Sulfur, Low RVP Gasoline Standard
    Categories: Gasoline Sulfur Control, Diesel Fuel Sulfur Control, Refining Economics
    • Refining Economics of a National Low Sulfur, Low RVP Gasoline Standard

      The International Council for Clean Transportation (ICCT) retained MathPro Inc. to assess the refining economics of proposed standards for the sulfur content and summer RVP of gasoline consumed I the U.S. The ICCT commissioned the assessment in connection with the U.S. EPA's consideration of a new rule (ÒTier 3Ó) governing gasoline sulfur content and summer RVP.

      The analysis addressed (i) a 10 ppm (average) sulfur standard for all gasoline and (ii) summer RVPs of 9 psi and 8 psi (after ethanol blending) for conventional gasoline. We analyzed the refining economics of the proposed sulfur and RVP standards by means regional refinery LP modeling, using MathPro's proprietary refinery modeling system, ARMS. We applied four models, representing aggregate refining operations in PADD 1, PADD 2, and PADD 3, and PADD 4, respectively. The target time period for the analysis was 2015 (summer and winter gasoline seasons).

      Using price and national volume projections from AEO 2011 (Reference Case) and recent MathPro studies, we developed PADD-level projections of (1) demand for and domestic refinery production of gasoline - RFG, CG, and LRVP - and other refined products and (2) regional aggregate crude oil slates for 2015.

      The refinery modeling for each region encompassed 2010 Calibration Cases (summer and winter), 2015 Baseline (Reference) Cases (summer and winter), and 2015 Study Cases (summer and winter) representing U.S. refineries producing gasoline meeting the prospective standards, while maintaining regional and total U.S. gasoline production at the 2015 Baseline volumes. The study also included a set of sensitivity cases to assess the effects on the study's findings of assumptions regarding key economic parameters in the regional refining models:

      Results of the analysis included estimated total (PADDs 1, 2, 3, and 4) capital investment, annual refining cost, and per-gallon refining cost associated with the 10 ppm sulfur standard (1.4¢/gal), the 9 psi RVP standard, and the 8 psi RVP standard. Two sets of estimated costs were developed for the RVP standards: one reflecting the estimated cost of RVP control allocated to all U.S. gasoline production, year-round; the other reflecting the estimated cost of RVP control allocated only to the gasoline volume affected by the RVP standard: summer CG (about 30% of total annual U.S. gasoline production, but with significant regional variation).

      MathPro's project report was submitted to EPA for its consideration in the Tier 3 rulemaking.
  • Technical and Economic Analysis of the Transition to Ultra-Low Sulfur Gasoline and Diesel Fuel in Brazil, China, India, and Mexico
    Categories: Gasoline Sulfur Control, Diesel Fuel Sulfur Control, Refining Economics
    • Technical and Economic Analysis of the Transition to Ultra-Low Sulfur Gasoline and Diesel Fuel in Brazil, China, India, and Mexico

      The International Council on Clean Transportation (ICCT) commissioned Hart Energy and MathPro jointly to conduct a study of refining capability requirements, corresponding capital investment requirements, and per-liter refining costs for the transition from current gasoline and diesel fuel sulfur standards to ULSG and ULSD standards, in India, Mexico, Brazil and China. The analysis also addressed (i) a more stringent summer vapor pressure standard (60 kPa RVP) in China and (ii) key Euro 5 standards for gasoline and diesel fuel in all four countries.

      The primary objectives of the study were (i) to identify the primary additions to refining process capability required for producing ULSG and ULSD with the refining operations and crude oil slates typical of those currently used in the four countries considered, and (ii) to assess, by means of refinery LP modeling, the capital and operating costs required for these countries to transition to ULSG and ULSD (and to the other fuel standards considered).

      The study comprised
      • Development of a tutorial on refining and the technical fundamentals of ULSF production;
      • Development of the analytical methodology and refinery LP models needed to estimate investment requirements and refining costs for producing ULSG and ULSD meeting 50 ppm and 10 ppm sulfur standards in India, Mexico, Brazil and China;
      • Collection of relevant data on the current refining sector in each country to support the refinery modelling;
      • Characterization of the refined product distribution systems in the four countries; and
      • Application of the refinery LP models to estimate investment requirements and refining costs for the various ULSG and ULSD standards considered in the study.
      The refining analysis developed estimated refining costs that are the sums of (i) capital charges associated with investments in new capacity and (ii) direct operating costs (e.g., energy, catalysts and chemicals, etc.), summed over all refining processes represented in the model. The estimated costs encompass:
      • Capital charges (per-liter) associated with investments in process capacity (on-site and off-site) dedicated to meeting the standard
      • Incremental direct operating costs (primarily energy [fuel and power] and catalysts and chemicals consumption) in the various refining processes involved in meeting the standard
      • Cost of additional hydrogen supply needed to support additional hydrotreating for sulfur removal
      • Cost of additional sulfur recovery facilities
      • Cost of replacing lost product yield
      • Cost of replacing lost gasoline octane
      The project report is available on the ICCT Web site. The refining tutorial also is available as a stand-alone document on the ICCT Web site.
  • Refining Economics of Producing an All-92 Octane (AKI) U.S. Gasoline Pool
    Categories: Refining Economics, Bio-fuel Economics, Oxygenate Issues: Ethanol, Iso-butanol, and Ethers; Technology Assessment
    • Refining Economics of Producing an All-92 Octane (AKI) U.S. Gasoline Pool

      MathPro Inc. was retained to assess the changes in U.S. refining and consumer economics that would result from the use of 92 AKI ((R+M)/2) gasoline in the entire fleet of future cars and light duty trucks complying with the new federal CAFÉ standards, in 2017, 2025, and 2035, at each of three alternative levels of ethanol blending: E10, E15, and E30.

      The study employed a linear programming (LP) model of the U.S. refining sector to estimate the main effects on U.S. refining economics (including changes in the refining costs of transportation fuel) and on consumers of future fuel standards requiring the use of 92 AKI gasoline in future vehicles.

      The analysis covered a number of alternative 92 AKI gasolines: E30, E10, E10 with T90 < 330o F, E10 with aromatics content 10% less than the current U.S. average, E10 produced with high-octane merchant gasoline blendstocks (such as iso-octene), and E15 produced with high-octane merchant blendstocks. The analysis considered two assumed ethanol price scenarios:
      • Low ethanol price: energy parity (¢/K BTU) with the wholesale price of 88 AKI E10
      • High ethanol price: volumetric parity (¢/gal) with the wholesale price of 88 AKI E10
      With fuel ethanol priced at energy parity, estimated cost savings for the 92 AKI E30 Study case in 2035 (with 85% of the gasoline pool at 92 AKI) are in the range of $20 billion/year (for the cost of refined product supply) and $30 billion/year (for the wholesale cost of transportation fuels). With fuel ethanol priced at volumetric parity, estimated cost savings for the 92 AKI E30 Study case in 2035 are lower: in the range of $4 billion/year and $10 billion/year, respectively.

      The required BOB octane for 92 AKI E30 is about the same as that for current 88 AKI E10 BOB. However, the volume of hydrocarbon gasoline required for E30 is considerably lower than that required for E10. The net effect is to lower both refining costs and the average marginal cost of transportation fuels by more than enough to offset the cost of the additional ethanol volume in E30.

      Directing additional volumes of ethanol to E85 rather than to E15 or E30 would in general lead to higher costs of refined product supply and wholesale costs of transportation fuel than the other alternatives represented in the various Study cases. Increasing E85 use has unfavorable refining economics because of the octane Ògive-awayÓ associated with E85. E85 has more octane than consumers' vehicles can use, whereas refiners can use ethanol's octane to reduce the required octane (and hence the refining cost) of the various BOBs in E10, E15, and E30 blends.
  • Effects of the Renewable Fuels Standard on the Refining Economics of Transportation Fuels
    Categories: Bio-fuel Economics, Oxygenate Issues: Ethanol, Iso-butanol, and Ethers
    • Effects of the Renewable Fuels Standard on the Refining Economics of Transportation Fuels

      A group of ethanol industry firms retained MathPro to assess effects of the increased ethanol use induced by the federal Renewable Fuels Standard (RFS2) on the refining-related costs of producing gasoline and, more generally, transportation fuels. The analysis considered two economic consequences of increasing ethanol use from pre-RFS2 levels to 2011-2012 levels:
      • Changes in U.S. refining costs and wholesale costs of transportation fuels, for specified wholesale prices of ethanol

        Increasing ethanol use reduces refining costs (excluding the wholesale cost of ethanol) by reducing both the volume and the average octane of refinery-produced hydrocarbon gasoline needed to meet U.S. demand. The analysis assessed these effects by means of refinery LP modeling.
      • Change in world crude oil prices attributable to increased U.S. ethanol use

        Increasing ethanol use exerts downward pressure on world crude prices by reducing U.S. (and hence global demand) for crude oil (all else equal). The analysis assessed this potential effect using estimates of crude oil supply and demand elasticities reported in the literature.
      The analysis produced estimates of the cost savings (in $ billion/year) attributable to the increased ethanol use induced by RFS2, for various scenarios pertaining to ethanol prices and U.S. net gasoline imports.

      For example, the analysis indicated that if (i) the crude oil price were constant at $97/b, (ii) the volume of U.S. gasoline imports were unaffected by increased ethanol use, and (iii) fuel ethanol were priced at 90% of the wholesale gasoline price (approximating the ethanol-gasoline price relationship in August 2012), then RFS2 likely increased U.S. refining costs (including the cost of ethanol) in 2011 by about $2 billion/year but reduced the wholesale cost of transportation fuels by about $5 billion/year. (The difference between these two cost measures is attributable to the changes in refining margins, mostly on gasoline, estimated in the refinery modeling. Changes in refining margins are reflected in the estimates of the wholesale cost of transportation fuels, but not in the estimates of refining costs.)

      At the same time, the increase in ethanol use induced by RFS2 reduced crude oil use almost barrel-for-barrel (all else equal), on an energy-equivalent basis. This reduction, coupled with the low responsiveness of crude oil supply and demand to price changes, may have reduced the cost of crude oil supply to U.S. refineries by about $14 billion/year (again, all else equal).

      These results indicate that - under the above assumptions - increased ethanol use induced by RFS2 reduced total U.S. refining costs in 2011 by about $12 billion/year and the wholesale cost of transportation fuels by about $19 billion/year (assuming that the estimated reduction in crude costs were passed through to consumers).
  • Refining Economics of National High-RON Gasoline Standards
    Categories: Refining Economics, Bio-fuel Economics, Refinery Energy Use and CO2 Emissions, Oxygenate Issues: Ethanol, Iso-butanol, and Ethers
    • Refining Economics of National High-RON Gasoline Standards

      The U.S. Council for Automotive Research (USCAR) retained MathPro Inc. to assess the investment requirements, refining cost, and other consequences in the U.S. refining sector of producing a national gasoline pool meeting various high-octane (RON) standards, with ethanol concentrations ranging from 10 vol% (E10) to 30 vol% (E30). The contemplated national RON standard would augment the federal and California standards for reformulated gasoline (RFG), conventional gasoline (CG), and special regional (ÒboutiqueÓ) gasolines, such as low-RVP CG (LRVPG). The analysis addressed a range of RON standards and a range of prospective ethanol concentrations.

