LOW SULFUR FUEL IN 2020 - NAMEPA...Low Sulfur Fuel in 2020 6 Table 4. Projected Crude Distillation...

LOW SULFUR FUEL IN 2020 © An overview of the projected maritime energy market

Michael Ramsey [email protected]

Copyright March 2017

Low Sulfur Fuel in 2020

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Low Sulfur Fuel in 2020 Executive Summary

v The International Maritime Organization (IMO) is implementing environmental regulations on the shipping industry. Starting 2020, ships must reduce their sulfur emissions by 85%.

• Prior to deciding, the IMO considered two conflicting reports that projected the accessibility of low sulfur solutions for 2020.

• It is expected about 80% of the industry will require some form of low sulfur petroleum

fuel (LSF), making its accessibility of highest concern. v Report Takeaway

• The reports agreed on nearly every projection except for one part of the refinery analysis.

• To produce sufficient LSF, refineries need to expand their capacities. A refinery unit of concern is the Hydrodesulfurization (HDS) unit, which removes sulfur. Expanding this unit is expensive and takes a few years.

• The reports disagree on if the capacity of this unit will be expanded by 2020:

- The official report assumes refineries will automatically expand to meet the demand.

- The supplementary report claims it is not that simple, and refineries will be

reluctant to invest in expanding because of an unknown future market.

• The official report claims global compliance will be achieved through interregional trade, with costs around $616 for LSF (<0.1), $595 for LSF (<0.5), and $466 for HFO ($/ton).

• The supplementary report claims there will be a global shortage of LSF by 63 MTPA, and costs will be around $841 for LSF (<0.1), $725 for LSF (<0.5), and $396 for HFO ($/ton).

• The IMO only asked ‘can’ the market adapt, but did not ask if it ‘will,’ which is likely

why it sided with the official report. v Implications

• Some of the refinery industry is taking a ‘wait and see’ approach, some will meet the demand, and others will transition to other markets.

• Some ship owners currently using LSF have faced persistent challenges attempting to comply due to unreliable fuel supply and complications with engine compatibility.

• Compliance with LSF is not guaranteed. Enforcement is currently weak, but the

development of a ‘level playing field’ by 2020 is in progress.


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Introduction

This report provides an overview of the projected maritime low sulfur fuel market for 2020, with a concentration on petroleum fuels. Projections made by two research consultants are compared to shed light on the uncertain future of this market. A brief discussion is provided at the end to address concerns ship owners may have.

IMO: 2020 Sulfur Cap

The International Maritime Organization (IMO) announced that starting in 2020, ships must reduce sulfur emissions from 3.5% to 0.5%. This is a drastic 85% reduction. Other emissions (nitrogen and particulate matter) are included, but not of such high concern. Commercial ship owners around the world must change their fuel consumption practice by using low-sulfur petroleum fuel with a sulfur content <0.5% (LSF), Heavy Fuel Oil (HFO) with a scrubber, or Liquefied Natural Gas (LNG).

Prior to setting this regulation, the IMO hired the consultant CE Delft (CE) to assess the availability of these low-sulfur solutions for 2020. The IMO wanted to know if 2020 is a feasible implementation date. The world’s largest ship owner association BIMCo (and several other organizations) hired consultants EnSys and Navigant (EN) to provide a second opinion. All three solutions are addressed, but the focus of both reports is on LSF. CE claims LSF will be available in sufficient quantities, and EN claims it will not. This outcome reflects the complexity of this topic and difficulty in making an accurate projection.

Despite contrasting conclusions, the IMO determined 2020 to be a feasible implementation date. Now, ship owners are uncertain how to proceed. There is concern that refineries may not be prepared to meet the demand in LSF, making prices extremely high for an unknown length of time (JOC). Ship owners are debating if they should brace themselves and see how the LSF market plays out, or rely on scrubbers or LNG, both of which require significant investments.

Background of Projection Reports

CE and EN are both credible consultants that have done research for the IMO before. CE is a consultant that specializes in practical solutions to promote environmental sustainability, and subcontracted several specialty consultants. EN is a collaboration between two consultants in the energy and maritime sectors, respectively. The reports involved dozens of experts in the shipping and energy industries, and each are about 200 pages of technical material. Both reports use very complex methods to project the availability of low sulfur solutions. The general method by both was to project supply and demand by region, and determine if global compliance can be achieved by balancing out regional surpluses and shortages.

