European refiners peg new fuel spec costs

Europe's refiners have put the cost of meeting new European Union (EU) fuel specifications for 2000, agreed to last month, at $20-23 billion. After protracted internal wrangling, the EU set mandatory limits for sulfur and aromatics in gasoline and diesel for 2000 and outlined even tighter limits for 2005 (OGJ, July 6, 1998, Newsletter). European Petroleum Industry Association (Europia), Brussels, which worked with the EU and automakers to set the new specs, reckons refiners may need to

July 13, 1998

3 min read

Europe's refiners have put the cost of meeting new European Union (EU) fuel specifications for 2000, agreed to last month, at $20-23 billion.

After protracted internal wrangling, the EU set mandatory limits for sulfur and aromatics in gasoline and diesel for 2000 and outlined even tighter limits for 2005 (OGJ, July 6, 1998, Newsletter).

European Petroleum Industry Association (Europia), Brussels, which worked with the EU and automakers to set the new specs, reckons refiners may need to spend as much as $44-55 billion to meet requirements for 2000 and 2005.

Estimates too high?

However, Phil Morris, refining strategist at Air Products plc, Walton-on-Thames, U.K., said the actual investment required may not be as high as this.

"The refining industry has repeatedly found it can do things cheaper than it first thought," said Morris. "For instance, most process units are built with a bit of slack, so they can often be modified to meet new specifications rather than requiring plant to be built anew."

Morris expects total spending to meet 2000 fuel regulations to be "much less" than the industry estimates. He said very little has been spent so far on equipment to meet the new rules, but all refiners are "talking about doing something."

Morris believes many refiners can comfortably meet 2000 specs with existing facilities. Much of the upgrading work will center on splitting naphtha streams and desulfurizing them by passing them through existing reformers or newly built hydrotreaters.

"In the longer term, though," said Morris, "refiners are faced with much more significant investments to meet the 2005 diesel specification. In particular, meeting a 50 ppm sulfur limit for diesel will not be an easy task."

Some European refiners are already marketing 50 ppm spec diesel fuel, but these are niche players that have made an early investment to cash in on premium prices for the fuels.

"Most European refiners will struggle along through the year 2000 changes," said Morris, "because the investment is not significant. Some will not do anything. The refining majors will be able to move products streams from one refinery to another for clean-up. I expect there will be lots of internal products movements by refiners.

"Supersites may even take product streams from other sites nearby for treatment, but this won't last forever, because shipping will not be cheap. At a time when margins are low, a further $1/bbl could easily be lost."

Morris said companies owning such supersites or based in refining clusters such as Rotterdam may pipe products streams from nearby unmodified plants as a way of delaying investments at these smaller units.