The fall-out of the engine emissions scandal engulfing Volkswagen could reposition gasoline as a road fuel of choice amongst European consumers in the long-term and as a result, further limit the supply of aromatics into the chemical chain, refining and automotive sources said over the past week.
This could ultimately boost aromatic demand into the gasoline pool and prolong refinery scheme changes, implemented this year, to increase the blending of more aromatics into gasoline, sources said.
One solvent aromatic distribution supplier source, working for a European refinery, said that the bad publicity from the VW scandal could further accelerate the shift away from diesel to gasoline demand in the long term and would allow them to re-balance the traditional diesel-gasoline production position in Europe.
"For me this is worrying -- not in the short run, but in the long-run I'm worried. If they [the refineries] launch a refining product then they will not base it on the short term {need] they will base it on the long term [trend]."
Currently, European refineries are long in gasoline and short diesel, and traditionally the majority of the excess gasoline length in Europe needed to find an export home in the shape of the US.
The US market, however, is becoming increasingly more self-sufficient in gasoline, and thus less dependent on Europe for gasoline re-supply. So refiners could see this as a boost to gasoline as consumers could be put off diesel.
The immediate net effect would be to continue to shut out refinery aromatics such as solvent naphtha (C9), toluene and mixed xylenes from the chemical chain, as demand for gasoline accelerates versus diesel.
German automaker Volkswagen admitted last week that it circumvented US emission tests for some 11 million diesel cars and this could accelerate the decline of diesel fuel in Europe as consumers favor gasoline, according to refinery sources.
Volkswagen said that software installed in millions of diesel cars was programmed to cheat US emissions tests.
As a result, Switzerland announced last week that it would suspend the sale of all Volkswagen diesel-engine vehicles, while in the UK the car maker said it would remove 4,000 cars equipped with the device that cheated the US emissions tests.
CONCERNS OVER DIESEL EMISSIONS GROW; BOOSTS GREENER GASOLINE FUEL
The VW scandal comes at a time of increased concern over the public health implications over diesel emissions, particularly with reference to nitrogen oxide (NOx) contaminants, which tend to be higher in diesel.
Last month, former science minister to the UK, Lord Drayson, said his Labour government's support for diesel in the last decade was a mistake and that diesel engines were "literally killing people."
The UK government had subsidized the purchase of diesel vehicles through tax breaks for those that were low in CO2, while at the same time EU regulations set CO2 targets for average fleet emissions.
As diesel emits less CO2 than gasoline engines, purchases of diesel cars soared in Europe.
In November last year, French prime minister Manuel Valls said France would start to ban diesel vehicles, which accounted for more than 65% of car sales in the country.
With the reputation of diesel engines as cleaner fuels already in tatters, the VW scandal could change the purchasing habits of European motorists, particularly if more vehicle manufacturers are found to have cheated tests too.
"When we see this scandal with Volkswagen I'm not sure whether diesel will be the engine of the future or we see a trend towards gasoline engines, because gasoline engines have grown to be as efficient as diesel," a refinery production source said.
"At the moment it certainly looks likely that the pressure on diesel will increase...there have already been calls from politicians (eg, Anne Hidalgo in Paris) to restrict access to diesel in city centers.
This may become a trend that could also affect buses and taxis, of course," Paul Nieuwenhuis of the Centre for Automotive Industry Research at Cardiff Business School said.
"In certain influential political and regulatory circles there is already a feeling that CO2 reduction can be effected through hybrid and electric vehicles and that the need for diesel is therefore less.
On the other hand, there are still a lot of diesel cars on the road in Europe, while for trucks it seems the most suitable option at present. Any change will therefore be slow," Nieuwenhuis said.
Gasoline engine technology in recent years has become more efficient, allowing for lower gasoline consumption, while delivering better emissions ratings -- improvements that make diesel a dirtier fuel by comparison.
In addition, the drop in the price of gasoline also meant that sales of gasoline cars are increasing in some key diesel markets, as the value spread between outright prices at the pump of the two fuels has narrowed in recent months, reflecting the fall in the outright price of crude oil.
According to data issued in August by the French car manufacturing association CCFA, France's share of diesel cars sold from January to August 2015 fell 6.5% to 58.7% compared with the same period last year.
REFINERIES REDUCED C9 CHEMICAL SUPPLY AS GASOLINE EXPORT DEMAND GROWS
Such a shift would have significant ramifications for the aromatics market, as demand for octane and aromatics such as mixed xylene and toluene could soar as blenders seek to produce finished gasoline products.
In 2015, refineries and blenders bought up toluene and xylenes as they sought to benefit from wide crack spreads and blending margins, thereby limiting the supply of aromatics for solvent chemical applications.
In September, one solvent distributor who buys from a major refinery said that its C9, solvent naphtha supplies had been drastically cut as the refiner wanted to make the most of the wider gasoline cracks and blending margins.
"When they [the refinery] deliver will depend on conditions...They said to me that [their solvent] commercial department has to pay a transfer price to the refinery to get the C9.
This transfer price is based on the return they get from blending gasoline. The margin on blending they get is higher than selling into the chemical side," the distributor said in September.
DHC Solvent Chemie -- a subsidiary of the BPRP Gelsenkirchen refinery -- said in June that it had reduced its white spirit supply in favor of higher demand/margin solvent naphtha distribution for gasoline blending, which continued throughout the summer.
The company said then that its management felt that, given the relative price of both solvents, and DHC's more limited white spirit market share and lower margins in Europe, they were willing to do this to supply greater volumes of the more profitable C9 for gasoline blending.
"It's more a chemical demand (thing) than any (particular) trends in gasoline. They [aromatics consumers] will have to compete and pay more for it (toluene)," a chemical producer source said.
Solvent naphtha -- with an octane rating of 110 RON -- is one of a number of aromatic component options that can be blended into gasoline. It competes with higher octane components such as MTBE, with a RON number of 115, and ethanol, with a RON number of 108.
