Last week I attended the Argus Mideast Gulf and Indian Ocean Oil Conference in Dubai, which monitors the downstream development in the region.

In a panel discussion about Mideast Gulf refiners, the question was raised whether refining companies justify additional cost of investment for fuel quality and whether new refineries will herald a new clean product regime in the region.

It was said that the price differential between ordinary and clean products is currently low and that could make refiners hesitant to invest in clean products facilities. For instance, recent diesel differential in the Arabian Gulf between 500 and 10 parts per million (ppm) sulphur is $0.65 per barrel while in the Singapore market it is $1.6 per barrel and can be even higher in Northwest Europe.

However, as the demand for clean diesel increases, the differential widens similar to what happened in other markets. Additionally, decisions to proceed with clean fuels are not influenced by prices only but by government regulation or aspirations to tackle the air quality especially in congested cities.

Moreover, the refining industry in many countries of the Arabian Gulf is export oriented and in order to protect its market share it must produce products compatible with the evolution of specification in the destination countries.

According to Opec Statistical Bulletin, the combined petroleum products exports from the UAE, Saudi Arabia, Kuwait and Qatar in 2011 were 2.3 million barrels a day (mbd). Some 200,000 barrels a day went to Europe and North America, two sophisticated markets that only accept clean products. About 1.5 mbd was exported to Asia Pacific, a region moving very fast into clean fuels by the force of regulations and air quality requirements. With more refineries coming on stream in the future, product exports are indeed expected to increase and product quality will be the deciding factor to preserve these markets.

It is not in the long-term interest of refineries in the region to produce two grades of products — one for export and the other for local consumption. Unit production cost of clean products can be reduced if the production is high enough — a question of economy of scale.

Fuel quality in the Middle East varies widely and there is a slow movement to normalise quality in the GCC countries only by establishing regional fuel specifications. But the direction to improve fuel quality is emerging at different speeds in these countries. The United Nations Environmental Program (UNEP) is working with the Arab League and individual countries to promote its Partnership for Clean Fuels and Vehicles (PCFV) and has already identified the need for political decision, the development of standards and legislations and a “time bound” plan of action. In 2008 a UNEP survey concluded that human health in GCC countries suffer from vehicle emissions linked to high sulphur level in the fuel.

On the ground, Saudi Arabia’s refineries are very busy in implementing projects to improve gasoline and diesel qualities. In Riyadh refinery, a project to reduce benzene in gasoline and to reduce sulphur in gasoline and diesel is well under way while Yanbu refinery is to shut down now to connect the new clean fuels units costing an estimated $2.5 billion. The project should reduce sulphur in gasoline by 98 per cent in 2013 and in diesel by 2016. The cleaner fuel production should reduce sulphur level in gasoline by more than 98 per cent in 2013 and in diesel by 2016.

The same will shortly be tendered for Ras Tanura refinery where Aramco said the project is aimed at meeting international standards for gasoline and diesel with low sulphur content and improved emission characteristics. The project is expected to be completed by 2017. In the new refineries of Jubail and Jizan, the plan is to produce clean fuels from the start.

The UAE Ruwais refinery expansion, which is expected to be completed in 2014 will produce 10 ppm diesel and gasoline and reduce carcinogenic benzene in gasoline to one per cent.

In Kuwait, the clean fuels project in at the Mina Al Ahmadi and Mina Abdullah refineries is expected to be completed in the second quarter of 2018 while the often delayed Al Zour refinery project is moving again and will also produce clean fuels of latest European specifications in the would be largest regional refinery of 615000 barrels a day.

Bapco in Bahrain expects to complete its $10 billion refinery modernisation project by the end of this year which will enable it to produce clean fuels. Qatar and Oman already produce low sulphur fuels and further improvements could be coming.

The exception in the region is Iraq where lead is still used in gasoline and may be phased out only in 2015 and sulphur level in diesel is over 10000ppm. Iraq’s new proposed refineries will all produce clean fuels but no one knows when they will be built or if they only stay in the plan.

It is, therefore, safe to say that by 2020 the upgrades and the new refineries will fulfil the hope of clean fuels in the whole region.

The writer is former head of the Energy Studies Department in the Opec Secretariat in Vienna