October 11, 2021

Progress Towards Improved Fuel Quality Delayed in the Russia & CIS Region

Stratas Advisors

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Sulfur reduction along with the tightening of vehicle emission standards remain the main priorities of the Russia & CIS region, which aims to align its standards with those of the EU, especially in Russia’s case as it is a major fuel exporter to the EU. Stratas Advisors expects the implementation of the most stringent fuel quality requirements in Azerbaijan, Georgia and Tajikistan by the end of 2023. Conversely, the governments of Kyrgyzstan and Uzbekistan are looking only into a limited sulfur reduction, i.e., 50&10 ppm and 50 ppm in both gasoline and diesel, respectively by 2023.

In addition, the Russian government has intensified the fight against surrogated motor fuel, which in 2017 accounted for 28% of the total demand of gasoline and diesel. The introduction of the so called “Tax Manouver” in January 2019, which was also considered the key regional event of 2019, aims to weaken the competitive advantage of surrogated fuels i.e. price, by decreasing the export duty rate from 30% to 5% on an annual basis for the period of six years while gradually raising the mineral extraction tax until 2021. The “Manouver” envisages two mechanisms: excise deductions (reverse excise) for oil refineries and an additional damping excise on petroleum products, which takes into account the profitability of exports. In this case, a mandatory upgrade of processing facilities will be a condition for granting deduction for refineries. Moreover, as of January 2021, the project of the Ministry of Industry and Trade of the Russian Federation aimed at tightening of control over the quality of gasoline and diesel was fully deployed in the country. The pilot of the new quality control system, which allows tracking the entire process of fuel production – from the refinery to the gas tank was implemented already back in 2019 in the North-West Federal District.

The creation of the Eurasian Economic Union (EEU) by Belarus, Kazakhstan and Russia, followed by the accession of Armenia and Kyrgyzstan, aimed to harmonize fuel quality and vehicle emission legislation in the region. Other countries in the region (e.g. Tajikistan) and especially the ones dependent on fuel supplies from the EEU, tend to harmonize their fuel requirements with the EEU.

Following the adoption of the EEU Technical Regulation TS 013/2011, the usage of one of the cheapest octane enhancers N-methyl-aniline (NMA) and metallic additives including manganese, lead and iron was banned within the entire Union. Moreover, usage of NMA is also banned in Azerbaijan, Georgia, Moldova and Ukraine. Therefore, ethers such as MTBE, TAME, and to a certain extent, other aromatic amines such as aniline, toluidine, xyloidine and anisidine have become the most popular octane enhancers in the EEU. Stratas Advisors does not expect ethanol to be used as octane enhancer in the near future despite the existing regulation on the production and trade of fuel ethanol adopted in Russia.

Looking at the region’s vehicle fleet, it is being renewed slower than previously forecasted because of the economic crisis in Russia and a potential delay in tighter vehicle emission requirements for HDVs and commercial vehicles in the EEU. Despite slower upgrade of vehicle fleets, Stratas Advisors expects that demand for fuel additives will grow considering that more countries are transitioning to lower sulfur grades. The map below shows current gasoline sulfur limits in the CIS region.

CIS Gasoline Sulfur Map

Note: Refer to Maps datatool for more information.

Source: Stratas Advisors, October 2021

Similarly with the previous Insight, Dec. 13, 2019, the full report provides updates on fuel quality and vehicle emissions legislation/standards that are currently in force as well as future changes in the Russia & CIS region. In addition, the report reflects on Stratas Advisors’ research and discussions with the industry on the quality of marketed fuel, usage of blending components and the age limit of vehicles. The report covers fuel quality and vehicle emissions developments in the following 12 countries: the EEU which includes members of Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia, and other countries Azerbaijan, Georgia, Moldova, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.

 


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