Global Fuel Quality Developments...Regulatory developments occurring globally primarily for sulfur...

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Global Fuel Quality Developments

Anas Abdoun

Analyst

12th Global Partners Meeting of the Partnership for

Clean Fuels and Vehicles (PCFV)

March 5-6, 2019

Paris, France

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Agenda

Global Overview and Top Markets

Gasoline Quality Trends – Octane

Gasoline and Diesel Quality Trends – Sulfur

Vehicle Emissions and Fuel Efficiency

Summary and Q&A


Global Fuel Specifications What You Get

• Access to an extensive and frequently

updated database of fuel

specifications for 150-plus countries

and a wide range of fuels: gasoline,

diesel, ethanol blends, biodiesel

blends, ethanol, biodiesel, butanol,

CNG, LNG, LPG, DME, methanol,

methanol blends, marine, jet,

kerosene, fuel oil, additives

• Regular updates and analysis on

regulatory and policy changes that

drive fuel specs and emission

standards; includes assessments of

emissions related to transportation

(marine, road, air) and fuel efficiencies

• Impacts of climate and air quality

issues on transportation fuel quality

• Interactive webinars

• Direct access to our analysts

• Worldwide Fuel Specifications Book

• Access to our analysts' maps and

presentations from industry

conferences

• Available as an add-on: Analysis of

fuel additives

Keeping up with changes in transportation fuel specifications

and policies is a full-time job. We do it so you don’t have to.

Our fuel quality team scours myriad sources for information to

provide a comprehensive view of fuel markets in 150-plus

countries. You can rely on our expert guidance for help with:

• Regulatory compliance: Understand the framework for your

operations

• Strategic planning: Identify opportunities and challenges stemming

from policy changes

• Capex planning: Position resources to gain advantages

• Competitive assessments: Know what your rivals know

• Supplementing in-house databases and analyses

Global Overview and Top Markets


Regulatory developments occurring globally primarily for sulfur

Global Overview

• Overall

– Gasoline: Regulatory activity focuses on sulfur, octane and to a lesser extent, benzene,

aromatics, olefins, RVP

– Diesel: Regulatory activity focuses on sulfur, cetane and to a lesser extent, density, lubricity,

polyaromatics, cold flow

– Lesser regulatory activity on other parameters, but are also important in determining fuel quality

• Sulfur

– Worldwide limits range widely from 10 ppm to 10,000 ppm

– Several countries to reduce sulfur to 10 ppm or 50 ppm within the next five years

– A number of countries plan to leapfrog from very high sulfur limits to low ones

– On the other hand, larger countries follow the traditional route of reducing first to 150/350 ppm,

then 50 ppm and eventually 10 ppm (e.g. China, India, Russia)

• Octane

– Emerging issue with sulfur reduction being implemented

– MTBE and ethanol are most common enhancers

• Cetane

– Most common cetane number is set at a minimum of 51, while the most common limits for

cetane index range between 43 and 46

• Vehicle Emissions and Fuel Economy

– New emission standards ranging from Euro 4/IV to 6/VI to be implemented in the next 5 years

– Next round of fuel economy targets to be implemented in 2020


Many of these countries have set fuel specs, vehicle emission and/or fuel economy standards

Top Gasoline and Diesel Markets

Notes:

Top markets highlighted in blue throughout this presentation.

(1) Volumes include ethanol and other blending components such as ethers.

(2) Volumes include biodiesel (as FAME, HVO, etc.) and GTL diesel where applicable.

Source: Stratas Advisors, January 2019

Rank No. Country 2016 Gasoline

Demand(1)

(thousand b/d)

Rank No. Country 2016 On-Road Diesel

Demand(2)

(thousand b/d)

1 U.S. 8,330 1 U.S. 2,335

2 China 2,681 2 China 2,023

3 Japan 893 3 India 1,084

4 Mexico 820 4 Brazil 694

5 Russia 805 5 Germany 668

6 Canada 746 6 France 637

7 Indonesia 574 7 U.K. 504

8 Saudi Arabia 569 8 Japan 438

9 India 567 9 Italy 434

10 Brazil 539 10 Spain 426

Sulfur

Gasoline and Diesel Quality Trends


Maximum Sulfur Limits in Gasoline, 2019 Fiji implemented 50 ppm since January

Legend:

0-10 ppm

11-30 ppm

31-50 ppm

51-150 ppm

151-500 ppm

501-3,500 ppm

No information /

Not regulated Source: Stratas Advisors, February 2019

Countries may apply lower limits for different grades, regions/cities, or

based on average content. Detailed information on limits and regulations

can be found at www.stratasadvisors.com.

http://www.ifqc.org/


Legend:

