May 12, 2020

High Compliance Rates in 2018-2019 Hint at Fuel Quality Improvements in China

Stratas Advisors

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One of the most significant changes in the fuel quality monitoring system (FQMS) of China occurred in 2018 when the Chinese government overhauled the government agencies that were responsible for carrying out and reporting the results of FQMS. Notably, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) merged with the State Administration of Industry and Commerce (SAIC) and the China Food and Drug Administration (CFDA) to form a new government agency called the State Administration for Market Regulation (SAMR). From the fuel quality test results of 2018-2019, the overall passing rates of each fuel type suggest improvements of overall fuel quality in the country, in spite of the tightening of specifications for gasoline (China V to VIA), on-road diesel (China V to VI), E10 (China V to VIA), as well as the phasing out of off-road diesel specifications (GB 252-2015) since Jan. 1, 2019 (see figure below).

However, compared to 2017, Stratas Advisors observes that there were significantly more regions not reporting fuel quality results, or reporting insufficient fuel quality data in 2018 and 2019. In addition, the number of fuel samples tested was significantly lower in 2018 compared to 2017. Moreover, even though the number of fuel samples tested in 2019 increased and surpassed the number of fuel samples tested in 2017, the majority of the samples were concentrated in three regions of Hebei province, Shandong province and Tianjin city, all of which reported high passing rates. All these could mean that the overall fuel quality passing rates for 2018 and 2019 could be lower than what was observed, if data on fuel quality were revealed for more regions.

Here are other key highlights of the 2019 fuel quality test results:

  • RON/AKI was the most common off-spec parameter for gasoline, followed by benzene;
  • Sulfur continues to be the most common off-spec parameter for diesel, followed by flash point;
  • Ethanol content was the most common off-spec parameter for E10, followed by other oxygenates;
  • Water content was the most common off-spec parameter for automotive grade CNG, followed by oxygen; 
  • All samples of fuel ethanol, fuel methanol and methanol blends were found to be compliant; and
  • Off-spec samples were found to be supplied mostly by small and privately-owned refiners while state-owned refiners generally sell fuels compliant with their standards.

With the formation of SAMR, China appears to have embarked on the first steps in streamlining its national FQMS. Stratas Advisors expects China to continue seeking knowledge on fuel quality monitoring from developed regions like the EU and the U.S. to further develop its FQMS, and put appropriate resources into place to step up law enforcement on the sale of illegal fuels in the country. Fuel adulteration and illegal sales are expected to gradually decrease as consumer awareness increases with increasing transparency of the fuel quality monitoring process. However, this could take some time as China is culturally diverse and geographically challenging to implement a unified FQMS.

Furthermore, the outbreak of COVID-19 in the country poses another major hurdle in implementing a unified FQMS, as the Chinese government has shifted its priority and goal to the complete containment of the novel coronavirus, followed by focusing resources on economic recovery and growth (see Insights, April 30, 2020). Therefore, the implementation of a unified FQMS would most likely take the backseat until the economy recovers. In addition, as the economy recovers, the Chinese government may take a more relaxed stance on fuel quality monitoring as stringent monitoring and enforcement actions could negatively impact multiple business owners beyond the fuel value chain. Hence, Stratas Advisors expects China to report fewer fuel quality test results in 2020, especially in the first half of the year as multiple regions went into lockdown.

A unified FQMS certainly seems like a more distant goal for SAMR this year compared to a year before. However, Stratas Advisors believes that the Chinese government is moving on the right track to pursue the implementation of a unified FQMS.

Overall Fuel Quality Passing Rates in China by Region, 2019

Overview of Overall Fuel Quality Passing Rates in China by Region, 2019

Source: Stratas Advisors, April 2020

The full report provides an overview of China’s 2018-2019 fuel quality monitoring system and market fuel quality through the consolidation of fuel quality monitoring data for the following fuels:

  • Gasoline and gasoline blendstock for E10;
  • E10 and fuel ethanol;
  • M20 and fuel methanol M100;
  • On-road and off-road diesel; and
  • CNG for automotive use.

Market fuel quality is not available for other fuels such as M15, higher methanol blends such as M30, M45, etc., biodiesel B100 and B5 used in China, albeit in small or negligible amounts.

  


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