Lucky Nurafiatin

Research Manager, Asia & Middle East

30 July 2012

Overview of Fuel Quality

and Emission Regulations in Asia

Global Presence

Conferences Consulting Digital Media Mapping & Data

Publishing Research

Global Organization & Services

Who do we work with? IFQC Members

Outline

Air Quality

Improvements in Fuel Quality and Emissions Regulations

Emission Standards

Fuel Quality Standards

Conclusions

Factors Influencing Air Quality

Air Quality

Air Quality Standards

Pollutant WHO U.S. EU Malaysia Indonesia Thailand

NO2 (annual) 40 100 40 - 100 -

NO2 (1-hr) 200 - 200 320 400 0.17 ppm

O3 (8-hr) 100 150 120 120 - 0.07 ppm

O3 (1-hr) - - - 200 235 0.1 ppm

PM10 (annual) 20 - 20 50 - 0.05 mg/m3

PM10 (24-hr) 50 150 50 150 150 0.12 mg/m3

PM2.5 (annual) 10 15 - - 15 -

PM2.5 (24-hr) 25 35 - - 65 -

SO2 (24-hr) 20 377 125 105 365 0.12 ppm

SO2 (10-mins) 500 1,300 - - - -

Sources: Hart Energy’s International Fuel Quality Center, World Bank, WHO, U.S. EPA, Directive 2008/50/EC

In µg/m3

PM10

Concentration

Source: Hart Energy, citing CAI Asia Center

PM10 Concentration in Asian Cities in 2008

Air Quality

Improvements in Fuel Quality and Emissions Regulations

Emission Standards

Fuel Quality Standards

Conclusions

Major Drivers

Climate Change

Health Costs

Economics

Fuel and Vehicle Drivers

Vehicle

Industry

Kyoto

Protocol

Refining

Industry

Regulatory

Bodies

1. Low S, aromatics, RVP, …

2. Low -carbon fuels (LCFS)

3. Biofuels (RFS2, RED)

4. Alternative fuels

5. Vehicle technology

6. Energy & fuel efficiency

7. Greenhouse gases

Air Quality

Improvements in Fuel Quality and Emissions Regulations

Emission Standards

Fuel Quality Standards

Conclusions

Evolution of Emissions Standards

Note:

(1) Gasoline vehicles only

(2) Diesel vehicles only

(3) Diesel vehicles only, gasoline and CNG vehicles at Euro 2

(4) Delayed

Source: Hart Energy’s International Fuel Quality Center, 2012

Improvements in Emissions Standards

Reduction in traditional pollutants:

• CO

• HC

• NOx • Air toxics

Reduction in GHG/CO2 emissions

Air Quality

Improvements in Fuel Quality and Emissions Regulations

Emission Standards

Fuel Quality Standards

Conclusions

Current Maximum Sulfur Content

Current Maximum Sulfur Content

Future Trend of Sulfur Content

0

100

200

300

400

500

600

700

800

900

1,000

2010 2011 2015 2020 2025 2030

pp

m

North America Latin America Europe CIS Asia Pacific Middle East Africa

Source: Hart Energy’s World Refining & Fuels Service (2011)

Air Quality

Improvements in Fuel Quality and Emissions Regulations

Emission Standards

Fuel Quality Standards

Supply and Demand of Gasoline and Diesel

Conclusions

Conclusions

Environmental concerns drive cleaner fuels;

Stricter emissions requirements expected in near term; and

Systematic approach to air quality, vehicle emissions and fuel quality regulations needed to improve environmental situation.

Thank you!

