Applied Energy 102 (2013) 718–725

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Applied Energy

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A process-based model for estimating the well-to-tank cost of gasoline and dieselin China

Weiqi Li a,b, Feng Fu b, Linwei Ma b,⇑, Pei Liu b, Zheng Li b, Yaping Dai a

a School of Automation, Beijing Institute of Technology, Beijing 100081, Chinab State Key Laboratory of Power Systems, Department of Thermal Engineering, Tsinghua-BP Clean Energy Center, Tsinghua University, Beijing 100084, China

h i g h l i g h t s

" A process-based model to estimate the well-to-tank costs of vehicle fuels." An cost allocation model for crude oil refining based on density method." Physical flow data of oil use and crude oil refining in China." An empirical study of China to reveal the relationship between the costs and prices." A sensitivity analysis to measure the effects of key factors on the costs.

a r t i c l e i n f o

Article history:Received 9 March 2012Received in revised form 9 August 2012Accepted 14 August 2012Available online 6 October 2012

Keywords:Process-based modelWell-to-tank costVehicle fuelChina

0306-2619/$ - see front matter � 2012 Elsevier Ltd. Ahttp://dx.doi.org/10.1016/j.apenergy.2012.08.022

⇑ Corresponding author. Tel.: +86 10 62795734 302E-mail address: malinwei@tsinghua.edu.cn (L.W. M

a b s t r a c t

In this paper, we present a process-based model to estimate the well-to-tank (WTT) costs of vehicle fuels(gasoline and diesel). The model breaks down the WTT process into four stages, i.e., crude oil sourcing(import and extraction), crude oil transportation, crude oil refining, and vehicle fuel transportation anddistribution, which can provide high-resolution data for the WTT cost components. Using this model,we further develop an empirical study of China. The results obtained from the study indicate that theprice of imported crude oil is the dominant factor affecting the WTT costs of vehicle fuels in China andthat the cost of crude oil refining also has a relatively large influence. By comparing the costs with theprices of vehicle fuels under the volatile price of imported crude oil, we illustrate the unstable margincaused by China’s current pricing policy, which causes a distorted price signal and fiscal risks. The keyfindings derived from the empirical study reveal that the WTT cost is an essential guide for alteringthe vehicle fuel price with the aim of not only smoothing the impacts caused by the volatile price of crudeoil price but also reflecting the correct oil price signal and reducing the fiscal risks.

� 2012 Elsevier Ltd. All rights reserved.

1. Introduction

Oil price has a great impact on the economic growth of theworld [1,2] and oil importing countries [3–5]. With an ever-increasing oil demand and limited domestic oil supply capacity,China’s oil imports have been growing dramatically in recent years.As a net oil importer since 1993, China’s oil import dependency(OID) reached 54% in 2010 [6]. In the same year, China accountedfor 34% of the annual newly added oil demand and 11% of the an-nual oil imports in the world oil market [7]. Vehicles are the mostimportant consumer of oil in China among all the end-use sectors.In 2009, they accounted for 38% of the total oil demand in China[8]. From 2000 to 2009, 48% of the newly added oil demand inChina came from vehicles [8]. Because China is actively engaging

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itself in the world oil market, the volatile international oil pricehas ever-increasing impacts on the Chinese economy [9–12].

With the aim of mitigating the automatic pass-through (or fullpass-through impact) of volatile international crude oil on thedomestic prices of vehicle fuels (gasoline and diesel), the NationalDevelopment and Reform Commission (NDRC) of China alters thedomestic prices of vehicle fuels when the international crude oilprice fluctuates by more than 4% of the averaged price over 22 con-secutive working days. Moreover, the NDRC will decrease the profitof domestic oil refineries to zero to stabilize the domestic prices ofvehicle fuels when the international oil price becomes higher than80 US dollars per barrel (US$/b) [13].

The manipulation of vehicle fuel prices can smooth the impactscaused by volatile international oil prices [14,15]. However, thistrigger rule also has adverse consequences, especially in situationsinvolving high international oil prices, such as fiscal risks caused bycompensation for the losses of fuel suppliers, distorting the price

Nomenclature

WTT well-to-tankOID oil import dependencyNDRC National Development and Reform CommissionWTR well-to-refineryRTT refinery-to-tankCNPC China National Petroleum CorporationCNOOC China National Off-shore Oil Corporation

CDU crude distillation unitHDC hydrocrackingHDT hydrotreatingFCC fluid catalytic crackingDCU delay coking unitCRU catalytic reforming unit

W. Li et al. / Applied Energy 102 (2013) 718–725 719

signal to widen the gap between supply and demand and discour-aging investment in the petroleum sector [16].

