Low Sulphur Marine Fuel: Supply and refining challenges

Low Sulphur Marine Fuel: Supply and refining challenges Alan Reid Science Executive, Refinery Technology, CONCAWE 5 th Chemical & Product Tanker Conference London, 13 th March 2013

Outline What is CONCAWE? The refining challenge IMO marine fuel sulphur reduction timeline Sulphur reduction options CONCAWE EU refining 2020-2030 study EU refined products demand trends Key results for marine fuels Conclusions 2

CONCAWE: Research in Diverse Areas CONservation of Clean Air and The Oil Companies European association for health, safety and environment in refining and distribution (founded in 1963) Water in Europe Research Activities Automotive Emissions & Fuel Quality Refinery Technology Support Air Quality Health Science Water/Soil Quality & Waste Petroleum Products Oil Pipelines Risk Assessment Safety REACH & GHS Implementation Our research reports are available at www.concawe.org 3

CONCAWE: Member Companies Open to companies owning refining capacity in the EU Currently 42 Member Companies AlmaPetroli api BP CEPSA ENI ERG Essar Oil UK ExxonMobil Gunvor Hansen & Rosenthal Hellenic Petroleum INA Ineos IPLOM Koch KPI Lotos Lukoil LyondellBasell Murco MOL Motor Hellas Neste Oil Nynas OMV Petrogal Phillips 66 PKN Orlen Preem Repsol RHG Rompetrol Sara SARAS Shell SRD ST-1 Statoil Tamoil Total Valero Varo Represents nearly 100% of European refining capacity Not for profit Association, funded by Member Companies 4

The refining challenge Crude oil: typically much heavier than product demand 100 80 60 40 LPG Naphtha/gasoline Kero/jet Gasoil/Diesel Heavy fuel oil 20 0 Brent Iran light Nigerian Russian Kuwait Demand Use available crudes: Adapt to quality variations Adapt to different crudes on a day-to-day basis Produce desired products: All products must be on-spec All must be produced at the same time Nothing can be thrown away! And minimise energy, CO 2, environmental impacts, and costs 6

Refineries turn crude into multiple fit-for-purpose products Demand (%) or Refinery yield (% on crude) Fuel & Loss (% on crude) 100% 10% 80% 8% 60% 40% 20% 6% 4% 2% LPG Naphtha Gasoline Kero/Jet Gasoil/Diesel Heavy Fuel Oil Fuel & Loss 0% 2010 Simple High gasoline High diesel 0% EU Demand refinery yield Complex refinery yield Achieving this requires complex process technology and hydrogen Reforming to obtain the desired molecules and distribution Residue conversion to crack larger molecules into smaller ones Hydrotreating to obtain the desired product quality (e.g. S removal) More refinery complexity means that more energy and more hydrogen are needed - and typically more CO 2 emissions 7

IMO proposed path to low sulphur marine fuels 9

Sulphur reduction options Two options: Remove from fuel Remove from exhaust gas Fuel desulphurisation Exhaust gas cleaning Pros Central treatment Simplified on-board fuel handling when distillate fuel is used SO 2 easily absorbed in alkaline water Low additional energy requirements Favourable economics Cons Complex refining process Increased energy consumption and CO 2 emissions in refining Major Investments for individual projects Higher cost fuel Additional equipment on ship Investment Demonstration of compliance This is the base case option for the CONCAWE EU Refining 2020-2030 study 11

Low S marine fuels: more than just removing S 1000 ppm S = 0.1% S Road transport fuels Stepwise reduction S level driven by engine exhaust gas after-treatment requirements Hydrodesulphurisation process investments Basic fuel blend composition remains essentially unchanged Data sources: Hart 2011 Worldwide Fuel Specifications, IMO Marine fuels High pressure, high temperature hydrodesulphurisation Technology limit for desulphurising heavy fuel oil Requires major changes in blend composition Switch from residual components to distillates for ECA 0.1%S fuel (equivalent to standard domestic heating oil quality) 12

Sulphur Removal Hydrodesulphurisation (HDS) process Treat products with hydrogen Reaction at elevated pressure and temperature Convert embedded sulphur to H 2 S Absorb H 2 S from process gas and convert to elemental S Energy intensive Increased refinery CO 2 emissions Production of hydrogen starting from natural gas (CH 4 ) Carbon in natural gas rejected as CO 2 Picture: ExxonMobil 9-Feb-10 13 13

Declining product demand (including biofuels) Total demand including biofuels in EU27 + 2 (Mt/a) 800 700 600 720 583 LPG Gasoline 500 Petrochemicals Middle distillates 400 Residual marine fuel Residual inland fuel 300 Others 200 (*) JEC Consortium: Joint Research Centre of European Commission, EUCAR and CONCAWE 100 0 Source: Wood Mackenzie, CONCAWE 2000 2005 2010 2015 2020 2025 2030 Basis: JEC* Fleet & Fuels model for road diesel and gasoline; Wood Mackenzie 2011 for all other products European fleet-average CO 2 emissions for new passenger cars: 143 g CO 2 /km in 2010 (actual) 95 g CO 2 /km by 2020 (mandated target) 75 g CO 2 /km by 2030 (assumed) Products demand expected to fall by 137 Mt (19%) between 2005 and 2030. 15

