Appendix C. New Sources of Alkylate and Iso-Octane

Alkylate and iso-octane have frequently been discussed as attractive gasoline blend components to deal with supply issues if MTBE is eliminated. Like MTBE, these materials are free of benzene, other aromatics, olefins, and sulfur. The largest difference is octane. MTBE has an octane rating (R+M/2) of about 110, while alkylate is 92-94 and iso-octane is about 98. If MTBE is banned, most analysts assume that the iso-butylene feed streams to refinery MTBE units will primarily be used to expand refinery alkylate production. The economics of conversion to iso-octane production makes this less likely within refineries. Refiners could expand alkylate production using more C 3 or C 5 olefins not currently being alkylated, but most refiners do not see that occurring based on current alkylate economics.

MTBE also is currently produced in large commercial plants outside of refineries. In contrast to refineries, the commercial plants do not have a captive source of olefin feedstocks, and thus have a much different production cost structure. These plants could be converted to iso-octane or alkylate production with additional capital investment. Based on discussions with commercial MTBE facility owners, only a small fraction of commercial capacity is expected to be converted. MTBE has always had a significant premium over gasoline (22 cents per gallon on average over the past year), which exceeds alkylate’s premium (14 cents per gallon on average over the past year). Most MTBE plant owners doubt that the price premium for alkylate or iso-octane will be sufficient in the long run to provide an adequate return for them to risk the large capital investments required. Most of the capacity that will produce iso-octane will likely come from plants now producing MTBE as a by-product of propylene oxide production, but even in these cases, export of MTBE will be considered before deciding to invest in conversion to iso-octane production.