Generally speaking, vehicle fuel prices are composed of thewell-to-tank (WTT) cost, taxation, and profit from crude oil refin-ing [17]. Among these three components of the vehicle fuel price,the WTT cost is directly influenced by the changes in the importedprice of crude oil. To improve the current price intervention interms of reflecting the correct oil price signal and reducing fiscalrisks, it is essential to understand the WTT cost of vehicle fuelsand the relationship between the WTT cost of vehicle fuels andthe price of imported crude oil in China.

Previous studies either only discussed the relationship betweeninternational crude oil prices and refinery product prices [18,19],or they partially analyzed the cost of vehicle fuels for some aspectsof the WTT cost [20–22]. Few studies in the published literaturediscuss the entire WTT cost of vehicle fuels in China. The main bar-rier lies in the allocation of the cost in the stage of crude oil refin-ing. Wang et al. [23] has allocated energy use and emissions torefinery products according to the market value of intermediateproducts. However, the intermediate products are generally usedas feedstock for downstream processes instead of being sold inthe marketplace. Therefore, using the estimated market value in-stead of the selling price introduces uncertainty into the allocation.The density can be treated as a mutual characteristic to compareoil derivatives, and it served as an approximate evaluation toolfor these derivatives [24]. Alternatively, we use the density methodto determine the cost of derivatives, including finished productsand intermediate products, which avoid the uncertainty intro-duced by the estimation approach of Wang et al. [23].

In this paper, we first build a process-based model to estimatethe WTT cost of vehicle fuels that can provide high-resolution datafor WTT cost components. Second, we develop an empirical studyin the Chinese context by using the model. We compare the costwith the price of vehicle fuel using the historical price of importedcrude oil and analyze the key influencing factors of the WTT costthrough sensitivity analysis.

The outline of this paper is as follows. In Section 2, we introducethe main modules of the WTT cost of vehicle fuel based on therefining process. In Section 3, we introduce the key inputs to themodel to develop the empirical study of China and further presentthe results and discussion. In Section 4, we draw some conclusionsbased on the discussion.

2. A process-based model for estimating the WTT costs ofvehicle fuels

The WTT process of vehicle fuel supply can be divided into 4stages: (1) crude oil sourcing (import and extraction), (2) crudeoil transportation, (3) crude oil refining, and (4) vehicle fuel trans-portation and distribution. In the crude oil refining stage, the costof the first two stages needs to be allocated to various oil deriva-tives from the upstream unit to the downstream unit along therefining process flow. Therefore, we further classify the entire

WTT process into two sub-processes: the well-to-refinery (WTR)process, which includes the first three stages and the refinery-to-tank (RTT) process, which includes the last stage. Assuming thatthe determination of equivalent numbers is the essential compo-nent of the cost allocation model, in the following section, we firstintroduce this technique and then introduce the module for theWTR and RTT costs.

2.1. Module of equivalent numbers

In oil refineries, the type and amount of refining products variesconsiderably depending on the configuration of the refinery andthe type of crude oil that is being refined [25]. One specific charac-teristic of crude oil refining is that various intermediate productsare simultaneously derived from crude oil, and many types ofintermediate products from various units are blended or retreatedto produce particular finished products.

In this paper, because density is a mutual characteristic of inter-mediate products and finished products, we apply the densitymethod here to allocate the proportional costs, including feedstockcost and operation cost, by equivalent number percentages and toallocate the fixed costs, including investment cost and mainte-nance cost, by the yield percentages of derivatives. Therefore, thekey component of the density method is the determination ofequivalent percentages. To calculate equivalent number percent-ages, the first step is to obtain equivalent numbers using the rela-tive density of the oil derivative by referring to the density of thereference oil derivatives. The equation is as follows:Ei ¼ qr=qi ð1Þ

where qr is the density of the reference product; qi is the density ofproduct i.