      MathPro applied regional refinery LP modeling, using MathPro's ARMS refinery modeling system to estimate the effects on the U.S. refining sector of producing a single national gasoline grade that (i) meets a uniform national octane (RON) standard, (ii) contains < 10 ppm sulfur, and (iii) satisfies all other existing federal and California gasoline standards. The analysis covered more than one hundred modeling scenarios, each representing a specific combination of prospective national RON standard (ranging from (95 to 102 RON) and ethanol concentration (ranging from 10 vol% to 30 vol%).

      The analysis addressed summer and winter refining operations in a future year (2017), for each of three regional refining aggregates:
      • PADDs 1-3 (as a single region)
      • PADD 4
      • PADD 5
      The regional refining models represented ethanol's octane contribution to hydrocarbon-ethanol blends using the molar concentration blending method and ethanol's blending RVP as a declining function of ethanol content in the E10 to E30 range of ethanol concentration. (The molar concentration blending method implies that ethanol's apparent volumetric blending octane decreases with increasing RON of the finished gasoline blend.)

      The estimates of refining sector effects (relative to a baseline case) developed for each case (RON/ethanol concentration/region combination) included:
      • Annual refining cost ($B/yr)
      • Per-gallon refining cost (¢/gal)
      • Refining industry investment ($B)
      • Change in the average energy density of the gasoline pool (K BTU/Bbl)
      • Savings associated with change in average energy density (¢/gal)
      • Change in crude oil input per barrel of gasoline produced (Bbl/Bbl)
      • Change in refinery energy use (% and B BTU/yr) and CO2 emissions (% and K MT/day)
      • Average reformer severity (RON) and total reformer throughput
      • Aromatics content of the gasoline pool (Vol%)
      • RON and MON of the base gasoline blend
      • Refinery sales of distressed blendstocks (K Bbl/day)
  • Valuation of Crude Oils by Refinery Modeling
    Categories: Refining Economics, Crude Oil Valuation
    • Valuation of Crude Oils by Refinery Modeling

      A large crude oil producer retained MathPro Inc. to assess the refining values of the company's crude oils and estimate corresponding netback prices for these crudes that reflected (i) their refining value, (ii) transport costs, and (iii) the prices of comparable market crudes. The analysis employed refinery linear programming (LP) modeling to simulate and analyze the operations of certain refineries that were prospective buyers of the crude oils of interest.

      The analysis comprised four primary tasks
      • Analyze the assays of the company's crude oils and develop computer-based representations of these assays suitable for refinery LP modeling
      • Develop LP models representing the operations the refineries of interest
      • Apply these models to estimate the refining values of the crude oils of interest, relative to the values of established marker crudes, over a range of future oil price scenarios
      • Develop an analytical framework for translating estimated refining values into corresponding netback prices, accounting for all costs incurred in transporting the crudes from wellhead to market
      The results of the analysis were applied by the client in its development of a new methodology for pricing its crude oils.
  • Economic Analysis of a Proposed Low Carbon Fuel Standard in the Northeast/Mid-Atlantic States
    Categories: Refining Economics, Life Cycle and Net Energy Analysis, State Clean Fuels Programs, Bio-fuel Economics
    • Economic Analysis of a Proposed Low Carbon Fuel Standard in the Northeast/Mid-Atlantic States

      The American Petroleum Institute (API) retained MathPro Inc. and Sierra Research, Inc. to perform, on a quick-response basis, an independent review of a study by the Northeast States for Coordinated Air Use Management (NESCAUM) of the economic impacts of a proposed Low Carbon Fuels Standard (LCFS) for eleven New England and Mid-Atlantic states. To meet NESCAUM's deadline for submission of comments, the project was carried out in two calendar weeks. The work product of the engagement was a written critique of the study design, submitted to NESCAUM and made part of the public record.

      MathPro's portion of the engagement comprised reviewing and analyzing materials provided to reviewers by NESCAUM; assessing the future bio-fuels scenarios in the NESCAUM study; preparing a detailed critical assessment of those scenarios, their underlying assumptions, and the study methodology; and writing portions of the critique submitted to NESCAUM.

      In conducting this quick response engagement, MathPro and Sierra worked in close co-ordination and produced an extensive, specific, and detailed critique, on time and on budget.
  • Development and Application of a Model of Motor Fuel Consumption to Assess Alternative Ethanol Blend Wall Scenarios
    Categories: Refining Economics, Model Design and Development
    • Development and Application of a Model of Motor Fuel Consumption to Assess Alternative Ethanol Blend Wall Scenarios

      The American Petroleum Institute (API) retained MathPro Inc. to (i) develop a computer-based model of projected future fuel consumption (by type), energy use, and CO2 emissions by the U.S. vehicle fleet under various scenarios and (ii) use the model to assess alternative regulatory scenarios bearing on the Òethanol blend wallÓ - the conflict between the annually-increasing ethanol mandate volumes in the federal Renewable Fuels Standard (RFS2) and the federal regulatory constraint limiting the concentration of ethanol in gasoline.

      The spreadsheet model has a clear and compact user interface, accommodates a number of user-specified inputs that define scenarios for analysis (e.g., estimated annual penetration rates and E85 usage rates for FFVs, allocation of bio-fuels volumes to production pathways), and contains built-in data pertaining to:
      • Bio-fuel volume projections
      • GHG emission factors and user-specified allocations of bio-fuel production pathways
      • Detailed information on GHG emissions developed by EPA and CARB
      • Bio-fuel production volumes projected by EPA for various bio-fuel pathways
      • Projections of gasoline, transportation diesel fuel, ethanol, and bio-diesel use from EIA's current Annual Energy Outlook and from EPA's Regulatory Impact Analysis for RFS2
      • Estimated vehicle survival rates, vehicle miles traveled, and vehicle stock distributions, drawn from EIA and EPA models
      • Current year (baseline) vehicle stocks, vehicle stock age distributions, and new vehicle sales
      • Vehicle fuel economy and fuel economy degradation factors
      • Renewable fuel production volumes projected by EPA and by EIA
      For each scenario analyzed, the spreadsheet model returns eleven different sets of twenty-five year projections of total annual gasoline and diesel fuel volume, total ethanol and bio-fuel use; distribution of mandated ethanol volumes in E10, E10+, and E85; vehicle energy use accounted for by E10+ qualified vehicles; implied E85 market penetration; total vehicle energy use in gasoline, E85, and diesel fuel; vehicle GHG emissions associated with vehicle energy use; and GHG emissions factors, estimated as weighted averages of the GHG emission factors for each bio-fuel category.

      MathPro has applied the model for API to assess a number of regulatory scenarios, covering different assumptions regarding E10 waivers, FFV use, transportation fuel consumption, and bio-fuels production.
  • Development of the Refining Process Representations in the Liquid Fuels Market Module (LFMM) for the National Energy Modeling System (NEMS)
    Categories: Refining Economics, Model Design and Development
    • Development of the Refining Process Representations in the Liquid Fuels Market Module (LFMM) for the National Energy Modeling System (NEMS)

      The U.S. Energy Information Administration (EIA) commissioned development of a new refining sector model (called LFMM) for its flagship National Energy Modeling System (NEMS), to supersede the previous refining sector model (PMM), which had been in use for more than thirty years. After MathPro had prepared a White Paper and a Component Design Report on the LFMM, EIA retained MathPro to develop the specific, numerical representations of each of the more than thirty refining processes represented in the LFMM.

      Each such process representation encompasses (i) the specific inputs (crude oil fractions and refinery streams) to the process, (ii) the specific outputs of the process and the key properties of each output, and (iii) volumes of each input and output per unit of process throughput.

      This effort involved:
      • Developing a crude oil classification scheme and assigning each domestic and imported crude oil run in U.S. refineries to one of the crude oil classes
      • Constructing a composite crude assay for each crude oil class
      • Specifying a standard set of crude oil fractions (including Òswing cutsÓ) to be represented in the model for all crude oil classes
      • Specifying the inputs (crude oil fractions and refinery streams) and outputs to each process
      • Developing computational procedures for estimating the numerical values of the various input/output coefficients for each refining process
      • Developing a comprehensive spreadsheet (drawing on several sources of technical data on refining process operations) to embody those computational procedures
  • Development of Conceptual Design of the Liquid Fuels Market Module (LFMM) for the National Energy Modeling System (NEMS)
    Categories: Refining Economics, Model Design and Development
    • Development of Conceptual Design of the Liquid Fuels Market Module (LFMM) for the National Energy Modeling System (NEMS)

      The U.S. Energy Information Administration (EIA) commissioned development of a new refining sector model (called LFMM) for its flagship National Energy Modeling System (NEMS), to supersede the previous refining sector model (PMM), which had been in use for more than thirty years. After MathPro prepared a White Paper for EIA identifying and discussing technical issues bearing on the design of the new refinery modeling system, EIA retained MathPro to develop the conceptual design for the new LFMM.

      The model design is documented in a Component Design Report, the primary work product of this assignment. The primary topics covered in this design report include:
      • Statement of purposes and requirements of the LFMM
      • Scope of the LFMM and its linkages to other elements of NEMS
      • Overall architecture of the model, including specific classes of variables and constraints
      • Detailed formulation of the model, in matrix schematic form
      • Data classification plan, enumerating the classes of entities represented in the model (e.g., refining regions, time periods, crude oils, refined products, refining processes, etc.) and the specific items in each class
      • Objective function structure
      • Special model structures for (i) handling refinery energy and CO2 emissions accounting, (ii) representing compliance with the annual requirements of the Renewable Fuels Standard, and (iii) additions to and retirements of refining capacity
      EIA has implemented this design in the new LFMM, which is now part of the National Energy Modeling System.
  • Economics of Ethanol and Bio-butanol as Gasoline Blendstocks
    Categories: Bio-fuel Economics; Blendstock Valuation; Oxygenate Issues: Ethanol, Iso-butanol, and Ethers
    • Economics of Ethanol and Bio-butanol as Gasoline Blendstocks

      A major international economics consulting firm retained MathPro Inc. to assess the primary effects on U.S. gasoline production economics of (i) increasing the volume share of ethanol in the gasoline pool to 10% (National E10) and then 20% (National E20) and (ii) introducing significant volumes of a proposed new bio-fuel, bio-butanol, into the gasoline pool. The target years for the analysis were 2015 and 2030.

      The analysis yielded numerous economic findings, including the following.

      Expanded ethanol use (National E10 and National E20) would induce numerous changes in refinery operations, capacity utilization, gasoline composition and properties, and product out-turns (not only gasoline but also distillate products). Refinery hydrogen production would be curtailed, leading to substantial increases in refinery purchases of hydrogen from merchant producers. With National E20, average fuel economy would be about 6% less than the baseline (current) value - which would call for an additional ~ 600 K Bbl/day of gasoline production or imports, nation-wide, in 2015 and ~ 700 K Bbl/day in 2030.

      Bio-butanol could be used as either (i) a refinery-blended gasoline extender or blendstock (analogous to alkylate or isomerate) or (ii) as a replacement for ethanol. As a gasoline extender, bio-butanol's refining value would reflect the estimated marginal cost of increased gasoline production via refining operations - generally close to the spot price of CG. As an ethanol replacement, bio-butanol's blending properties would endow it with a refining value close to the net delivered price of ethanol.
  • Effects of Eliminating MTBE Use on Delaware Valley Refineries
    Categories: Bio-fuel Economics; Oxygenate Issues: Ethanol, Iso-butanol, and Ethers
    • Effects of Eliminating MTBE Use on Delaware Valley Refineries

      The Clean Transportation Advisory Council retained MathPro Inc. to conduct a brief refinery modeling analysis to estimate the potential effects of eliminating MTBE use in gasoline production by the Delaware Valley refineries. For this analysis, we constructed an aggregate refinery model representing (1) the combined process capacity of the Delaware Valley refineries, (2) the average crude oil used by Delaware Valley refineries, and (3) the operating environment and product pricing experienced by these refineries over the past two summer seasons.

