Fuel Quality Standards in Australia

Fuel Quality Standards in Australia You Wei AW Analyst Stratas Advisors APFI Forum Sep. 13, 2017 Melbourne, Australia UPSTREAM MIDSTREAM DOWNSTREAM FUEL & TRANSPORT

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Agenda Global Overview Independent Study on Australian Fuel Quality Standards Gasoline Quality Trends On-Road Diesel Quality Trends Outlook for Vehicle Emission Standards Part 2 of Presentation by Dr. David Swanton, Director of Fuel Quality Standards Section, Department of the Environment and Energy Stratas Advisors. All rights reserved. 5

Global Overview

Global Overview Regulatory developments occurring globally for sulfur, octane and cetane Overall Gasoline: Regulatory activity focuses on sulfur, octane and to a lesser extent, benzene, aromatics and olefins On-Road Diesel: Regulatory activity focuses on sulfur, cetane and to a lesser extent, density, lubricity, polyaromatics and cold flow Sulfur Worldwide limits range widely from 10 ppm to 3,500 ppm for gasoline and 10 ppm to 10,000 ppm for on-road diesel Several countries to reduce sulfur to 10 ppm or 50 ppm in the next 5-10 years A number of countries plan to leapfrog from very high sulfur limits to very low ones (e.g. Peru, Saudi Arabia) On the other hand, larger countries follow the traditional route of reducing first to 150/350 ppm, then 50 ppm and eventually 10 ppm (e.g. China, India, Russia) Octane Emerging issue with sulfur reduction being implemented MTBE and ethanol are most common enhancers Cetane Most common cetane number is set at a minimum of 51, while the most common limits for cetane index range between 43 and 46 Vehicle Emissions New emission standards ranging from Euro 3/III to 6/VI to be implemented in the next 5 years Stratas Advisors. All rights reserved. 7

Independent Study on Australian Fuel Quality Standards

International Fuel Quality Standards and their Implications for Australian Standards Background report for the 2015 Review of the Fuel Quality Standards Act 2000 Preliminary study comparing Australian fuel standards against fuel standards of EU, Japan, South Korea and the U.S. on: Points of difference Approach in formulating fuel standards Examined fuel standards of gasoline, diesel, autogas (LPG), biodiesel and E85 Suggested alignment of certain fuel quality parameters based on best practices* including: Gasoline: Sulfur: Align with EU, Japan and South Korea (10 ppm max) to enable advanced emission control systems Aromatics: Align with EU (35 vol% max) to reduce NOx, benzene and PM emissions Diesel: Polyaromatics: Align with EU (8 wt% max) to reduce NOx and PM emissions Carbon residue 10%: Align with the U.S. and South Korea (0.15 wt% max) to reduce engine deposits Publicly available at Note: *The study did NOT carry out cost-benefit analysis of implementing new fuel quality standards. Stratas Advisors. All rights reserved. 9

Gasoline Quality Trends Sulfur, Aromatics, Octane

Maximum Sulfur Limits in Gasoline, 2017 Armenia, China, Georgia, Macau and the U.S. required 10 ppm since January 2017 0-10 ppm 11-30 ppm 31-50 ppm 51-150 ppm 151-500 ppm 501-2500 ppm Not regulated/ No information Source: Stratas Advisors, August 2017 Stratas Advisors. All rights reserved. 12 Countries may apply lower limits for different grades, regions/cities, or based on average content. Detailed information on limits and regulations can be found at www.stratasadvisors.com.

Maximum Sulfur Limits in Gasoline, 2020 India, New Zealand and several CIS countries to require 10 ppm by this time 0-10 ppm 11-30 ppm 31-50 ppm 51-150 ppm 151-500 ppm 501-2500 ppm Stratas Advisors. All rights reserved. 13 Countries may apply lower limits for different grades, regions/cities, or based on average content. Detailed information on limits and regulations can be found at www.stratasadvisors.com. Not regulated/ No information Source: Stratas Advisors, August 2017

Maximum Sulfur Limits in Gasoline, 2025 Malaysia, Thailand and Vietnam to require 10 ppm by this time 0-10 ppm 11-30 ppm 31-50 ppm 51-150 ppm 151-500 ppm 501-2500 ppm Stratas Advisors. All rights reserved. 14 Countries may apply lower limits for different grades, regions/cities, or based on average content. Detailed information on limits and regulations can be found at www.stratasadvisors.com. Not regulated/ No information Source: Stratas Advisors, August 2017

Maximum Aromatics Limits in Gasoline, 2017 South Korea sets the strictest aromatics limit at 22 vol% max 25 vol% 26-35 vol% 36-40 vol% 41-45 vol% >45 vol% Not regulated No information Source: Stratas Advisors, August 2017 Stratas Advisors. All rights reserved. 15 Countries may apply lower limits or no limit for different grades, regions/cities, or based on average content. Detailed information on limits and regulations can be found at www.stratasadvisors.com.

Maximum Aromatics Limits in Gasoline, 2020 China to require 35 vol% max while Mexico plans to implement 25 vol% max by this time 25 vol% 26-35 vol% 36-40 vol% 41-45 vol% >45 vol% Not regulated No information Source: Stratas Advisors, August 2017 Stratas Advisors. All rights reserved. 16 Countries may apply lower limits or no limit for different grades, regions/cities, or based on average content. Detailed information on limits and regulations can be found at www.stratasadvisors.com.