Lucky Nurafiatin

Research Manager, Asia & Middle East

Lnurafiatin@hartenergy.com

Questions/Discussion

Hart Energy Consultants

Global Biofuels Outlook:

Policy, Market and Technology Trends

Tammy Klein

Assistant Vice President

July 30, 2012

1

Presentation Overview

Petroleum Product Outlook

Global Crude Supply

Refined Product Demand

Regional Product Demand Growth

& Share

Global Biofuels Outlook

Trends

Mandates

Supply and Demand

Key Market: United States

RFS2 Program Issues

E15 Implementation

Ethanol “Blend Wall”

Key Market: Brazil

Impact of Sugar on Ethanol Price

Feedstock Availability

Demand Outlook

Supply/Demand Balance

Key Market: EU

Regulatory Framework

Sustainability

6% GHG Reduction

Next Generation Biofuels

Capacity

Cellulosic Feedstocks

Methanol, Biobutanol and

Renewable Diesel

Conclusions

2

Petroleum Product Overview

3

Crude Supply 2011 (million barrels per day)

Crude Supply 2030 (million barrels per day)

Crude Supply from Middle East, Africa &

Russia/Caspian Regions Will Grow

Source: Hart Energy analysis and forecast (2011)

Global Crude Oil Supply

North America 12.3%

Latin America 12.5%

Europe 4.8%

CIS 17.1% Asia-Pacific

10.4%

Middle East 31.1%

Africa 11.8%

North America 12.0%

Latin America 12.1% Europe

2.4% CIS

16.1%

Asia-Pacific 7.7%

Middle East 36.4%

Africa 13.3%

4

Refined Product Demand by Product

87.8 94.6 102.4

109.0 114.9

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

2011 2015 2020 2025 2030

Gasoline Naphtha JetFuel Kerosene

Middle Distillate Residual Fuel LPG Other Products

Source: Hart Energy analysis and forecast (2011)

MILLION BARRELS PER DAY

5

Regional Product Demand Growth

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

North America

Latin America

Europe CIS Asia-Pacific

Middle East

Africa

-0.3%

2.0%

0.3% 2.0%

2.2%

2.6%

2.2%

Source: Hart Energy analysis and forecast (2011)

MILLION BARRELS PER DAY

Annual percent growth shown above bars

Asia-Pacific accounts for 54% of 2011-30 growth,

China 33% of global growth

6

Source: Hart Energy analysis and forecast (2011)

2011 2015 2020 2025 2030 Increment 2011-2030

25% 25% 24% 24% 23% 15%

7% 7% 7% 6% 6%

5%

7% 7% 7% 7% 8%

8%

29% 30% 31% 33% 34% 49%

11% 10% 9% 9% 8%

10% 10% 10% 10% 10% 10%

11% 11% 11% 11% 11% 12%

Other LPG Heavy Fuel Oil Distillate Jet Fuel/Kerosene Naphtha Gasoline

Refined Product Market Share

Distillate dominates refined product market,

accounting for nearly half of refined product growth

7

Global Biofuels Outlook

8

Trends and Outlook

Biofuels Largely Rely on Food-Based Feedstocks

Biodiesel and renewable diesel prices are forecasted to be uncompetitive with petroleum products and depend on troubled

mandates

Federal RFS2 shows a strong potential for change within the next three years

Difficulties in Implementing Far-Reaching Biofuels Programs in the U.S., EU

ILUC is a problem for EU policymakers

Too much ethanol in the U.S. and not enough biodiesel, sugarcane ethanol and other advanced biofuels

Brazil Considered the “Linchpin” but Limited Supplies of Sugarcane Ethanol

through 2020+

Exports will barely reach 3 billion liters by 2020

Internal market demand and constraints

Next generation/advanced biofuels largely not available

Technologies still unproven and scale-up has been very slow

Competes with conventional biofuels in some cases and no where to blend in the pool

Despite these constraints: Biofuels consumption will continue to grow!

