Engine design trends lead to increased demand for higher-octane gasoline

▪ Engine design trends lead to increased demand for higher-octane gasoline

Since 2013, the share of premium gasoline in total motor gasoline sales has steadily increased, reaching 11.3%, the highest share in over a decade, in August and September 2015. While lower gasoline prices may be supporting demand for premium gasoline, the upward trend in sales is more likely driven by changes in fuel requirements for light-duty vehicles (LDV) in response to increasing fuel economy standards, which will have widespread implications for future gasoline markets (Figure 1).

The latest Corporate Average Fuel Economy (CAFE) regulations, which were finalized in October 2012, set automaker LDV fleet-wide fuel economy for model years 2017-21 to a range of 40.3-41 miles per gallon (mpg), with standards for model years 2022-25 rising to 48.7-49.7 mpg. To meet these standards, automakers are implementing a wide range of technical solutions to improve fuel economy. These solutions include, but are not limited to, weight reduction, conventional engine and transmission efficiency improvements, better aerodynamics, and further development and sale of hybrids and electric vehicles. One significant trend is engine downsizing coupled with turbocharging.

Smaller turbocharged engines can be used to raise fuel economy while meeting or exceeding the power and torque of larger engines, allowing engine downsizing and improved fuel economy with little or no performance compromise. Turbochargers work by using a turbine driven off the exhaust gas to pressurize the intake air. The pressurized intake air allows a turbocharged engine to produce more power compared with a naturally aspirated engine of the same size.

Because turbocharging forces more air into the combustion cylinder, it increases cylinder pressure and compression. However, because of increased compression there is an increased risk for engine knock (the premature and incomplete combustion of fuel), which can damage the engine. Therefore, turbocharged engines typically require more design and operational features to prevent engine knock than naturally aspirated engines.

The octane rating of gasoline is an indicator of its resistance to spontaneous combustion. The higher the octane rating, the greater the resistance to pre-ignition, the fundamental cause of engine knock. Use of higher-octane gasoline can offset the increased risk of engine knock caused by increasing engine compression. This is why premium fuel has historically been required in performance and luxury vehicles that maximize power and torque.

In model year (MY) 2009, turbocharged vehicles accounted for 3.3% of new gasoline-fueled LDV sales. By MY 2014, their share was more than five times greater, at 17.6% of the market (Figure 2). The growth in market share of turbocharged LDVs reflects increased use of turbocharged engines in popular vehicle models. For example, the previous generation Ford Escape (MY 2007-12) offered two conventional naturally aspirated engine options, a base 2.5 liter (L) four-cylinder and a 3.0L six-cylinder. The current Ford Escape (MY 2013 - present) added a 1.6L turbo four-cylinder as the most popular engine option, and replaced the six-cylinder option with a 2.0L turbo four-cylinder. The Honda Civic (MY 2016) for the first time has an option for a 1.5L turbo four-cylinder engine. In these cases, the turbocharged models have higher fuel economy and more power than the naturally aspirated engines they replaced or supplemented. This trend is expected to continue, and turbocharged engines are projected to account for 83.3% of the LDV market by 2025.

As automakers produce more vehicles with turbocharged engines, it is likely they will recommend or require more LDVs to use higher-octane gasoline. Engine models that require premium gasoline are designed to operate only on that fuel, and the use of regular gasoline risks damaging the engine. Engine models with premium gasoline recommended will achieve full performance levels using only the higher-octane fuel, but the use of lower-octane fuel will not compromise engine integrity. In MY 2010, 12.5% of the total gasoline-fueled LDV market recommended or required higher-octane gasoline. By MY 2013, higher-octane gasoline-fueled LDVs accounted for 14.2% of the total gasoline-fueled LDV market (Figure 3).

▪ Indian Government Decides To Directly Shift From BS-IV to BS-VI Emission Norms

Ministry of Road Transport & Highways has decided to leapfrog from BS-IV to BS-VI emission norms directly by 01.04.2020. A unanimous decision was taken in a meeting chaired by Minister of Road Transport & Highways and Shipping Shri Nitin Gadkari and attended by Minister of Heavy Industries and Public Enterprises Shri Anant Geete, Minister of Environment, Forest and Climate Change Shri Prakash Javadekar, and Minister of Petroleum and Natural Gas Shri Dharmendra Pradhan along with senior officials of the Ministries to directly switch over to BS-VI emission norms from the present BS-IV emission norms. Therefore, the Government has taken a decision to skip BS-V emission norms altogether.