Once the reference derivative is decided, derivatives that have alower density value are considered to be by-products, and theircosts are kept as part of the cost of the feedstock.

Then, the equivalent number is multiplied with the correspond-ing yield percentage Py,i,j of derivative i from unit j to obtain theregulating unit ri :ri ¼ Py;i;j � Ei ð2Þ

Afterward, the cost of each regulating unit Cr is calculated bydividing the unit average price of feedstock pfeedstock by the sumof all regulating units, and then, the cost price Ci of derivative ican be obtained:

Cr ¼ pfeedstock

Xn

i¼1

ri

,ð3Þ

Ci ¼ Cr � Ei ð4Þ

Finally, the percentage of the equivalent number of derivative ifrom unit j is calculated as:

Pe;i;j ¼ CiQ i

Xn

i¼1

CiQ i

,ð5Þ

720 W. Li et al. / Applied Energy 102 (2013) 718–725

where Qi is the yield of derivative i.

2.2. Modules for estimating the WTT cost

The unit WTT cost of vehicle fuel is calculated as follows:

CWTT ¼ CWTR þ CRTT ð6Þ

where CWTR is the unit WTR cost ($/t), CRTT is the unit RTT cost ($/t).The method used to calculate the unit WTR cost and the unit

RTT cost is introduced in the following section.

2.2.1. Module for calculating the WTR costIn the stage of crude oil sourcing, the unit cost is calculated as

follows:

C1 ¼X3

m¼1

C1;m � ð1� OIDÞ � am þ P � OID ð7Þ

where m is the domestic oil company. In the present work, threedominant oil company are considered, including the China NationalPetroleum Corporation (CNPC), the China Petrochemical Corpora-tion (Sinopec Group), and the China National Off-shore Oil Corpora-tion (CNOOC). C1,m is the unit oil extraction cost of oil company m,OID represents the oil import dependency, am is the proportion ofcompany m in the total crude oil extraction; P is the imported oilprice.

Then, the cost of crude oil transportation is obtained by the fol-lowing equation:

C1 ¼X4

i¼1

C2;k � nk � =ð1� g1Þ ð8Þ

where k is the transportation mode, such as sea tanker, train,pipeline and waterway; nk is the proportion of the correspondingtransportation mode; g1 is the transportation loss ratio.

In the crude oil refining stage, the costs of the feedstock (includ-ing the cost of crude oil sourcing and crude oil transportation),investment, operation and maintenance need to be allocated tovarious oil derivatives along the refining process flow. Based onthe above equations, the unit WTR cost of derivative j from unit iis calculated as follows:

CWTR;i;j ¼ CWTR;i�1;j þ Oi� �

Pe;i;j=Py;i;j

þ Q � ð1� g1Þð1� g2Þ �Qi

i¼1Py;i�1;j

Ui

!0:624

� ðIi þMiÞ=Q � ð1� g1Þð1� g2Þ �Yi

i¼1

Py;i;jð1� diÞ#

ð9Þ

CWTR;1;j ¼X2

m¼1

Cm þ O1

!Pe;1;j=Py;1;j þ

Q � ð1� g1Þð1� g2ÞU1

� �0:6"

� ðI1 þM1Þ=Q � ð1� g1Þð1� g2Þ � Py;1;j � ð1� d1Þ�ð10Þ

where i is the unit type; j is the derivative type; Q is the total crudeoil consumption; g2 is the proportion of crude oil used as feedstockin the oil refining process; CWTR,i,j is the unit cost of derivative j fromunit i; Pe,i,j and Py,i,j are the percentage of Equivalent numbers andthe yield of derivative j from unit i; di is the loss rate in unit i; Oi

is the averaged unit processing charge; Ii is the investment cost ofunit i; Mi is the equipment maintenance cost of unit i; Ui is theaverage capacity of unit i.

Finally, the WTR cost of gasoline is calculated in the same waywith diesel, as follows:

CWTR;g ¼ CWTR;i;g �Yi

i¼1

Py;i�1;gþCWTR;p;g �Yp

p¼1

Py;p;g

! Yi

i¼1

Py;i�1;gþYp

p¼1

Py;p�1;g

!,

ð11Þ

where CWTR,i,g is the cost of gasoline from unit i; Py,i�1,g is the gaso-line yield percentage of unit i; CWTR,p,g is the cost of gasoline fromunit p; Py,p�1,g is the gasoline yield percentage of unit p.

