Starting July 1, 2013, China's diesel market will fully transition to the National III standard, marking the end of the older National II diesel standard. According to a recent report, major oil companies like PetroChina and Sinopec have already upgraded their refining capabilities to meet the new standards, and they are expected to complete the necessary fuel replacements on time without significant challenges. However, private refineries face greater difficulties due to limited capital, outdated technology, and competition from the two dominant oil giants.
The shift to higher-quality diesel is part of broader efforts to improve air quality across the country. Currently, most provinces receive National III diesel from the major oil companies, although some areas in the northwest and southwest still use National II diesel. This lower-grade fuel is primarily used in sectors such as mining, infrastructure development, and thermal power generation.
The implementation of the National III diesel standard varies by region. For example, Beijing and Shanghai have adopted even stricter standards—National V and National IV, respectively. The difference between National II and National III diesel lies in sulfur content: National II diesel contains over 2,000 ppm (parts per million), while National III limits it to no more than 350 ppm. This reduction significantly lowers harmful emissions and contributes to better environmental conditions.
Interestingly, despite the upgrade, many oil suppliers have not increased prices yet. Most of the "Big Two" oil companies have completed the necessary equipment upgrades, but private refineries are struggling with high costs, equipment modifications, and access to raw materials. As a result, the cost of production for these smaller players is rising, which could eventually lead to higher wholesale prices.
In regions where the transition was done early, such as Fujian, retail prices have remained stable despite the changes. In Beijing, where National V gasoline and diesel were introduced last June, the government has stated that pricing should be based on reasonable cost compensation, quality benefits, and the polluter-pays principle. However, as of now, neither gasoline nor diesel prices in the city have gone up following the upgrade. This suggests that the government is managing the transition carefully to avoid economic shocks to consumers.
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