Will refiners be able to meet the diesel clean fuels regulations in Southeast Asia?

We expect a structural demand shift from high sulphur to low sulphur diesel in Southeast Asia as major regional economies are planning to introduce clean-fuel diesel sulphur specifications in the next five years to curb air pollution. The market will be short of low sulphur diesel, especially 10 ppm diesel, starting 2022. Refiners would need to add an additional 350 kb/d of diesel hydrotreating capacity, which would cost about US$1 billion, on top of the already announced projects. We expect late announcements in additional refining investments in the region or a delay in implementing the specification change. We expect a wider differential between low/high sulphur diesel during the transition phase but the differential is expected to stabilise at incremental variable cost of producing low sulphur diesel grades, which may not be enough to generate a return on hydrotreating investments.