10-15 ppm

16-50 ppm

51-350 ppm

351-500 ppm

501-2,000 ppm

2,001-10,000 ppm

No information /

Not regulated

Maximum Sulfur Limits in On-Road Diesel, 2019

Mexico required 15 ppm since January 2019 except for Bajio-Centro region




Source: Stratas Advisors, February 2019



Country 2019 2020 2021 2022 2023 Likelihood of implementation Reason for delay, if any

AFRICA

Benin G: 3,500 150 ppm

D: 3,500 50 ppm Unlikely

Delayed from 2017 to allow

time for oil companies to

dispose of existing stocks

and to renegotiate current

supply contracts

Nigeria G: 150 ppm1

D: 50 ppm1 Unlikely

Fuel importers adding

pressure on the risk of price

increase. Also, inventory of

higher sulfur fuels have to be

depleted before 50 ppm can

be imported, resulting in

delay from July 2018 to

2019.

ASIA PACIFIC

India G/D: 50 10 ppm Unlikely Refinery upgrading and

timely distribution

Indonesia

G: 500 50 ppm

(between 2021-2024) Unlikely

Refinery upgrading and

timely distribution

D: 2,500 500

ppm2 Likely -

Malaysia

G: 500 50 ppm

(RON 95)

D: 500 10 ppm

Likely -

Changes to RON, AKI, metal content, benzene, olefins, RVP, distillation and oxygen also expected

Outlook on Gasoline and Diesel Sulfur Limits of Select Countries in

Africa and Asia Pacific and their Likelihood of Implementation

Notes: Red – confirmed. Brown – proposed. G: gasoline. D: diesel.

(1) Imports only

(2) Solar 48 grafe



Reduction to 50 ppm and below for a total of 20 countries

Outlook on Gasoline and Diesel Sulfur Limits in Other

Regions and their Likelihood of Implementation

Notes: Dark red – implemented. Red – confirmed. Brown – proposed. G: gasoline. D: diesel.

(3) Refinery limits of 500 ppm.


Country 2019 2020 2021 2022 2023 Likelihood of

implementation

Reason for delay, if

any

EUROPE

Bosnia &

Herzegovina G/D: 50 10 ppm Likely -

LATIN AMERICA

Mexico D: 500 15 ppm

Implemented since

January 2019 except

for Central Bajio

region


timely distribution

MIDDLE EAST

Iran

G: 1,0003 50

ppm

D: 10,0003 50

ppm

Unlikely Refinery upgrading and

timely distribution

RUSSIA & CIS

Uzbekistan G/D: 500 10

ppm Unlikely


timely distribution


Maximum Sulfur Limits in Gasoline, 2025 Malaysia and Vietnam to require 10 ppm by this time

Legend:

0-10 ppm

11-30 ppm

31-50 ppm

51-150 ppm

151-500 ppm

501-3,500 ppm

No information /

Not regulated Source: Stratas Advisors, February 2019






Legend:

10-15 ppm

16-50 ppm

51-350 ppm

351-500 ppm

501-2,000 ppm

2,001-10,000 ppm

No information /

Not regulated

Maximum Sulfur Limits in On-Road Diesel, 2025

Malaysia and Vietnam to require 10 ppm by this time






Octane

Gasoline Quality Trends


>50% market penetration in 1996 decreased to nearly 0% today

Lead Phase-out Status

Source: Stratas Advisors, 2019 Legend:

Lead free

Lead in use

1996 2019


Regular grade dominates gasoline pool (RON≤95)

Current Market Share of Gasoline Grades by Octane (in %)

Country/Region RON < 91 RON = 91 91 < RON < 95 RON = 95 95 < RON < 98 RON ≥ 98

China <1 - 75-80 20-25 - <1(1)

India - 99.9 - - <0.1(1) -

Indonesia 80.2 - 18.7 1.1

Japan 88.5 - - - - 11.5

Russia 3.7 - 63.2(2) 32.1 - 1.0

Saudi Arabia - 60 - 40 - -

AKI(3) min. AKI = 87 min. AKI = 89 min. AKI ≥ 91

Brazil >99 - <1

Canada 91.7 0.4 7.9

Mexico 84.7 - 15.3

U.S. 87.1 1.6 11.3

Notes:

1) Select cities

2) Grade A-92

3) AKI = (RON+MON)/2

Source: Stratas Advisors, 2019


MTBE and ethanol most common enhancers used

Current and Future Octane Enhancers Used

Source: Stratas Advisors, April 2019

Rank No. Country Current Octane Enhancers Used Future Octane Enhancement

Options

1 U.S. Ethanol(1) Ethanol

2 China MTBE, methanol, ethanol MTBE, methanol, ethanol

3 Japan ETBE ETBE

4 Mexico MTBE MTBE, ethanol

5 Russia MTBE, TAME, ETBE MTBE, TAME, ETBE

6 Canada Ethanol Ethanol

7 Indonesia HOMC(2)(3) HOMC, ethanol, MTBE

8 Saudi Arabia MTBE MTBE

9 India Ethanol Ethanol, methanol

10 Brazil Ethanol Ethanol

Notes:

