The reintroduction of Euro 2 diesel fuel at the pump is going to be a potential logistics nightmare for oil companies.
The Department of Energy (DOE) has issued a memorandum order (MO) requiring oil companies to provide Euro 2 compliant automotive diesel oil to help reduce fuel prices.
Oil firms and other sectors, however, said the order runs counter to the Clean Air Act, which mandate the sale of Euro 4 fuels for passenger and commercial vehicles in the country starting 2017.
“Pursuant to existing Philippine National Standards on Diesel Fuel Quality and in accordance with the provisions of Republic Act 8479, otherwise known as the Downstream Oil Deregulation Law, Republic Act 8749, otherwise known as the Philippine Clean Air Act and for the purpose of reducing the impact of rising petroleum prices in the world market, all industry players are hereby directed to provide at the retail level Euro 2-compliant automotive diesel oil as a fuel option for the transport and industrial customers,” the MO stated.
The Independent Philippine Petroleum Companies Association (IPPCA) said the reintroduction is “a big setback” in the quest for cleaner air as prescribed in the Clean Air Act, because this means going back to fuel with 10 times sulphur (500 ppm) vs the much cleaner, or 90-percent less sulphur Euro 4 with only 50 ppm.
“The announcement directing oil companies to make available again the 20-year Euro 2 compliant diesel caught us by surprise,” said IPPCA President Bong Suntay in a text message.
“It will be a logistical nightmare for oil companies to make it available, as additional underground tanks will have to be constructed at retail outlets as we cannot co-mingle Euro 2 with Euro 4. It would also mean changing the fuel dispensers in the station in order to be able to accommodate Euro 2 diesel,” Suntay added.
IPPCA has at least 16 members composed of the country’s leading independent oil players such as Eastern Petroleum Corp., Unioil Petroleum Philippines Inc., Seaoil Philippines, Flying V, City Oil, Pryce Gases and LPGMA, among others.
The DOE, for its part, said higher sulphur content does not necessarily mean Euro 2 is dirtier than Euro 4, which has a lower sulphur content.
“It doesn’t follow the Euro 2 is more pollutant than Euro 4.… The sulphur is not part of the emission standard,” said DOE Undersecretary Felix William Fuentebella at a news conference on Tuesday afternoon.
On logistics concern raised by IPCCA, Fuentebella said oil firms should come up with a strategy to address this. “That’s the good thing about competition. If they only have one tank for Euro 2 then they have to put up another tank for Euro 2. That’s where logistics competition will come into play. They should provide an option, otherwise motorists will gas up to a nearby competitor.”
Based on studies, Fuentebella said the price difference between Euro 4 to Euro 2 is about P0.28 to P0.30 per liter.
The DOE expects all oil firms to comply even if the memorandum order does not spell out the penalties for violators. He added that one oil company has committed to abide by the MO of the agency.
Fuentebella did not reveal which oil firm will start selling Euro 2 diesel soon.
“There’s no penalty. What we’re saying is if you don’t expand your menu, then consumers will not line up to buy from you. We are contributing as a sector on how best to address inflation…. From the point of view of consumers, P0.28 to P0.30 per liter is not negligible,” he added.
Instead of reintroducing Euro 2 diesel, which may not be made available due to logistical concerns and minimal price reduction, IPPCA suggested the suspension of the implementation of the Biofuels law.
“This will be more effective, particularly the 10-percent ethanol blend on gasoline. With the Euro 4 standard already in effect, which is 10 times cleaner than Euro 2 standard, the use of ethanol and even biodiesel is no longer needed in achieving cleaner emissions from both gasoline and diesel,” Suntay said.
Recent spikes and scarcity of table sugar can also be traced to the use of the same raw materials. “Sugar cane in ethanol production, which is given higher priority due to its mandatory blending to 10 percent of all gasoline products, commanding higher prices, but more expensive by as much as P4 for locally produced ethanol versus price of imported gasoline,” he added.
Further, IPPCA said there is not much difference in international price between Euro 2 and Euro 4 diesel as refineries have also upgraded and shifted production to Euro 4 and 5 diesel.
“Such upgrades in the refineries and lower demand from other countries had made Euro 2 diesel less available in the international market,” the group said. “It is also important to note that according to international traders, no country in the world who progressed to higher grade ever reverted back to lower grade,” IPPCA said.
Laban Konsyumer Inc. is also opposed to the DOE order. “LKI does not agree on the Euro 2 directive. The DOE is more than two quarters delayed and sitting on the unbundling of prices of fuel products. That’s the fundamental and basic action to do. Consumers can know when prices are justified,” said LKI President Victor Dimagiba in a text message.