Refining 101

[3chordcharlie]

Originally posted by: CycloWizard

Originally posted by: 3chordcharlie
The magnitude of this difference ought to be fairly constant over the course of the summer-gas season.

No, it shouldn't. This is what you don't seem to get. If I go buy a car with cash, does that imply an increase of my monthly bills over the course of the following 3 months? No. The process doesn't cost any more to operate than the previous one. There is simply a one-time capital expenditure.

The equipment is already purchased, and if it isn't, it is financed, or has a calculated payback period. The consumption of any additives or catalysts will be relatively constant and predictable.

Thus the price could have an increase in the summer, but the instability from day to day and week to week has nothing to do with this extra processing.

Speculation has a bigger impact on price instability than any recipe change ever will.

I'll ask again: how do you know? Simple answer: you don't. You've just based this conclusion on some speculation of your own.

Supply over the last 2-3 years has been fine, yet prices of oil have been very unstable, and have tracked political instability pretty closely. This points to speculation.

Speculation is not the fault of oil companies. In fact, at the moment I don't think big oil is to blame for fuel prices at all. Actually, I don't even think fuel prices are 'too high', though it certainly sucks every time I have to fill up.

 

[DealMonkey]

Originally posted by: CycloWizard

Originally posted by: 3chordcharlie
I didn't make a firm statement about the magnitude of the change in price.

You're right - you said that the worst-case scenario is a single increase in price for the entire summer. I just told you why you're wrong - because there's a large one-time capital cost associated with the changeover. Or do you think that hundreds of millions (or, potentially, billions) of dollars' worth of catalyst would just be a blip on the radar?

Have we already - or are oil companies in the midst right now - of switching over to summer formulations? I'm curious what part of year this normally takes place.

 

[imported_Shivetya]

Originally posted by: 3chordcharlie
The part I find troubling is that this is complete BS.

Seasonal recipe changes could explain minor price fluctuations. Period. That's it.

Even if they were the cause, why haven't gasoline companies made frequent, publicized statements about this?

Because it isn't the issue. Speculation and/or manipulation in the oil market, not at the refinery level causes the changes in price we bitch about. When refinery problems cause price shocks, we get it, and for the most part we don't bitch.

gotta love the experts in the field of gas refining we have on the boards.

hahahaha

its called government regulation, having multiple boutique blends across a nation, and getting it all out there.

I keep forgetting being able to post on AT makes you an expert in whatever you post about

 

[piasabird]

Supply and demand for Oil.

More people in China are buying cars. This makes the world demand for oil higher. This makes the world demand for better engineered cars higher also. More than ever now we need cars that can go further on less gas. The US Govt needs to force the auto industry to change its goals. If it takes higher legal standards with monetary penalties then that is what is needed. Business models often follow the bottom line. Often companies want to make the most money and will make a low end product rather than what the consumer wants, because they can make more money. So it is up to the government to force the change. Since the companies only care about money, that is the only way to force them to change.

 

[dmcowen674]

Originally posted by: piasabird
Supply and demand for Oil.

More people in China are buying cars. This makes the world demand for oil higher.

You can say that crap all you want, show me where we are out of oil to refine.

Inventories never dropped below five year highs.

 

[dmcowen674]

Originally posted by: Shivetya

gotta love the experts in the field of gas refining we have on the boards.

its called government regulation, having multiple boutique blends across a nation, and getting it all out there.

I keep forgetting being able to post on AT makes you an expert in whatever you post about

How many years have they been doing this?

Why are you promoting and excusing incompentence on the part of your heroes???

 

[CycloWizard]

Originally posted by: 3chordcharlie
The equipment is already purchased, and if it isn't, it is financed, or has a calculated payback period. The consumption of any additives or catalysts will be relatively constant and predictable.

The 'equipment' is the catalyst. Why would oil companies finance something when the cash is on hand to buy it? I'm not arguing that this causes price fluctuations - I'm arguing that it explains a one-time spike in prices several times per year when they buy new catalysts that will serve to produce the appropriate seasonal formulation. The consumption of catalysts may occur at a relatively constant rate (not quite, but close enough), but it has to be replaced in batches. You can't simply filter out the old catalyst on the fly and dump in new stuff as needed. You have to shut down the entire reactor, open it up, dump, then fill. Catalysts are generally implemented as porous particles of inert substrate coated with a catalytic material, usually a precious metal. The entire catalyst particle doesn't go bad instantaneously because the concentrations of the poisoning agents are always higher near the exterior of the pellet due to diffusion-limited mass transfer (Google "shrinking core model" for one conceptualization of this process).

