May 27, 2021

Continued Progress in Gasoline Sulfur and Octane Specs to Meet Tighter Vehicle Emission and Fuel Efficiency Standards

Stratas Advisors

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Gasoline remains an important fuel for the on-road sector, particularly in 2- and 3-wheelers, passenger cars, vans and light trucks, especially in developing regions. Stratas Advisors observes that sulfur reduction and octane enhancement continue to be the two most dominant gasoline fuel quality issues being considered by governments and stakeholders globally. Emerging markets are in the process of lowering sulfur content in gasoline to reach the 10 ppm level achieved by mature nations in Europe, North America, Japan and others. However, Stratas Advisors expects continued delays in the implementation of lower sulfur gasoline, as discussed by the case study for Kyrgyzstan in the full report. Furthermore, Stratas Advisors observes an increasing trend of introducing higher octane grades like RON 100 on the market, while lower octane gasoline grades are being phased out at the same time. Several options to meet or boost octane requirements are available where MTBE and ethanol remain as popular choices. Three case studies presented for Brazil, India and Iraq in the full report discussed issues with ethanol and distillation exceedances in Brazilian gasoline, fuel adulteration problems with kerosene in India, as well as challenges with the production of higher octane gasoline in Iraq.

In analyzing the trends occurring in local, regional and global gasoline fuel quality, Stratas Advisors selected the world’s top 10 gasoline markets for comparative analysis. The top 20 countries, by gasoline market size, are shown in the figure below.

Top 10 Gasoline Markets

 

Sulfur

Current maximum gasoline sulfur limits worldwide still vary widely from 10 ppm to 2,500 ppm (see map below). For several countries, gasoline sulfur reductions to either 50 ppm or 10 ppm are expected within the next five years. In 2021, a total of eight countries and sub-regions plan to reduce gasoline sulfur content nationwide to 500 ppm and below or import lower sulfur gasoline. So far, two of them have implemented sulfur reductions including Fiji from 50 ppm to 10 ppm max since January 2021 and RTCA from 1,000 ppm to 500 ppm max for El Salvador, Guatemala, Honduras, Nicaragua and from 500 ppm to 150 ppm for Panama since February 2021, while Cambodia imported 50 ppm sulfur gasoline since January 2021. As for the rest of 2021, the remaining four countries of Bosnia & Herzegovina, Kuwait, Nigeria and Tajikistan as well as the sub-region of Economic Community of West African States (ECOWAS) plan to require the nationwide use of gasoline with sulfur of 150 ppm or below, or imports of lower sulfur gasoline.

Maximum Gasoline Sulfur Limits, 2021

Source: Stratas Advisors, May 2021

Vehicle Emissions

While Euro 6 took effect on Sept. 1, 2014 in the EU, several countries in the developing regions are still working on introducing stricter vehicle emission standards ranging mostly from Euro 3 to Euro 6 in the next five years. This is evident for a total of three countries and sub-regions possibly moving to stricter emission standards for the rest of 2021 including EAC, ECOWAS and Myanmar. Post-2021, top gasoline markets like China along with a number of emerging markets like Brazil, Costa Rica, Morocco, Thailand, Ukraine and Vietnam aim to tighten emissions standards further to Euro 5-6, while other emerging markets and sub-regions in Africa & Middle East are lagging behind with implementation plans for less stringent standards of Euro 3-4. By 2025, the EU is planning for Euro 7/VII, which is expected to be followed shortly by several developed countries and top gasoline markets (see Insights, March 12, 2021). Stratas Advisors also observes that large 2-wheeler markets like Colombia and Taiwan are tightening emission standards for motorcycles to Euro 4 or 5, where Euro 5 is the standard currently in place in the EU.