1) Refiners are required to blend ethanol under the federal Renewable Fuel Standard (RFS2) program. Refiners have taken advantage of the octane increase

ethanol provides, but if there were no requirement to use ethanol under the RFS2 program, many refiners would likely prefer to use reformate, isomerate and

alkylate to enhance octane and not ethanol. Moreover, the variable impact of ethanol blends on volatility has increased the complexity of refining and transporting

gasoline blendstocks.

2) HOMC – high octane mogas component, consisting of mainly reformates.

3) Imported gasoline may contain MTBE.

Vehicle Emissions and Fuel Efficiency


Stringent requirements in place for top markets except India, Indonesia and Saudi Arabia

Current Emission Requirements for New Vehicle

Models


Legend:

STRINGENT

(Euro 5/V and 6/VI;

U.S. Federal;

Japanese standards)

LESS STRINGENT

(Pre-Euro, Euro 1/I

to 4/IV)

Not regulated

No information


Euro 6/VI took effect in 2013-2014; other countries still introducing Euro 4/IV to 6/VI

Outlook for Emission Requirements of New Vehicles in Select

Countries


Country 2019 2020 2021 2022 2023

Accompanying

fuel quality

changes, if any

AFRICA

Ghana Euro 4 No

ASIA PACIFIC

China China 6a (LDVs and

municipal buses)

China 6a (all

HDVs)

China 6b (all LDVs

and HDVs) Yes

India Bharat VI Yes

Japan PPNLT(1) (MDVs) No, already at

10 ppm sulfur

LATIN AMERICA

Mexico Euro VI Yes

MIDDLE EAST

Iran Euro 5 (all

vehicles)

Yes, but for 50

ppm

RUSSIA & CIS

EEU(2) Euro 6 for new

certifications

Fuel quality

changes delayed

in Kazakhstan

and Kyrgyzstan

Notes: Dark red – implemented. Red – confirmed. Brown – proposed. HDV – heavy-duty vehicle. LDV – light-duty vehicle. MC – motorcycle. MDV – medium-duty vehicle.

PC – passenger car.

1) Post-Post New Long-Term emission regulation.

2) EEU – Eurasian Economic Union, which includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia.


Policies in place for top markets except Indonesia, Russia and Saudi Arabia

Current Fuel Efficiency Requirements for Gasoline

and Diesel Vehicles

Source: Stratas Advisors, 2019

Legend:

Policy in place

Policy in progress

Voluntary

Not regulated

No information

Summary


Rank

No. Country

Setting 50

ppm

Sulfur

Spec?

Setting 10

ppm

Sulfur

Spec?

Increasing Octane?

Setting

New

Emission

Standards?

Setting New

Fuel

Economy

Standards?

1 U.S. Completed Setting min 87 AKI under

discussion

2 China Completed Completed Octane reduction to RON

89/92/95

3 Japan Completed Completed

4 Mexico

5 Russia Completed Completed Legislatively: unlikely Not in near

future

6 Canada Completed Completed

7 Indonesia Replacing RON 88 with RON 90

on the market

Under

discussion

8 Saudi Arabia

9 India Completed

10 Brazil Completed

Sulfur reduction to 10-50 ppm and new emission and fuel economy standards are key focus

Gasoline Spec, Emission and Fuel Economy

Changes Expected in Top Markets



Rank

No. Country

Setting 50

ppm Sulfur

Spec?

Setting 10

ppm Sulfur

Spec?

Addressing

Cetane?

Setting New

Emission

Standards?

Setting New Fuel

Economy

Standards?

1 U.S. Completed

(15 ppm)

2 China Completed Completed

3 India Completed

4 Brazil

5 Germany

Completed Completed Possibly Euro

7/VII

In force for LDVs;

Proposal - most

likely for HDVs

6 France

7 U.K.

8 Japan Completed Completed

9 Italy Completed Completed

Possibly Euro

7/VII

In force for LDVs;

Proposal - most

likely for HDVs 10 Spain

Sulfur reduction to 10-15 ppm nearly complete with stricter emission and fuel economy standards as key focus

On-road Diesel Spec, Emission and Fuel Economy

Changes Expected in Top Markets


Contact Information

Q & A Anas Abdoun

Analyst

[email protected]

+32.2.287.08.22

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