9 May 2015

Question for oil and gas experts – especially pumps at the gas (petrol) stations

I saw this at a gas station yesterday. (no Premium available). If I understand how the different levels (of octane) work at gas stations, they really have only two underground tanks – the trucks pour is the highest level and the lowest level. And when you buy any middle level, the pump simply mixes the two in the proper ratio. This certainly simplifies inventory management and logistics. If that is correct, theoretically, you can never run out of Premium (highest level) without running out of all levels other than the lowest level.

Is that understanding correct? If so, how do you explain the picture?

IMG_9702



Posted May 9, 2015 by Rajib Roy in category "Travelogs

43 COMMENTS :

  1. By Rajib Roy on

    Marek, I should have mentioned – every single pump in that station had that sign on. So, it could not be just a button issue.

    Reply
  2. By Rajib Roy on

    Narayan, if so, then they could not give the “Plus” level either, right? (basically they cannot get any Premium to mix with Regular since the Premium pump is broken)

    Reply
  3. By Marek Cyzio on

    Or a major button issue 🙂 it could have been a software issue, too. But I suspect you are right – gas station owners were just too stupid to realize that being out of premium means they are also out of mid grade.

    Reply
  4. By Sourav Ray on

    Rajib, possibly the gross margins from demand for the “plus” rating is higher than that of the premium? So you are probably right – they do have the premium but that’s allotted to servicing the plus demand.

    Reply
  5. By Sourav Ray on

    I see this at the local stations once in a while (possibly for the regular too but never the plus). Admit I never thought through the reasons. Could it not be software driven?

    Reply
  6. By Bijit Bose on

    Well, I was about to comment that I have enough experience about gas (the ranitidine controlled variety) when I suddenly realized that you guys call the petrol as gas-o-lene 🙂
    Here, premium is with additives, which is not present in the common unleaded one – hence they maintain two tanks. Knowing that little bit of additives might not add any value, they are yet to come up with a mixer (and an outlet) for the two to be mixed and sold as “Medium”.

    Reply
  7. By Rajib Roy on

    Sounds like business opportunity to me, Bijit 🙂 Also, I don’t think the different grades have anything to do with additives. It is actually the octane rating. Additives are separately added by different brands to claim their gas (petrol) is better than other brands. Such additives are added to all grades of their gas. This is how I have seen in U.S. I assume in India it is the same?

    Reply
  8. By Bijit Bose on

    No, here the octane content is mentioned separately. 87 octane is the common one, called “Lead Free”, followed by the same thing with additives, called Premium/Hi-speed/whatever. 91 octane is sold in very few pumps and there is only one station in Kolkata that sells anything higher (for the Ferraris and the KTM Dukes).

    Reply
  9. By Narayan Venkatasubramanyan on

    http://auto.howstuffworks.com/gas-pump4.htm probably has the answer you’re looking for. i guess the gas station would be obliged to stop selling premium if the blend valve is not able to close off the regular grade entirely. another possibility is that the premium tank doesn’t have quite the right octane level, i.e., it is below 91, but it is still high enough to make 89 by blending. why didn’t you just ask the guy behind the counter at the gas station?

    Reply
  10. By Ram Narayanan on

    though not being an owner but only an occasional renter of cars, agree with the plausible explanation of margins driving the pump’s decision. the economics of “medium” choice (of latte or coke) that brings more incremental margin to vendor is likely in play. and behavioral studies show (to use the delightful phrase absolving me of any responsibility for what follows) more tend to choose medium (or whatever your starbucks or chevron lingo is) feeling guilty of choosing the most expensive but feeling deserving of sumthin’ >cheapest.

    Reply
  11. By Nick Kules on

    Related yet unrelated: Many people outside the US wonder why octane numbers are usually much lower here. This is because US stations report AKI for “octane” while most other countries report RON. So your typical regular advertised 87 octane in the US is about 92 octane RON is most other places, and 92 AKI premium is around 97 RON. However it is still important to note that this is typically a couple points lower than what you can find elsewhere globally (Euro regular is 95 RON, and Japanese premium is 100 RON).

