Pakistan must shift towards clean auto fuels
Clear policy in favour of clean fuels should be announced without further loss of time
A man refuels his car at a petrol station. PHOTO: REUTERS
ISLAMABAD:
Smog and air pollution has emerged as a major urban issue in Pakistan. In Lahore, children could not go to school recently due to air pollution.
Road traffic has been one of the major causes of air pollution in most countries of the world. Developed countries have been mostly successful in mitigating or reducing the impact of road traffic by gradually improving fuel quality and design of motor vehicles.
Today, a normal advanced vehicle produces only one-50th of the pollution that used to be produced by earlier vehicles as late as 1970.
Sulphur has been a major culprit in automotive fuels which causes pollution, although there are other factors such as hydrocarbons and aromatics. The world community has established following targets for sulphur reduction in fuels - 50 parts per million (ppm) sulphur in motor fuels in most countries by 2020; 50 ppm sulphur in all countries by 2025 and 10-15 ppm sulphur in all countries by 2030.
No cheap cars for Pakistan market: Hyundai executive
Almost all the Organisation of Economic Cooperation and Development (OECD) countries have achieved 10-15 ppm sulphur level for new vehicles but they are beset by the existing population of older vehicles, which may take another decade, when full targets would be achieved.
In Pakistan, high sulphur fuels had been in the market – up to 5,000 ppm and even more – until recently. Euro-II has been adopted only recently which permits 500 ppm – but is too much which causes widespread air pollution and associated health issues. Smog, being one of the clear indicators, causes losses and attracts attention.
Almost all developed countries have adopted Euro-VI standards (ultra-low sulphur at 10-15 ppm). Most Southeast Asian countries have adopted low sulphur (50 ppm or less) fuel standards. Even small East African countries have adopted low sulphur (50 ppm) fuels.
Even Sri Lanka having no fuel standards has started importing ultra-low sulphur (10-15 ppm) fuel from Singapore. Other countries would follow gradually as the availability of high sulphur fuel becomes increasingly constrained.
India is already on Euro-IV level (50 ppm), although the implementation is variable at locations. India will adopt Euro-VI (ultra-low sulphur) fuel by 2020. The Supreme Court of India has mandated the adoption of Euro-VI due to the high level of congestion and pollution.
India has a highly advanced oil refining industry, which is already exporting Euro-VI fuel to Europe, Southeast Asia and other parts of the world. India needs clean fuel badly and it can produce it as well.
Most of the oil producing Middle Eastern countries are switching to Euro-IV to Euro-VI for mainly two reasons. The market for their fuels requires low sulphur products. A major market is the OECD countries that require low or ultra-low sulphur fuels.
In Pakistan, auto sector continues to suffer as sales plunge
Secondly, in these countries, there is heavy influx of high-technology Euro-VI vehicles. A point may come, and is not very far off, when there would be few producers of high sulphur oil. The dirty oil may become more expensive than the clean oil due to market and supply reasons.
We have experienced this already in the case of furnace oil. As a general rule, one should prefer to be in line with the ongoing trends and standards in the world market in order to be able to structure an industry that is able to export and a local market that is able to import and consume efficiently.
Imports and local production
The problem is much simpler for those countries who import both – fuel and vehicles. Such countries can benefit from technological changes in the advanced countries. Imports bring in latest technology. Most developing countries fall in this category.
However, there are some developing countries which import as well as produce both - the fuel and the vehicles. Pakistan falls in this category to some extent.
In Pakistan, there are oil refineries which produce diesel, gasoline and furnace oil but 50-70% of demand is met through imports. In case of diesel, 50% of demand is met through imports and in case of gasoline 67% of demand is met through imports. Normally, high sulphur fuels (500 ppm) are used by Pakistan’s refineries.
Low sulphur fuels can be used by older vehicles, although with lesser benefit. But low-emission modern vehicles of Euro-VI category cannot use Euro-II high sulphur fuel. There are minor issues of lubricity of low sulphur fuels that can be handled by adding additives.