2.2.2. Module for calculating the RTT costThe cost of vehicle fuel transportation and distribution is

calculated as:

CRTT ¼X4

n¼1

C4;n � fn þ Cd ð12Þ

where n is the transportation mode, such as sea tanker, train,pipeline and waterway; fn is the proportion of the correspondingtransportation mode; Cd is the distribution cost of vehicle fuel.

The cost of imported diesel has little influence on the WTT costof diesel because of the small amount imported, so we do not con-sider it in the module. In 2009, there is no imported gasoline inChina according to the physical oil flow [8].

3. An empirical study of China

We select 2009 as the base year. For the calculation, there aretwo types of essential data: (1) the data for the physical flow ofthe WTT process used to determine the mass balance, includingthe data for the entire WTT process and the crude oil refiningprocess, and (2) the cost data and estimation methods used to cal-culate the unit cost of each stage.

3.1. The inputs of physical flow data

3.1.1. The entire WTT processThe data are mainly obtained from the ‘2009 oil balance sheet’

[26] and the vehicle fuel consumption database [27]. The mass bal-ance is expressed in the form of an energy flow diagram, as illus-trated by Fig. 1. In this diagram, the thickness of each linerepresents the scale of oil flow, with colors used to distinguish dif-ferent oil types and numbers used to show the amount.

In a previous work, we developed a more detailed energy flowdiagram of the physical flow of oil in China using the same data-base [8]. Here, we adjust and simplify the diagram to meet the datarequirement of this study, such as only focusing on vehicle dieseland gasoline supply. In the crude oil sourcing stage, we further dis-tinguish the crude oil extraction as onshore and offshore by com-pany type [6,28].

3.1.2. The crude oil refining processTo derive the mass balance data required by the cost allocation

model of crude oil refining, we proposed a ‘virtual refinery’ basedon a typical refining process and the statistics of the technical con-figuration percentage of the entire oil refining industry in China[29–31]. The virtual refinery includes six typical units, as shownin Fig. 2. The mass balance calculated is also shown in Fig. 2. Thecapacity of each unit is the sum of the capacity of all the oil refin-eries in China. Because of the limited hydrogeneration capacity anddelayed coking capacity, there is approximately 23.57 million ton-nes of diesel awaiting hydrogenation processing and approxi-mately 40.85 million tonnes of vacuum residuum awaiting thedelayed coking process, as shown at the bottom of Fig. 2.

3.2. The inputs of cost data

3.2.1. Crude oil sourcingFor the price of imported crude oil in China, we use the annual

average WTI spot free on board (FOB) price in 2009, i.e., 61.95US$/b [7].

Fig. 1. The energy flow diagram of crude oil supply and use of China in 2009.

Fig. 2. A typical process of crude oil refining in China. Note: The selected reference products are highlighted with bold underlined letters.

W. Li et al. / Applied Energy 102 (2013) 718–725 721

In terms of crude oil extraction, as shown in Fig. 1, CNPC andSinopec are dominant in the onshore extraction, accounting for61% and 22% of the total crude oil extraction, respectively. CNOOCis dominant in the offshore extraction, accounting for 12% of the

Table 1The unit cost of onshore crude oil extraction, exploration, development and production [2

Year The unit cost of extraction (US$/b) The unit cost of exploration (US$/b)

Petro China Sinopec Petro China Sinopec

2006 13.24 27.08 2.33 8.042007 17.84 24.42 2.71 2.852008 26.13 47.59 2.74 7.97Average 19.07 33.03 2.59 6.29

total crude oil extraction. The other companies only account for5% of the total crude oil extraction [6]. Therefore, we take the costsincurred by CNPC, Sinopec and CNOOC as the estimation. The costof crude oil extraction is a combination of the cost of exploration,

3,32].

The unit cost of development (US$/b) The unit cost of production (US$/b)

Petro China Sinopec Petro China Sinopec

4.51 9.69 6.4 9.357.34 10.01 7.79 11.56

14.26 26.84 9.13 12.788.70 15.51 7.77 11.23

Table 2The cost of crude oil transportation by different modes in China [20,36,37].