Ethanol: Strongest growth from the U.S. and Brazil

Biodiesel: Strongest growth from EU

9

Source: Hart Energy’s Global Biofuels Center, June 2012

Latin America: More

countries push for

mid- and higher

level ethanol blends Ethanol

Biodiesel

Ethanol & Biodiesel

Partial or No known biofuels program

Africa:

Countries beginning

to set mandates

Middle East:

Ethanol &

jatropha

R&D projects;

algae

Asia Pacific:

High variance

in blend levels

Europe:

RED implementation, sustainability

and GHG savings

North America:

RFS2, LCFS, intermediate blends

Biofuel Mandates in 2012 10

Current Mandates in Asia

Source: Hart Energy’s Global Biofuels Center, July 2012

NORTH KOREA

JAPAN SOUTH KOREA

CHINA

MONGOLIA

PAKISTAN

BHUTAN

BANGLADESH INDIA

SRI LANKA

MALAYSIA

BRUNEI

CAMBODIA

THAILAND

VIETNAM LAOS

BURMA

PHILIPPINES

Hong Kong Macau

Taiwan NEPAL

SINGAPORE

INDONESIA

Nationwide mandate

Partial mandate

E10 (or E5) available on market

ETBE - blended gasoline

Key:

E5 Nationwide except selected

states

B2

B2

E10 in 10 provinces

E10, B2

B5

E3, B2.5

B5

11

0

10

20

30

40

50

60

70

Supply Policy Demand

Market Demand

Supply Policy Demand

Market Demand

Supply Policy Demand

Market Demand

Supply Policy Demand

Market Demand

Asia Pacific North America Latin America EU27

Bill

ion

Lit

ers

2015 2020 2025

Supply & Demand for Ethanol

Source: Hart Energy’s Global Biofuels Center, June 2012

12

0

5

10

15

20

25

30

Supply Policy Demand

Market Demand

Supply Policy Demand

Market Demand

Supply Policy Demand

Market Demand

Supply Policy Demand

Market Demand

Asia Pacific North America Latin America EU27

Bill

ion

Lit

ers

2015 2020 2025

Supply & Demand for Biodiesel

Source: Hart Energy’s Global Biofuels Center, June 2012

13

Focus on the United States

14

“RFS2” Program Requirements

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Biomass-Based Diesel 0.5 0.7 0.8 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

Advanced Biofuels (Sugar) 0.1 0.2 0.3 0.5 0.8 1.0 1.5 2.0 2.5 3.0 3.5 3.5 3.5 4.0

Cellulosic Biofuels 0.1 0.25 0.5 1.0 1.8 3.0 4.25 5.5 7.0 8.5 10.5 13.5 16.0

Renewable Fuel (Corn Ethanol) 4.0 4.7 9.0 10.5 12.0 12.6 13.2 13.8 14.4 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0

RFS1 Requirements 4.0 4.7 5.4 6.1 6.8 7.4 7.5 7.6 7.7 7.8 7.9 7.9 8.1 8.3 8.4 8.5 8.6

Total New RFS Requirement 4.0 4.7 9.0 11.1 13.0 14.0 15.2 16.6 18.2 20.5 22.3 24.0 26.0 28.0 30.0 33.0 36.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Billio

ns

of

Ga

llo

ns

EPACT 2007

15

Changes to RFS2 Almost Certain

RFS2 faces fundamental challenges

Shortage cellulosic biofuels (revised EIA assessment)

Slow commercialization of advanced biofuel technologies

Near-term shortfall on sugarcane ethanol imports

E10 blend wall effects (and strong E15 waiver court challenge)

All concerned stakeholders are expecting a change to

the RFS2 volumes before a 2016 mandated restructure

Advanced Biofuels Association

American Fuel & Petrochemical Manufacturers

American Petroleum Institute

Department of Energy – Energy Information Administration*

Grocery Manufacturers Association

Environmental Working Group

16

Ethanol Blend Wall

Results of 10% Ethanol Blend Wall on RFS-2

Advanced Biofuels

Note:

Timing and volumes not to scale

U.S. is at blend limit, but effects on RFS2

compliance cost will not hit until 2013-2014 when

more biodiesel demand is forced. In the end, limited

biodiesel supply is the real RFS2 killer past 2014.

