Eddy Van Bouwel

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MARPOL Annex VIRefinery Considerations and
StrategiesOutcomes from IPIECA workshops on
shipping emissions

• Eddy Van Bouwel
• ExxonMobil
• 27th International Bunker Conference
• Gothenburg April 27, 2006

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Who are we?

• International Petroleum Industry Environmental
  Conservation Association
• Founded 1974 - Global Membership national
  multinational petroleum companies / associations
• Interaction/cooperation with UN other
  international organizations (Special Consultative
  Status with UN)
• Secretariat based in London
• Tackling global issues
• Global Climate Change
• Biodiversity
• Social Responsibility
• Oil Spill Preparedness Response
• Fuels and Transportation
• Health

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IPIECAs Aims

• To represent the views of our members, and enable
  consultation with appropriate UN agencies and
  others dealing with global issues
• To promote realistic, science-based, economically
  efficient solutions to global environmental and
  social concerns
• To develop international petroleum industry
  consensus on key global issues, in close
  cooperation with key stakeholders

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Company Members
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Association Members
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MARPOL Annex VIand the Refining Industry
MARPOL Annex VI
EU SLFD
The oil companies European association for
environment, health and safety in refining and
distribution
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Crude Composition / Demand
Crude Variability
LPG Mogas Kero/Jet Distillate HFO
Maya Arab Light Demand

• Product yields and qualities vary by crude
• Average world wide crude composition similar to
  Arab Light
• Product yield from crude heavier than demand
• Additional processing or conversion required to
  convert Fuel Oil

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Refining Overview
LPG
TREAT-MENT UNIT
Gasoline
Crude Oil
Aviation Fuels
Diesel
Conversion to lighter products
D I S T I L L
V A C U U M
Fuel Oil
Bitumen
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Sulphur is Concentrated in the Bottom Products
300 ppm S
1600 ppm S
1.5 S
3.3 S

• Arab Light crude sulphur content 1.9

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Low Sulphur Fuel Demand
Note implementation of a North American SECA
could almost double global LSBF demand
2005
2007
2015
Source CONCAWE
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Meeting the EU LS BFO Demand

• Segregation of low sulphur blend streams
• Optimisation of crude diet
• Blending to specification
• Declining demand of (LS) HFO for inland use
• Demand for Baltic and North Sea SECAs and for
  European ferries likely to be met based on
  operational adjustments, with some refinery
  investment
• Response will be driven by market forces (premium
  LSFO vs. HSFO)

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Long Term Choices Refiners are Facing

• Blending
• Change Crude feedstock
• Desulphurise Residual fuels
• Complete conversion to distillate fuels (eg
  Gasoline and Diesel)
• Exit the Bunker market find land based
  customers (eg Power Stations)
• In each case there are unknowns
• In some cases other stakeholders hold the answers

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Desulphurisation of HSFO

• Significant increase in refinery CO2 emissions
• Technological challenges
• Stability reserve decreases
• Potential problems with inter-fuel compatibility
• Significant premium required to make option
  attractive versus conversion to distillate fuels

Results generated by EU Refining Model based on
38/bbl crude price scenario
Source CONCAWE
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Refinery Economics

• Behaviour based on what refiners believe the
  market will do perhaps not what was envisaged
  by regulators
• For refiners willing to invest, conversion route
  may be more attractive
• Economics likely to be better
• Investment decisions can be based on known (or at
  least assumed!) differentials
• Regulatory endpoints are known and markets are
  familiar

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Bunker Market Compared to Gasoline/Diesel Markets

• Historically, the oil industry has responded to
  market demand by adapting to make the fuels that
  are required
• Bunkers are different!
• End of the line in the refinery
• Energy and capital intensive to desulphurise
• Desulphurisation changes the nature of the fuel
• CO2 lifecycle costs may be higher
• Investment costs US250M-500M/refinery
• Differentials and regulatory endpoint ?
• Exiting the market is a real option