Transportationmode

Transportationamountpercentage (%)

Averagedistance offreight carried(km)

Crude oiltransportation cost(RMB/t, in the price of2009)

Sea tanker 50 11,000 71.7Railway 45 950 92.4Pipeline 80 500 51.7Waterway 10 250 18.1

Table 4The cost of vehicle fuel transportation by different modes in China [20,36,37].

Transportationmode

Transportationamountpercentage (%)

Averagedistance offreight carried(km)

Vehicle fueltransportation cost(RMB/t, in the price of2009)

Railway 50 900 88.7Pipeline 15 160 51.7Waterway 25 1200 18.1Short distance

road10 50 12.5

Table 5Densities of diesel and gasoline from different units [38].

CDU HDC HDT FCC DCU CRU

Diesel (kg/m3) 810.5 803 784 913.7 820.6Gasoline (kg/m3) 747.4 716 803.3

Fig. 3. The stage-breakdown of the WTT cost of diesel in China in 2009.

Fig. 4. The stage-breakdown of the WTT cost of gasoline in China in 2009.

722 W. Li et al. / Applied Energy 102 (2013) 718–725

the cost of development and the cost of production. The averagedtriennial cost data of CNPC and Sinopec from 2006 to 2008 is takenas the cost in 2009, which is listed in Table 1.

Because the cost data for CNOOC is difficult to obtain, we as-sume that the cost of offshore extraction is five times the averagecost of onshore extraction according to the EIA [33].

3.2.2. Crude oil transportationThe modes of crude oil transportation considered include sea

tankers, pipelines, railways, and waterways [34]. For sea tankerscoming from abroad to China, we take the cost from the MiddleEast to China as the estimation: 71.7 RMB/t [20]. For the pipeline,we take 0.117 RMB/t per kilometer for pipeline with a diameterof 610 mm as the estimation [20]. For the railway, the cost is esti-mated by aggregating the transportation price (0.0765 RMB/t perkilometer) and the dispatch price (14.8 RMB/t) [35]. For the water-way, the cost is 18.10 RMB/t among inshore ports. Other data, suchas the mode composition, average distance and cost of crude oiltransportation, are listed in Table 2.

3.2.3. Crude oil refiningConsidering that each individual refinery differs from the others

in terms of construction data and investments, to estimate the cap-ital cost of each unit (Ii), we first set the average scale of the oilrefinery (Ui) in China as 5.6 Mt/a [6] and calculate the unit scale(Fig. 2). Then, we use the following equation to estimate the unitinvestment using the historical investment data from ‘CNPCcompiled data’ [38] (Table 3).

Ij ¼ Ij;t �CEPCICEPCIt

� �� Ui

Si;t

� �n

ð13Þ

where Ij is the estimation investment data of unit j in 2009; Ij,t is thereal investment data of unit j in previous year t; CEPCI is the

Table 3Unit investment data of oil refineries in China [38].

Crude distillation Hydrogen cracking D

Capacity (Mt/a) 10 1.2 1.Operation cost (US$/t) 2.78 15 5.Unit investment (Million US$) 5650.86 2702.95 15Investment date 1996 1999 20

chemical plant cost index of 2009 [39]; CEPCIt is the chemical plantcost index in previous year t; n is the power coefficient, and it is as-sumed to be 0.6. Referring to [40], it is normally in the range of 0.3–0.7; Si,t is the scale of unit i in previous year t.

We assume an additional investment of 15% of the total unitinvestment to cover the cost of land, pipeline equipment andunpredictability. The total fixed investment is calculated by the to-tal unit investment plus the additional investment cost. Then, wecan calculate the annual fixed cost Ii by assuming the lifetime ofthe virtual refinery as 30 years and setting the discount rate as10%. Afterward, the maintenance cost (Mi) is assumed to be 4% ofthe total unit investment cost.

elay coking Hydro-treating Catalytic cracking Catalytic reforming

15 2 2.8 0.6679 6.06 13.29 55.9760.25 3795.29 4801.89 1954.3703 2007 1996 2005

Fig. 6. Sensitive analysis of the four WTT stages.

