Fuel Market News – 10/28/2020
Dr. Raj Shah, Stanley Zhang and David Forester
Many automakers have turned to fuel additives to satisfy growing consumer demands for improved engine performance and fuel economy in the modern automotive industry. Fuel additives provide a wide range of benefits, including boosting engine performance, preventing distribution-related complications and maintaining long-term fuel quality. Currently, the most utilized fuel additives are for deposit control and octane boosters. Other frequently used additives include corrosion inhibitors, lubricity agents, cetane improvers and low-temperature operability additives. Consequently, fuel additives have been staple additions to present-day, commercial gasoline and diesel fuels sold at retailers around the world.
Based on market research, the fuels additives market is expected to experience significant growth heading into 2021. The increasingly stringent environmental regulations imposed by organizations, such as the U.S. Environmental Protection Agency (EPA) and the European Union, are likely to be the primary driving force behind the future developments in the fuel additives market. They will be fulfilling an integral role in ensuring that commercial fuels reach the standards set by environmentally conscious countries. The expanding usage of ultra-low sulfur diesel (ULSD) and the implementation of advanced engine technologies in modern vehicles will likely further increase fuel additive consumption.
Fuel additives are often necessary additions to address apparent new vulnerabilities associated with recently developed advancements. Although the fuels additive market is expected to grow, several factors, such as the COVID-19 pandemic and the emerging popularity of alternative fuel vehicles (AFVs), may slow the overall growth of the market. Still, strong driving factors should propel the overall fuel additives market toward substantial success in 2021.
The Driving Force of Environmental Regulations and Restrictions
According to the EPA and the Intergovernmental Panel on Climate Change (IPCC), the transportation sector is responsible for 14% of global greenhouse gas emissions. Petroleum-based fuels, like gasoline and diesel, are responsible for 95% of these emissions, so the reduction of vehicular emissions has become a major factor to consider for oil and gas companies. In 2019, global energy-related CO2 emissions were reported at around 3.3 metric gigatons, with trend lines suggesting that environmental regulations implemented in recent years have been successful in curbing emissions moving forward.
In March 2020, the EPA and the National Highway Traffic Safety Administration (NHTSA) issued the Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule. The SAFE Vehicle Rule sets strict standards for fuel economy and carbon emissions that increase 1.5% each year in stringency from model years 2021 through 2026. For 2021, passenger vehicle fuel economy would need to reach at least 44.2 gallons per mile, while carbon dioxide emissions would need to be limited to under 178 grams per mile.
Petroleum companies will need to increase their usage of fuel additives in their fuel blends to meet the increasingly strict requirements for fuel economy and carbon emissions for each passing year. In particular, performance additives, like deposit control/cleanliness agents and octane boosters, will likely experience the largest increase in usage. Deposit control additives play a crucial role in mitigating carbon deposit accumulation and maintaining engine cleanliness, which prevents reductions in engine performance and fuel efficiency. Octane boosters protect against engine knock and reduce undesirable tailpipe emissions. Although both of these additives are already prevalently used in current fuel blends, deposit control additives and octane booster consumption will continue to rise in response to tightening regulations.
The Impact of ULSD and Advanced Engine Technologies
The increasing demand for ULSD for modern diesel engines is projected to stimulate growth for diesel fuel additives. ULSD has a maximum sulfur content of 15 ppm, allowing for its use with aftertreatment technologies, like diesel oxidation catalysts (DOC), diesel particulate filters (DPF) and selective catalytic reductions (SCR). This results in substantial reductions in gaseous and particulate emissions, which are the harmful byproducts of diesel combustion. However, ULSD tends to suffer from lower fuel economy and lubricity as a consequence of the extremely low sulfur content. Compared to traditional diesel, water has even lower solubility in ULSD, causing greater susceptibility to water separation, accelerated tank corrosion and microbial contamination, especially when combined with biodiesel. This necessitates the addition of diesel additives, such as corrosion inhibitors and lubricity improvers, to bring ULSD to comparable performance levels of diesels with higher sulfur content without sacrificing the emissions benefits. Countries like China have sulfur limits as low as 10 ppm, as required by China VI standards, and increasingly low sulfur requirements should boost the diesel additives market.