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The Need for Evaluation

• Annex VI revision should aim to identify
  cost-effective, appropriate and scientifically
  valid measures addressing areas of concern, i.e.
  actual improvement on land based receptors
• Need to consider
• Actual environmental impact of emissions
• Fuel availability and impact on fuel quality
• Flexible approach mix of ship and fuel based
  measures
• Technical developments, e.g. on-board scrubbing
  technology
• Feasible time scale for compliance
• Enforceability

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Summary

• There are some knowns and many unknowns about
  the future marine fuels market
• Significant changes to the demand for low sulphur
  marine fuels beyond currently agreed SECAs and EU
  legislation will have significant impact on the
  marine fuels market
• Marginal economics cannot be applied
• Fuel quality considerations
• In an extreme scenario of ships switching to
  gasoil, the EU middle distillate deficit would
  increase by 50 Mt/a
• Market forces will determine outcome
• We believe that the concepts of cost
  effectiveness and environmental sustainability
  need not be mutually exclusive
• We believe a holistic solution will be more
  environmentally sound
• Continued stakeholder dialogue is key

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Back-up

• Market Forces Model

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Bunker Fuels Market Mechanisms

• Regulatory Drivers
• Enacted legislation
• Fuel max 1.5 S Baltic Sea, North Sea and
  Channel, ferries (2006/2007)
• 0.1 S fuel inland waterways/at berth (2010)
• Possible future IMO or EU initiatives

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Bunker Fuels Market Mechanisms

• Regulatory Drivers
• Fuel max 1.5 S Baltic Sea, North Sea and
  Channel, ferries
• Possible future IMO or EU initiatives

• Shipowners Decisions
• Single or dual fuel operation
• BFO vs. distillate
• Onboard scrubbing
• New ship vs. retrofit

• Considerations
• switchover procedures and time required
• risk of engine stalls due to switchover errors
• lube oil system considerations
• scrubbing operability considerations
• fuel cost differentials
• compliance demonstration

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Bunker Fuels Market Mechanisms

• Regulatory Drivers
• Fuel max 1.5 S Baltic Sea, North Sea and
  Channel, ferries
• Possible future IMO or EU initiatives

• Refiners Decisions
• Short term
• Blending and storage facilities
• Crude adjustments
• Longer term (possible future IMO or EU
  initiatives)
• Make, convert or export
• Deep desulphurisation
• Deep conversion
• Exporting to other markets

• Shipowners Decisions
• Single or dual fuel operation
• BFO vs. distillate
• Onboard scrubbing
• New ship vs. retrofit

• Considerations
• low S HFO demand
• high S fuel outlets
• fuel price differentials
• CO2 emission allowances

• Considerations
• switchover procedures and time required
• risk of engine stalls due to switchover errors
• lube oil system considerations
• scrubbing operability considerations
• fuel cost differentials
• compliance demonstration

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Bunker Fuels Market Mechanisms

• Regulatory Drivers
• Fuel max 1.5 S Baltic Sea, North Sea and
  Channel, ferries
• Possible future IMO or EU initiatives

• Shipowners Decisions
• Single or dual fuel operation
• BFO vs. distillate
• Onboard scrubbing
• New ship vs. retrofit

• Other factors
• Economic growth
• Shipping volume growth
• Shipping demand elasticity
• Transport policy

• Considerations
• switchover procedures and time required
• risk of engine stalls due to switchover errors
• lube oil system considerations
• scrubbing operability considerations
• fuel cost differentials
• compliance demonstration

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Bunker Fuels Market Mechanisms

• Regulatory Drivers
• Fuel max 1.5 S Baltic Sea, North Sea and
  Channel, ferries
• Possible future IMO or EU initiatives

• Shipowners Decisions
• Single or dual fuel operation
• BFO vs. distillate
• Onboard scrubbing
• New ship vs. retrofit

• Considerations
• switchover procedures and time required
• risk of engine stalls due to switchover errors
• lube oil system considerations
• scrubbing operability considerations
• fuel cost differentials
• compliance demonstration

• Other factors
• Economic growth
• Shipping volume growth
• Shipping demand elasticity
• Transport policy