Supply over the last 2-3 years has been fine, yet prices of oil have been very unstable, and have tracked political instability pretty closely. This points to speculation.

Speculation is not the fault of oil companies. In fact, at the moment I don't think big oil is to blame for fuel prices at all. Actually, I don't even think fuel prices are 'too high', though it certainly sucks every time I have to fill up.

You're right, but you seem to have missed the point I was trying to make.

 

[CycloWizard]

Originally posted by: DealMonkey
Have we already - or are oil companies in the midst right now - of switching over to summer formulations? I'm curious what part of year this normally takes place.

No, but the changeover to the spring formulation probably just happened. The regulation isn't quite as straightforward as the article makes it out to be. The ratio of the prevailing Reid vapor pressure (RVP) to the local ambient atmospheric pressure must be about equal to 0.6. Since temperatures will rise over the next few weeks (and, therefore, the RVP) as spring starts, changes to the formulation must be made to keep the ratio about in the right range. Absolute temperature changes influences vapor pressure roughly exponentially for nearly all liquids (as shown by the Antoine Equation, which is what we usually use to predict vapor pressure's dependence on temperature). So, if the mean temperature here rises 20°F in the next two weeks, the RVP will go up significantly - enough that the resulting gasoline would likely not meet regulations and would not be legal to sell. I don't recall the exact legal tolerance for variations in the ratio of RVP:ambient pressure, but I think it was in the neighborhood of 0.05, meaning that a 20°F shift in temperature is probably sufficient to throw off the ratio sufficiently to make the blend illegal.

 

[3chordcharlie]

Originally posted by: CycloWizard

Originally posted by: 3chordcharlie
The equipment is already purchased, and if it isn't, it is financed, or has a calculated payback period. The consumption of any additives or catalysts will be relatively constant and predictable.

The 'equipment' is the catalyst. Why would oil companies finance something when the cash is on hand to buy it? I'm not arguing that this causes price fluctuations - I'm arguing that it explains a one-time spike in prices several times per year when they buy new catalysts that will serve to produce the appropriate seasonal formulation. The consumption of catalysts may occur at a relatively constant rate (not quite, but close enough), but it has to be replaced in batches. You can't simply filter out the old catalyst on the fly and dump in new stuff as needed. You have to shut down the entire reactor, open it up, dump, then fill. Catalysts are generally implemented as porous particles of inert substrate coated with a catalytic material, usually a precious metal. The entire catalyst particle doesn't go bad instantaneously because the concentrations of the poisoning agents are always higher near the exterior of the pellet due to diffusion-limited mass transfer (Google "shrinking core model" for one conceptualization of this process).

Supply over the last 2-3 years has been fine, yet prices of oil have been very unstable, and have tracked political instability pretty closely. This points to speculation.

Speculation is not the fault of oil companies. In fact, at the moment I don't think big oil is to blame for fuel prices at all. Actually, I don't even think fuel prices are 'too high', though it certainly sucks every time I have to fill up.

You're right, but you seem to have missed the point I was trying to make.

What do you mean by 'spike', I'm trying to make sure I actually disagree with what you're saying before I type any more.

 

[3chordcharlie]

Originally posted by: Shivetya

Originally posted by: 3chordcharlie
The part I find troubling is that this is complete BS.

Seasonal recipe changes could explain minor price fluctuations. Period. That's it.

Even if they were the cause, why haven't gasoline companies made frequent, publicized statements about this?

Because it isn't the issue. Speculation and/or manipulation in the oil market, not at the refinery level causes the changes in price we bitch about. When refinery problems cause price shocks, we get it, and for the most part we don't bitch.

gotta love the experts in the field of gas refining we have on the boards.

hahahaha

its called government regulation, having multiple boutique blends across a nation, and getting it all out there.

I keep forgetting being able to post on AT makes you an expert in whatever you post about

You don't even know what you're disagreeing with.

As far as simple economic analysis, I'm not an 'expert' but I'm qualified to comment.

 

[CycloWizard]

Originally posted by: 3chordcharlie
What do you mean by 'spike', I'm trying to make sure I actually disagree with what you're saying before I type any more.

