The road leading to the 0.50% sulphur limit and IMO s role moving forward 2020 global sulphur challenge Copenhagen, 21 March 2017 Dr Edmund Hughes Marine Environment Division International Maritime Organization
International Maritime Organization (IMO) A specialized agency of the UN The IMO Convention adopted in 1948 and IMO first met in 1959 172 Member States Consultative organizations Develop and maintain a comprehensive regulatory framework for international shipping on safety, environment, legal matters, technical co-operation, security and the efficiency of shipping Marine Environment Protection Committee (MEPC) IMO body responsible for MARPOL, BWMC, etc. Safe, secure and efficient shipping on cleaner oceans 2
Shipping emissions Around 70% of ship emissions occur within 400km of coastlines Global Ship Traffic Patterns Ship traffic most prominent in the northern hemisphere and along coastlines Emissions may be transported over several 100kms Corbett, Smith, Anderson 2014 Source: Third IMO GHG Study 2014 3
Fuel oil issues considered at MEPC 70 (October 2016) approved report on Assessment of Fuel Oil Availability - documents MEPC 70/5/3 and MEPC 70/INF.6 agreed to the date of 1 January 2020 as the effective date for ships to comply with 0.50% sulphur content of fuel oil requirement approved circular MEPC.1/864 Guidelines for onboard sampling for the verification of the sulphur content of fuel oil used on board ships agreed a new output on "Amendments to regulation 14 of MARPOL Annex VI to require a dedicated sampling point for fuel oil" approved amendments to Appendix V of MARPOL Annex VI Information to be included in the bunker delivery note that is required to be provided to the ship by the fuel oil supplier s representative permits continued supply of high sulphur fuel oils to ships fitted with Exhaust Gas Cleaning Systems agreed that Consistent implementation of the 0.50% m/m sulphur limit should be considered by PPR 4 in January 2017 with a view to drafting a justification and scope for a new output 4
Fuel oil Fuel oil % sulphur Review completed 4.50 2016 1.1.2012 1.1.2020 3.50 1.50 1.7.2010 1.00 1.1.2015 0.10 0.50 Time Non-ECA ECA 5
Assessment of fuel oil availability - methods, models and data sources
0.50% Fuel Oil Availability Review demand modelling demand from all ships over 100 GT marine demand less than 10% of global demand so non-marine demand was a critical consideration - how will 0.50% sulphur fuel oil be produced? volume of products available for blending and non-marine demand for those? 2012 base case year (Third IMO GHG Study 2014) market penetration of Exhaust Gas Cleaning Systems by 2020 is a critical input to the demand modelling projected price differential between HFO/MGO is key driver for adoption of EGCS only additional regulatory consideration was the Chinese national ECAs need to consider the availability and cost of hydrogen production as this may constrain production 7
Assessment of Fuel Oil Availability demand modelling outcome Energy demand for 2020 using model in Third IMO GHG study/unctad/imf global forecast Energy use by shipping in 2012 compared with 2020 to increase by 8% in the base case (11,877 PJ to 12,814 PJ) Key variable - uptake of Exhaust Gas Cleaning Systems on ships Base case 3,800 ships (36 million tonnes of fuel oil) (11% of energy) High case 1,200 ships (14 million tonnes of fuel oil) (4% of energy) Low case 4,100 ships (38 million tonnes of fuel oil) (13% of energy) Use of LNG to increase from 8 million tonnes in 2012 to 12 million tonnes in 2020 (base) Marine fuel demand in total Base case: increases from 300 million tonnes in 2012 to 320 million tonnes in 2020 High case: 364 MT in 2020, Low case: 282 MT in 2020 Demand for petroleum-based marine fuels constitutes about 6.8% of the total demand for petroleum products in the base case in 2020 Fuel with a sulphur content of 0.10% m/m or less will be predominantly middle distillate, while fuel with a sulphur content between 0.10% and 0.50% m/m, as well as fuel with a sulphur content over 0.50% m/m, will be mostly high-viscosity fuel oil and in some cases low-viscosity fuel oil. 8
Assessment of Fuel Oil Availability - supply modelling Regional refinery capacities updated for mid 2019 to ensure availability by 1 January 2020 The price for 2020 was updated based on $77/bbl (Brent) Based on 2020 demand the maximum and minimum of refinery products and refinery inputs range were updated Conservative assumptions made: Utilization of hydroprocessing units was limited to 90% or less The sulphur removal in hydrodesulphurization units was limited to 90% or less depending on the grade of oil being processed The MDO/MGO/HFO sulphur specification was further tightened by 10% Hydrogen can be generated in a refinery (e.g. in a reformer) but can also be bought commercially Refineries that have invested in hydrotreatment or hydrocracking units, have also invested in sufficient sulphur plant capacity 9
Assessment of Fuel Oil Availability refinery capacity Table 2 - Global Refinery Capacity (2012 and mid-2019) 2012 2019 Change Million tonnes per year Crude Distillation 4,630 5,020 +8% Light Oil Processing Reforming 610 626 +3% Isomerization 94 122 +30% Alkylation/polymerization 117 118 +1% Conversion Coking 312 421 +35% Catalytic cracking 862 916 +6% Hydrocracking 388 532 +37% Hydroprocessing Gasoline 148 204 +38% Naphtha 759 810 +7% Middle distillates 1,109 1,306 +18% Heavy oil/residual fuel 439 507 +15% 10