Short-Term RFS/Blend Wall solutions:

1) EPA modification of RFS

2) Congressional modification of RFS

3) Rapid state implementation of ASTM E15

standard, waiver of state E10 limit laws,

spontaneous cross-industry agreement and

implementation of E15 and E85

No short-term help from new drop-in technologies

(biobutanol, renewable gasoline)

Source: Hart Energy’s Global Biofuels Center

17

Focus on Brazil

18

Supply: Impact of Sugar on Ethanol Price

Industrial organization of sugar and ethanol sector (more atomized and competitive) requires it to be more responsive to supply and demand pressures. Key point of reference is price of sugar, i.e., the main alternative use for sugarcane.

USD 0

USD 5

USD 10

USD 15

USD 20

USD 25

USD 30

USD 0.00

USD 0.10

USD 0.20

USD 0.30

USD 0.40

USD 0.50

USD 0.60

USD 0.70

USD 0.80

USD 0.90

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

US

D/t

on

US

D/k

g

Source: Hart Energy, based on CEPEA, Bloomberg and IBGE data, March 2012

Sugar #11, USD/kg (left scale) Crystal Sugar, São Paulo, USD/kg (left scale)

Sugarcane, national avg., USD/ton (right scale)

19

Supply: Feedstock Availability

Allocation of feedstock to sugar expected to decline as sugar prices come down –expected turn of “Indian sugar cycle” expected to eventually put upward pressure on sugar prices.

30%

35%

40%

45%

50%

55%

0

200

400

600

800

1,000

1,200 2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

f

2013

f

2014

f

2015

f

2016

f

2017

f

2018

f

2019

f

2020

f

2021

f

2022

f

% o

f to

tal

mill

ion

met

ric

ton

s

Source: Hart Energy, March 2012

Cane crushed (left scale) % of cane used for sugar production (right scale)

20

Otto-Fuel Demand Outlook

Fill rates will continue to reflect gasoline-ethanol price relationship.

20%

30%

40%

50%

60%

70%

80%

0

2

4

6

8

10

12

14

16

18

20

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

f

20

13

f

20

14

f

20

15

f

20

16

f

20

17

f

20

18

f

20

19

f

20

20

f

20

21

f

20

22

f

Hyd. Ethanol (left scale) Anhyd. Ethanol (left scale)

Gasoline A (left scale) fill rate among FFVs (volumetric)

Source: Hart Energy’s Global Biofuels Center, March 2012

21

Ethanol Demand/Supply Balance

Upsurges in domestic demand – driven by softer prices – will periodically drive down net export availability. Even during peak years of availability, net exports will fall below most forecasts (e.g., Ministry of Agriculture, ICONE, UNICA, etc.)

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

-15

-10

-5

0

5

10

15

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

f

20

13

f

20

14

f

20

15

f

20

16

f

20

17

f

20

18

f

20

19

f

20

20

f

20

21

f

20

22

f

Hydrous Production Anhydrous ProductionHydrous Consumption Anhydrous ConsumptionNet Exports

Source: Hart Energy’s Global Biofuels Center, March 2012

22

Focus on Europe

23

20/20/20 target

Revision of the Emission Trading Directive (ETS)

Reduction of GHG emissions by Member States

Renewable Energy Directive (RED)

Directive on the geological storage of CO2 (CCS)

Action Plan for Energy Efficiency

State aid guidance on environmental protection

Additional measures

Fuel Quality Directive (FQD)

Regulation on CO2 reduction from passenger cars

EU Regulatory Framework 2010-2020

24

Renewable Energy Directive (RED)

Overall (EU27) 20% Renewable Energy consumption by 2020

10% by energy content Renewable Energy in Transport (can be on-road or off-road) by

2020

Sustainability certification requirement

Minimum GHG saving requirements

Double counting for Art. 21.2 biofuels

Indirect land use change considerations

Fuel Quality Directive (FQD)

6% Life-cycle GHG emissions reduction obligation for fuel suppliers

E10

B7

Blend levels too low for RED mandate

EU Regulatory Framework 2010-20

25

Sustainability Requirements for Biofuels

2011 or 2013

(with grandfathering clause)

2017

2018 (new installations)

“soft” interpretation of the term “installation”

26

Obligation for fuel suppliers

6% Life-cycle GHG emissions reduction with:

1. Sustainable biofuels

2. Electricity

3. Other fuels and energy

Additional 2%:

4. On-road and non-road

5. Technology to reduce GHG emissions

Additional 2%:

6. Credits purchased through CDM

6% GHG Reduction 2010-2020

27

Next Generation/

Advanced Biofuels

28

25 operating next generation biofuels pilot/demo

plants in the U.S.