Current Primary Market Octane Grade in Countries Expecting Fuel Economy Changes in 2020 Initial analysis suggests that octane levels may not be enough to meet automaker needs in coming years 91.8% 86.2% 99.3% (EU avg.) 85% 89% 78% 65% 99.9% 99% 95-98 RON 99% 92 RON 68.9% 91 RON 90 RON 87 AKI Market share of the primary octane grade is shown in %. Primary market octane grade refers to the most commonly consumed gasoline grade in the country. Vietnam also plans to implement fuel economy standards in this timeframe but the octane market split is unclear. Source: Stratas Advisors, August 2017 Stratas Advisors. All rights reserved. 17

On-Road Diesel Quality Trends Sulfur, Polyaromatics

Maximum Sulfur Limits in On-Road Diesel, 2017 China and Macau implemented 10 ppm since January 2017 10-15 ppm 16-50 ppm 51-350 ppm 351-500 ppm 501-2000 ppm 2000-10000 ppm Not regulated/ No information Countries may apply lower limits for different grades, regions/cities, or based on average content. Detailed information on limits and regulations can be found at www.stratasadvisors.com. Source: Stratas Advisors, August 2017 Stratas Advisors. All rights reserved. 20

Maximum Sulfur Limits in On-Road Diesel, 2020 India, Ecuador, Malaysia and Ukraine moving to 10 ppm by this time 10-15 ppm 16-50 ppm 51-350 ppm 351-500 ppm 501-2000 ppm 2000-10000 ppm Not regulated/ No information Countries may apply lower limits for different grades, regions/cities, or based on average content. Detailed information on limits and regulations can be found at www.stratasadvisors.com. Source: Stratas Advisors, August 2017 Stratas Advisors. All rights reserved. 21

Maximum Sulfur Limits in On-Road Diesel, 2025 Thailand and Vietnam to require 10 ppm by this time 10-15 ppm 16-50 ppm 51-350 ppm 351-500 ppm 501-2000 ppm 2000-10000 ppm Not regulated/ No information Countries may apply lower limits for different grades, regions/cities, or based on average content. Detailed information on limits and regulations can be found at www.stratasadvisors.com. Source: Stratas Advisors, August 2017 Stratas Advisors. All rights reserved. 22

Max Polyaromatics Limits in On-Road Diesel, 2017 Only Europe and parts of CIS and Asia Pacific regulate polyaromatics 5 wt% 8 wt% 11 wt% Not regulated May be set independent of sulfur limits. Detailed information on limits and regulations can be found at www.stratasadvisors.com. No information Source: Stratas Advisors, August 2017 Stratas Advisors. All rights reserved. 23

Max Total Aromatics Limits in On-Road Diesel, 2017 Instead of regulating polyaromatics, U.S. regulates total aromatics at 35 vol% max 0-15 vol% 16-25 vol% 26-30 vol% 31-40 vol% Not regulated No information Source: Stratas Advisors, August 2017 Stratas Advisors. All rights reserved. 24

Max Polyaromatics Limits in On-Road Diesel, 2020 China, India and South Africa to tighten polyaromatics limits to 8 wt% max or below 5 wt% 7 wt% 8 wt% 11 wt% Not regulated May be set independent of sulfur limits. Detailed information on limits and regulations can be found at www.stratasadvisors.com. No information Source: Stratas Advisors, August 2017 Stratas Advisors. All rights reserved. 25

Max Polyaromatics Limits in On-Road Diesel, 2025 Malaysia to require polyaromatics limits of 8 wt% max by this time 5 wt% 7 wt% 8 wt% 11 wt% Not regulated May be set independent of sulfur limits. Detailed information on limits and regulations can be found at www.stratasadvisors.com. No information Source: Stratas Advisors, August 2017 Stratas Advisors. All rights reserved. 26

Outlook for Vehicle Emission Standards Gasoline Vehicles

Gap between Current Vehicle Emission Standards and Gasoline Quality Gaps in Australia, South Africa and parts of the CIS, Middle East and Latin America Emission standards do not match fuel standards Emission standards match fuel standards No emission standards No information Source: Stratas Advisors, August 2017 Stratas Advisors. All rights reserved. 28

Emission Requirements for New Gasoline Vehicles, 2020 India to join top markets in requiring stringent standards by this time STRINGENT (Euro 5-6; US Tier 3; California LEV III; Japanese standards) LESS STRINGENT (Pre-Euro; Euro 1-4; US Tier 0-2; California LEV II) Not regulated No information Source: Stratas Advisors, August 2017 Stratas Advisors. All rights reserved. 29

Outlook for Vehicle Emission Standards Diesel Vehicles

Gap between Current Vehicle Emission Standards and On- Road Diesel Quality Gaps in Latin America and parts of Asia, CIS and Middle East Emission standards do not match fuel standards Emission standards match fuel standards No emission standards No information Source: Stratas Advisors, August 2017 Stratas Advisors. All rights reserved. 31

Emission Requirements for New On-Road Diesel Vehicles, 2020 India to join top markets in requiring stringent standards by this time STRINGENT (Euro 5/V and 6/VI; U.S. Federal; Japanese standards) LESS STRINGENT (Pre-Euro, Euro 1/I to 4/IV) Not regulated No information Source: Stratas Advisors, August 2017 Stratas Advisors. All rights reserved. 32

Part 2 of Presentation by Dr. David Swanton, Director of Fuel Quality Standards Section, Department of the Environment and Energy