Assessment of Fuel Oil Availability refinery production In all scenarios the refinery sector has the capability to supply sufficient quantities of marine fuels with a sulphur content of 0.50% m/m or less and with a sulphur content of 0.10% m/m or less to meet demand for these products, while also meeting demand for non-marine fuels (see Table 3). Table 3 - Global Refinery Production (2012 and 2020) - million tonnes per year Production in 2012 Production in 2020 Gasoline 963 1,086 Naphtha 256 305 Jet/Kero Fuel 324 331 Middle Distillate 1,316 1,521 of which MGO 64 39 Total Marine Heavy Fuel Oil (HFO) 228 269 of which Marine HFO (S 0.50% m/m) 0 233 of which Marine HFO (S > 0.50% m/m) 228 36 LPG 113 110 Other 784 537 Total 3,984 4,159 % of 320 MT marine total 12% 73% 11% 4% 11
Assessment of Fuel Oil Availability - supply modelling outcome The modelling results indicate that the refinery industry can produce sufficient amounts of marine fuels of the required quality in the base case, the high case and the low case while at the same time supplying other sectors with the petroleum products they require. The maximum amount of compliant fuels that the global refinery industry can produce is 24% above the demand projected in the base case and 2% above the demand projected in the high case. This maximum amount can only be produced if the crude slate is sweeter than in the base case, especially in Asia. Although the utilization rates of the major conversion units will need to be high, they remain within realistic limits. It was assumed that all units have sufficient sulphur plant capacity. If this assumption is not accurate, refineries will need to expand the capacity of their sulphur plants to fulfil 2020 demand. In all cases, but especially in the high-demand case, interregional transport of marine fuel will be required. If supply and demand is to be balanced in all regions, the Middle East and in some cases Europe and Latin America may have to export fuel with a sulphur content of 0.50% m/m or less to other regions. 12
Assessment of Fuel Oil Availability - supply modelling outcome That future demand can be met is due to several developments. Capacity growth of crude distillation units (8%) enables production of larger quantities of fuel oil, while expansion of hydrocracking (37%) capacity increases the potential supply of unconverted gas oil, with a very low sulphur content which can be blended with heavy fuel oil to lower its sulphur content. Coking is also expected to expand by 35% producing low sulphur fuels. Moreover, the increase in middle distillate and heavy fuel oil hydroprocessing, by 17% and 15% respectively, helps meet the low sulphur requirements for marine distillates and heavy fuel oils. In addition to these developments, the high-demand case requires refineries in the Middle East and Asia to increase the utilization rates of their refining and processing units and to change their crude oil slate. For example, the average sulphur content of the crude slate in the Middle East will need to be lowered from 2.01% in the base case to 1.99% in the high-demand case. All compliant fuels (petroleum fuels with a sulphur content of 0.50% m/m or less) are blends of several refinery streams. Untreated atmospheric residue is typically only a fraction of the total blend. Most of these fuels have a considerably lower viscosity than HFO. While supply and demand are balanced globally, regional surpluses and shortages are projected to occur. In most cases the Middle East has an oversupply, while in some cases other regions have a higher production than consumption as well. Regional imbalances can be addressed by transporting fuels or by changing vessels bunkering patterns. Conclusion: In all scenarios, the supply of marine fuels with a sulphur content of 0.50% m/m or less and with a sulphur content of 0.10% m/m or less is projected to meet demand for these products. 13
Consistent implementation of regulation 14.1.3 of MARPOL Annex VI Draft new output includes the following scope: 1. preparatory and transitional issues 2. impact on fuel and machinery systems 3. verification issues and control mechanisms and actions 4. develop a draft standard format (a standardized system) for reporting fuel oil non-availability 5. develop guidance, as appropriate, that may assist Member States and stakeholders in assessing the sulphur content of fuel oil delivered for use on board ship 6. request ISO to consider the framework of ISO 8217 7. any consequential regulatory amendments and/or guidelines 14
Fuel oil considerations at MEPC 71 (3 to 7 July 2017) Report of the sulphur monitoring programme required under regulation 14.2 of MARPOL Annex VI as set out in document MEPC 71/5/1 the yearly average sulphur content of the tested residual fuel oils has increased since 2015 by 0.13 percentage points from 2.45% to 2.58% the yearly average sulphur content of the tested distillate fuel oils is 0.08% and has remained unchanged since 2015 Adoption of amendments to Appendix V of MARPOL Annex VI on Information to be included in the bunker delivery note (regulation 18.5) as set out in annex to document MEPC 71/3 Draft output on Consistent implementation of regulation 14.1.3 of MARPOL Annex VI to be considered for approval (MEPC 71/9, paragraph 2.23) Fuel oil quality correspondence group reporting to MEPC 71 draft Best Practices for Fuel Purchaser/User draft Best Practices for member State/coastal State 15
Thank you for your attention 16