The Ministry will soon issue a notification in this regard. The Ministry of Petroleum and Natural Gas has assured supply of BS-VI fuel across the country by 01.04.2020. The Ministry has withdrawn an earlier draft which had suggested shifting to BS-VI after switch to BS-V. The Ministry is also sure that the Indian Automobile industry with its technical competence and commitment to environment will rise to the occasion and support the decision.

It may be mentioned that the Auto Fuel Policy had recommended implementation of BS-VI norms by 2024. Earlier in the draft notification by the Ministry the date was advanced to 01.04.2021 and now it has been further advanced to 01.04.2020.

The announcement is the latest step taken by India's government and courts to fight urban smog after New Delhi and nine other Indian cities landed on a World Health Organization list of the world's 15 most polluted municipalities, with the capital topping the ranking. On January 6 the country's Supreme Court upheld a temporary ban on registrations of large diesel cars in New Delhi. Automaker executives, already reeling from that decision, said the accelerated emissions timetable poses a risk due to hasty implementation.

The transport ministry plan comes after the Supreme Court upheld an order that restricted registrations of cars with diesel engines larger than 2.0 liters through March in a bid to stem worsening air pollution in the capital. The Delhi government also is testing a program that restricts the use of a vehicle according to its license plate number.

Cars currently sold in the country are subject to BS-4 standards, which were rolled out in 2010 and are being phased in through 2017.

▪ China Accelerates New Vehicle Standards

On January 15th, MIIT and MEP jointly announced the new schedule for introducing China 5/V vehicle emissions standards. The new schedule is:

On April 1, 2016, the 11 Eastern provinces (Beijing, Tianjin, Hebei, Liaoning, Shanghai, Jiangsu, Zhenjiang, Fujian, Shandong, Guangdong and Hainan) will require all new light duty gasoline vehicles, light duty diesel buses and certain heavy duty diesel vehicles (Public buses, sanitation and postal trucks, and other civil vehicle fleets but not including heavy trucks) to meet China 5/V standards.

On January 1, 2017, light duty gasoline vehicles and the heavy duty diesel vehicles listed above must meet China 5/V nationwide.

On July 1, 2017, all heavy duty diesel trucks must meet China V.

On January 1, 2018, all light duty diesel vehicles must meet China 5 (Note that heavy duty diesel truck implementation is delayed by 15 months compared to other vehicles because their current technology is poor and they need time to upgrade. In addition, light duty diesel implementation is delayed 2 years because rural vehicles are being phased out and new low speed rural vehicles will be required to meet “normal” diesel standards starting in 2017. These vehicles are very low technology and thus need more time to comply.)

A draft of China 6 Light Duty vehicle emissions standards has been selectively released and is undergoing review. The proposal is more than 300 pages long with lots of technical appendices.

In general, this is a strong proposal. Key elements include:

Coverage:

Vehicle fuel types: covers both gasoline and diesel (incl. dual fuel and hybrid) vehicles.

Regulated pollutants: the proposal included GHG species: CO2 and N2O but the limit levels are not determined yet

Stringency:

There are two versions of emission limits, China 6 a and b but these are NOT corresponding to Euro 6a and b. The China 6a limits are close to Euro6 but are fuel neutral and the limits are whichever the more stringent ones between petrol and diesel vehicle limits in Euro 6. PM limits are 10% below that of Euro 6 level. PN limits are same as Euro 6 levels.

China 6b limits are much more stringent than 6a. CO and PM limits are 30-40% down from Euro 6 levels, and HC, NOx, NMHC limits are 67% down from Euro 6 levels. If you ignore the difference in driving test cycle, 6b levels are pretty much mimicking those of Beijing 6. But 6b does include PN limits (same as Euro 6 level) while Beijing 6 doesn’t.

MEP intends to encourage key regions to adopt the more stringent China 6b. Or in other words, MEP allows a more stringent choice for regions that are willing to go further.

The above limits are based on WLTC/P.

Durability requirement is 160,000km. According to VECC, manufacturers are complaining that the deterioration factors are too high.

