There’s a gas station by the Orlando airport charging $4.50 per gallon, or more than double what regular 87 octane costs in Florida, probably because it’s close to the rental-car return. But while competition pushes these extreme prices to the fringe, drivers refueling with premium gas are seemingly gouged in every state. If you fill up with 91 or 93 octane, you’ve no doubt grumbled, “How the hell is high-test 50 cents extra?”
That’s the average national spread of retail prices between a gallon of regular and premium gasoline, according to the U.S. Energy Information Administration (EIA). In all states, what was once a modest upcharge over regular—roughly 10 cents for mid-grade, another 10 cents for premium—has become an all-out surge. As gas prices tumbled over the past three years, the premium-fuel premium skyrocketed from 35 cents per gallon in 2013 to 47 cents in 2015 and reached 50 cents in late 2016. According to the latest data from AAA (which tracks fuel prices daily instead of the EIA’s weekly), premium costs $2.80 per gallon on average, or 60 cents more than regular. In 2000, the spread was 18 cents.
According to the EIA, there’s no Big Oil collusion to blame. Rather, it’s a confluence of market, industry, and regulatory factors that affect everyone, not just those in luxury cars. In August 2016, premium gasoline reached a 12 percent share of all U.S. gasoline sales, a level not seen in 13 years. AAA said the demand for premium gas is due to more car owners “treating themselves” as pump prices drop. That’s true, up to a point. About 80 percent of all registered vehicles run fine on regular, according to AAA, and in a given year some 16.5 million people mistakenly believe premium gas will improve their aging hoopties or “clean out” engine deposits. But another factor driving demand is that more stringent fuel-economy standards have put downsized and turbocharged engines in more and more new cars. And most, if not all, of those engines, whether in a Mini Cooper or a Nissan Juke, require premium for the best power and mileage.
The refining industry hasn’t been able to keep up. Greater domestic production of light crude oil has led to a surplus of naphtha, a lower-octane feedstock. When refiners convert naphtha into reformate, a high-octane component produced in a separate catalytic process, they’ve taken advantage of the naphtha surplus to produce more reformate. But these greater volumes of reformate are lower in octane than smaller volumes, the EIA says, and with the plastics industry turning away from naphtha, refiners have more of an incentive to blend the lower-octane stock into their gasoline. In turn, refiners haven’t increased their octane production with overall gasoline production. In 2016, refiners dedicated 30 percent of their total capacity to octane production, a three-point dip from 2007.
Regulatory changes have contributed to our octane woes. The latest Tier 3 standards enacted this year have cut gasoline sulfur levels to 10 parts per million, which mirrors the Environmental Protection Agency’s 2010 requirement for ultra-low-sulfur diesel. This results in a “slight loss” in octane, according to the EIA, at an additional cost that “likely also influenced the growing spread between regular and premium gasoline.” But as that spread grew in 2014, the EPA released an analysis of low-sulfur costs on the refining industry and concluded that any increase in gas prices would be “less than a penny per gallon” and that drivers would be “unlikely to notice a difference in fuel prices at the pump due to Tier 3.” At an EIA conference this week, the agency cited Tier 3 regulations as contributing to a “looming octane shortage.” The two agencies might want to get together for a chat.
Additional caps on benzene, a large proportion of reformate, presents another challenge to octane production. What about ethanol, the plant-based renewable blended into every tankful? At 115 octane, ethanol is already blended into gasoline at 10 percent, but refiners can’t push any further. Automakers, engine manufacturers, AAA, and the American Petroleum Institute have all lobbied against E15, a 15 percent blend, claiming it would lead to premature component failures. Without dumping more ethanol—or other octane boosters like lead and MTBE, which were outlawed for road use in 1996 and 2006, respectively—refiners have experienced an “octane shortage that required refiners and blenders to acquire more expensive sources of octane,” the EIA said.
This isn’t to assume your local station isn’t also padding its profits when premium gas shoots up in price. But before you gripe about paying 25 percent more for premium, know the forces working against you before the first drop hits your tank.
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