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. Last Updated: 07/27/2016

Low-Grade Diesel Fails to Satisfy EU Standards

Russia will fail to meet new European Union standards for lower sulfur content in diesel from 2008 and will face a further price decline for the low quality product, executives and traders said.

Philipp Nikonov, vice president at Transnefteprodukt, which ships around 18 million tons of diesel via Latvia's Ventspils on the Baltic Sea and Black Sea ports, said Friday that Russian refiners were not ready for the change.

"We won't be able to switch from Jan. 1, that is 100 percent sure," said Nikonov, adding that his firm could not impose sanctions on companies that ship low-quality diesel.

"This will simply halt our flows. Transnefteprodukt will be paralyzed and the shareholders will ask me why I'm losing revenues," he said.

New EU standards will halve the sulfur allowed in diesel for heating needs to 1,000 parts per million or 0.1 percent, while Transnefteprodukt exports 2,000 ppm diesel.

"We have done research and discovered that the premium for the 1,000 ppm product versus 2,000 ppm is around $6 per ton in Europe. It seems that it is not enough for the companies to start an expensive technological switch," Nikonov said.

Russian firms also export over 20 million tons of higher quality diesel, including as motor fuels, by railways.

Traders expect Russian 2,000 ppm diesel to end up at Europe's refineries for deeper processing blending with higher quality grades for heating needs.

"The problem is that it is not clear whether there is free desulfurization processing capacity in Europe," a Russian diesel exporter said.

"I suspect they are already running at full capacity on our own product, which is turned into Euro Standard motor fuels," he said.