      The study considered two gasoline production scenarios to bracket the possible range of responses by Delaware Valley refineries to the elimination of MTBE use. In one, the refineries use 10% ethanol in formerly MTBE-blended RFG; in the other, they use neither MTBE nor ethanol in RFG. In each gasoline production scenario, we considered two sets of economic conditions under which the Delaware Valley refineries might operate. In one, the refineries optimize the production of RFG and conventional gasoline (CG) without allowing the marginal cost of gasoline production (RFG and CG) to change in response to the MTBE ban. In the other, the refineries maximize RFG production (while producing CG at constant marginal cost) in response to market conditions that support an increase of up to 20¢ per gallon in the marginal cost of RFG production.

      Results of the analysis indicate that eliminating MTBE reduces the Delaware Valley refineries' gasoline production capability by removing from the gasoline pool not only MTBE's volume, but also its octane and its other premium blending properties. Substituting ethanol for MTBE compensates somewhat for the lost volume, but requires removing additional high-RVP blendstocks from the gasoline pool (to compensate for ethanol's effect on RVP) and raises the cost of producing equivalent volumes of RFG. Making up the production shortfall caused by eliminating MTBE use requires that refineries invest in expanded refinery capacity and process additional crude oil or import intermediate refinery streams or high quality gasoline blendstocks.
  • Refining Economics of 2007 Amendments to the California Predictive Model
    Categories: Bio-fuel Economics, State Clean Fuels Programs, Refining Economics
    • Refining Economics of 2007 Amendments to the California Predictive Model

      The California Energy Commission (CEC) retained MathPro Inc. to assess the effects on the California refining sector of the 2007 Amendments to the Phase 3 California Reformulated Gasoline regulations (CaRFG). The California Air Resources Board (CARB) developed the Amendments primarily to account for the increase in vehicle emissions of volatile organic compounds (VOC) due to the permeation effects of blending ethanol in CaRFG. Ethanol's permeation effects, along with changes in the profile of the California vehicle fleet's emission control technologies, are reflected in the Amended California Phase 3 Predictive Model (Amended PM-3), which will be used by refineries to certify that gasoline complies with CaRFG emission standards.

      We assessed the refining economics of the proposed Amendments using an updated version of an aggregate model of the California refining sector employed in previous studies of the California refining sector. Updates to the model were based on a survey conducted by CEC of California refinery operations for the summer of 2006.

      We analyzed two scenarios, denoting different compliance schedules for the Amendments: a near-term scenario in which California refining capacity remains unchanged from its 2006 level and a long-term scenario in which refineries make "optimal" investments in process capacity. Within each scenario we assessed four levels of ethanol blending: 0, 5.7 vol%, 7.7 vol%, and 10 vol%.

      Study findings were as follows:
      • Near-term: Compliance with the Amended PM-3 probably would force the California refining sector to curtail CaRFG production, sell high sulfur blendstocks in distant markets (the U.S. Gulf Coast or foreign markets), and sell or seasonally store larger volumes of high-RVP C5 blendstocks. Refineries could moderate gasoline volume loss by purchasing certain high-value gasoline blendstocks, if available, (e.g., alkylate and C6 isomerate) or by blending higher volumes of ethanol in CaRFG.

        California refineries in the aggregate could maintain (energy-adjusted) CaRFG out-turns by blending ethanol at 10 vol%. However, a subset of refineries, accounting for about 25% of CaRFG production, would have substantial difficultly producing a compliant, high-ethanol-content CaRFG under Amended PM-3.
      • Long-term: The refining cost of complying with the Amended PM-3 in the long-term decreases with higher levels of ethanol blending (at the assumed delivered, net-of-subsidy price of ethanol - set equal to the marginal refining cost of CARBOB), as does refinery investment in new process capacity. Estimated refining costs are about 7-1/2¢, 4¢, 1-1/2¢, and 1¢/gal of finished CaRFG with ethanol blending, respectively, at 0, 5.7, 7.7, and 10 vol%. Corresponding estimated investment in refinery process capacity is about 2, 1, 1/2, and 1/2 $ billion.
      These results suggest that the Amended PM-3 will lead California refineries to increase ethanol blending to at least 7.7 vol% and most likely to 10 vol%. At these ethanol concentrations, the long-term cost of compliance, including both refining cost and the cost of mileage loss, would be in the range of about 2-1/2 to 3¢/gal, if ethanol were priced close to the marginal refining cost of CARBOB. Investment in new refining process capacity would be on the order of $1/2 billion.
  • National Costs of Increased National Ethanol Mandate Volumes
    Categories: Bio-fuel Economics; Federal Clean Fuels Programs; Life Cycle and Net Energy Analysis; Oxygenate Issues: Ethanol, Iso-butanol, and Ethers
    • National Costs of Increased National Ethanol Mandate Volumes

      The American Petroleum Institute (API) retained MathPro Inc. to assess the technical and economic effects of proposed national ethanol mandates, involving ethanol volumes of 30-35 billion gallons per year (bgy), which corresponds to about 20 vol% of the projected volume of gasoline consumption in 2020. Consuming this volume of ethanol use would require either national use of E20 (20% ethanol/80% gasoline) or national use of two fuels in combination: E10 and E85.

      The analysis represented the U.S. refining sector maintaining its baseline (i.e., projected business-as-usual) output - in volumetric terms - of the hydrocarbon components of gasoline (i.e., RBOB and CBOB) in the face of increasing ethanol use. The additional ethanol volumes therefore displace imports of gasoline (including RBOB) on an energy-equivalent basis, with no significant change in U.S. refinery crude runs and gasoline out-turns.

      The analysis produced the following results and findings:
      • National Cost. The national cost of gasoline supply would increase by about $49-58 billion/year with a National E20 mandate, and $52-62 billion/year with a National E10/E85 mandate.

        These costs would be borne in some combination by the refining sector (through lower margins), consumers (through higher gasoline prices), and taxpayers (through subsidies and other payments for ethanol production).
      • Fossil Energy Savings. U.S. fossil energy use would decrease by about 610 K coeb/day with National E20 and 540 K coeb/day with National E10/E85 (where coeb means crude oil equivalent barrel, the average energy content of a barrel of crude oil). The reductions in fossil energy use would be reflected in corresponding reductions in U.S. imports of fossil fuels, primarily gasoline. The reduction in energy use achieved with National E20 would amount to about 3-1/2% of net U.S. imports of crude oil, petroleum products, and natural gas in 2020 (as projected by the U.S. Department of Energy).
      • Cost of Fossil Energy and Import Savings. The fossil energy savings would cost $220-$260/coeb for National E20 and $260-$310/coeb for National E10/E85, over and above the price of crude oil. Fossil energy savings from increased ethanol use are expensive because (1) ethanol is costly to produce, (2) a gallon of ethanol has only 2/3 the energy content of a gallon of gasoline, and (3) ethanol production uses a significant amount of energy obtained from fossil fuels.
      • E20 Mandates. A national E20 mandate would require an essentially complete turnover of the car and LDT fleets, so that essentially all cars and LDTs on the road would be FFVs. It would also require that all off-road engines be capable of using E20. During the period of transition, the U.S. refining and distribution system would have to supply both E10 and E20 nation-wide, which could cause operating problems and impose significant costs.
      • E85 Mandates. Implementing an E85 mandate would require large numbers of E85-capable flexible fuel vehicles (FFVs), with essentially all new vehicles sold in the U.S. being FFVs by 2020; large numbers of service stations nationwide retrofitted to handle E85; and complex regulatory mechanisms to induce consumers to use E85, because E85 has lower fuel economy, and hence lower value to consumers, than E10.
      • Cellulosic Ethanol Production. The economic and technical feasibility of large-scale cellulosic ethanol production has not been established. No cellulosic ethanol has been produced in sustained, commercial-scale operations. No commercial-scale (>> 50-60 MM gal/yr) cellulosic ethanol plants are in operation or under construction. No established markets or infrastructure exist for acquiring, assembling, transporting, and handling the required volumes of biomass feedstock. Cellulosic ethanol production is inherently more difficult, more complex, and more capital intensive than corn ethanol production. Hence, even after its feasibility is established, cellulosic ethanol - regardless of the biomass feed material of choice - likely will be more costly than corn ethanol.
  • Prospective New Gasoline Standards for Maricopa County, AZ
    Categories: State Clean Fuels Programs
    • Prospective New Gasoline Standards for Maricopa County, AZ

      The Arizona Department of Environmental Quality (ADEQ) commissioned a comprehensive analysis, in which MathPro Inc. participated, of the cost, supply, and vehicle emissions effects of Arizona's adopting the California CARB 3 gasoline standard in the Arizona Cleaner Burning Gasoline (AZ CBG) program. At that time, the AZ CBG program called for either CARB 2 gasoline (CBG 2) or a federal RFG "look-alike" (CBG 1).

      The objective of the study was to evaluate CARB 3 gasoline and various other possible gasoline formulations with respect to their prospective cost, likely effects on gasoline supply to the affected area (Area A, including the Phoenix metropolitan area), and estimated effects on vehicle emissions and emissions inventories - all relative to the current program.

      The study addressed both winter and summer gasoline standards. The target years for the analysis were 2010 and 2015.

      MathPro Inc. served as a subcontractor on the project team, responsible for the refining analysis segment of the study. In this capacity, MathPro Inc. conducted a detailed technical and economic analysis of gasoline supply to Maricopa County, from the Los Angeles, West Texas/New Mexico, and Gulf Coast refining centers. The analysis encompassed (i) establishing baseline gasoline properties and emissions (as registered by the Complex Model), reflecting actual gasoline supplies in the 2004 winter and summer seasons; (ii) estimating the average properties of CARB 3 and other candidate gasoline types that would be delivered to the area; (iii) assessing the effects of each gasoline type on the gasoline distribution system serving the area and surrounding areas; and (iv) analyzing the technical and economic implications of producing CARB 3 gasoline and other candidate gasoline types in the various refining centers that supply the area.

      Results of the analysis informed ADEQ's recommendations and actions regarding the change in Arizona's CBG program.
  • Refining Economics of Proposed New California Gasoline Standards
    Categories: State Clean Fuels Programs, Refining Economics
    • Refining Economics of Proposed New California Gasoline Standards In connection with the California Air Resources Board's (CARB) consideration of a proposed new standard for California gasoline, more stringent than the current CARB3 standard, the Western States Petroleum Association (WSPA) commissioned MathPro to estimate the technical and economic effects of four proposed gasoline standards on the California refining sector.

      The analysis employed refinery LP modeling of the California refining sector, considered as one refining aggregate, using MathPro's ARMS refinery modeling system. The analysis considered a reference case representing the CARB3 gasoline program in the target year, 2004, and study cases, each representing one of a proposed new CARB4 gasoline standard.

      The reference case and the study cases reflected (i) published reports and forecasts from CEC and the Department of Energy regarding crude oil prices, refined product volumes, and other key input/output values for the target year and (ii) information gathered in a brief telephone survey of the California refineries, conducted on a confidential basis, regarding key technical aspects of their operations and the behavior of key gasoline blendstocks in the blending of CARB3 gasoline.