RDE test: similar to the Euro 6c proposal, using CF of 2.1 for NOx; they intend to use whatever EU determines to use.

Evap emissions:

Evap emission limit value is 0.7-1.2 g/test for various vehicle categories, which are much lower than that of Euro 6, and close to US Tier 2 levels. Auto manufacturers or importers will be responsible mainly for the self-management of the policy with oversight by the Ministry of Environmental Protection, while local environmental protection bureaus will supervise compliance and inspection to make sure producers and importers follow the rules, the ministry said.

▪ Air New Zealand and Virgin Australia seek to procure aviation Biofuel in the region

Air New Zealand and Virgin Australia have partnered to jointly investigate whether environmentally friendly aviation biofuel can be produced locally in New Zealand and Australia. The alliance partners have issued a “request for information” to the market to explore the opportunity to procure locally produced aviation biofuel.

Captain David Morgan, Air New Zealand’s chief flight operations and safety officer, said the move is part of the airline’s carbon management programme. “By working in partnership with our alliance partner Virgin Australia we hope we can stimulate the local market, drive innovation and investment and potentially uncover a sustainable biofuel supply suitable for our respective operations,” he said.

Virgin Australia’s head of sustainability, Robert Wood, said the airline was committed to stimulating the development of a sustainable aviation biofuel industry in the region.

“We are seeing the development of the aviation biofuel industry accelerate internationally but that is not yet the case for our region,” Wood said. “We are confident that our collaboration with Air New Zealand to procure a large volume of aviation biofuel will de-risk investment in the sector, creating high- tech, high-skilled jobs in the region,” he added.

▪ BP launches new ultimate fuel with active technology

BP has launched new BP Ultimate fuel with ACTIVE technology in the UK, an innovative formula based on patented technology specially designed to actively fight dirt, protect against it building up and help engines run as the manufacturer intended.

BP stations across Australia, New Zealand, the U.S., Europe and South Africa will begin to see the new fuels in their forecourts in the coming weeks.

BP said the new fuel could give drivers up to 21 extra miles per tank*. Drivers who achieve improved fuel efficiency through the use of Ultimate fuels may also reduce their CO2 equivalent emissions by up to 4% for the same journey.

Developed over five years by BP technologists in the UK, BP Ultimate containing the new ACTIVE technology has been proven with more than 80 different test methods and thousands of hours of testing, in engines and vehicles, the company said. “This is our biggest fuels launch in 10 years”, said Tufan Erginbilgic, BP chief executive, Downstream.

“Bringing ACTIVE technology to our forecourts, we have developed a fuel that is designed to benefit our customers and the environment. We think this is an important step towards improving fuel efficiency. It demonstrates our commitment to giving our customers what they want at the same time as enabling a reduction of carbon emissions in the atmosphere. In the future, we hope all fuels will be like this.”

The roll out of ACTIVE technology fuels will be supported by a television and advertising campaign featuring a character called Orby, a bright green orb who lives in every BP site. BP’s retail business is present in 16 countries with more than 17,000 sites selling a range of regular and premium fuels.

*Based on engines tested in dirty vs. clean condition. In dirty condition, expected miles per tank of petrol is 391 and diesel is 516. Benefits may vary due to factors including vehicle condition and driving style. Benefit is achieved over time.

▪ Australian may buck a trend with new Queensland oil refinery

Australia’s aged refining sector has shrunk by more than half over recent years, but at least one small local player appears to want to buck the trend with ambitions to fill a niche market on the country’s northeast coast.

According to local press reports, privately owned Australian minnow Casper Energy, headed by Brisbane-based businessman Duncan Mackenzie, has teamed up with Nevada outfit Eagle Ford Oil and Gas Corp. on plans to build a small oil refinery in the central Queensland port city of Gladstone. The project is designed to meet demand for fuel, particularly low sulfur diesel, in the burgeoning industrial and agricultural sectors in and around Gladstone.

The $700 million project would involve construction of a greenfield refinery with capacity of 43,000 b/d and a fuel storage facility for up to 100m liters, Gladstone-based newspaper The Observer has reported. Mackenzie did not respond to Platts’ inquiries on the project, which is expected to employ 1,000 workers during construction and 300 permanent personnel once operational.