W. Li et al. / Applied Energy 102 (2013) 718–725 723

3.2.4. Vehicle fuel transportation and distributionThe major difference between vehicle fuel transportation and

crude oil transportation is that the former includes highway trans-portation and excludes sea tankers. The cost of vehicle fuel trans-portation by highway is calculated by aggregating the freightrate (0.44 RMB/t per kilometers) and handling charge (3.2 RMB/tfor short distance) [20]. For pipelines, railways and waterways,the unit cost is assumed to be the same as crude oil transportation.Other data, such as the mode composition, average distance andcost of vehicle fuel transportation, are listed in Table 4.

For vehicle fuel distribution, the investment cost is estimated as30 $/t based on a total investment of 20 million RMB for a gas sta-tion selling 10,000 tonnes per annum, according to interviews withpetroleum experts in China.

Fig. 7. Sensitive analysis of crude oil source stage.

3.3. Results and discussion

On the basis of the above methods, data and assumptions, weobtain the results for the unit WTT cost of vehicle fuel in China.The unit WTT cost of vehicle gasoline is 686 $/t, and that of vehiclediesel is 569 $/t. The compositions of the unit WTT cost of vehiclegasoline and diesel are illustrated in Figs. 3 and 4, respectively.Considering the prices of gasoline and diesel are usually expressedin the unit of USD per volume in the market, we list the densities ofgasoline and diesel from different units in Table 5 for the conve-nience of the unit conversion to the results.

Referring to the results, the most important component of theWTT cost is crude oil sourcing, which accounts for 52% of the totalunit WTT cost of gasoline and for 63% of that of diesel. The cost ofcrude oil transportation is not so significant for either gasoline ordiesel. The second largest portion of the WTT cost is crude oil refin-ing, which accounts for 40% of the total unit WTT cost of gasolineand for 27% of that of diesel. This difference occurs mainly becausethe crude oil refining cost of gasoline is higher than it is for diesel;to derive gasoline, the feedstock needs to be processed throughmore units than it does for diesel. For example, catalytic reformingis required for gasoline production, and the capital cost of thisprocess is quite high.

Fig. 5. The WTT costs of vehicle oil in different imported crude oil prices from 2009 toLeafHandler.ashx?n=PET&s=RWTC&f=M. The domestic retail prices for gasoline and dies

2010. Note: The crude oil prices are available at http://www.eia.gov/dnav/pet/histel in China are available at http://www.baiinfo.com/default.htmlbaichuan.

3.3.1. Comparison of the results with the price of vehicle fuelTo validate the model, we calculated the monthly cost of vehicle

fuel in China from the monthly imported price of crude oil andcompared it with the price of vehicle fuel in 2009 and 2010, asillustrated in Fig. 5. For a better understanding of Fig. 5, we changethe unit of crude oil price from ‘‘USD per barrel’’ to ’’USD per t’’

/

Table 6Sensitivity analysis of key influencing factors in other WTT stages.

Influencing factors in the different stages of the WTT process The changes of the WTT costs

Stage Influencing factor Changes Gasoline Diesel

Crude oil transportation Sea tanker 10% 0.11% 0.13%Railway 10% 0.11% 0.12%Pipeline 10% 0.11% 0.12%Waterway 10% 0.01% 0.01%

Crude oil refining Delay coking 10% 0.08% 0.06%Crude distillation 10% 0.06% 0.06%Hydro-treating 10% 0.01% 0.08%Catalytic cracking 10% 0.14% 0.05%Hydrogen cracking 10% 0.13% 0.25%Catalytic reforming 10% 0.23% 0.00%

Vehicle fuel transportation and distribution Railway 10% 0.50% 0.70%Pipeline 10% 0.48% 0.66%Waterway 10% 0.47% 0.65%Road 10% 0.47% 0.64%

724 W. Li et al. / Applied Energy 102 (2013) 718–725

assuming that 1 tonne equals 7.33 barrels. The average marginbetween the price and the cost is approximately 36%, which isclose to the estimation of another rough study [17]. From Fig. 5,we can see that the fluctuation of the WTT costs of vehicle fuelare greatly influenced by the fluctuation of imported crude oil pricewhile the manipulated prices of vehicle fuel do not keep up withthe fluctuation of imported crude oil price and sometimes evenmove to the opposite direction. Therefore the manipulated vehiclefuel price cannot reflect the correct signal of the rise or fall in theimported crude oil price in some cases, which would widen thegap between the supply and demand and discourage investmentin the petroleum sector. In addition, in most crude oil price in-crease cases, the manipulated vehicle fuel price is lower than theaverage margin vehicle fuel price derived with the WTT cost, whichwould cause fiscal risk for the government by compensating vehi-cle fuel suppliers for their losses. Therefore, the WTT cost of vehiclefuel is an important reference signal for altering the vehicle fuelprice based on the volatile price of crude oil imports.