      Results of the analysis included, for each proposed gasoline standard, estimated refining costs, refinery investment requirements, changes in required volumes of imported premium blendstocks and CARBOB, and critical changes in refining operations.
  • Prospective Gasoline Toxics Control Strategies
    Categories: Federal Clean Fuels Programs, Model Design and Development
    • Prospective Gasoline Toxics Control Strategies

      MathPro developed for EPA's Office of Transportation and Air Quality (OTAQ) a detailed spreadsheet-based model of the U.S. refining sector, disaggregated by PADD and individual refinery, for EPA's use in assessing, at the refinery-specific level, regulatory options for further control of the benzene content of gasoline.

      In developing the model, MathPro used refining process representations, refinery product out-turns, gasoline blendstock properties, capital costs, and benzene control options drawn from MathPro's ARMS refinery modeling system.

      The spreadsheet model that is the primary work product of this assignment produces estimates of the benzene control that individual refineries can achieve using alternative process options (e.g., benzene extraction, benzene saturation, removal of benzene precursors from reformate feed) and the costs associated with each option.

      In the analysis, the model was first calibrated to actual refinery industry performance in 2002 and then applied to assess alternative benzene control standards and estimate the technical feasibility and refining costs associated with each standard, by region and by refinery. Finally, the model was applied to estimate the economic effects of possible benzene credit trading programs.
  • Techno-Economic Assessment of a Refining Process Design Concept
    Categories: Blendstock Valuation, Technology Assessment
    • Techno-Economic Assessment of a Refining Process Design Concept A major BP refining company retained MathPro Inc. to assess the economics of adopting an advanced fluid catalytic cracking (FCC) design concept in one of its refineries. The study comprised four tasks:

      • Develop a model of the refinery in its current configuration, using information provided by the client, and calibrate it to reported refinery operations in the prior period.
      • Develop a new, explicit representation of the advanced FCC unit's and incorporate the new representations in the refinery model.
      • Develop and analyze a Base Case with the enhanced model representing refinery operations in a specified future period, with FCC and other process operations and a crude slate and economic premises specified by the client.
      • Develop and analyze three Study Cases representing refinery operations incorporating the new design concept, for three alternative refinery input slates, under the same premises as the Base Case, to delineate the economic effects of the proposed design concept.
      The primary results of the analysis delineated the economic and technical effects of the new design concept on (i) the relative values of the alternative crude slates, (ii) process capacity utilization and refinery through-put capacity and capacity utilization for each refinery process unit, (iii) individual product volumes, for each crude slate, and (iv) the resulting net revenue attainable with each crude slate, accounting for changes in product volumes.

      Results of the analysis were used by the client in determining whether or not to pursue further development and application of the design concept.
  • Assessment of a Proposal for Reducing Toxics Emissions from Gasoline
    Categories: Federal Clean Fuels Programs
    • Assessment of a Proposal for Reducing Toxics Emissions from Gasoline The American Petroleum Institute (API) retained MathPro Inc. to analyze the long-term technical and economic effects in the refining industry of gasoline standards to control toxics emissions, proposed by a third-party organization in EPA's MSAT 2 rule-making process.

      The proposed standards involved controlling (i) the total aromatics content of the U.S. gasoline pool to stringent limits and (ii) the benzene content of the U.S. gasoline pool "to the maximum extent technologically feasible." The proposal was based on the premise that the U.S. refining industry could meet these standards at little or no cost and with no adverse consequences on gasoline producibility, by reducing the volume of reformate in the gasoline pool and replacing the reformate with ethanol.

      We analyzed the technical and economic implications of the EFC proposal in the U.S. refining industry primarily by refinery LP modeling, using an aggregate model of all U.S. refining operations. The refining analysis addressed two scenarios for ethanol use in 2014.
      • An RFS Mandate scenario, in which baseline ethanol use was the EPACT 2005 RFS mandate volume for 2014 (assumed to be 7.8 billion gallons per year (bgy)). In response to the proposed aromatics standard, ethanol use was allowed to increase to a volume such that every gallon of U.S. gasoline contained 10 vol% ethanol (except for California gasoline, which contained 7.7 vol% ethanol).
      • A National E10 scenario, in which baseline ethanol use was fixed at the assumed national E10 volume in 2014 (about 15.6 bgy), and ethanol use remained unchanged in response to the proposed aromatics standard.
      The scenarios, differing only in the assumed baseline volume of ethanol use in 2014, were designed to bracket the permissible range of ethanol use in 2014, under then-current legislation and regulation. In each scenario, we developed baseline cases for summer and winter gasoline production (a total of four baseline cases). For each baseline case, we analyzed a corresponding study case, denoting implementation of the proposed aromatics standard (in addition to the EPA MSAT2 rule).

      The analysis indicated that, in both scenarios, the U.S. refining industry would meet the proposed aromatics standard by blending ethanol and changing refinery operations (including, but not limited to, reducing reforming severity and throughput).
      • In the RFS Mandate scenario, representing the lower limit of baseline ethanol use, the proposed aromatics standard incurred a total national cost of about $7 billion per year, or about 5¢/gal of gasoline. The average national cost for each 1% reduction in pool aromatics content was about $1.3 billion per year, comprising (i) the costs of producing the projected gasoline via increased ethanol blending (called out by the aromatics standard), (ii) the fuel economy penalty associated with ethanol blending, and (iii) refining investment and operating costs incurred to meet the aromatics standard.
      • In the National E10 scenario, representing the upper limit of baseline ethanol use, the proposed aromatics standard incurred a total national cost of about $3-1/2 billion per year, or about 2-1/2¢/gal of gasoline. The average national cost for each 1% reduction in pool aromatics content was about $1.6 billion per year - lower than in the RFS Mandate scenario because the study case in the National E10 scenario involves no additional ethanol use beyond the baseline volume and, hence, no national costs associated with additional ethanol production. The proposed aromatics standard calls out additional refinery investment of about $12 billion, required to achieve the proposed aromatics reduction and maintain projected out-turns of all refined products, with no compensating reduction to accommodate increased ethanol use.
  • Technical and Economic Impacts of the 8-Hour Ozone Standard for Gasoline
    Categories: Federal Clean Fuels Programs, Refining Economics
    • Technical and Economic Impacts of the 8-Hour Ozone Standard for Gasoline The American Petroleum Institute (API) commissioned MathPro Inc. (prime contractor) and Stillwater Associates (sub-contractor) to assess the impacts of the 8-hour ozone standard (the National Ambient Air Quality Standard for ozone) on regional refinery operations and gasoline production costs, distribution system operations, and gasoline demand.

      The study produced a projection of the additional volumes of special gasolines ("boutique fuels") that could be required as a consequence of 8HrO3, under a set of regulatory assumptions; quantitative estimates of the required investments in new capacity and the incremental production costs in U.S. refineries to produce the projected additional volumes of special gasolines; an assessment of the capability of the U.S. refined product distribution system to supply the additional volumes of special gasolines to the areas calling for them; and estimates of the necessary changes in operations in the distribution system.

      The target year for the study was 2008.

      The study encompassed a Base Case, to establish the frame of reference for the analysis, and Study Cases addressing 8HrO3 compliance scenarios with respect to special gasoline use.

      The Base Case represents refining and distribution system operations consistent with all existing and new fuels regulatory programs now in place and scheduled to be in place in 2008. It also represents enactment of the proposed Renewable Fuels Standard (RFS). The Study Cases embody all of the above assumptions and regulatory programs plus the 8HrO3 program. The Study Cases embody different scenarios and premises for estimating the volumes of special gasolines called out by the 8HrO3 program.

      The technical approach for the analysis consisted of three tasks.
      • Conduct a survey of the gasoline distribution system and assess its capabilities to handle increased volumes of special gasolines that might be required in response to the 8HrO3 standard.
      • Analyze existing regional gasoline demand patterns, by gasoline type, and project a future gasoline demand pattern reflecting (i) state regulatory programs that could be established for 8HrO3 attainment and (ii) the capabilities of the distribution system to move and segregate the required gasoline volumes. The projected gasoline demand pattern includes estimates of "spillover" and "quality giveaway" of special gasoline volumes.
      • Analyze U.S. regional refining operations, by means of refinery LP modeling, and estimate the average refining cost and investment requirements for producing the projected additional volumes of special gasolines.
      For the latter task, we developed and applied five (5) regional refining models, representing PADD 1, PADD 2, PADD 3, PADDs 4 & 5 (ex CA), and California. We developed these models using MathPro's ARMS refinery modeling system. To link the regional refining models, we developed a special ethanol allocation procedure. The latter represents the ethanol credit trading scheme that would be part of the assumed RFS.
  • Economics of a Residual Oil Upgrading Project
    Categories: Diesel Fuel Sulfur Control, Blendstock Valuation, Technology Assessment
    • Economics of a Residual Oil Upgrading Project A North American refining company retained MathPro Inc. to analyze the economics of a proposed capital project to expand the refinery's capabilities for processing the residual oil fraction of crude oil. The proposed project involved installation of a ROSEª solvent extraction unit and attendant modification and expansion of other refinery process units.

      The analysis involved (i) developing a representation of the client's refinery using MathPro's ARMS refinery modeling system, (ii) developing and incorporating in ARMS a generalized representation of the ROSE process, and (iii) estimating the technical and economic effects of a ROSE unit in the client's refinery, under a number of different economic scenarios and for a range of future crude slates.

      The analysis delineated the critical technical factors determining the economics of the contemplated project and the market conditions under which the project could be economically attractive.
  • Refining Economics of Phasing Out MMT Use in Canada
    Categories: Federal Clean Fuels Programs, Blendstock Valuation
    • Refining Economics of Phasing Out MMT Use in Canada

      Automobile manufacturers have expressed concern that MMT use in gasoline can impair the performance of emission control devices in new model vehicles. Accordingly, American Honda retained MathPro to assess the refining economics of phasing out the use of the octane-enhancing additive MMT in Canadian gasoline.

      The study assessed the refining economics of phasing out MMT from the Canadian gasoline pool under two alternative assumptions regarding the pace of a phase out: minimum time (no refining investment) and minimum cost (new refining investment allowed).

      The analysis employed MathPro's ARMS refinery modeling system to assess the economics of phasing out MMT from Canadian gasoline in Canada's three main refining regions - Quebec, Ontario, and Alberta. ARMS contains an explicit representation of the octane-enhancing effects of MMT addition.

      The first step in the refinery modeling was to establish Baseline cases representing Summer 2002 refining operations in each refining complex considered, with estimated MMT use consistent with reported values. Next, we developed Reference cases representing prospective refining operations under Canada's Sulphur in Gasoline Regulation (30 ppm (average) gasoline sulfur content starting in January 2005), with continued use of MMT. Finally, we developed a corresponding set of MMT phase-out cases in which refineries cease using MMT, denoting minimum-time and minimum-cost routes to MMT phase-out.

