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Insight

Rise in Popularity of Ultra-Low Sulfur Diesel

Mon, 09/01/2014 - 14:13

For many consumers, diesel conjures up images of smoke belching trucks and clattery passenger vehicles. Those negative perceptions have been put to rest with the entry of a new, cleaner-burning type of diesel fuel named ultra-low sulfur diesel (ULSD). Combined with advanced emission control technologies, ULSD reduces the sulfur content by 97%. Sulfur, a natural element of crude oil, is one of the main causes of soot in diesel, which is the main culprit of noxious black exhaust fumes. New engines powered by ULSD utilize a particulate filter. As the soot particles accumulate in the filter, pressure in the exhaust system increases, and once pressure has reached a certain point, a sensor tells the engine management computer to inject more fuel into the engine. This causes heat to build up, which burns the accumulated soot particles. This entire cycle occurs within minutes and is undetectable by the vehicle’s driver. ULSD has pushed automakers to the limits in developing diesel vehicles with advanced emission control systems that meet emission standards as strict as those governing gasoline-powered vehicles.

Governments around the world have taken steps to make diesel vehicles much cleaner by implementing new emission standards. As of 2006, almost all diesel-based fuel available in the UK, EU, and the US is of a ULSD type. The change first started in the EU with the Euro IV standard in 2005 that specified a maximum 50ppm, which was followed by Euro V in 2008. In the US, new standards were proposed by the Environmental Protection Agency (EPA) in 2007 and 2010. According to EPA estimates, the implementation of new standards for diesel will see NOx emissions reduced by 2.6 million tonnes each year and soot particulate matter will drop by 110,000 tonnes a year. Mexico has lagged behind in its approach to implementing emission standards. Oscar Silva, Director Advisory at KPMG, explains that Mexico does have an established norm for fuel standards, NOM-086. According to NOM- 086, PEMEX should have supplied the nation with ULSD by 2009, but the supply is still limited to the northern border and the metropolitan areas of Monterrey, Guadalajara, and Mexico City. Silva attributes this lack of compliance to the lack of strong investment in additional refining capacity by PEMEX. As a result, US exports of ULSD to Mexico have more than quadrupled from 25,000 barrels per day in 2009 to 109,000 per day in 2012. This in turn has adversely affected the implementation of advanced technologies in the Mexican automotive industry, with suppliers being forced to adapt their engines and other parts in order to function with the remaining low quality fuel. Renato Villalpando, Director General of Paccar Mexico, describes this downgrade. “We launched a new engine in the US three years ago, and we are now launching the Mexican version with different emission levels.” The downgrade is due to a technicality, as in order to apply better technology, the right fuel and sulfur contents are needed for the parts to operate correctly. “We can bring more complex technologies to the country, but these will not provide the expected results and, in some cases, the components may be damaged by the Mexican fuel,” he adds.

Despite the fact that the implementation of NOM-086 has moved at a snail’s pace, 2014 signals a change that could spark the full coverage of ULSD in Mexico. “KPMG has a positive outlook. For example, gasoline efficiency has increased from 11.8km/l in 2008 to 13.1km/l in 2013, and are set to reach 14.9km/l by 2016, while CO2 emissions have been lowered from 198g/km to 180g/km. The government has taken further steps by establishing NOM-163 that states  a standard method of measuring CO2 emissions, where none previously existed. These norms seem to have shaken Mexico in the direction of compliance. In the first quarter of 2014, the elaboration of ULSD by PEMEX reached 100,900 barrels a day, a quantity that stands 14% above 2013 levels. In addition, the Energy Reform will incentivize this production even further,” says Silva. “The Energy Reform that took place and the expected FDI it will bring will make NOM- 086 official, and Mexico will then be able to keep up with international standards,” Silva comments. The automotive industry likewise shares the same hopes. “We hope the Energy Reform includes investments in refineries in order to produce the required volumes of cleaner fuels. We have big expectations that what is being proposed will become a reality,” Villalpando shares.

Tied to the availability of ULSD and NOM-086 are the proposed changes for Mexico’s heavy duty vehicle emissions standard, NOM-044. This new regulation aims to significantly lower the emissions of particulate matter and NOx from trucks and buses by requiring heavy duty vehicles sold in Mexico to be equipped with the latest emission control technologies and diagnostic systems. These norms in unison will align Mexico’s regulatory framework with international standards. The International Council on Clean Transportation (ICCT) carried out a cost benefit analysis of the modernized NOM-044, which found that tighter standards would result in a net benefit of US$123 billion for Mexico, also taking into account the value of avoiding 55,000 early deaths from air pollution. While NOM-044 depends heavily on ULSD, the ICCT is positive that the government will seek opportunities for early adoption. Over 30% of diesel fuel sold in Mexico already meets the ULSD standard. “The government is well informed of the benefits this will bring the automotive industry. All the pieces of the puzzle are coming together to bring the industry to an optimal level,” says Silva. Some companies do not wish to wait for the government to pass the right laws. This haste has provided Cummins the chance to offer new after treatment products for all engine types. “Public transportation vehicles in metropolitan areas, like Metrobus in Mexico City, are currently using emission reduction technologies like Euro V,” says Pedro Zermeño, ABO Components BU Leader & Marketing FBU Mexico & Central America of Cummins. This is because heavy duty OEMs are not giving a choice for engines with lower emission standards, they are only providing Euro V options. “This is a sort of self-regulation in which companies are buying the only product available,” he adds. According to Zermeño, the government is already trying to retrofit old fleets with after treatment systems to reduce emissions in Mexico City, Monterrey, and Guadalajara.

As OEMs introduce Euro V technology, Tier 1 suppliers like Cummins are entering the fray. Ignacio García, Vice President of Cummins, acknowledges that while ULSD only provides 30% of the demand and the government will import more to boost the figure to 50%, there are good incentives to introduce new technologies. “We are constantly bringing new technology to the market and we will make our Euro V engine available by the end of 2014,” García states. The company recently launched its new ISX engine to meet Euro IV and V standards, and the five test units circulating in Mexico have achieved an improved fuel efficiency of 5%. García feels the new emissions law will be implemented by 2018, while Silva bets on 2019. “These investments will be deployed quickly and in the space of five years, those fuels will be available,” Silva states. According to him, the delay is partly beneficial because as soon as those fuels are available, even older models will become more efficient. To successfully implement ULSD requires high technology as Garcia explains: “There is a lot of complexity in the on-board diagnostics of these engines; the market is not ready for that yet.” With these hurdles to overcome, OEMs and suppliers are targeting certain segments of the market. “Public transport is a huge market and all OEMs will pour in to take advantage of its potential,” Silva comments.