Middle distillate / Gasoline demand ratio Increasing distillate/gasoline imbalance Total demand including biofuels in EU27 + 2 (% m/m) LPG Gasoline Petrochemicals Middle distillates Residual marine fuel Residual inland fuel Others MD/Gasoline ratio (RH axis) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: Wood Mackenzie, CONCAWE 10% 19% 6.3 46% 61% 2.4 2000 2005 2010 2015 2020 2025 2030 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Steady decline in total demand but a steady growth in: Percentage of middle distillates, reaching 61% in 2030 Ratio of middle distillates to gasoline, reaching 6.3 in 2030 Increasingly difficult for gasoline-oriented EU refineries to meet this changing demand ratio. 16

Steady growth in share of refined middle distillates Distillates demand (fossil only) in EU27 + 2 (% m/m of total refined products demand) 70% 60% 50% 46% 60% Distillate marine bunker 40% Heating oil Diesel (non-road, rail and inland water) Jet/Kero 30% 20% Diesel (road) 10% 0% Source: Wood Mackenzie, CONCAWE 2000 2005 2010 2015 2020 2025 2030 Middle distillate refined products are heavier than gasoline but lighter than heavy fuel oil Total European refined middle distillates demand does not grow in absolute tonnage Share of distillates in total refined product market continues to increase, reaching 60% in 2030. Contrasting market tonnage trends: demand for jet fuel and distillate marine fuel Switch from residual marine fuel to distillate marine fuel in ECAs adds about 14 Mt to distillate demand from 1/1/2015 demand for heating oil and road and non-road diesel 17

Refining CO2 emissions will increase These figures assume constant refinery energy efficiency frozen at the 2008 level Demand 2025-2030 Demand 2020-2025 IMO general bunker 0.5%, Ferry bunker 0.1% Demand 2015-2020 SECA bunker 0.1%, switch to distillate Non-road Diesel 10 ppm S Inland Waterway Gasoil 10 ppm Demand 2010-2015 Demand-related Quality-related SECA bunker 1.0% Demand 2010 Base case - 2008 Note: Graphs and figures from CONCAWE report awaiting publication. 140 145 150 155 160 165 EU Refineries CO 2 emissions (Mt/a) Biggest increases in EU refinery CO 2 emissions are caused by: 2015 switch to 0.1%S distillate bunkers in SECAs 2020 switch to 0.1%S distillate bunker for EU ferries and 0.5%S IMO general bunker. Declining demand post-2020 reduces CO 2 emissions from the 2020 peak. Refinery energy efficiency improvements would offset these increases. 19

Substantial investment requirements 2008-2020 Announced projects 2009-2015 + $21billion IMO general bunker 0.5% Ferry bunker 0.1%, switch to distillate Demand 2015-2020 SECA bunker 0.1%, switch to distillate Non-road Diesel 10 ppm S Inland Marine Gasoil 10 ppm Demand 2010-2015 SECA bunker 1.0% FQD PAH 8% Demand 2008-2010 0 10 20 30 40 50 60 Note: Graphs and figures from CONCAWE report awaiting publication. G$ (2011) Announced EU refining project expenditure 2009-2015 estimated at $30 billion Estimated total investment of $51 billion would be required by 2020 to fully meet product demand and quality changes (including low sulphur marine fuel) Additional $21 billion over and above the announced projects Declining demand post-2020 will lead to under-utilisation of new-build capacity This could have a negative influence on investment decisions prior to 2020 20

Refinery CO2 emissions (Mt/a) Refinery investment (G$) On-board scrubbing lowers refining investments & CO 2 IMO Investments and refinery CO 2 emissions are estimated in two scenarios: 19 G$ Scrubbers IMO: All marine fuel ex-refinery must meet IMO specs. No on-board scrubbers. Scrubbers: All ships are equipped with on-board scrubbers from 2015 onwards. Base Case 2010 2015 2020 2025 2030 IMO 17 Mt/a CO 2 The refinery investment for the 100% scrubbers case would be reduced by $19 billion in 2020 The 100% scrubbers case would avoid a 17 Mt/yr increase in refinery CO 2 emissions This would be partially offset by increased CO 2 emissions from scrubber energy consumption Scrubbers Overall well-to-propeller CO 2 emissions still expected to be largely in favour of scrubbers Base Case 2010 2015 2020 2025 2030 Note: Graphs and figures from CONCAWE report awaiting publication. 21

Conclusions 2010 and 2012 changes to S content of marine fuels: Some limited crude slate optimisation Blending & segregation Longer term (2015-2025): Unprecedented step changes & major investments needed Refiners unlikely to be able to supply market in the same way as today Not currently possible to predict how the market will react Much depends on factors such as: The rate of ECA growth The application of abatement technology The use of alternative fuels, e.g. LNG Overall CO 2 emissions impact of marine fuel S reduction is significant There is no single solution keep all routes to compliance open 23 23

For More Information Our technical reports are available at no cost to all interested parties CONCAWE Website: www.concawe.org 24