Butane Blending into Gasoline – How Profitable is it?

Litigation, North America

A surge in natural gas production sparked increased competition for blending butane into gasoline. A dispute arose between two blenders and Baker & O’Brien was hired to develop a comprehensive economic model of a butane blending business. Our analysis was summarized in two expert reports.

It may be surprising to most people who don’t work in petroleum refining, but the four-carbon molecule butane has a high octane (about 91, similar to mid-grade gasoline at the pump), which makes it suitable as a gasoline blendstock. The downside is that butane has a low boiling point, so it vaporizes easily, promoting undesirable atmospheric emissions from gasoline. Vapor pressure measures the tendency of a gasoline blend component to vaporize and increases with temperature.

Butane’s high vapor pressure (approximately 50-60 pounds per square inch) makes its use in gasoline highly seasonal. During the Spring and Summer, when gasoline vapor pressure must be reduced to minimize gasoline vapor emissions, butane blending into gasoline almost ceases entirely. However, during the colder fall and winter seasons, butane can be blended into gasoline at proportions of about 3-5%, depending on various factors. In the winter, butane is desirable as it helps with the cold starting capability of gasoline.

Source: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=M_EPLLBAN_YIR_NUS_MBBLD&f=M

With the increased production of natural gas from shale formations in the U.S., production of butane has grown significantly, while its demand has not increased appreciably. Over the years, this has led to increased butane exports and widening butane price discounts to gasoline. These widening price discounts provided increasing economic incentives for refiners and independent blenders to maximize the amount of butane blended during winter. Although 3-5% doesn’t seem significant, large price discounts for butane compared to gasoline provide healthy cash flow incentives to maximize butane blending.

While butane production has increased, gasoline has not, so blending opportunities are limited. Blending more butane into gasoline upstream in the value chain modifies downstream blending opportunities. Baker & O’Brien was engaged to quantify the economics associated with butane-blending in gasoline and how the economics are affected by the location of the business within the value chain.

Our consultants developed a gasoline blending economic model that calculated cash flows from blending butane in gasoline based on assumptions about incoming gasoline quality and forecasts of butane-gasoline price spreads. The projected cash flows from the butane blending were discounted to calculate the net present value of a hypothetical butane blending business. Our analysis was summarized in two expert reports.

Charles G. Kemp

Vice President

Transportation and Storage
Standard of Care / Pipeline / Product Quality / Pricing
North America