Thus, introducing low sulphur fuels is much less complicated than introducing low-emission vehicles. High-end car assemblers and importers of Toyota, Honda and others in this category complain that they cannot introduce advanced-technology fuel-efficient and low-emission vehicles due to unavailability of low sulphur fuels like Euro-V or VI.
Hurdles to upgrade
Oil refineries would require major investments in upgrading their facilities to be able to produce low sulphur (50 ppm) or ultra-low sulphur (10-15 ppm) fuel.
Some of them may have economies of scale issues, some may be at the fag-end of their economic life and some may be short of capital, although the government has provided the incentive of 5% protection so that extra capital could be generated for the required investment.
A compromise formula is possible – to let the oil refineries continue with the production of high sulphur fuels that could be provided to the low end of the market consisting of older and smaller vehicles. However, a time frame for switching to low sulphur fuel production should be provided.
Imported fuels could be provided to the high end of the market having low emissions and new vehicles – whether imported or assembled locally.
It is, however, amazing that in India low-end vehicle producers like Maruti-Suzuki have already launched Euro-VI version of Alto, Baleno and WagonR. It appears that a differentiated local deletion policy may have to be adopted allowing import of built-up engines (Euro-IV to VI) for a considerable period of time.
Interestingly, Kuwait Petroleum, which supplies almost 50% of diesel requirement of Pakistan under a long-term government-to-government agreement, has sent an advance notice that it would be able to supply only Euro-VI diesel from 2020. It has upgraded its refineries to produce Euro-VI fuels.
Kuwait Petroleum should not ask for higher prices as the cost-price premium on low sulphur fuels is minimal which is in cents only. One would certainly not like to repeat the Qatar LNG agreement where a high price formula has been agreed for a long period of time. Maximum sulphur of 50 ppm (Euro-IV) may be mandated for eventual local production while imports of 10 ppm fuels must be facilitated by 2020.
All new oil refineries must be on Euro-V or VI as doing otherwise would be to everyone’s disadvantage. Urban areas may initially be considered as priority for low sulphur fuels. A clear policy in favour of clean low sulphur fuels must be announced without further loss of time.
The writer is the former member energy of the Planning Commission
Published in The Express Tribune, November 25th, 2019.
Smog and air pollution has emerged as a major urban issue in Pakistan. In Lahore, children could not go to school recently due to air pollution.
Road traffic has been one of the major causes of air pollution in most countries of the world. Developed countries have been mostly successful in mitigating or reducing the impact of road traffic by gradually improving fuel quality and design of motor vehicles.
Today, a normal advanced vehicle produces only one-50th of the pollution that used to be produced by earlier vehicles as late as 1970.
Sulphur has been a major culprit in automotive fuels which causes pollution, although there are other factors such as hydrocarbons and aromatics. The world community has established following targets for sulphur reduction in fuels - 50 parts per million (ppm) sulphur in motor fuels in most countries by 2020; 50 ppm sulphur in all countries by 2025 and 10-15 ppm sulphur in all countries by 2030.
No cheap cars for Pakistan market: Hyundai executive
Almost all the Organisation of Economic Cooperation and Development (OECD) countries have achieved 10-15 ppm sulphur level for new vehicles but they are beset by the existing population of older vehicles, which may take another decade, when full targets would be achieved.
In Pakistan, high sulphur fuels had been in the market – up to 5,000 ppm and even more – until recently. Euro-II has been adopted only recently which permits 500 ppm – but is too much which causes widespread air pollution and associated health issues. Smog, being one of the clear indicators, causes losses and attracts attention.
Almost all developed countries have adopted Euro-VI standards (ultra-low sulphur at 10-15 ppm). Most Southeast Asian countries have adopted low sulphur (50 ppm or less) fuel standards. Even small East African countries have adopted low sulphur (50 ppm) fuels.
Even Sri Lanka having no fuel standards has started importing ultra-low sulphur (10-15 ppm) fuel from Singapore. Other countries would follow gradually as the availability of high sulphur fuel becomes increasingly constrained.
India is already on Euro-IV level (50 ppm), although the implementation is variable at locations. India will adopt Euro-VI (ultra-low sulphur) fuel by 2020. The Supreme Court of India has mandated the adoption of Euro-VI due to the high level of congestion and pollution.