      Primary findings of the study included estimates of the refining costs of MTBE phase-out in each of the three refining centers considered, in both the minimum time and minimum cost scenarios; the refining investments required in each scenario, by refining center; and the estimated average cost of MTBE phase-out, expressed in terms of additional fuel costs over the lifetime of a typical vehicle.
  • Refining Economics of Boutique Fuels and Prospective Controls on Gasoline Toxics
    Categories: Gasoline Sulfur Control, Federal Clean Fuels Programs, Refining Economics
    • Refining Economics of Boutique Fuels and Prospective Controls on Gasoline Toxics

      MathPro Inc. conducted a refining analysis for EPA's Office of Transportation and Air Quality (OTAQ) to assess the effects of various potential legislative and regulatory developments on the costs of supplying motor vehicle fuels in PADDs 1, 2, and 3.

      The potential legislative or regulatory issues investigated included (i) a national Renewable Fuels Standard (RFS), consisting of a national ethanol mandate, a national ban on MTBE blending, and removal of the oxygen requirement for RFG; (ii) reducing toxics emissions by setting new benzene content or toxics emissions standards for conventional gasoline and/or RFG; (iii) setting a national gasoline sulfur standard of 10 ppm; (iv) reducing the number of distinct types of gasoline ("boutique fuels") that may be sold in the U.S.; and (v) state programs for complying with the 8-hour ozone standard that may increase the volume share of low-RVP gasoline or RFG in the U.S. gasoline pool. Such programs could impose significant costs on the U.S. refining industry, and the analysis was designed to produce estimates of these costs (including both operating costs and investment requirements).

      The analysis addressed refining operations and gasoline production in three regions - PADD 1, PADD 2, PADD 3 - by means of regional refinery LP modeling, using MathPro's ARMS refinery modeling system.

      In the course of the analysis, MathPro made a number of modifications and enhancements to ARMS to extend the system's representations of refining processes for meeting stringent future emissions standards.

      For each prospective regulatory initiative, the analysis produced estimates of regional refining costs and investment requirements; additions to refining capacity, by process and region; regional refining inputs and outputs, including gasoline and diesel fuel out-turns; average properties of the gasoline pool (including Complex Model properties, energy density, and DI), by region, gasoline type and grade; and marginal costs (shadow values) of gasoline pool properties and Complex Model emissions constraints.
  • Economics of Renewable Fuels Standards
    Categories: Oxygenate Issues: Ethanol, Iso-butanol, and Ethers
    • Economics of Renewable Fuels Standards

      A large industry association commissioned MathPro Inc. to conduct a technical and economic analysis of the effects of the proposed renewable fuels standard (RFS) on the refining economics of U.S. gasoline supply.

      The analysis addressed refining operations and gasoline production in six regions - PADD 1, PADD 2, PADD 3, PADDs 4 & 5 (ex California), California, and an "off-shore" sector denoting sources of U.S. gasoline imports - in both summer and winter gasoline seasons.

      The Reference case incorporated a national ban on MTBE blending and a repeal of the federal oxygen requirement in reformulated gasoline.

      In addition, the analysis reflected the likely effects on gasoline demand, quality, and production costs of new regulatory programs taking effect before 2011, including:
      • The 8-hour ozone standard (which will increase calls for low-RVP gasolines and RFG);
      • The Tier 2 sulfur control program (which will increase refining costs and octane values); and
      • The Mobile Sources Air Toxics (MSAT) program (which will increase refining costs).
      The analysis contemplated that an RFS would include a credit trading program that would allow refiners to comply with an RFS through some combination of physical ethanol blending and the use of ethanol credits.

      For each mandate volume, the analysis produced estimates of:
      • Total national costs incurred;
      • Gasoline production costs incurred (including ethanol purchases), by region and nation-wide;
      • Changes in refinery inputs: crude oil, gasoline blendstocks, natural gas, and purchased power;
      • Changes in net energy requirements;
      • Regional distribution of ethanol use in gasoline blending; and
      • Changes in the cost of gasoline production, by region.
      The client organization made public some results drawn from the analysis, in connection with the Congressional debate over energy legislation in 2002.
  • Prospects for Adequate Supplies of Ultra-Low-Sulfur Diesel Fuel (ULSD)
    Categories: Diesel Fuel Sulfur Control
    • Prospects for Adequate Supplies of Ultra-Low-Sulfur Diesel Fuel (ULSD)

      The Alliance of Automobile Manufacturers (AAM) and the Engine Manufacturers Association (EMA) retained MathPro Inc. to assess the likelihood that the U.S. refining sector will produce enough ULSD to meet demand in the transition period (2006-2010)

      The study examined the prospects for adequate ULSD supply in the transition period by addressing key technical and economic issues that will shape investment decisions in the U.S. refining sector. These issues involve both refining techno-economics and the nature and characteristics of regional markets for refined products.

      The objective of the analysis was not to provide explicit predictions regarding investment decisions by individual refiners. Rather, it was to delineate the relevant refining techno-economics, regional diesel fuel markets, and prospective diesel fuel regulations, and to assess whether these driving forces are likely to promote (rather than deter) investment in ULSD production capacity for the transition period.

      The study comprised analyses of four key technical and economic issues bearing on the prospects for capital investments by the U.S. refining sector to produce ULSD in the transition period.
      • The unique nature of the diesel fuel market in PADD 4, in relation to those in PADDs 1, 2, and 3;
      • The location and competitive position of refineries in PADDs 1, 2, and 3 that are likely to have high ULSD production costs;
      • Prospects for multi-refinery projects that capture economies of scale for ULSD production; and
      • The market prospects for and economics of downgrading refinery streams and products from highway to non-highway diesel fuel.
      The analyses collectively support the proposition that ULSD supplies are likely to be sufficient to meet demand in the transition period. In particular, most U.S. refineries are likely to find the economic driving forces for investment in ULSD capacity to be substantial, and (importantly) the alternatives to producing ULSD to be unattractive. Most, if not all, U.S. refineries that now produce EPA diesel will have economic incentives to upgrade their facilities to produce ULSD and therefore are likely to do so. Further, some refineries that do not now produce EPA diesel may have incentives to produce ULSD.
  • The Value of Imported Iso-Octane to California Refiners
    Categories: State Clean Fuels Programs, Blendstock Valuation
    • The Value of Imported Iso-Octane to California Refiners A U.S. investment banking firm retained MathPro Inc. to estimate the economic potential of producing iso-octane in a Persian Gulf facility for export to California.

      The analysis involved (1) estimating the facility's production capability for iso-octane, given its other product out-turns and contractual commitments for these co-products, (2) estimating the potential demand for and the marginal refining value of iso-octane in the California refining sector, and (3) analyzing the historical patterns of blendstock imports and gasoline prices in California.

      MathPro Inc. presented its results to senior management of the client firm. These results influenced the firm's decision regarding investment in the production facility.
  • Valuation of Heavy Crude Oils
    Categories: Crude Oil Valuation, Model Design and Development
    • Valuation of Heavy Crude Oils MathPro Inc. has conducted a series of studies for North American crude oil producers to establish valuations for certain heavy crude oils and synthetic crudes produced by upgrading these crude oils.

      The studies have focused on valuing these crudes in cracking refineries in the U.S. Gulf Coast and East Coast and in coking refineries in the Gulf Coast and California. We estimated the values of these crudes relative to specified marker crudes in each region, using refinery LP modeling and a standard modeling approach for crude valuation. This approach involves a series of refinery model runs in which incremental volumes of the crude oil of interest are progressively added to a specified refinery crude slate, displacing equivalent volumes of the base crude blend from the crude slate. Results returned by the series of model runs yield a "demand curve" for the crude oil and refinery of interest, relating the marginal value of the crude oil in that refinery to the crude's volume share of the refinery's crude slate.

      Clients have used the results of these valuation studies to support investment planning for crude production and refinery upgrading projects.
  • Effects of Proposed California Gasoline and Diesel Fuel Standards
    Categories: Gasoline Sulfur Control, Diesel Fuel Sulfur Control, State Clean Fuels Programs
    • Effects of Proposed California Gasoline and Diesel Fuel Standards

      The California Energy Commission (CEC) retained MathPro Inc. to conduct a series of technical and economic analyses bearing on the production of cleaner burning fuels for use in California.

      One analysis involved conducting a set of refinery modeling runs to assess the technical and economic implications in the California refining sector of the California Phase 3 Reformulated Gasoline (CaRFG3) standard adopted by the California Air Resources Board (CARB) on December 9, 1999. This standard includes a new version of the California Predictive Model, used for certification of CaRFG3 gasoline batches.

      This analysis served to complete an earlier analysis conducted for CEC by extending it to encompass the actual Phase 3 Predictive Model that CARB adopted. We applied our refinery LP modeling systems (ARMS) to analyze a series of cases incorporating the Phase 3 Predictive Model and representing a range of scenarios comparable to those in the original analysis.

      Results of the analysis included estimates of the refining cost and investment requirements in the California refining sector associated with the CaRFG3 standard.

      Another analysis addressed development of a new "base case" of the ARMS model of the California refining sector that incorporates additions and enhancements developed in this engagement. The new base incorporates
      • The California Phase 3 Reformulated Gasoline standard (CaRFG3);
      • The Beta 3 Predictive Model;
      • Estimated supplies and prices of imported blendstocks in 2003, including ethanol, alkylate, iso-octane/iso-octene, isomerate, and any other blendstocks that might be appropriate for producing CaRFG3;
      • Gasoline and desulfurization technologies (especially advanced technologies) likely to be used by California refineries post-2003;
      • Representative average properties of gasoline and distillate blendstocks currently in use in the California refining sector; and
      • Refining capacity, by process type, in the California refining sector; and
      The initial version of the new base case reflected mainly MathPro Inc.'s knowledge and resources. The final version is to incorporate information and insights to be gained in discussions with individual California refiners and in a CEC-sponsored survey of California refineries.
  • Values of Gasoline Blendstocks to Replace MTBE
    Categories: Blendstock Valuation; Oxygenate Issues: Ethanol, Iso-butanol, and Ethers
    • Values of Gasoline Blendstocks to Replace MTBE

      Equistar Chemical Co. retained MathPro Inc. to estimate the refining values in PADD 3 of various gasoline blendstocks, once the EPA Tier 2 gasoline sulfur standard (30 ppm average) takes effect.

      We used our refinery modeling system (ARMS) to conduct a techno-economic analysis of refining operations in PADD 3. The analysis considered various policy scenarios, including a national MTBE phase-down and a waiver of the oxygen requirement in federal RFG2. It also considered the effects on refining value of a more stringent possible future sulfur standard for gasoline.

      The primary results of the analysis were embodied in estimated demand curves (i.e., marginal value/volume relationships) for each gasoline blendstock considered, under each policy scenario.
  • California Phase 3 RFG Production With and Without a Waiver of the Oxygen Requirement
    Categories: State Clean Fuels Programs; Oxygenate Issues: Ethanol, Iso-butanol, and Ethers
    • California Phase 3 RFG Production With and Without a Waiver of the Oxygen Requirement

      The U.S. Environmental Protection Agency (EPA) retained MathPro Inc. to support its consideration of the California Air Resources Board's request for a waiver of the oxygen content requirement in federal (and hence most California) reformulated gasoline (RFG).