A Dirac delta function superimposed on the normal cost function.

It's simply a one-time cost that the oil companies pay out to buy the catalyst. They buy a single huge batch of it when they need to change the formulation. This is why I said it explains a single short price fluctuation each time the formulation changes but not repeated fluctuations. According to one professor who used to do such things for Shell, he said that the catalyst generally needs to be replaced 4-6 times throughout the year, depending on which part of the country the gas would ship to (since the number of formulation changes depends on the difference between the maximum and minimum mean temperatures in the region over the course of a year).

 

[DealMonkey]

Originally posted by: CycloWizard

Originally posted by: DealMonkey
Have we already - or are oil companies in the midst right now - of switching over to summer formulations? I'm curious what part of year this normally takes place.

No, but the changeover to the spring formulation probably just happened. The regulation isn't quite as straightforward as the article makes it out to be. The ratio of the prevailing Reid vapor pressure (RVP) to the local ambient atmospheric pressure must be about equal to 0.6. Since temperatures will rise over the next few weeks (and, therefore, the RVP) as spring starts, changes to the formulation must be made to keep the ratio about in the right range. Absolute temperature changes influences vapor pressure roughly exponentially for nearly all liquids (as shown by the Antoine Equation, which is what we usually use to predict vapor pressure's dependence on temperature). So, if the mean temperature here rises 20°F in the next two weeks, the RVP will go up significantly - enough that the resulting gasoline would likely not meet regulations and would not be legal to sell. I don't recall the exact legal tolerance for variations in the ratio of RVP:ambient pressure, but I think it was in the neighborhood of 0.05, meaning that a 20°F shift in temperature is probably sufficient to throw off the ratio sufficiently to make the blend illegal.

So we're dealing with more than a Summer-Winter formulation scenario? Sounds more like a 4x/year schedule?

 

[DealMonkey]

Plus, demand within the U.S. is probably up as a result of an early daylight savings time this year. More daylight hours, more time for Americans to drive.

 

[3chordcharlie]

Originally posted by: CycloWizard

Originally posted by: 3chordcharlie
What do you mean by 'spike', I'm trying to make sure I actually disagree with what you're saying before I type any more.

A Dirac delta function superimposed on the normal cost function.

It's simply a one-time cost that the oil companies pay out to buy the catalyst. They buy a single huge batch of it when they need to change the formulation. This is why I said it explains a single short price fluctuation each time the formulation changes but not repeated fluctuations. According to one professor who used to do such things for Shell, he said that the catalyst generally needs to be replaced 4-6 times throughout the year, depending on which part of the country the gas would ship to (since the number of formulation changes depends on the difference between the maximum and minimum mean temperatures in the region over the course of a year).

Alright - I can't see why the price increase would not be spread over the life of the catalyst.

Edit - now I think that might be what you were saying anyway.

 

[CycloWizard]

Originally posted by: DealMonkey
So we're dealing with more than a Summer-Winter formulation scenario? Sounds more like a 4x/year schedule?

Like I said in my post to 3CC, it depends on the region of the country that the gas is going to. If the temperature in the region only changes by 20°F year-round (maybe like San Diego or something), then it might not need any changes. If it's in St. Louis, where the temperature varies from 10-100°, it might take 5 or 6.

 

[CycloWizard]

Originally posted by: 3chordcharlie
Alright - I can't see why the price increase would not be spread over the life of the catalyst.

Edit - now I think that might be what you were saying anyway.

No, I'm saying exactly the opposite. Oil companies pay cash for EVERYTHING. Why would they pay interest on financing it when they can jack up the price of the product and minimize the payback period? I'm not an economist, but what you're suggesting doesn't make any sense to me. If I did what you're suggesting, I would fail any test in engineering economics at least.

 

[OutHouse]

I call BS. the only reason it cost more is because people drive more in the summer.

I dont ever remember gas being 30+ cents higher during the summer months compared to winter, ever.

 

[CycloWizard]

Originally posted by: Citrix
I call BS. the only reason it cost more is because people drive more in the summer.

I dont ever remember gas being 30+ cents higher during the summer months compared to winter, ever.

Yep, you're right. Catalysts and energy are free! *runs to start his own refinery with zero startup cost*

 

[OutHouse]

Originally posted by: CycloWizard

Originally posted by: Citrix
I call BS. the only reason it cost more is because people drive more in the summer.