The new refinery would be the first to be constructed in Australia since the 1960s and would have greater feedstock flexibility than larger existing facilities, which were built to process light sweet crudes. The plant is expected to refine mainly medium and heavy sour crude oil.

Casper Energy reportedly expects the approvals process for the new refinery to take 18 months. The construction phase is forecast at four years.

News of a proposed addition to Australia’s oil refining capacity, albeit a small one, comes as the number of operating plants around the nation’s coastline has dropped to four. BP operates the 146,000 b/d Kwinana oil refinery in Western Australia, and the nation’s other three refineries are Viva Energy’s 120,000 b/d Geelong facility in Victoria, ExxonMobil’s 85,000 b/d Altona plant in Victoria and Caltex’s 109,000 b/d facility at Lytton in Brisbane.

The most recent refinery closure was in May, when BP shuttered its 102,000 b/d Bulwer Island plant in the Queensland capital of Brisbane. The closure of the 50-year-old Bulwer Island refinery, first flagged in April 2014, brought the total number of facilities that have been shut around the country since 2003 to four. In 2003, ExxonMobil mothballed its 78,000 b/d plant at Port Stanvac in South Australia. In 2012, Shell converted its 79,000 b/d refinery at Clyde in Sydney into an import terminal, and Caltex did the same with its 135,000 b/d Sydney facility at Kurnell in late 2014.

As the refineries have closed, Australia’s dependence on imported fuels has risen.

Production of refined products nationally is expected to decline by 13% to 515,000 b/d in the financial year ending June 30, 2015, mainly due to the closures of Kurnell and Bulwer Island, according to figures from the Office of the Chief Economist in the Australian Government’s Department of Industry and Science. Output is set to fall further to 389,000 b/d in 2015-2016, as a result of the reduced refining capacity.

Meanwhile, imports of refined products have increased. Imports of products have climbed from 423,000 b/d in 2013-2014, to 508,000 b/d in 2014-2015, and are forecast to surge to 667,000 b/d for 2015-2016.

▪ Chinese company to build oil refinery near Dawei SEZ in Myanmar

A Chinese state-affiliated company plans to build an oil refinery near a special economic zone in Dawei, Myanmar, a development led by the Japanese and Thai governments. The move may force Japanese companies to review their plans to pursue opportunities offered by the development of the Dawei special economic zone in the southwestern Myanmar city.

The government-appointed Myanmar Investment Commission at the end of March approved the project by Guangdong Zhenrong Energy, a Chinese trading house specializing in energy. Myanmar Economic Holdings, owned by the country's military, and a local conglomerate will also participate in the project.

The first large-scale refinery in Myanmar is planned to be constructed at a cost of $3 billion and begin operating in around 2019, a local newspaper reported Thursday. The plant will be capable of processing 100,000 barrels of oil per day. The project also envisages building a tanker port and facilities for liquefied natural gas.

Without a modern oil refinery, Myanmar has been reliant on imports of gasoline and other petrochemical products. Guangdong Zhenrong will sell most of the products from the planned refinery in Myanmar. The new facility is expected to attract a cluster of petrochemical companies to its area.

A major shareholder in Guangdong Zhenrong, founded in 2002, is a large state-owned Chinese importer of crude oil from the Middle East. Many see the presence of the Chinese government behind the Myanmar project.

China has so far had little to do with Dawei. The first development project in the city was undertaken by Italian-Thai Development, the biggest construction company in Thailand. The private-sector project to build an industrial park there became financially difficult and so was converted into a joint project between the governments of Myanmar and Thailand.

To cover the total cost of more than $9.24 billion, Myanmar and Thailand asked for Japan's participation. With the Japanese government's involvement, the Dawei SEZ project has become Japan's second undertaking in Myanmar after the construction of the Thilawa SEZ led by three big Japanese trading houses.

China's overture is apparently intended to drive a wedge into the trilateral Dawei project, taking advantage of opportunities arising from the pragmatic foreign policy adopted by Myanmar's new administration, formed in March under the leadership of Aung San Suu Kyi.

The Chinese government approached Myanmar and increased its clout there as the latter's international isolation deepened. But its influence has weakened as Myanmar under the former administration of Thein Sein sought to improve its relations with the West following the launch of democratic reforms in 2011.

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