April 30, 2020

Impact of COVID-19 on Fuel Quality Globally

Stratas Advisors

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Following the outbreak of the SARS-CoV-2 virus in China since December 2019, followed by the rest of Asia Pacific since January/February 2020 as well as in Europe, U.S. and the rest of the world since March 2020, a number of governments have moved forward with the adoption of strict measures aimed at social distancing. As a result of the imposed restrictions, international travels, trade and shipping as well as industrial production have been highly disrupted, which have translated into a significant decrease in fuel demand.

In 2020, Stratas Advisors is predicting year-on-year declines of 14.1% in global gasoline demand, 6.2% in global diesel demand and 29.4% in global jet fuel demand (see Insights, April 16, 2020). Such considerable drops in the demand for gasoline and diesel fuels are being reflected in the higher stocks of seasonal on-road fuels.

In line with this, Stratas Advisors identified key countries and regions where the COVID-19 pandemic has made an impact on fuel specifications, resulting in waivers to deplete fuel surpluses, possibilities of blending surpluses of jet fuel with diesel fuel, delays in implementing cleaner fuels and setting their specifications, or possibly creating fuel quality issues arising on the market. The countries and regions include Europe, U.S., Australia, Southeast Asia and Algeria, which are discussed in the full report and also summarized in the table below. It is worthwhile to note that there may also be other countries and sub-regions looking at similar initiatives.

Overall, Stratas Advisors observes a number of countries securing additional fuel storage due to the current low oil price situation. That said, fuel quality issues may also arise due to prolonged storages of conventional fuels blended with higher levels of biofuels (e.g. B30), as demonstrated in the examples of the biofuel producing countries in Southeast Asia. Nonetheless, it is encouraging to see that there are also a number of organizations such as the Arkansas Department of Agriculture’s Bureau of Standards and Defense Logistics Agency Energy (DLA Energy) ensuring on-spec fuels by increasing the number of fuel quality checks and modifying fuel sampling procedures in their respective organizations. Hopefully, this would also be followed by the other countries and sub-regions like Southeast Asia, in order to further reduce the adverse impacts of COVID-19 on fuel quality.

Even with Algeria being the last standing country in the world where leaded gasoline continues to be available on its market, hopes of seeing a full lead phase out worldwide will not likely be materialized in the short-term as it will still take time for Algeria to upgrade its refineries after the pandemic ends and eventually phase out leaded gasoline.

Last not but least, with priorities in place to contain COVID-19, governments around the world may be restructuring state budgets to save jobs, subsidize the healthcare and other essential sectors, etc. Due to the low oil price situation and social distancing rules, refinery upgrades are likely to be put on hold until the pandemic is officially over. Thus, Stratas Advisors expects that the above priorities and delays in refinery upgrades may also result in delaying plans to require cleaner fuels, especially those in emerging markets such as Africa and for the sulfur reduction targets planned in several countries for the rest of 2020 and possibly also for those going into 2021.

Impact of COVID-19 on Fuel Quality in Select Countries and Regions

 

EU

U.S.

Australia

Southeast Asia

Algeria

Waivers to deplete fuel surpluses (e.g. delays in seasonal switch of specs)

X

X

 

 

 

Waivers in penalties for non-compliances

 

X

 

 

 

Possibility of blending surpluses of jet fuel with diesel fuel

X

 

X

 

 

Delays in implementing cleaner fuels and setting their specifications

 

 

 

X

X

Possible fuel quality issues related to the use of higher biofuel blends

 

 

 

X

 

Increases in fuel quality checks and modification of fuel sampling procedures

 

X

 

 

 

Source: Stratas Advisors, April 2020

 


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