The ban on Euro-4 gasoline sales in Russia might not be postponed beyond 2016 and could come into effect next year, as planned, according to Vedomosti. Rosneft and Lukoil have said that they are ready to supply gasoline on the domestic market to avoid a deficit.
The majority of Russian oil companies might be able to replace Euro-4 fuel production with Euro-5 by the end of this year, we think. Lukoil and Bashneft have finished modernising their refineries, fully converting to Euro-5, while Gazprom Neft’s Euro-5 motor fuel production exceeds 90% of total. However, Rosneft is lagging the sector. The potential delay in introducing a ban on selling Euro-4 fuel could have a significant negative effect on the economics of modernisation projects which have already been completed, we believe. Overall, we see the news as neutral for oil names.
In April, the Russian broadsheets reported that the planned ban on selling Euro-4 fuel from 2016 might be pushed back because of a potential deficit of fuel.
We note that in 2014, refineries produced 5.5mmt of Euro-3 (15%), 5.9mmt of Euro-4 (16%) and 24.7mmt of Euro-5 (69%) fuel.