      Using our refinery modeling system (ARMS), we conducted a techno-economic analysis of refining operations in California with and without an oxygen waiver. Our analysis produced robust estimates of
      • The average physical properties of the California Phase 3 RFG (CaRFG3) gasoline pools that would be produced with and without the oxygen waiver;
      • The shares of ethanol-blended and non-oxygenated CaRFG3 that would be produced if the oxygen waiver were granted; and
      • The oxygen content (i.e., 2.0 wt%, 2.7 wt%, or 3.5 wt%) of ethanol-blended CaRFG3 that would be produced with and without the oxygen waiver.
      EPA incorporated these estimates in its technical analysis of California's request for a waiver of the federal oxygen requirement.
  • Effects on Refinery CO2 Emissions of the European Union's 10 ppm Sulfur Standard for Gasoline and Diesel Fuel
    Categories: Gasoline Sulfur Control, Diesel Fuel Sulfur Control, Life Cycle and Net Energy Analysis, Refinery Energy Use and CO2 Emissions
    • Effects on Refinery CO2 Emissions of the European Union's 10 ppm Sulfur Standard for Gasoline and Diesel Fuel

      Ford Motor Company commissioned MathPro Inc. to estimate the effects in the European Union (EU) refining sector of a 10 ppm cap on the sulfur content of both gasoline and diesel fuel, starting January 2005. The analysis addressed
      • Average refining cost;
      • Refinery hydrogen consumption; and
      • Refinery CO2 emissions
      We analyzed the effects of the 10 ppm sulfur standard using a refinery LP model developed with our refinery modeling system (ARMS) and configured to represent operations of the EU refining sector in the aggregate. The analysis considered two 10 ppm sulfur scenarios for 2005:
      • No change in gasoline and diesel specifications, except for the 10 ppm sulfur standard; and
      • A ban on MTBE blending in gasoline, coupled with relaxation of the gasoline aromatics standard from 35 vol% to 42 vol%
      We found the 10 ppm sulfur standard to be technically feasible with existing sulfur control technologies but that it would incur higher refining costs and entail higher refinery hydrogen consumption and CO2 emissions than the 50 ppm standard. In particular, the EU refining sector's CO2 emissions under a 10 ppm sulfur standard would be about 4% higher than under the current 50 ppm sulfur standard (or about 5% higher if MTBE blending were banned).
  • Technical and Economic Effects of a National MTBE Ban
    Categories: Oxygenate Issues: Ethanol, Iso-butanol, and Ethers
    • Technical and Economic Effects of a National MTBE Ban

      MathPro Inc. conducted a comprehensive technical and economic study for the Oxygenated Fuels Association (OFA). In this study, MathPro Inc. (i) estimated the physical and economic consequences in the U.S. refining sector of a national ban on MTBE blending, under various scenarios, and (ii) delineated the long-term effects and interactions of
      • Proposed legislation, including a national ban on MTBE blending and a national waiver of the oxygen requirement in federal RFG2;
      • Proposed regulations on emissions "back-sliding" in RFG and conventional gasoline areas;
      • Current and prospective ethanol supply/demand balances; and
      • Prospective new supplies of gasoline blendstocks - including iso-octane and iso-octene produced in merchant MTBE plants, suitably retro-fitted.
        • The analysis incorporated the new national Tier 2 standard on gasoline sulfur content, to take effect in 2005.
      We conducted the analysis using MathPro Inc.'s ARMS refinery LP modeling system to represent aggregate refining operations, in the Summer season, in three refining regions:
      • PADDs 1 & 3
      • PADD 2
      • California.
      The refinery models included estimated supply functions for ethanol, developed by MathPro Inc., and for iso-octane and iso-octene from merchant MTBE plants. The analysis involved not only analyzing refining operations in the three regions of interest but also balancing the inter-regional flows of ethanol, isomerate, alkylate, and iso-octane/iso-octene.
  • Economic and Technical Effects of the Arizona MTBE Ban
    Categories: State Clean Fuels Program; Oxygenate Issues: Ethanol, Iso-butanol, and Ethers
    • Economic and Technical Effects of the Arizona MTBE Ban

      The Arizona Department of Environmental Quality (ADEQ) retained MathPro Inc. as sub-contractor on a project team to assess the economic and technical implications of Arizona's legislation phasing out MTBE-blended gasoline in the state, not later than 180 days after California's MTBE phase-out takes effect.

      Our portion of the study comprised (1) estimating the average blend properties of candidate formulations, or variants, of Arizona Cleaner Burning Gasoline (CBG) produced without MTBE, (2) estimating the average refining costs associated with these variants, and (3) identifying other likely effects associated with the CBG variants, such as changes in driveability index and vehicle performance.

      We established baseline CBG properties by averaging the properties of all CBG batches supplied to Maricopa County in the then-most-recent Summer season (1999). Then, we estimated the average properties, performance indices, and associated refining costs of each of seven prospective CBG variants that the refining and distribution system could supply to the CBG area after the MTBE phase-out. Some of these variants were ethanol-blended, some contained no oxygenates. We developed these estimates by means of refinery modeling of the East (West Texas/New Mexico) and West (Southern California) refining centers, which then were the sources of Maricopa County's gasoline.

      Results of the analysis indicated the CBG variants most likely to be produced by the East and West refining centers in response to the Arizona MTBE phase-out. This information provided guidance to the state's assessment of the likely effects of the MTBE phase-out on Maricopa County's air quality.
  • Potential Supply and Cost of Voluntary Ultra-Low-Sulfur Diesel Program in Maricopa County, AZ
    Categories: Diesel Fuel Sulfur Control, State Clean Fuels Programs
    • Potential Supply and Cost of Voluntary Ultra-Low-Sulfur Diesel Program in Maricopa County, AZ

      The Western States Petroleum Association (WSPA) retained MathPro Inc. to assess its proposal for a voluntary program, starting not later than 2003, to supply ultra-low-sulfur diesel (ULSD) to vehicle fleets in the Maricopa County, AZ area. In this quick-response engagement, we assessed the potential supply of ULSD under the WSPA proposal, the potential demand for ULSD (in terms of number of vehicles and vehicle miles traveled), and the total refining cost of the WSPA proposal. (Another consulting firm estimated the reduction in area emission inventories that the estimated volumes of ULSD would produce and the total annual cost (including vehicle retro-fit costs) of the WSPA proposal.)

      We estimated the potential supply of ULSD in terms of the refineries likely to participate in the program, the maximum prospective ULSD volume that each refinery would supply, and the average incremental refining and supply cost, relative to EPA diesel, incurred by each refinery.

      We developed this information on the basis of direct contacts with each refinery and the results of prior analyses of Maricopa County's fuel supply.

      WSPA applied the results of the analysis in framing its proposal state officials and in answering questions posed by state officials and interested parties.
  • Refining Options for Meeting the Interim-Period Standard of the Canadian Sulfur-in-Gasoline Regulations
    Categories: Diesel Fuel Sulfur Control, Model Design and Development
    • Refining Options for Meeting the Interim-Period Standard of the Canadian Sulfur-in-Gasoline Regulations

      Environment Canada (the environment ministry of the Canadian government) retained MathPro Inc. - in conjunction with John Clark Consulting (Toronto), Inc. - to conduct a quick response study to (1) identify available alternatives for Canadian refineries for timely compliance with Canada's Sulfur in Gasoline Regulations and (2) estimate the benefits and costs of these alternatives to a specific sub-set of Canada's refineries.

      In the very short time available for this engagement, we (1) identified a set of prospective technical approaches that refineries could implement so as to meet the Regulations' Interim Period and Long Term standards for sulfur in gasoline, (2) estimated the on-stream date for each alternative in each refinery, and (3) estimated the incremental refining costs and investment requirement for alternative in each refinery.

      Results of the analysis informed negotiations between Environment Canada and the Canadian refining industry.
  • Effects on Gasoline Producibility of a National Ban on MTBE Blending and a National DI Std.
    Categories: Federal Clean Fuels Programs; Oxygenate Issues: Ethanol, Iso-butanol, and Ethers
    • Effects on Gasoline Producibility of a National Ban on MTBE Blending and a National DI Std.

      To support its Producibility Work Group, the National Petroleum Council (NPC) commissioned MathPro Inc. to analyze the prospective effects of (1) nation-wide restrictions on the use of MTBE as a gasoline blendstock and (2) a national standard capping DI at 1200. Prospective effects considered included changes in product out-turns, changes in refinery operations, incremental operating costs, new capital investments, etc. of the proposed restriction on MTBE use in all gasoline consumed in the U.S.

      The study employed formal refinery modeling using MathPro Inc.'s ARMS refinery LP modeling system. The analysis addressed refining operations in PADDs 1, 2, and 3 under different scenarios involving price and supply of ethanol and emissions targets (for the MTBE ban analysis) and safety margins on refinery average DI (for the DI analysis).

      Results of the analysis appear in the discussion of gasoline producibility in the NPC report, U.S. Petroleum Refining: Assuring the Adequacy and Affordability of Cleaner Fuels (June 2000), commissioned by the U.S. Secretary of Energy.
  • Effects of Alternative Reference Fuels for California Phase 3 RFG Program
    Categories: State Clean Fuels Programs; Oxygenate Issues: Ethanol, Iso-butanol, and Ethers
    • Effects of Alternative Reference Fuels for California Phase 3 RFG Program

      The California Energy Commission (CEC) and Western States Petroleum Association (WSPA) separately retained MathPro Inc. to conduct concurrent, independent analyses of the technical and economic implications for the California refining sector of various reference fuels and other parameters proposed for the new California Phase 3 RFG program (intended to permit production of CaRFG3 without MTBE blending).

      We estimated technical and economic effects by formal modeling of the California refining sector, using MathPro Inc.'s ARMS refinery modeling system and a model of aggregate California refining capacity developed for an earlier study for CEC.

      The analyses addressed the California Air Resources Board's (CARB) proposed new reference fuel and several variants of it, proposed by California refiners or offered for consideration by CARB. Results of the analyses for both clients were presented to CARB in the course of the final public hearing for the CaRFG3 program.
  • Economic and Technical Effects of Proposed Gasoline Sulfur Standards
    Categories: Gasoline Sulfur Control
    • Economic and Technical Effects of Proposed Gasoline Sulfur Standards

      During the formulation of EPA's Tier 2 sulfur control program, MathPro Inc. conducted a series of studies for the American Petroleum Institute (API) and, independently, for the American Automobile Manufacturers Association (AAMA) and then the Alliance of Automobile Manufacturers (AAM). All of these studies were commissioned to estimate the per-gallon costs and investment requirements for reducing the average sulfur content of conventional and reformulated gasoline to specified average levels, ranging from 200 ppm to 5 ppm. The studies applied to mainly to refining capacity in PADDs 1, 2, and 3. Two studies dealt specifically with PADD 4. One study dealt with gasoline supplies to the Atlanta area.

      Collectively, these studies delineated the refining economics of gasoline sulfur control using both conventional desulfurization technology and commercially ready new technology.

      The studies employed formal refinery modeling using MathPro Inc.'s ARMS refinery LP modeling system. Results of the analyses, made available to EPA and other interested parties, contributed to the debate over national sulfur standards that led to the Tier 2 gasoline sulfur standard promulgated by EPA.
  • Economic and Technical Effects of Proposed Diesel Sulfur Standards
    Categories: Diesel Fuel Sulfur Control
    • Economic and Technical Effects of Proposed Diesel Sulfur Standards

      The Engine Manufacturers Association (EMA) retained MathPro Inc. to estimate the per-gallon costs, investment requirements, and technology performance requirements for reducing the average sulfur content of on-road and off-road diesel fuel to specified average levels, ranging from 150 ppm to 2 ppm. The study applied to refining capacity in PADDs 1, 2, and 3. The study delineated the economics of diesel fuel sulfur control using advanced, but commercially established, desulfurization technology. The representation of this technology in ARMS is based on proprietary data obtained from the technology developers, as the result of a data collection initiative jointly sponsored by EMA and the American Petroleum Institute (API).