For gasoline, the prevalence of gasoline direct injection (GDI) engines in modern high-performance automobiles will promote the use of additives. GDI engines have the advantage of improving mileage, performance and combustion efficiency, while reducing emissions. However, due to the close proximity of the injectors to the combustion chamber, GDI engines are susceptible to carbon deposit accumulation and increased risk of engine damage. Consequently, gasoline deposit control additives will become an essential component of the fuels utilized by these high-performance vehicles in order to maintain engine integrity.
Impact of COVID-19 and AFVs
The onset of the COVID-19 pandemic has led to market pullbacks and a general decline in all economic sectors. Oil and gas companies have been impacted by the decrease in vehicle traffic and temporary closure of oil refineries. Consumer spending and fuel consumption has also been at an all-time low, as lockdown protocol has been keeping people inside their homes. The economic impact of the pandemic on the fuels industry is likely to slow the growth of the additives industry as well, since their markets are closely associated with each other. As the total number of cases falls and the severity of the situation lessens, the petroleum industry is expected to make a recovery and bring the fuel additives market back to an upward trend.
AFVs have gained recent popularity among consumers who value lowering their carbon footprint through the reduction of greenhouse gas emissions. Plug-hybrid electric vehicles (PHEVs) and fully electric vehicles (EVs) have the advantage of producing minimal to zero tailpipe emissions and boasting superior fuel efficiency over traditional gasoline and diesel vehicles. Liquified petroleum gas (LPG) vehicles and compressed natural gas (CNG) vehicles also have shown 60-90% reduction in emissions over conventional automobiles as well. According to the EIA, AFVs are estimated to total 11.05 million units compared to the 122.31 million units for traditional gasoline vehicles by 2021. Although AFVs are providing competition in the automotive industry, the current dominance of oil and gas is expected to continue into 2021, as gasoline and diesel are still the primary fuel sources for energy in the transportation sector.
The future of the fuel additives market is expected to undergo significant growth based upon current additives usage in the automotive industry and the demand for cleaner and more efficient fuels. Environmental regulations, like the SAFE Vehicle Rule, are one of the main driving factors for oil and gas companies to improve upon their current fuel compositions. Strict emissions limits and gas mileage requirements necessitate the inclusion of a variety of performance additives to meet standards. The development and widespread usage of Top Tier gasoline is a strong indicator of the need for higher quality and performance fuels, which will likely drive fuel additives further into the spotlight when considering the future of the automotive industry. With each passing year, environmental regulations will continue to become increasingly restrictive and require that developments occur in the fuel additives industry to keep up with demands.
Because of more stringent environmental restrictions, ULSD has found mainstream use in countries, such as the United States and China, in an effort to minimize particulate matter and greenhouse gas emissions. Although the lower sulfur content of ULSD is effective at decreasing emissions, fuel additives are necessary additions to ULSD in order to address the side effects of accelerating corrosion and reducing lubricity. Fuel additives usage in diesel is expected to increase with the widespread use of ULSD and future goals to decrease sulfur content in diesel fuels. In addition, the development of advanced engine technologies, such as high-pressure common rail (HPCR) fuel injection and gasoline direct injection (GDI) systems, requires high performance fuels with deposit control additives to compensate for their vulnerability to carbon deposit accumulation. With many OEMs equipping their modern vehicles with these fuel injection systems, fuel additive consumption will likely increase to keep these engines in optimal performing conditions.
The COVID-19 pandemic has negatively impacted the automotive industry and overall fuel consumption, resulting in slowing the fuel additives market as well. However, as countries continue to recover from the pandemic and normalcy begins to make a return, the petroleum industry is expected to make a comeback and continue on an upward trajectory. Similarly, AFVs will adversely affect the market for conventional vehicles but will ultimately fail to significantly slow the upward momentum of oil and gas companies. The automobile consumer market still favors conventional vehicles for their lower upfront costs and greater accessibility. Despite some setbacks, 2020 has presented strong indications that the fuels additives market will continue to considerably develop alongside consumer demands for higher performance and a lower carbon footprint. In 2021, fuel additives should experience substantial amounts of growth and become major contributors to the advancement of modern-day fuels.