The US and Europe are currently legislating to tighten significantly petroleum product specifications that are designed to reduce carbon emissions over the next ten years. In the US, refiners and automobile manufacturers have already been subjected to a string of regulations stemming from the Clean Air Amendments of 1990, which set exhaust emission standards for light-duty vehicles and trucks made after 1993, while proposals for tougher emission standards for vehicles made after 2003 have now been published and are being debated vigorously by the oil and automobile industries. The National Petrochemicals and Refining Association (NPRA) has estimated that up to 20 smaller refineries, with 1mbpd of capacity, may be forced to shut if these new standards are fully implemented on the basis of the current timetable.
The European Union, for its part, is introducing strict new specifiactions for gasoline and diesel under its Auto Oil programme, the first phase of which is to be introduced on the 1st of January 2000. Having set the specifications for fuels, the EU has left it to individual refiners to decide how they will produce the new products. Although there will be tighter limits on aromatics and olefins in gasoline and specific gravity in diesel, the most pressing and costly problem for the industry lies in reducing the fuels’ sulphur content. The cost to the European refining industry of adjusting to the new Auto Oil regulations is thought to be under $10 bn, with many refiners adjusting by modifying existing plant, changing catalysts and altering input slates rather than investing large capital sums in new units. The greater changes implied by Auto Oil 2 standards, though, are likely to require larger increases in spending and could result in the closure of some smaller refineries.
Product quality specifications in Asia are generally much less stringent than in Europe and the US. Nevertheless, several of the emerging market nations are now planning to implement the tighter specifications and, as in the West, most of the emphasis is on reducing sulphur levels.
The global changes in distillate quality have far-reaching implications for Middle East export refiners. Rising refinery capacity in Asia will cutthe region’s distillate deficit, while the European market will close as product specifications are tightened. Middle East products exporters will now be forced to compete for markets in Latin America and Africa along with Russian exporters and European refiners who cannot meet the new regulations elsewhere.