Refiners in the Middle East are using high-sulphur gasoil to create an environmentally friendly fuel in order to feed the demand of consumers who want to use cleaner and cheaper alternatives.
Asian nations consume at least 165 million barrels of high sulphur gas oil a year as developing economies are fuelling demand for environmentally friendly energy and cap on sulphur emissions.
The region’s two biggest diesel consumers, China and India, have recently switched to cleaner fuel along with, Bangladesh, Malaysia, Pakistan, The Philippines, Sri Lanka and Vietnam making similar investments to adopt green standards albeit at a high cost.
“Individual countries would try to delay making the change until Asia has evolved into a low-sulphur market,” said Suresh Sivanandam, an analyst at Wood Mackenzie.
“If these countries shift, it will increase a lot of import costs for them and countries like Indonesia are already bleeding from the subsidy burden,” he added.
Middle Eastern nations are reaping the benefits of soaring high-sulphur gasoil prices, reaching their highest in more than 20 months, as upgraded refineries took between one million and four million barrels out of the market over the last two years.
The Middle Eastern and Asian market would consume another 10 million to 17 million barrels in the next two years.
Refiners earn as much as $3 a barrel more from selling a diesel cargo with 10 ppm sulphur content than by selling one with 5,000 ppm sulphur content, though removing the sulphur only costs about 20-40 cents. They are reluctant to sell heavier gasoil as diesel helps them reap a profit of up to 90%.
Fuel with lower sulphur content is generally used for transport, while gasoil with higher sulphur content is used for farms, mines, power generation and industry.