OREANDA-NEWS. The Ministry of Energy has sent a proposal to the Eurasian Economic Commission to delay the ban on Euro-4 gasoline (the proposal does not concern diesel) until 2018, according to Kommersant.

As we have mentioned on a number of occasions, the majority of Russian oil companies might be able to replace Euro-4 fuel production with Euro-5 by the end of this year. 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 is to have a significant negative effect on the economics of modernisation projects which have already been completed, we believe. Overall, we would treat the news as negative for the oil sector, were it to materialise.

To recap, the prohibition on selling Euro-4 fuel was previously planned to become effective from 2016. In April, the Russian broadsheets reported that this might be pushed back because of a potential deficit of fuel. Earlier this month, the Ministry of Energy sent a proposal to the Russian government to delay the ban on Euro-4 fuel until 1 January 2017.

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.

Dmitry Loukashov, Ekaterina Rodina Alexander Donskoy, Kirill Komarov
VTB Capital analysts