Source: Ferrari via Bloomberg

Ferraris to Jaguars Purr on U.S. Roads With Fuel Boost From Asia

  • U.S. raises imports of additives to produce premium gasoline
  • Shale oil seen too light to be processed into high-octane fuel

From Beverly Hills to The Hamptons, luxury cars on American roads are relying on help from Asia to keep them purring with high-octane gasoline.

While the shale boom has driven more domestic crude into U.S. refineries, the resulting gasoline typically isn’t ideal for the engine of a Corvette Stingray, Rolls-Royce Phantom or even a Nissan Infiniti. That’s prompting a surge of shipments from Asia carrying additives including alkylates, which are blended with motor fuel to boost performance.

The U.S. imported almost 10 times as much of those gasoline components from the Asian oil-trading hub of Singapore in 2015 compared with a year earlier, according to U.S. Energy Information Administration data. The shipments show how the shale boom is shifting global trade flows and helping refiners such as India’s Reliance Industries Ltd. find new markets.

“Americans love their SUVs, high-performance engines and muscle cars,” said John Driscoll, chief strategist at JTD Energy Services Pte, who has spent more than 30 years trading crude and petroleum in Singapore. “These engines need high-octane fuel to hit peak performance and prevent engine damage.”

U.S. shale oil is usually of a lighter variety that yields gasoline with lower octane. While this supply is fine to use in regular cars, it tends to burn prematurely in the more powerful motor of a Porsche or Ford Mustang, leading to what’s called a knock and potential damage. Blending components such as alkylates increase octane levels.

Premium gasoline cost on average almost 50 cents a gallon more than the regular variety on June 28 in the U.S., according to data from the American Automobile Association. The difference was as low as 13 cents in 2009 and rose to about 30 cents in 2011 after the shale boom took off.

“The price of high-octane gasoline has risen much more strongly than the normal stuff, which means it’s because of demand,” said Ehsan Ul-Haq, a senior consultant at KBC Advanced Technologies in London. “In the U.S., people always look at more power when they buy cars and SUVs. If oil prices are relatively low, people don’t care.”

Demand for blending components could rise further next year as new regulations requiring the reduction of sulfur content in fuels are implemented in the U.S. The process used by refiners to remove the impurity has the effect of also reducing octane levels, potentially boosting the need for additives.

The tanker Polar Cod, which can carry about 60,000 metric tons of fuel, unloaded alkylate at New York in May after sailing from Sikka a month earlier, from where Reliance Industries ships fuel produced at its western-India refinery, vessel-tracking data compiled by Bloomberg show.

A slowdown in fuel margins has prompted refiners to turn to petrochemicals, including blending components, as a key source of income. Profits from processing benchmark Dubai crude in Asia have averaged less than $6 a barrel this year, compared with $8.25 in the first six months of 2015, according to data compiled by Bloomberg.

“Refiners like Reliance normally send their material where they can get the highest price,” KBC’s Ul-Haq said. “The U.S is a destination for these refiners because it’s the largest gasoline consumer in the world.”

India’s supplies of gasoline blendstocks to the U.S. rose more than tenfold to an average 44,000 barrels a day in the period 2010 to 2015, compared with the previous 10 years, EIA data show. American imports of the components from Singapore surged to about 1.5 million barrels last year from 150,000 barrels in 2014, according to the data.

Shale Boom

The U.S. oil boom was driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, of shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota. That boosted the country’s crude production to 9.6 million barrels a day last year, the highest level in more than three decades, from as low as 3.8 million barrels in September 2008, EIA data show.

The jump in output has meant the nation’s need for crude from overseas has dropped, while the quality mismatch of the gasoline produced has boosted dependence on foreign additives. Those purchases have averaged 635,000 barrels a day over the past 6 years, 25 percent higher than shipments over the previous decade, according to government data.

“Once you get addicted to high-octane stuff, then you want to keep using it,” KBC’s Ul-Haq said. “People want to put a tiger in the tank instead of lower-octane stuff.”

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