A change in European Union gasoline specifications next year aimed at reducing air pollution will restrict the pool of blending components for the motor fuel and make production more expensive, analysts and traders said.
From January 1, 2005, seven percent of the content of European gasoline will have to change. New European Union specifications demand that the fuel must have a maximum 35 percent aromatic content, down from 42 percent.
Aromatics in petrol contribute to ground-level ozone pollution, and some aromatics are believed to be cancer-causing.
"This means that some refinery streams that could previously go into gasoline will have to go to other uses like petrochemicals," one trader said. "The changes will make the gasoline pool a little more expensive as there will be less components available for use."
Refinery demand for low aromatic components like alkylate, methyl tertiary butyl ether (MTBE) and isomerate will increase, making them more expensive and adding to the cost of making gasoline, analysts say. Higher-octane gasoline used for performance vehicles is likely to see the largest increase in costs, traders said.
"Most aromatics are perfect for the higher octane grades," said one trader. "The differential between the standard gasoline and higher octane gasoline will widen."
Components with low aromatic content will be needed to dilute the presence of high aromatic components in the gasoline pool like reformate and cracked naphtha.
"Most complex refineries can already blend down gasoline to less than 35 percent (aromatics)," said Alan Gelder, downstream manager at oil consultancy Nexant. "Those that can't may need some minor tweaking."
Complex refineries, which have units maximising gasoline, produce a greater variety of components than simple refineries and as a result will find it easier to alter the blend to meet the new requirements.
The UK is the only European country that already has a 35 percent aromatic limit on its gasoline, so the country's refiners are well-placed for the EU-wide change.
Some simple refineries have installed units to produce isomerate, a high-octane component that blenders can use to substitute higher aromatic components, Gelder said.
Those refineries include ConocoPhillips' 75,000 barrels per day Whitegate plant in Ireland, Belgian Refining Company's 115,000 bpd Antwerp plant and Holborn's 100,000 bpd refinery in Hamburg, Germany.
Lukoil said on Wednesday that it had put an isomerisation unit into operation at its 78,000 bpd Odessa refinery in Ukraine.
MTBE, another alternative component, can constitute up to 15 percent of gasoline content in Europe, and most blenders are currently using much less than that, analysts say.
MTBE has however been banned in Denmark and in several US states due to concerns that it contaminates groundwater. If more European countries follow that ban, then MTBE would not be a long-term solution for blenders, making it even more difficult for them to manufacture EU quality gasoline.
Producing gasoline with the lower aromatic content may become more of a problem when Europe changes to summer specification gasoline next year, analysts said.
Gasoline must exert less pressure on fuel tanks in the summer than in the winter to compensate for warmer temperatures. Aromatics tend to have lower vapour pressure than substitute components, making it more difficult for blenders to do without them from April 1, when summer specifications kick in.
Blenders of gasoline for export to the US came up against a similar problem this year in making gasoline for the states that had banned MTBE. The new fuel specifications, coupled with strong demand growth and low stocks in the US, helped push gasoline prices to record highs on both sides of the Atlantic in May.
Still, the new European rules will not affect exports to the US as no similar change in US aromatic content is taking place, traders said. Europe produces more gasoline than it consumes and relies on the gas-guzzling US to soak up the excess.
The change in aromatic content is part of a long-term move to cleaner motor fuel in the EU. Sulphur content of fuel from January 1 will be reduced to 50 parts per million from the current standard of 150ppm. In 2009, sulphur will be reduced further to 10ppm, a level often referred to as sulphur-free.