3.3.2. Sensitivity analysisTo measure the effects of key influencing factors on the WTT

cost of vehicle fuel, we first carry out a sensitivity analysis of thecost of each stage on the entire WTT cost and then carry out a sen-sitivity analysis of the key influencing factors on the cost of eachstage.

The results of the sensitivity analysis of the entire WTT cost byadding 10% to the cost of each stage are illustrated in Fig. 6. Thoughit can be qualitatively deduced that the crude oil source stage is themost sensitive stage to the WTT costs referring to the compositionof the WTT costs illustrated by Figs. 3, 4 and 6 presents furtherquantitative results of their sensitivities.

The sensitivity analysis result by adding 10% of the key factorsin the crude oil source stage is shown in the Fig. 7. With consider-ations of the large portion of imported oil in crude oil source in Chi-na, we carry out two corresponding sensitive analyses on the WTTcosts: one is to add 10% to the imported crude oil price, and an-other is to add 10% to the portion of imported oil in crude oilsource. For the first sensitivity analysis, the cost of feedstock torefineries will increase 6.48%. For the second sensitivity analysis,when the portion of imported oil increases 10% the total crudeoil need to be refined will increase 5.5% and the cost of feedstockto refineries will increase 1.4%. The resulted change of the WTTcosts of gasoline and diesel can be decided by Eqs. (9)–(13). The re-sults show that in crude oil source stage, the imported price ofcrude oil is the most sensitive influencing factor. Referring to this

analysis, if the imported crude oil price increases 10%, the WTTcosts of gasoline and diesel will increase more than 5%. Combiningwith sensitivity analysis for other stages, the imported crude oilprice is the most sensitive factor not only in the stage of crudeoil source, but also the whole WTT chain. Among domestic crudeoil extraction costs, the cost of CNPC has a stronger influence thanthe other two.

The results of the sensitivity analysis involving adding 10% ofthe cost of the key influencing factors in other stages are shownin Table 5.

In the crude oil transportation stage, the cost of transportationby sea tanker is the most important influencing factor, although allmodes have slight influences. In the crude oil refining stage, theoperation cost of catalytic reforming is the most important influ-encing factor for gasoline, and the operation cost of the hydrogencracking process influences the diesel cost the most. In the vehiclefuel transportation stage, the cost of transportation by railwayis the most important influencing factor for gasoline and diesel,and the costs of short distance road and waterway transport influ-ence the diesel cost the least. (see Table 6).

4. Conclusions

In this work, we present a process-based model to estimate theWTT cost of vehicle fuels. The key component of the model is thatthe proportion costs are allocated by equivalent number percent-ages of derivatives, and the fixed costs are allocated by the yieldpercentages. By using this model, we further develop an empiricalstudy with the input data of physical flow and costs in the Chinesecontext. This study including an analysis of the relationship be-tween the cost of vehicle oil and the price of vehicle fuel and a sen-sitivity analysis to measure the effects of key influencing factors onthe WTT cost of vehicle fuel.

Referring to the present results of the analysis, the price ofcrude oil importing is the dominant factor in the WTT cost of vehi-cle fuel, and the cost of crude oil refining also has important influ-ences. Furthermore, through comparing the WTT cost and the priceof vehicle fuel, the results indicate that the price intervention forvehicle fuel distorted the correct price signal and caused fiscalrisks. The key finding derived from the empirical study is that set-ting a proper and varying margin amplitude to alter the price ofvehicle fuel with an understanding of the WTT cost of vehicle fuelcould not only allow the price intervention to serve as a smoothingmechanism for the volatile price of imported crude oil but also al-low it to reflect accurate price signals, thus avoiding fiscal risks.

W. Li et al. / Applied Energy 102 (2013) 718–725 725

Acknowledgements

The authors are grateful to the Tsinghua-BP Clean EnergyResearch and Education Center and the China Automotive EnergyResearch Center of Tsinghua University for their sponsorship ofthis study.

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