Meeting future Indian gasoline market demands
The role Indian oil refiners can take in meeting gasoline demand with production of clean burning components.
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The Indian transportation fuels market has traditionally been dominated by diesel, but recent changes to legislation and consumer preference are producing a shift away from diesel and towards gasoline consumption. Since vehicle electrification is still in its infancy, gasoline demand seems set to rise considerably through the 2020s and beyond. While gasoline remains a key transportation fuel, its growth must be balanced with environmental considerations such as air quality and decarbonisation which will be supported by changes to gasoline specifications. This article addresses the role Indian oil refiners can take in meeting gasoline demand with production of clean burning components.
Indian transportation fuels demand
The Indian transportation fuels market has traditionally been dominated by diesel, accounting for some 74% of transportation fuels consumed in 2019 (see Figure 1). Consequently, Indian refineries have been configured and operated for maximum diesel production. However, legislative changes and environmental standards have driven consumer behaviour towards owning and operating gasoline vehicles.
In the period from 2012 to 2014, the Government of India (GOI) gradually increased the price of diesel, until subsidies were fully removed in October 2014.2 The removal of the diesel subsidy narrowed the price differential between diesel and gasoline fuels, bringing the retail price of diesel to 80% of the gasoline price, up from 63% in 2011/12 (see Figure 2). This change in pricing policy corresponds to the beginning of a sustained uptick of gasoline consumption from 2012, as a percentage of transportation fuels, illustrated in Figure 1.
A second factor in the pivot towards gasoline is the transition to Bharat Stage 6 (BSVI) emissions standards, implemented in April 2020. The transition to BSVI emissions standards required the introduction of new diesel engine technologies, including diesel particulate filters and selective catalytic reduction. The addition of these systems and their associated electronics added significantly to the cost of diesel vehicles, making them less attractive to consumers. The impact of this change is greatest in smaller vehicles, where the relative cost of additional components is largest, and small gasoline vehicles offer a cost-effective alternative. Indeed, India’s leading car marker, Maruti Suzuki, has exited the diesel car market altogether.3
The cumulative impact of these changes has led to a drop in the share of diesel car sales from nearly 50% in 2012/13 to only 19% in 2018/19.4 In the same period, total passenger vehicle sales increased by 27%, from 2.7 million to 3.4 million5,6, implying that annual gasoline vehicle sales grew by more than 100% in the same period.
The effect of vehicle electrification is yet to be seen in the fuels market, with electric vehicles (EVs) accounting less than 1% of new light vehicle sales in 2020 and predicted to reach only 8% penetration by 2030.7 With the cost of lithium carbonate, used in car batteries, increasing eight-fold since the start of 20218, the price of EVs is likely to remain prohibitive to mass adoption in the short to medium term, so the impact on gasoline consumption will be muted.
Future gasoline market
The GOI recognises that vehicle emissions reduction is required to mitigate the effects of an increasing transportation fuels consumption as mobility increases. It is widely reported that two significant changes in gasoline quality and emissions specifications are being implemented to ensure sustainability and security of fuel supply:
• In 2021, the GOI announced a roadmap to achieve 20% ethanol in gasoline (E20) by 2025.9
• The first phase of Corporate Average Fuel Economy (CAFE) norms requires car makers to cut carbon emissions from new cars to below 130 grams per kilometre by April 2022. In Phase II, implemented by 2024, emissions are to be cut to less than 113 grams per kilometre.10
In the period 2020-21, average ethanol blending in gasoline hit its highest total of 8.1%11 albeit against lower overall gasoline demand than the previous two years, due to the pandemic. The target of 20% ethanol blending, against rising demand for gasoline as shown in Figure 3, is an ambitious target. The target is unlikely to be met in its entirety due to a range of supply, distribution, and demand factors. One primary reason is that the current fleet of vehicles is not compatible with gasoline containing more than 10% ethanol.
Under the roadmap, E20 compatible cars will not become available until April 2023, and they will be tuned for highest efficiency with E10 fuels.9 The GOI has also concluded that the cost of retrofitting vehicles for E20 compatibility is prohibitive. With the registration limit of gasoline vehicles at 15 years, most vehicles will not be E20 compatible in 2025, and the role of the E10 protection grade will be significant for a decade or more.
Whether or not E20 is fully adopted in 2025, the projected gasoline demand in Figure 3 shows continuing growth, with volumes rising 70% through this decade. Even with full E20 utilisation, the volume of conventional gasoline is predicted to rise by 43% in the same period.
CAFE norms Phase II
The second phase of CAFE norms will further reduce the benchmark emissions for diesel and gasoline vehicles. As other regions have experienced, this change requires a shift to more modern engine technologies such as turbochargers and gasoline direct injection. Due to the higher compression ratio used in these engines, it is likely that the new norms will require large-scale rollout of 95 RON (research octane number) gasoline, a four-point increase from the current standard. This development would bring Indian gasoline specifications in line with EN228, the European standard that aligns gasoline specifications with Euro emissions standards.
There is a certain synergy from introducing a 95 RON standard and rolling out E20 in the same period. Adding 20% ethanol to a 91 RON gasoline stock provides a boost of around four octane numbers, bridging the gap to the new grade. However, around 40% of this benefit is already realised through the current ethanol blending level. There is also a question of where the credit for ethanol octane is taken. If refinery storage and pipeline systems are not compatible with E20, due to the hygroscopic nature of ethanol, can refiners take credit for ethanol blended downstream, with a risk of shortfall in ethanol supply? To ensure a smooth rollout of 95 RON standard, it would be prudent to plan for supply of additional octane enhancers.
It is also worth noting that an increase in ethanol blending raises the Reid vapour pressure (RVP) of the blend, typically by around 1 psi (7 kPa) for both E10 and E20 blends. This impact will place a greater relative premium on low RVP components in the gasoline pool.
A further factor influencing the Indian gasoline market is the progression towards greater integration of refining and petrochemicals, where optimal molecule management is key to maximising value. In an integrated scheme, a portion of naphtha is cracked in a steam cracker or high severity catalytic cracker to maximise olefins yield, and aromatics from reformate and FCC light naphtha are recovered for petrochemicals use.12 Removing aromatic compounds from the gasoline pool in this way will have a negative impact on volume, octane, and RVP of the pool, while cracking naphtha to produce light olefins further decreases the volume of blend stock available.
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