    Reply
  12. By Anand Iyer on

    Not all gas stations have switched to two tanks. Some still have 3 tanks and though they buy only two grades, they splash blend into the mid grade tank

    Reply
  13. By Anand Iyer on

    I remember somebody telling me that while the mid grade is priced as though it is blended in a 50:50 ratio, the actual blend is closer to 35:65 or 40:60

    Reply
  14. By Ad Vos on

    The blending is not that simple: the octane number is a non-linear relation. Next to that there are some other properties of the products which matter, and they are also affected by the blend.

    Reply
  15. By Rafi Maman on

    Rajib, you started something that feels more and more like a déjà vu 🙂 Anand – Ad is right of course, the 60/40 blend in volume could very well result in a 50/50 ratio for the octane numbers, indeed because of the nonlinear nature of the octane property…

    Reply
  16. By Anand Iyer on

    Rafi, pricing uom is volume, so pricing is still misleading. If the price was per point of octane number, pricing is justified

    Reply
  17. By Rajib Roy on

    Narayan, I debated asking the guy. Looking at the queue in front, I thought I would reach out to Facebook 🙂

    Reply
  18. By Rajib Roy on

    Ram, I think it is possible but not plausible. First, chances are much higher that Premium carries higher gross margin than any lower version. It is possible that he did the calculation of historical demand and the lost profit on Plus when Premium runs out and found that it outweighs the profit made from Premium but I think it is highly unlikely.

    Reply
  19. By Rajib Roy on

    Pinky, guilty as charged. I can see why most people would see “No Premium” sign and mutter “Oh! the rich guys are going to have a problem today”, but it would take a quirky weirdo like me to say “Hey the Premium and Plus buttons are incompatible in their current state” 🙂

    Reply
  20. By Rajib Roy on

    Nick, I did not know that. On a related note, I did not know what is AKI or RON either. I will read it up…

    Reply
  21. By Rajib Roy on

    Anand, my understanding was that every truck has three compartments. But you can fill each with only one of the two octane ratings (highest and lowest).

    Reply
  22. By Rajib Roy on

    Ad and Rafi, the octane rating is non-linear? I did not know that. I always took it to be one of those parts per million kind of thing. Good learning….

    Reply
  23. By Rupak Ganguly on

    We need to really dig into thing interesting conversation. I learnt a few new things. I need to find out if there are two tanks, does the medium get blended on the fly from the high and low versions via some kind of blender mechanism?

    Reply
  24. By Anand Iyer on

    Gas stations, I was told a long time ago, sometimes have 3 tanks. The truck splash blends (fancy term for dumping into a tank) the mid grade. If I remember right, the person who told me was an Australian colleague (not GP) of rafi’s at SGS. On a related note, RON/MON indices blend linearly but the index itself has the general form a + e^(f(RON or MON)

    Reply
  25. By Rupak Ganguly on

    A quick search revealed the magic bartending mixing act is performed at the pump by a blend valve and a shoe.

    Reply
  26. By Stephen Gallo on

    I am thinking you are really out of the medium level when you are out of the lowest level … The gas stations would not want to sell you premium at middle level prices but probably don’t mind selling lowest at middle prices …. Maybe when premium is out you get 100 lowest level

    Reply
  27. By Nick Kules on

    Sorry for the ambiguous use of acronyms. Basically there are two laboratory methods for calculating octane that result in slightly different numbers: Research Octane Number (RON) and Motor Octane Number (MON), and the Anti-Knock Index (AKI) is simply the average of these two. The reason quantifying octane ratings and blending fuels is not as simple as measuring a PPM is because it is not simply octane in fuel that contributes to the “octane number”. The octane number in simple terms is the comparison of how stable a fuel burns in comparison to pure octane (with 100 being directly equivalent). But previous additives such as whats commonly known as lead in fuel, or ethanol in today’s fuel will actually increase the stable burning characteristics of fuel (thus having a higher octane number). But these do not actually increase the PPM of octane in the fuel.

    In the most basic sense the number you see at the pump is how similar the fuel behaves to pure octane.

    Reply

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