China has gone through a number of dramatic fuel quality changes in the last 16 years, from phasing out leaded gasoline in 2000 to a Euro-V equivalent standard today. The consumption of transportation fuels has grown over-proportionally, with this year’s gasoline demand totalling an estimated 123m MT and the 2020 expectation being predicted as high as 140-145m MT.
China chose to improve fuel standards as air quality problems, caused by stationary and mobile sources, reached a dangerous and uncontrollable level. However, air quality deteriorated further over time with the volumetric growth in consumption. Even the implementation of the GB-IV standards in 2013, perceived as one of the most stringent and radical changes, did little to improve the air quality in the main population hubs. Smog and PM2.5 levels remained in the ‘unhealthy range’.
Implementation progress of GB-V and GB-VI
GB-V standards were quickly introduced and implemented, ahead of the initially planned timetable with the nationwide mandate coming into force as of 01-Jan 2017 instead of 01-Jan 2018. According to the Environmental Protection Department and simultaneous to the GB-V mandates, China will start rolling the new GB-VI standards as from 01-Jan 2017 in a number of municipals, starting with Beijing first.
China’s GB-standards have typically followed European precedent but are now at a level surpassing high emission standards achieved in Europe, the US and other, developed countries in Asia.
The following table (Figure 1) is a roadmap of the gasoline fuel quality standards in China from 2000 till date, including the proposed changes for GB-VI which are still subject to full ratification by the National Development and Reform Commission and the Chinese government.
Figure 1: Gasoline fuel quality roadmap for China
The following table (Figure 2) shows the initial mismatch between the implementation of new, tighter fuel quality standards and the corresponding vehicle emission standards for petrol-powered cars which has now been eliminated as both standards, the fuel quality at the filling stations and the tailpipe emissions are being implemented on matching dates.
Figure 2: Implementation timeline of fuel and tailpipe emission standards
Challenges for the industry, consequences for the consumer
As mentioned above the oil industry went through a tough requirement when China implemented the GB-III to GB-IV change which reduced the allowed Sulphur volume from 150ppm to 50ppm and halved the level of Manganese, together with an olefins reduction from 30 to 28%. Additional challenges came from a reduced RVP requirement for summer and winter quality. The change from GB-V to GB-VI will be equally challenging as all reduction measures on aromatics, including Benzene and olefins will lead to an octane loss in the blending pool.
The table underneath illustrates the chronological sequence of events, from GB-III to GB-VI in more detail (source: ICCT policy update, January 2014, updated and complemented with own data):
Figure 3: Gasoline specification changes from GB-III to GB-VI
GB-I was mainly targeting the nationwide lead-phase out while GB-II to GB-V focused on reducing Sulphur levels. With Sulphur now at max 10ppm the GB-VI standard shifted the attention and aims at further reductions to aromatics and Benzene, to olefins and to the distillation temperature.
Over the last 8 years we have seen China implementing higher fuel standards in a rather effective and efficient way, through a combination of refinery upgrades and maximizing the use of Clean Fuels, thereby saving an estimated 2-3bn US$ in alternative fuel upgrading.
Because of the urgent requirement for higher quality and clean octane, China accelerated the domestic production of Clean Fuels (ie. MTBE, Alkylates) rapidly and the table underneath (Figure 4) shows how nationwide gasoline compositions have changed, corresponding with the timeline of the various fuel quality standard implementations:
Figure 4: Gasoline and Clean Fuels consumption in China 2008-2016
With the implementation of the GB-VI standard the share of Clean Fuels in the blending pool is expected to increase further in order to make up for the octane loss caused by the specification changes, complying with the stringent Sulphur, Distillation range and other parameters set forth.
The country has ample production capacity for both Clean Fuel products and the implementation of the new standard is not expected to cause any supply shortages in the market. Actual MTBE/Alkylate output however may be compromised by the overall availability of C4-feedstock streams as well as by production economics, potentially making the Clean Fuels unprofitable, particularly for those manufacturers operating smaller units in remote locations.
However, based on these fundamentals, we expect the consequences for the consumer to be neglectable. GB-VI quality fuels will of course come at a higher price than any other grades to date but the cost increase is likely to remain in a low-percentage range.
With the announcement of GB-VI China will have the most stringent fuel specs in the world. China is now also now becoming a major exporter of finished fuels into Asia. With the combination of MTBE and alkylates, it now boast an enviable arsenal of clean fuel components that combine to help the country’s refineries meet the highest standards without large capital expenditure. This compares well against many other Asian countries.
China has shown the rest of the world how new and better fuels and vehicle emission standards can be implemented quickly and efficiently when needed. As stated by the WHO (World Health Organization), air pollution is one of the biggest environmental challenges we are facing today, causing an estimated 7m pre-mature deaths around the globe every year.
China’s Clean Fuel policy proved to be an effective way to tackle air quality at a manageable cost for the consumer and to the industry. The country’s abatement of air pollution and the commitment policy makers and the industry assigned to the task will be seeing the fruit of the labour and more clear sky days will be occurring in the future.
In other developed economies like in Europe, the US and Canada, In Taiwan, South Korea and Japan and in the Middle East we find similar standards being successfully implemented. Singapore is now leading the path in South East Asia to follow in these footprints but many other countries in the Asia-Pacific region are still far behind with the necessary adjustments to the fuel quality standards, while car fleets and fuel consumption keep growing exponentially.
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