18 cellulosic ethanol plants with capacities ranging from 1,600 gallons per

year to 1.5 million gallons per year

5 FT or HVO renewable diesel plants: undisclosed to 0.07 gallons per year to

5 million gallons per year

2 for biogasoline or biojet

2 operating commercial plants in the U.S.

Gevo: 18 million gallons per year of butanol

Dynamic Fuels: 18 million gallons per year of HVO renewable diesel

Next Generation Operating Capacity

29

Projects with Cellulosic Feedstock

0

50

100

150

200

250

300

350

Operating 2012 Including Proposed

Mill

ion

Gal

lon

s P

er Y

ear

Source: U.S. & Brazil Ethanol Outlook to 2022, April 2012

Capacities of Operating and Proposed Projects with Cellulosic Feedstock

Biobutanol Cellulosic Ethanol

FT Liquids / Hydrocarbons, Jet fuel Hydrogenated vegetable oil / animal fat

Synthetic gasoline

30

Biobutanol and Renewable Diesel

Biobutanol and renewable diesel have drop-in advantages

(pipeline compatible) and fewer blend restrictions

In U.S., both currently threatened by patent litigation

Renewable diesel shares feedstock with biodiesel but requires

larger cap-ex and operating costs; interest from aviation

Co-processed renewable diesel qualifies for the D5 RIN, but

dedicated processing gets higher priced D4 RIN (biodiesel), which

scales better with feedstock costs

Biobutanol blending into current gasoline infrastructure stymied by

narrow summer waiver blend range (9%-10% ethanol)

31

BTL and HVO Renewable Diesel

BTL and HVO renewable diesel have drop-in advantages (pipeline compatible)

and fewer blend restrictions

In U.S., HVO currently threatened by patent litigation

HVO renewable diesel shares feedstock with FAME biodiesel but requires larger

cap-ex and operating costs

Both have a market as aviation biofuel

Co-processed renewable diesel qualifies for the D5 RIN, but dedicated processing

gets higher priced D4 RIN (biodiesel), which scales better with feedstock costs

32

Conclusions

33

Conclusions

Reality: Era of cheap biofuels feedstocks is gone!

Corn, sugar, wheat, soy, palm – more expensive than ever and going to food

Crops having difficulty due to drought, new feedstocks are not scalable right now

Limited volumes of sugarcane ethanol for export

Progressive biofuels policies in the U.S., EU having trouble at the

implementation stage

Government support for conventional biofuels has waned

Higher blends difficult to implement, controversial in the U.S.

ILUC has caused Europe a headache

Next generation/advanced biofuels supplies limited

Technologies still unproven and scale-up has been very slow

Governments cannot afford to subsidize R&D any longer

Competes with conventional biofuels in some cases and no where to blend in the pool

34

Thank You!

Tammy Klein

Assistant Vice President

+1.239.970.2231

tklein@hartenergy.com

35

About Hart Energy

36

Global Presence

37

Fully-Integrated Capabilities…

…Unmatched Downstream Analysis

38

Regulations & Policy: taxation, incentives, credits,

subsidies, programs (LCFS) and policies

RINs: accounting, compliance, invalidation, tax credits,,

pricing, security, liquidity, contracting.

Ethanol Pricing: long and short term forecast

Supply and Demand: crude oil, gasoline, diesel, biofuels

Capacity & Production: searchable/downloadable

database

Import markets: trade and opportunities

Technologies, News, Mandates: regular global reports

provide detailed world developments

Access: 24/7

Introductions: to producers, traders & other market players

Global Biofuels Center Provides

39

Clients

REFINING

AUTOMOTIVE

TECHNOLOGY

FUEL

E&P

GOVERNMENT

40