      The study employed formal refinery LP modeling using the ARMS refinery modeling system. Results of the analysis were reviewed by API and then made available to EPA and other interested parties in conjunction with EPA's consideration of national ultra-low-sulfur standards for diesel fuel in connection with Tier 2 diesel engine emission standards promulgated by EPA.
  • Potential Economic Benefits of the Feinstein-Bilbray Bill
    Categories: State Clean Fuels Programs; Oxygenate Issues: Ethanol, Iso-butanol, and Ethers
    • Potential Economic Benefits of the Feinstein-Bilbray Bill

      Chevron Products Company and Tosco Corporation retained MathPro Inc. conducted an analysis to assess the potential economic benefits of the Feinstein-Bilbray bill, which would have eliminated the oxygen requirement for federal RFG produced in California. The bill would have increased refiners' flexibility in producing gasoline for the federal RFG areas of California.

      In particular, the study estimated the extent to which California refineries could reduce their costs of complying with an MTBE by producing two types of CaRFG2 - one blended with ethanol and the other containing no oxygenate. (This work was an extension of a refining analysis that MathPro Inc. had recently completed for the California Energy Commission.)

      The analysis produced estimates of the refining cost savings associated with progressively larger shares of the CaRFG2 pool being blended without oxygen, in both the intermediate term (no new refinery investments) and the long term (new refinery investments as needed), and for three different (assumed) price levels for ethanol.

      Chevron and Tosco published the results of the study and presented them to staff members in both Houses of the U.S. Congress.
  • Technical and Economic Implications of Gasoline DI Control
    Categories: Federal Clean Fuels Programs, Model Design and Development
    • Technical and Economic Implications of Gasoline DI Control

      The American Automobile Manufacturers Association retained MathPro Inc. to analyze economic implications for the U.S. refining sector of controlling the Distillation Index (DI) of all U.S. gasoline to a per-gallon cap of 1200 ("DI 1200"). The analysis focused on the Summer season. The analysis had four parts.
      • Characterize the distribution of DI in the current U.S. gasoline pool and identify DI "hot-spots" - those segments of U.S. gasoline production that currently do not meet the contemplated DI 1200 standard;
      • Characterize the typical intra-refinery distribution of DI in individual gasoline batches, using survey data made available by API;
      • On the basis of their crude oil slates and process capacity profiles, identify refineries that likely produce, on average, high DI gasoline; and
      • For these refineries, estimate - using ARMS - the average costs of complying with DI 1200.
      The cost estimates developed in this study apply at the refinery gate. They did not include estimates of downstream costs that might be incurred to preserve DI quality achieved at the refinery or costs of complying with a possible regulatory program for DI.
  • Cost and Supply of Alternatives to MTBE in CaRFG2
    Categories: State Clean Fuels Programs; Oxygenate Issues: Ethanol, Iso-butanol, and Ethers
    • Cost and Supply of Alternatives to MTBE in CaRFG2

      In 1997, the California state legislature directed the California Energy Commission (CEC) to conduct a comprehensive study to evaluate the cost and supply of alternatives to MTBE in California's reformulated gasoline (CaRFG2). The CEC commissioned MathPro Inc. to conduct the Refinery Modeling portion of the legislatively-mandated project.

      The Refinery Modeling activity comprised three tasks:
      • Task 1: Specify the policy scenarios to be analyzed and the methodology to be used in the Refinery Modeling activity
      • Task 2: Calibrate the refinery model used in this activity, to conform to aggregate operations of the California refining sector in the 1997 Summer season
      • Task 3: Analyze the specified scenarios using the calibrated refinery model
      The Refinery Modeling activity produced widely-cited estimates of the economic effects on the California refining sector (e.g., incremental operating costs, new capital investments, etc.) of the proposed ban on MTBE use in all gasoline consumed in California. We estimated these economic effects by formal modeling of the California refining sector, using ARMS.

      Results of the Refinery Modeling activity were approved and published by CEC.
  • Proposed Summer Gasoline Standards for the Ozone Transport Region (Northeastern United States)
    Categories: Federal Clean Fuels Programs
    • Proposed Summer Gasoline Standards for the Ozone Transport Region (Northeastern United States)

      The Control Technologies and Options Workgroup of the Ozone Transport Assessment Group (OTAG) retained MathPro Inc. to estimate the refining economics of producing various proposed cleaner-burning gasolines, including the so-call OTAG fuel (i.e., low-sulfur gasoline). In this engagement, we (1) estimated the incremental costs of producing the OTAG fuel and six other cleaner-burning fuels defined by the Workgroup (where the estimated costs included refinery investment costs, operating costs, ancillary costs, and social costs associated with changes in energy content); (2) estimated the associated average composition and energy content of the resulting gasoline pool in the OTAG region, for the OTAG fuel and each of the six variants; and (3) conducted various sensitivity analyses in connection with the production of OTAG fuel.

      In addition, MathPro Inc. conducted a sensitivity analysis to assess the cost of the proposed OTAG fuel standard for refineries that now produce gasolines with sulfur content lower than and higher than the average for PADDs 1, 2, and 2. This sensitivity analysis recognized the diversity of the refining sector with respect to desulfurization capabilities and crude oil quality.

      The study employed formal refinery LP modeling using the ARMS refinery modeling system. Results of the analysis informed the recommendations of the Workgroup and OTAG as a whole with respect to gasoline reformulation and sulfur control.

      The recommendations produced by the OTAG process were the first step in the regulatory process that led to the Tier 2 gasoline sulfur control program.
  • Proposed Summer Gasoline Standards for Maricopa County, AZ
    Categories: State Clean Fuels Programs
    • Proposed Summer Gasoline Standards for Maricopa County, AZ

      In 1995, Maricopa County, Arizona (which includes the Phoenix metropolitan area) was in danger of becoming a serious non-attainment area with respect to ozone under the NAAQS. The Governor's Ozone Strategies Task Force established the Maricopa County Non-attainment Area Fuels Subcommittee, charged with recommending options for modifying the formulation of Summer gasoline consumed in Maricopa County so as to reduce ozone formation in the County.

      The Arizona Department of Environmental Quality (ADEQ) selected MathPro Inc. as the prime contractor on a study team to provide analytical support to the Subcommittee. In particular, MathPro Inc. conducted a detailed technical and economic analysis of gasoline supply to Maricopa County. The analysis encompassed (i) identifying candidate gasoline formulations and regulatory options; (ii) estimating the effects of each formulation on vehicle emissions; (iii) assessing the effects of each formulation on the gasoline distribution system serving Maricopa County, on vehicle performance, and on related factors; and (iv) analyzing the technical and economic implications of producing each gasoline formulation in the various refineries that supply Maricopa County.

      Results of the analysis were accepted by the Subcommittee and informed the recommendations that the Subcommittee issued. These recommendations led to establishment of Arizona's Cleaner Burning Gasoline (CBG) program.
  • Proposed Winter Gasoline and Year-Round Diesel Standards for Maricopa County, AZ
    Categories: State Clean Fuels Programs
    • Proposed Winter Gasoline and Year-Round Diesel Standards for Maricopa County, AZ Maricopa County, Arizona is a non-attainment area with respect to the NAAQS for carbon monoxide and particulates. The Governor's Air Quality Strategies Task Force established the Maricopa County Non-attainment Area Fuels Subcommittee, charged with recommending options for modifying the formulation of Winter gasoline and diesel fuel (year-round) consumed in Maricopa County so as to reduce CO formation in the County in the Winter season and particulates formation year-round.

      The Arizona Department of Environmental Quality (ADEQ) selected MathPro Inc. as prime contractor on a team providing analytical support to the Subcommittee. In particular, MathPro Inc. conducted a detailed technical and economic analysis of gasoline and diesel supply to Maricopa County. The analysis encompassed (i) identifying candidate gasoline and diesel fuel formulations; (ii) estimating the effects of each formulation on vehicle emissions; (iii) assessing the effects of each formulation on the gasoline and diesel distribution system serving Maricopa County, on vehicle performance, and on related factors; (iv) analyzing the technical and economic implications of producing each gasoline and diesel formulation in the refining centers that supply Maricopa County; and (v) analyzing the prospective implications of each diesel fuel formulations on the supply of non-taxed diesel fuel in Arizona's mining regions. Results of the analysis informed the recommendations that the Subcommittee issued.
  • Proposed Gasoline Standards for Canada
    Categories: Federal Clean Fuels Programs
    • Proposed Gasoline Standards for Canada In early 1995, the Canadian Council of Ministers of the Environment (CCME) undertook an initiative to develop new mobile source emissions standards, including new standards for gasoline composition and automobile emissions, aimed at reducing ozone levels in Canada's ozone non-attainment areas.

      MathPro Inc. served as a subcontractor to Kilborn Inc. (a Canadian engineering firm) in an engagement to estimate the economic and technical impacts on the Canadian refining sector (and the economic impacts on gasoline consumers) of a series of proposed new national standards for gasoline quality aimed at reducing ozone levels in Canada's ozone non-attainment areas.

      In this engagement, MathPro Inc. reviewed and assessed the cost estimates submitted to CCME by Canadian refiners, and developed independent estimates (via refinery LP modeling) of the investment requirements, incremental operating costs, and operational changes associated with the production in specific refineries of gasoline complying with each of the proposed standards.

      CCME used these results in reaching its decisions regarding new gasoline standards for Canada.
  • Proposed Gasoline Standards for British Columbia
    Categories: State Clean Fuels Programs
    • Proposed Gasoline Standards for British Columbia

      In 1995, British Columbia (BC) designed its own program to reduce ozone levels in its Lower Fraser Valley (an ozone non-attainment area encompassing Vancouver and surrounding areas). Like the CCME initiative, the BC initiative involved detailed discussions and negotiations with oil refiners in Western Canada. It also included an independent study of the technical and economic consequences of such standards on these refineries. BC's initiative was especially sensitive because it came on the heels of two refinery closures in Western Canada.

      MathPro Inc. served as a subcontractor to Kilborn Inc. in an engagement to estimate the economic and technical impacts on refineries in British Columbia and Alberta (and the economic impacts on gasoline consumers in British Columbia) of proposed new British Columbia standards for gasoline composition and automobile emissions.

      In this engagement, MathPro Inc.
      • Reviewed economic data submitted to BC's Ministry of Environment, Land, and Parks (MELP) by the oil refineries in British Columbia and Alberta;
      • Developed independent estimates of the investment requirements, incremental operating costs, and operational changes in refining and supply associated with the production of gasoline in compliance with each of the proposed standards; and
      • Participated in discussions with refinery representatives, to resolve differences between study-generated cost estimates and the refiners' cost estimates.
      These discussions led to a government-industry consensus on the costs of proposed standards. Results of this engagement contributed directly to MELP's selection of new gasoline standards (now promulgated).
  • Economic and Technical Effects of Federal Clean Fuels Programs
    Categories: Federal Clean Fuels Programs; Oxygenate Issues: Ethanol, Iso-butanol, and Ethers
    • Economic and Technical Effects of Federal Clean Fuels Programs

      We conducted a series of technical and economic studies, spanning many years, for EPA's Office of Policy, Planning, and Evaluation, analyzing the economic consequences to the refining industry (investment requirements, incremental and marginal costs of production, changes in refinery operations) of EPA regulatory programs bearing on gasoline and diesel fuel quality. These programs included lead phase-down, reduced RVP gasoline (Phases 1 and 2), oxygenated gasoline, federal reformulated gasoline (Phases 1 and 2), California Phase 2 reformulated gasoline (both for California and (prospectively) for PADD 1), and low sulfur diesel fuel.