These changes are often accompanied by improvements in fuel quality, but this is not always the case for some countries, resulting in gaps between their vehicle emission requirements and gasoline quality (see figure below). For example, Costa Rica plans to require Euro 6 emission standards for new gasoline vehicles by 2022, but has yet to plan for requiring 10 ppm sulfur gasoline while the current limit stands at 50 ppm max. This shows a gap between its vehicle emission standards and gasoline quality, since gasoline with maximum sulfur of 10 ppm or below should be made available already from 2022 (or earlier) to achieve maximum benefits from introducing Euro 6 emission standards. That said, the gap between 10-50 ppm is not as severe as compared to the gap between 50-500 ppm, which is evident in Myanmar’s case for Euro 4 plans in 2021. This is because Myanmar has yet to announce plans to reduce its maximum gasoline sulfur limit from 500 ppm to 50 ppm, of which the latter is compatible with Euro 4 standards. Given the lack of availability of 50 ppm sulfur gasoline, it is unlikely that vehicles compliant with Euro 4 standards will be sold on Myanmar’s market.

In addition, automakers and governments often indicate that new vehicles meeting the emission requirements will not (and cannot) be supplied until fuel of compatible quality is made available on the market. For example, Australia is currently undergoing an assessment to bring forward the implementation of a new gasoline sulfur limit of 10 ppm from 2027 to 2024 in order to put into place Euro 6 emission requirements (see press release). According to the Department of Industry, Science, Energy and Resources, the small size of the Australian vehicle market means that automakers are unlikely to modify the latest engine technology to meet Australian fuel quality standards. Automakers have indicated that they are unwilling to agree to Euro 6 standards while Australia supplies gasoline with maximum limits of 150 ppm and 45 vol% pool average set for sulfur and aromatics respectively, compared to the EU’s 10 ppm and 35 vol% max respectively. Thus, the department will accelerate the industry-wide review of the fuel quality standards to 2021, including a consideration of aromatics levels.

Gap between Current Vehicle Emission Standards and Gasoline Quality

Source: Stratas Advisors, May 2021

Fuel Efficiency

Several countries are setting stricter targets for vehicle fuel efficiency between 2021 and 2025. Developed regions, countries and territories such as the U.S., EU, Japan, Canada, South Korea and Taiwan have already set stringent mandatory targets primarily set in line with overall CO2 reduction targets. Other countries are aiming to follow their footsteps to reduce dependence on gasoline consumption such as India and Indonesia. Among the Top 10 gasoline markets, only Iran and Russia have yet to set mandatory targets for improving their vehicle fuel efficiency.

Most of the countries with fuel economy targets already set national requirements for gasoline with current sulfur of 50 ppm and below, except for Australia, Indonesia and Saudi Arabia. On the other hand, octane requirements will remain the same for most countries. As shown in the figure below, our initial analysis suggests that gasoline octane levels may not be sufficient to meet automaker needs to improve fuel economy in the coming years, as market octane levels continue to remain below RON 95 outside of Europe, and at AKI 87 in the Americas.

Primary Market Octane Grade in Countries Expecting Fuel Economy Changes

Source: Stratas Advisors, May 2021

The full report examines key developments in gasoline quality including Stratas Advisors’ outlook for future specification changes, and updates a previous report (see Insights, Apr. 28, 2020). Although this report primarily focuses on developments and issues regarding sulfur and octane because of the legislative or regulatory developments occurring globally for them, other properties such as benzene, aromatics and olefins are important in determining gasoline quality as well as influencing the composition of emissions. However, there is lesser legislative or regulatory activity for these parameters at this time. The full report also summarizes recent developments in vehicle emissions and provides a technology outlook for vehicles running on gasoline including light-duty vehicles (LDVs). It is now common knowledge that maximum benefits will be achieved when fuel quality requirements are implemented together with stringent vehicle emissions requirements, which would in turn help countries or regions achieve their air quality targets and enable advanced emission control technologies on vehicles. The report shows that governments in some countries have taken this systems approach, particularly when it comes to sulfur reduction, but others either have not or have not been able to do so in a coordinated timeline, hampered by such factors as refinery modernization costs.

 


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