India has a highly advanced oil refining industry, which is already exporting Euro-VI fuel to Europe, Southeast Asia and other parts of the world. India needs clean fuel badly and it can produce it as well.
Most of the oil producing Middle Eastern countries are switching to Euro-IV to Euro-VI for mainly two reasons. The market for their fuels requires low sulphur products. A major market is the OECD countries that require low or ultra-low sulphur fuels.
In Pakistan, auto sector continues to suffer as sales plunge
Secondly, in these countries, there is heavy influx of high-technology Euro-VI vehicles. A point may come, and is not very far off, when there would be few producers of high sulphur oil. The dirty oil may become more expensive than the clean oil due to market and supply reasons.
We have experienced this already in the case of furnace oil. As a general rule, one should prefer to be in line with the ongoing trends and standards in the world market in order to be able to structure an industry that is able to export and a local market that is able to import and consume efficiently.
Imports and local production
The problem is much simpler for those countries who import both – fuel and vehicles. Such countries can benefit from technological changes in the advanced countries. Imports bring in latest technology. Most developing countries fall in this category.
However, there are some developing countries which import as well as produce both - the fuel and the vehicles. Pakistan falls in this category to some extent.
In Pakistan, there are oil refineries which produce diesel, gasoline and furnace oil but 50-70% of demand is met through imports. In case of diesel, 50% of demand is met through imports and in case of gasoline 67% of demand is met through imports. Normally, high sulphur fuels (500 ppm) are used by Pakistan’s refineries.
Low sulphur fuels can be used by older vehicles, although with lesser benefit. But low-emission modern vehicles of Euro-VI category cannot use Euro-II high sulphur fuel. There are minor issues of lubricity of low sulphur fuels that can be handled by adding additives.
Thus, introducing low sulphur fuels is much less complicated than introducing low-emission vehicles. High-end car assemblers and importers of Toyota, Honda and others in this category complain that they cannot introduce advanced-technology fuel-efficient and low-emission vehicles due to unavailability of low sulphur fuels like Euro-V or VI.
Hurdles to upgrade
Oil refineries would require major investments in upgrading their facilities to be able to produce low sulphur (50 ppm) or ultra-low sulphur (10-15 ppm) fuel.
Some of them may have economies of scale issues, some may be at the fag-end of their economic life and some may be short of capital, although the government has provided the incentive of 5% protection so that extra capital could be generated for the required investment.
A compromise formula is possible – to let the oil refineries continue with the production of high sulphur fuels that could be provided to the low end of the market consisting of older and smaller vehicles. However, a time frame for switching to low sulphur fuel production should be provided.
Imported fuels could be provided to the high end of the market having low emissions and new vehicles – whether imported or assembled locally.
It is, however, amazing that in India low-end vehicle producers like Maruti-Suzuki have already launched Euro-VI version of Alto, Baleno and WagonR. It appears that a differentiated local deletion policy may have to be adopted allowing import of built-up engines (Euro-IV to VI) for a considerable period of time.
Interestingly, Kuwait Petroleum, which supplies almost 50% of diesel requirement of Pakistan under a long-term government-to-government agreement, has sent an advance notice that it would be able to supply only Euro-VI diesel from 2020. It has upgraded its refineries to produce Euro-VI fuels.
Kuwait Petroleum should not ask for higher prices as the cost-price premium on low sulphur fuels is minimal which is in cents only. One would certainly not like to repeat the Qatar LNG agreement where a high price formula has been agreed for a long period of time. Maximum sulphur of 50 ppm (Euro-IV) may be mandated for eventual local production while imports of 10 ppm fuels must be facilitated by 2020.
All new oil refineries must be on Euro-V or VI as doing otherwise would be to everyone’s disadvantage. Urban areas may initially be considered as priority for low sulphur fuels. A clear policy in favour of clean low sulphur fuels must be announced without further loss of time.
The writer is the former member energy of the Planning Commission
Published in The Express Tribune, November 25th, 2019.