Analysis: European refineries set to prioritize blending C9 into gasoline over solvents

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Strong demand for octanes going into European gasoline blends is set to keep diverting C9 solvent naphtha away for the chemical chain unless solvent distributors pay higher prices, industry sources said this week.

Good export demand for solvent naphtha and gasoline blends in the US, Africa and Asia through most of 2015 has meant that European refineries have been using up more of their aromatics streams for octanes.

“We have seen a lot of solvent naphtha and gasoline exports to Asia,” a distributor said Wednesday.

Supply of European solvent naphtha has been tight since the second quarter and suppliers have been demanding higher prices as a result.

Although spot truck prices were assessed by Platts at Eur730/mt FD NWE this week, down from a 2015 high of Eur845/mt at the start of August, they are still 30% higher than in January, when Platts assessed at Eur560/mt FD NWE.

This comes despite crude oil prices remaining at multi-year lows. The front-month ICE Brent crude contract hit $42.69/b on August 24, its lowest level since March 16, 2009, when values hit $42.59/b.

As a result, refineries and blenders were able to benefit from wide crack spreads and blending margins, limiting supply for solvent applications.

Earlier this week, one solvent distributor who buys from a major refinery said that its C9 supplies had been drastically cut as the refiner wanted to make the most of the wider cracks and blending margins.

“When they [the refinery] deliver will depend on conditions…They said to me that [their solvent] commercial department has to pay a transfer price to the refinery to get the C9. This transfer price is based on the return they get from blending gasoline. The margin on blending they get is higher than selling into the chemical side,” the distributor said.

A second solvent naphtha supplier said: “[Gasoline] blending eats a lot of C9 quantities. I think that you can make a better price in blending than chemical. In gasoline there are more quantities [of C9 blended].”

This was corroborated by a third distributor who said gasoline was the central plank of refinery margins at the moment, while chemicals weren’t a core business.

“It’s a return on investment [but] they are first making better margins from gasoline blending,” the distributor said.

OTHER SOLVENTS CUTS

An example of this strategy was seen earlier this year when one refinery decided to focus on solvent naphtha production at the expense of other solvents.

DHC Solvent Chemie in June reduced its white spirit supply in favor of higher demand/margin solvent naphtha distribution for gasoline blending, which continued throughout the summer.

The company said in June that its management felt that, given the relative price of both solvents, and DHC’s more limited white spirit market share and lower margins in Europe, they were willing to do this to supply greater volumes of the more profitable C9 for gasoline blending.

Solvent naphtha with an octane rating of 110 RON is one of a number of aromatic component options that can be blended into gasoline. It competes with higher octane components such as MTBE, with a RON number of 115, and ethanol, with a RON number of 108.

Although the blending of aromatics into European finished-grade EN228 gasoline is a maximum of 35%, solvent naphtha C9 tends to have fewer restrictions when blended into non-oxy gasoline for export to the US or for some African gasoline grades.
Source: Platts