Biocomponent requirement could hike price of diesel

Diesel fuel.
Diesel fuel. Source: ERR

Because fuel retailers are expected to mix winter diesel with a biocomponent for the first time this year, gas stations forecast price advance of a few cents per liter that is expected to pick up next year, courtesy of higher biocomponent concentration. A spokesperson for the Ministry of Economic Affairs and Communications (MKM) emphasizes that the world market price of oil remains the more influential price component.

As a rule of thumb, we can say that the obligation of adding 1 percent of second-generation winter biocomponent will hike the price of motor fuel by 1 cent per liter, compared to a situation where no such obligation existed," Raimo Vahtrik, motor fuels sales director for Circle-K told ERR.

"This means that the effect will translate into price advance of 3 cents per liter in 2019 and 10-15 cents in 2020," Vahtrik added.

"Starting next year, gasoline and diesel combined must include 10 percent biofuel in terms of energy capacity, but at least 6.4 percent in energy capacity per liter allowed into consumption," said Rein Vaks, head of energy markets at MKM.

"Winter diesel is 2-3 cents more expensive than its summer counterpart in any case. Considering that more biocomponent will have to be mixed into diesel starting in 2020, while only second-generation winter diesel is suitable for use in winter, the price difference might widen by about another cent," said owner of fuel retailer Olerex Antti Moppel.

Head of marketing and communications for Neste Risto Sülluste said that biofuel-induced price advance of 1 cent per liter took place in spring when the biocomponent became mandatory. "Therefore, the price of winter diesel is only affected by the winter and summer fuel price difference down to more expensive production process. The difference comes to 1-2 cents per liter, depending on the year. During years where the price of diesel falls for other reasons, such as overproduction, the hike might not take place at all. The final price of motor fuel depends on several factors – competition, exchange rate – and cannot be forecast very precisely. There is no price difference in winter and summer for gasoline," Sülluste said.

Rein Vaks for the economy ministry told ERR that the final price does not only depend on the price of biocomponent but also the world market price of oil. Biocomponent might be cheaper than fuel at times, in which case retailers will mix in the maximum amount, Vaks said.

He added that the ministry wants to abolish the 6.4 percent requirement to give suppliers flexibility in terms of the obligation that will likely happen before the end of this year. The government wants to render the Liquid Fuels Act more flexible so retailers could use other measures for reducing CO2 emissions.

Asked whether tougher requirements could lead more people to buy fuel in other Baltic countries, spokespeople for retailers said that the situation will likely remain the same as most of the price difference is down to differences in excise duties and corresponding changes in consumer behavior have already taken place.

Sülluste said that Latvia's looming excise duty hike could reduce the price difference with Estonia by about 4 cents (currently 16-18 cents per liter – ed.). "Refueling in Latvia has stabilized by now, and it is likely the rate change will not have a serious effect on consumption habits," he added.

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Editor: Marcus Turovski

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