I dont ever remember gas being 30+ cents higher during the summer months compared to winter, ever.

Yep, you're right. Catalysts and energy are free! *runs to start his own refinery with zero startup cost*

dude i have been driving since i was 16 in 1984 and never, ever have i seen gas shoot up as much as it has this year. here in colorado it went up 40 cents in one month. You will never convince me that that this huge price hike is due to a formulation change, i mean common, they have been doing this formula change for years, why the big jump now?

 

[CycloWizard]

Originally posted by: Citrix
dude i have been driving since i was 16 in 1984 and never, ever have i seen gas shoot up as much as it has this year. here in colorado it went up 40 cents in one month. You will never convince me that that this huge price hike is due to a formulation change, i mean common, they have been doing this formula change for years, why the big jump now?

I didn't say it was only due to a formulation change. I'm only saying that your argument that supply and demand laws are the only reason for the price changes is wrong.

 

[3chordcharlie]

Originally posted by: CycloWizard

Originally posted by: 3chordcharlie
Alright - I can't see why the price increase would not be spread over the life of the catalyst.

Edit - now I think that might be what you were saying anyway.

No, I'm saying exactly the opposite. Oil companies pay cash for EVERYTHING. Why would they pay interest on financing it when they can jack up the price of the product and minimize the payback period? I'm not an economist, but what you're suggesting doesn't make any sense to me. If I did what you're suggesting, I would fail any test in engineering economics at least.

Not likely. I actually took engineering economics, and it's definitely not 'economics'. Please keep in mind that even when you 'pay with cash', money still has a time-component to its value. Namely 'money now' is worth more than 'money later.

You don't minimize payback periods on things you're using all the time. How do you decide how many gallons of gas to include in the 'spike', and therefore how tall the spike is? How do you do this when your competitors may not be on exactly the same schedule as you.

The competitive outcome is that 'summer gas' costs what it costs, as do the other formulas that may be required over the course of the year.

I can see that a firm might wish to charge a higher premium, for a shorter period, to minimize payback, but in a competitive market they will be unable to do so. The only market conditions that would allow such a thing are an uncompetitive market with a price below the monopolistic none, or a cartel.

 

[dmcowen674]

Originally posted by: CycloWizard
I don't recall the exact legal tolerance for variations in the ratio of RVP:ambient pressure, but I think it was in the neighborhood of 0.05, meaning that a 20°F shift in temperature is probably sufficient to throw off the ratio sufficiently to make the blend illegal.

Oil Apologist admits incompetence of his hereos.

How many years have they been making gasoline and they can't get it right all of a sudden?

 

[amish]

Originally posted by: dmcowen674

Originally posted by: CycloWizard
I don't recall the exact legal tolerance for variations in the ratio of RVP:ambient pressure, but I think it was in the neighborhood of 0.05, meaning that a 20°F shift in temperature is probably sufficient to throw off the ratio sufficiently to make the blend illegal.

Oil Apologist admits incompetence of his hereos.

How many years have they been making gasoline and they can't get it right all of a sudden?

so now oil barons control the weather too? i know that a 20° shift in the weather isn't uncommon for indiana, but i had no idea that it was the fvcking oil barons that caused it.

or is it that oil barons should predict the weather good enough so that what cyclowizard is talking about doesn't happen? screw meteorologists, i'll just listen to the oil baron's weather report.

but i must hate america, or be a sheeple, or be a shill, or any other of your stupid catch phrases that have no relevancy to a topic. so dave, oh so

 

[dualsmp]

Here is the cliff notes version

Q) Why fuel costs more in the summer?

A) More profits.

 

[DealMonkey]

Originally posted by: CycloWizard

Originally posted by: Citrix
dude i have been driving since i was 16 in 1984 and never, ever have i seen gas shoot up as much as it has this year. here in colorado it went up 40 cents in one month. You will never convince me that that this huge price hike is due to a formulation change, i mean common, they have been doing this formula change for years, why the big jump now?

I didn't say it was only due to a formulation change. I'm only saying that your argument that supply and demand laws are the only reason for the price changes is wrong.

Citrix - I think I've stated that demand is up because of an early daylight savings switchover about 3 times now and nobody is listening to me! More hours of daylight = more Americans driving = higher demand. Now couple that with a seasonal formulation change and you've got a substantial rise in the cost of the end product.