      This series of studies involved extensive and objective LP modeling of refinery operations, representing not only existing refinery process technology but prospective new technology that could be fielded when the proposed regulations took effect. These studies consistently produced estimates of regulatory costs that were lower than other estimates offered during the regulatory proceedings and that were later confirmed by industry operating results and market prices after the regulations took effect.
  • Economics of the Federal Phase 1 RFG Program
    Categories: Federal Clean Fuels Programs
    • Economics of the Federal Phase 1 RFG Program

      In mid- and late 1994, MathPro Inc. participated in a comprehensive multi-client study of the federal reformulated gasoline program. The study covered the economic and technical consequences of statutory and prospective gasoline reformulation programs in the U.S., for the period 1995 to 2005.

      In this engagement, MathPro Inc. conducted detailed, regionally disaggregated analyses of the technical and economic consequences of the federal Phase 1 and Phase 2 RFG programs and of the California Phase 2 RFG program. For each program, MathPro Inc. developed detailed estimates of:
      • Average refining cost (¢/gallon) of producing RFG, by season and by PADD (for the federal RFG programs);
      • Changes in refinery operations, by objective (e.g., benzene control, oxygen content requirement) and by PADD;
      • Refinery investment requirements, by objective and by PADD;
      • Gasoline composition, by grade, season, and PADD;
      Each of the analyses involved extensive use of ARMS, enhanced and expanded to represent new refining technologies likely to be fielded by 2000 and 2005.
  • Economic and Technical Effects of Removing the Export Ban on Alaskan Crude Oil
    Categories: Crude Oil Valuation
    • Economic and Technical Effects of Removing the Export Ban on Alaskan Crude Oil

      For many years, the federal government banned the export of Alaskan North Slope (ANS) crude oil. Under the ban, most ANS crude went to U.S. West Coast refineries. In 1996, after an inter-agency policy review, the federal government lifted the ban, allowing ANS crude to be shifted from the West Coast to Pacific Rim countries, such as Japan. In connection with the policy review, the U.S. Department of Energy retained MathPro Inc. to assess the potential effects on West Coast refining economics of allowing ANS exports.

      Using our ARMS refinery modeling system, we developed representations of refining operations in Japan and in California. We applied these regional refining models to assess the economic incentives for (1) specified volumes of ANS to displace corresponding volumes of other crudes in the Japanese refining sector and (2) imported crude oil volumes to replace the diverted ANS volumes in the California refining sector. Establishing the equilibrium price differential for ANS crude between the Japanese and California markets required iterative solutions of the respective refinery models.

      The analysis indicated an incentive for exporting relatively small volumes of ANS crude to Japan, and replacing these volumes with like volumes of imported heavy crude oils that are commercially available.
  • Valuation Model for Crude Oils in the Strategic Petroleum Reserve
    Categories: Crude Oil Valuation, Model Design and Development
    • Valuation Model for Crude Oils in the Strategic Petroleum Reserve

      The Department of Energy's Strategic Petroleum Reserve Office (SPRO) retained MathPro Inc. to develop a spreadsheet-based model for quickly estimating current market values of crude oil blends stored in the Strategic Petroleum Reserve.

      To meet SPRO's requirements, we developed a fixed yield netback model, which computes the refining value of a particular crude oil in a given refining configuration (denoting a real or a notional" refinery) as a weighted sum of the (spot) market prices of refined products produced by the given refinery minus a per-barrel allocation of the refinery's direct (incremental) operating costs. The model represents
      • A spectrum of crude oils (both sweet and sour), including seven (7) market crude oils and nine (9) SPR blends of crude oils;
      • Summer and winter operations for a typical PADD 3 complex refinery;
      • A refined product slate corresponding to the aggregate output of PADD 3 refineries; and
      • The set of primary refining process units -- and corresponding capacities and yield profiles - that produces the aggregate PADD 3 product slate.
      For a given crude and refinery configuration, the model calculates a set of seasonal refined product yields (called the yield vector) from the crude's assay. Then, it calculates the corresponding crude netback value by applying the standard netback formula to (i) the yield vector and (ii) the current spot prices for the products represented in the yield vector.

      SPRO installed the netback model in a larger system used for financial and operations planning.
  • Legislative and Regulatory Developments Likely to Affect the U.S. Refining Sector in the Next Decade
    Categories: Gasoline Sulfur Control, Life Cycle and Net Energy Analysis
    • Comments on Development of a Liquid Fuel Market Module for the National Energy Modeling System (NEMS)

      The U.S. Energy Information Administration (EIA) has undertaken development of a new refining sector model for its National Energy Modeling System (NEMS), to replace and improve upon the existing Petroleum Market Module (PMM), which has been in use for more than thirty years. At EIA's request, MathPro prepared a White Paper identifying and discussing technical issues bearing on the requirements, capabilities, and design of the new refinery modeling system.

      The White Paper addresses seven topics:
      • An overall perspective on refinery modeling
      • Requirements for the LFMM modeling platform and associated software
      • Requirements for the LFMM's long-term forecasting applications (AEOs and IEOs)
      • Requirements for the LFMM's special studies applications
      • Design elements of refining sector models tailored to each set of applications
      • Model calibration
      • Representation of advanced bio-fuel supply within the LFMM
      MathPro presented and discussed the White Paper at an EIA workshop on LFMM requirements and design.
  • Comments on Development of a Liquid Fuel Market Module for the National Energy Modeling System (NEMS)
    Categories: Model Design and Development
    • Comments on Development of a Liquid Fuel Market Module for the National Energy Modeling System (NEMS)

      The U.S. Energy Information Administration (EIA) has undertaken development of a new refining sector model for its National Energy Modeling System (NEMS), to replace and improve upon the existing Petroleum Market Module (PMM), which has been in use for more than thirty years. At EIA's request, MathPro prepared a White Paper identifying and discussing technical issues bearing on the requirements, capabilities, and design of the new refinery modeling system.

      The White Paper addresses seven topics:
      • An overall perspective on refinery modeling
      • Requirements for the LFMM modeling platform and associated software
      • Requirements for the LFMM's long-term forecasting applications (AEOs and IEOs)
      • Requirements for the LFMM's special studies applications
      • Design elements of refining sector models tailored to each set of applications
      • Model calibration
      • Representation of advanced bio-fuel supply within the LFMM
      MathPro presented and discussed the White Paper at an EIA workshop on LFMM requirements and design.
  • Lifecycle Assessment of North American and Imported Crudes: Refinery Energy Use and CO2 Emissions
    Categories: Refinery Energy Use and CO2 Emissions, Life Cycle and Net Energy Analysis
    • Lifecycle Assessment of North American and Imported Crudes: Refinery Energy Use and CO2 Emissions

      MathPro Inc. participated in a study commissioned by the Alberta Energy Research Institute (AERI) to estimate the total life cycle ("well-to-wheels") emissions of CO2 associated with a number of refined product supply pathways (where each pathway involves the production of a particular crude oil, transport to a particular U.S. refining region, refining of the crude oil to produce a slate of refined products, and delivery to end-use locations. The study covered thirteen crude oils, including representative domestic, imported, and Canadian crudes.

      MathPro's contribution to the project consisted of developing estimates - for each of twenty-six (26) crude oil/refining region combinations - of
      • Per-barrel refinery energy use associated with the production of each of the four primary co-products of the refining process: gasoline, jet fuel, diesel fuel and other distillate products (such as heating oil), and all other refined products.
      • Total per-barrel refinery energy use and resulting CO2 emissions associated with refining each specified crude oil (domestic, imported, and Canadian) in each U.S. refining region.
      These estimates supported "well-to-wheels" analysis of the various refined product supply pathways by means of GREET 1.7, a widely used model for life cycle analysis.

      MathPro developed the estimates of refinery energy use by means of detailed, process-oriented modeling of regional refining operations, using linear programming (LP) implemented in MathPro's proprietary refinery modeling system. The refining analysis involved development and operation of a national U.S. refining model and three regional refining models. Each model represents regional aggregate refining capacity, processing a mixed crude oil slate and producing a slate of refined products meeting all major U.S. specifications and regulatory requirements.

      MathPro made presentations on the refining analysis to a project stake-holders group assembled by AERI. In light of the diverse backgrounds of the various stake-holders, the project report not only addresses the technical approach and results of the analysis but also provides tutorial material on crude oils, crude oil assays, and refining operations.
  • The Refining Value of Iso-Butanol as a Gasoline Blendstock
    Categories: Bio-fuel Economics, Blendstock Valuation
    • The Refining Value of Iso-Butanol as a Gasoline Blendstock

      A prospective biofuels manufacturer retained MathPro Inc. to estimate the economic value of iso-butanol as a gasoline blendstock in a selected segment of the U.S. refining sector, under various scenarios pertaining to federal and state regulations on gasoline properties and future prices of crude oil and ethanol.

      Using refinery LP modeling, we estimated two measures of iso-butanol's summer and winter values as a gasoline blendstock:
      • Refining value: the highest net price that a refinery would pay for a blendstock on the basis of its blending properties, given a particular set of market conditions, including prices of crude oil, refined products, and other blendstocks.

        Refining value is a net value, after deducting all exogenous economic incentives to the refiner - such as the federal VEETC subsidy, other subsidies, RINs and other credit values, etc.
      • Local netback value: the price that the blendstock producer would realize at a given refining value, ex transportation cost.

        Local netback value is the sum of the refining value and the total value of all economic incentives available to the refinery - including VEETC, other subsidies, and the market value of any net change in generation or use of RINs and/or benzene credits.
      We developed these estimates for more than sixty scenarios, spanning a wide range of assumed future prices of crude oil and ethanol. Analysis of additional scenarios delineated possible effects on iso-butanol economics of prospective changes in regulations governing gasoline properties.

      MathPro briefed the company's senior management on the results of the analysis.
  • The Refining Value of Iso-Octane as a Blendstock for California Gasoline
    Categories: Blendstock Valuation
    • The Refining Value of Iso-Octane as a Blendstock for California Gasoline

      A client in the oil and gas industry retained MathPro Inc. to assess the value of iso-octane, a premium gasoline blendstock, to refiners producing California RFG. The analysis addressed two primary issues:
      • The likely effects on the refining value of iso-octane of recent regulatory developments and continuation in recent trends in refined product demand
      • The prospective value of iso-octane to individual refineries under alternative future market conditions, defined by various combinations of crude oil prices, refining margins, and price relationships between gasoline and distillate products
      To support the refinery LP modeling used to address these questions, we developed an extensive set of supporting information characterizing historical and current prices of refined products in California.

      We estimated two measures of iso-butanol's summer and winter values as a gasoline blendstock:
      • Refining value: the highest net price that a refinery would pay for a blendstock on the basis of its blending properties, given a particular set of market conditions, including prices of crude oil, refined products, and other blendstocks.
      • Market value: the average price that would be realized in spot market transactions, given the blendstock's refining value and the marginal cost of octane production at the refinery, estimated by refinery modeling.
      We developed these estimates for numerous market scenarios, spanning a wide range of assumed future crude oil prices, refining margins, and gasoline/distillate demand ratios.
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