QUESTION #13

MANY CONSUMERS HAVE BEEN PURCHASING PREMIUM GRADES OF
UNLEADED GASOLINE (SUCH AS THAT OFFERED BY SHELL) RATHER
THAN REGULAR UNLEADED GASOLINE FOR THEIR AUTOMOBILES
EQUIPPED WITH CATALYTIC CONVERTORS. IS THERE ANY BASIS
FROM A MECHANICAL STANDPOINT FOR USING THE PREMIUM
UNLEADED RATHER THAN THE REGULAR UNLEADED GASOLINE IN
THESE CARS? IN OTHER WORDS, CAN THE USE OF PREMIUM
UNLEADED VERSUS REGULAR UNLEADED EXTEND THE USEFUL LIFE
OF THE ENGINE, PREVENT ENGINE DAMAGE, ETC., OR IS THE
ADVANTAGE OF PREMIUM UNLEADED MERELY PSYCHOLOGICAL IN
THAT THE DRIVER DOES NOT HEAR THE ENGINE KNOCK OR
EXPERIENCE "DIESELING"?

RESPONSE TO QUESTION #13

AS INDICATED BY THE OCTANE REQUIREMENT CURVE SUPPLIED IN OUR ANSWER TO QUESTION 5, WE ESTIMATE THAT BETWEEN 20 TO 30% OF OWNERS OF CURRENT UNLEADED CARS HEAR WHAT THEY PERCEIVE AS OBJECTIONABLE LEVELS OF KNOCK ON UNLEADED REGULAR FUELS, 87.0 TO 38.0 (R+M)/2 OCTANE NUMBER. WHEN THIS OCCURS, MANY WILL SWITCH TO A HIGHER OCTANE UNLEADED FUEL PROVIDED ONE IS CONSISTENTLY AVAILABLE. BASED ON OUR TESTING, THE AVERAGE MOTORIST HEARS A LIGHT TO MEDIUM INTENSITY OF KNOCKING AND OBJECTS IF IT OCCURS OTHER THAN IN A SHORT BURST DURING ACCELERATION. OCCASIONAL BURSTS OF LIGHT TO MEDIUM KNOCK DURING ACCELERATION SHOULD CAUSE NO ENGINE DAMAGE. HOWEVER, HEAVIER OR CONTINUOUS KNOCKING CAN LEAD TO DEVELOPMENT OF HOT SPOTS WITHIN COMBUSTION CHAMBERS WHICH CAN SUBSEQUENTLY LEAD TO RUN AWAY PREIGNITION AND SEVERE ENGINE DAMAGE, I.E., BURNED VALVES OR MELTED HOLES THROUGH PISTONS. WE, THEREFORE, BELIEVE THAT THE CUSTOMER'S DETECTION/OBJECTION LEVEL OF KNOCK IS WELL SUITED TO PROVIDE A WARNING SIGNAL.

ONCE A CUSTOMER HAS FOUND THE PROPER OCTANE QUALITY TO PREVENT OBJECTIONABLE LEVELS OF KNOCK OR DIESELING, GOING TO A HIGH OCTANE QUALITY PER SE WILL AFFORD NO FURTHER PERFORMANCE OR ENGINE PROTECTION BENEFITS. HOWEVER, THERE ARE TWO OTHER PERFORMANCE AREAS WHICH MUST BE CONSIDERED:

RESPONSE TO QUESTION #13

1) ADDITIVE PACKAGES WHICH HELP KEEP THE CARBURETOR CLEAN FOR BETTER TUNE AND EMISSION CONTROL, AND 2) THE TAILORING OF VOLATILITY FOR GOOD DRIVEABILITY DURING COLD START AND WARM-UP TO AVOID STALLING, STUMBLE, AND HESITATION.

QUESTION #14

ATTACHED FOR YOUR REVIEW AND INFORMATION IS THE MOST

RECENT ANALYSIS OF 1980 MOTOR GASOLINE SUPPLY AND

DEMAND BY THE ENERGY INFORMATION ADMINISTRATION.

PLEASE PROVIDE THE COMMITTEE WITH YOUR CONTENTS AND

VIEWS WITH RESPECT TO THIS ANALYSIS.

RESPONSE TO QUESTION #14

SHELL'S VIEW OF THE INDUSTRY SUPPLY/DEMAND OUTLOOK FOR 1980 IS IN OVERALL AGREEMENT WITH THAT OF THE DOE ALTHOUGH THERE ARE SOME DIFFERENCES IN DETAIL WHICH ARE DISCUSSED BELOW.

AT BEST THE SUPPLY/DEMAND BALANCES CAN BE EXPECTED TO BE TIGHT IN 1980 AND WILL BE PARTICULARLY SENSITIVE TO ANY DISRUPTIONS IN NORMAL SUPPLY PATTERNS. AS INDICATED IN THE DOE ANALYSIS, DOMESTIC SUPPLIES WILL BE CONSTRAINED BY OCTANE GENERATING CAPABILITY; THUS ANY IMBALANCES WILL BE PARTICULARLY REFLECTED IN UNLEADED GASOLINE. RELIEF CAN BE ACHIEVED THROUGH:

. EXTENSION OF LEAD WAIVERS AND

. ACCEPTANCE BY THE EPA OF OTHER OCTANE-BOOSTING ADDITIVES

SUCH AS METHYL TERTIARY BUTYL ETHER (MTBE) AND TERTIARY

BUTYL ALCOHOL (TBA).

COMMENTS ON OCTANE DEMAND:

SHELL'S ANALYSIS OF OCTANE DEMAND INDICATE THAT THE CLEAR OCTANE REQUIREMENTS USED IN THE DOE ANALYSIS MIGHT BE LOW. BASED UPON THE MOST RECENT DATA FROM THE CO-ORDINATING RESEARCH COUNCIL, ONLY ABOUT 80% OF THE MOTORISTS REQUIRING UNLEADED FUELS WOULD BE SATISFIED UNDER THE BASE OCTANE SPECIFICATIONS ASSUMPTIONS AND ONLY ABOUT 90% UNDER THE ALTERNATE ASSUMPTION. TO REACH A LEVEL MORE REPRESENTATIVE OF HISTORICAL SATISFACTION, IN SHELL'S VIEW A GRADE MIX AS FOLLOWS WOULD PROBABLY SATISFY MOST CUSTOMERS:

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. THESE 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 ON 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.
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. DOE/EIA-0035/11 Data FOR AVERAGE GASOLINE IMPORTS: