IN THIS PRODUCT MIX THE PRICE DIFFERENTIAL BETWEEN THE TWO GRADES OF UNLEADED WOULD PROBABLY DETERMINE THE RATIO OF UNLEADED PREMIUM SALES TO UNLEADED REGULAR. ON THE OTHER HAND, THE AVERAGE OCTANE REQUIREMENTS OF THE CAR POPULATION CAN BE EXPECTED TO INCREASE WITH TIME BECAUSE THE LATER MODEL CARS HAVE ON AVERAGE HIGHER OCTANE REQUIREMENTS THAN THE 1975/76 MODEL YEARS AND HENCE COUNTERACT THE PRICE DIFFERENTIAL BETWEEN THE TWO GRADES.

FINALLY, IT WOULD SEEM THAT THE IMPORTANCE OF AROMATIC PURCHASES, SUCH AS TOLUENE AND MIXED XYLENES, AS OCTANE ENHANCERS HAS BEEN OVERLOOKED.

MATERIALS ARE IN SHORT SUPPLY, YET ARE VITAL IN UNLEADED GASOLINE PRODUCTION.

COMMENT REGARDING THE DEMAND FORECASTING MODEL USED IN THE STUDY.

1. THE FORECAST BY EIA WAS BASED OŅ DATA RESOURCES, INC. (DRI)

ECONOMETRIC SIMULATIONS OF MAY 1978. THE DRI SIMULATIONS OF
LATE NOVEMBER 1978 REFLECT A LESS OPTIMISTIC OUTLOOK FOR THE
U.S. ECONOMY; AND THEREFORE, WOULD RESULT IN A LOWER DEMAND

FORECAST WERE THE EIA MODEL TO BE RUN NOW.
2. THE USE OF POPULATION AND/OR DRIVERS IS OF QUESTIONABLE VALUE

AS AN INDICATOR OF GASOLINE DEMAND IN THE SHORT TERM BECAUSE
POPULATION DOES NOT VARY WITH CHANGE IN THE ECONOMIC CLIMATE

THE WAY GASOLINE DEMAND DOES.
3. REAL NATIONAL INCOME APPEARS TO REPRESENT AN APPROPRIATE

ELEMENT IN FORECASTING GASOLINE DEMAND. HOWEVER, BASED ON
SHELL EXPERIENCE, WE BELIEVE THAT PERSONAL CONSUMPTION

EXPENDITURES WOULD BE AN EVEN BETTER INDICATOR.
4. PUBLISHED DATA INDICATED THAT INDUSTRY WIDE, ROUGHLY FORTY

PERCENT OF GASOLINE SOLD IS THROUGH SELF-SERVICE TYPE OUTLETS,
A WEIGHTED AVERAGE OF FULL-SERVICE AND SELF-SERVICE PRICES

RESPONSE TO QUESTION #14

WOULD, IN OUR EXPERIENCE, BE MUCH MORE REPRESENTATIVE.

5. RELIANCE ON LEADED REGULAR PRICING PRESUMES CONTINUATION

OF GRADE DIFFERENTIALS AS THEY HAVE BEEN HISTORICALLY,
HOWEVER, IN THE PRESENT MARKET LEADED REGULAR IS
FREQUENTLY DISCOUNTED TO ATTRACT THE PRICE CONSCIOUS BUYER,
AND AS A CONSEQUENCE GRADE DIFFERENTIALS HAVE CHANGED. A
COMPOSITE PRICE REPRESENTING ALL GRADES OF GASOLINE WOULD
BE PREFERRED. A WEIGHTED COMPOSITE PRICE WOULD ALSO KEEP
ABREAST IN THE CHANGING MIX AMONG GRADES OF GASOLINE.

6. NO ALTERNATIVE DEMAND SCENARIOS WERE USED WHICH TAKE INTO

ACCOUNT SIGNIFICANT FACTORS AFFECTING 1978 GROWTH SUCH AS
NON-OBSERVANCE OF SPEED LIMITS, INCREASE IN RECREATIONAL
VEHICLE POPULATION AND SUN-BELT GROWTH RATE.

COMMENTS ON SUPPLY,

1. SHELL CONSIDERS A 90-92% CAPACITY UTILIZATION TO BE

REPRESENTATIVE OF THE U.S. OIL INDUSTRY. A 94% AVERAGE
ON-STREAM FACTOR FOR THE MAJOR GASOLINE PRODUCERS SUCH AS
CAT REFORMERS, CAT CRACKERS AND ALKYLATION UNITS IS
ATTAINABLE. IN THE CASE OF HYDROCRACKERS, HOWEVER, A MORE

NORMAL EXPECTANCY WOULD BE AROUND 83%.
2. BALANCING SUPPLY AND DEMAND BY RELYING ON GASOLINE IN PARTS

OF 300 MB/D WOULD PLACE SUCH IN PARTS ABOVE HISTORICAL
LEVELS. DE/EIA-0035/11 DATA FOR AVERAGE GASOLINE IMPORTS:

1972

68 MB/D

DEPOS:T

MAR 30 1979

SHIPPED