The consultants agreed to base demand projections off an IMO market assessment report from 2012, but supply projection base data and methods differed. To have confidence in their conclusions, both reports made conservative estimates and projected several potential market scenarios. Despite using similar methods and base data, each report addressed variables that the other did not, which resulted in contrasting market predictions. Projections were made to determine if low sulfur solutions can be available in a full-compliance market by 2020. Post-2020 market projections are not made.


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Low Sulfur Fuel Background Low Sulfur Fuel (LSF) encompasses several types of fuels (Table 1). LSF is commonly

referred to as Marine Gas Oil (MGO), as MGO is typically an essential component. It can be used as a marine fuel by itself, but it is usually blended with HFO. This is the current practice to produce LSF for ships in Emission Control Areas (ECAs), which require a sulfur content of <0.1% (TM4). For practical purposes, these fuels will fall under ‘LSF’ in this report, as the several fuel types are considered by the consultants.

Table 1. Common Low Sulfur Fuels

Source: viscopedia.com

MGO is a distillate product like kerosene and diesel. Its availability for the maritime industry is of concern because of production limitations and competing distillate markets. The production of MGO involves a complex refining process, but an important part of the process involves a hydrodesulphurization (HDS) unit. HDS units use hydrogen gas to extract sulfur from the fuel, and a Sulfur Recovery Unit (SRU) (aka ‘sulfur plant’) to capture it. Hydrogen gas is usually produced at the refinery with a hydrogen plant, as it is difficult and expensive to transport from off-site sources. A hydrogen plant can cost around $100 million, and a SRU can cost $20-50 million (Bunkerport). Installing these units by 2020 is considered possible, but very rushed (Platts).

An emerging practice called Residue Desulfurization (RDS) removes sulfur directly from HFO. If distillates are in high demand and production is at capacity, this can be a valuable alternative to providing LSF (CLG), though this process is known to be more expensive and not widely practiced (Bunkerport).

LSF Quantitative Projections

Projecting Maritime Fuel Demand The demand of LSF was determined by projecting total marine fuel demand and the market

penetration of scrubbers and LNG. As of 2012, 76% of the industry used HFO. These HFO users will need to find a low sulfur solution. There is no known incentive to implement low sulfur solutions prior to 2020, implying the change in demand will occur overnight.

Because scrubber and LNG solutions take months to implement, both reports agree the rate of implementation will increase gradually as 2020 approaches, and the industries will reach installation/retrofitting capacity towards the end of 2019. Scrubbers and LNG will cushion the demand for low sulfur solutions, but Tables 2 and 3 show the demand will primarily fall on LSF.

Fuel Full Name Description MGO Marine Gas Oil Distillate gas that is condensed into liquid

MDO Marine Diesel Oil Mix of MGO and HFO

IFO Intermediate Fuel Oil Mix of MGO and HFO, but with less MGO than MDO

MFO Medium Fuel Oil Mix of MGO and HFO, but with less MGO than IFO LS HFO Low Sulfur Heavy Fuel Oil Desulfurized residual fuel oil


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Table 2. Projected Market Penetration of Low Sulfur Solutions for 2020 (MTPA) LSF (<0.1) LSF (<0.5) HFO (+Scrubber in 2020) LNG

2012 21% 0% 76% 3% 2020

Projection CE EN CE EN CE EN CE EN

12% 8% 73% 73% 11% 13% 4% 6% See Appendix A for report data and calculations.

Table 3. Projected Total Marine Fuel and LSF Demand for 2020 (MTPA) Total Marine Fuel Demand

(LSF + HFO + LNG) Total Demand of LSF

(<0.1 + <0.5) 2012 300 64

2020 Projection

CE EN CE EN 320 342 272 284

See Appendix A for report data and calculations. Demand Summary

The demand projections are reasonably close. The slight differences suggest the contrasting conclusions of the reports derive from differences in LSF supply projections. About 80% of the industry will require LSF starting in 2020, increasing the demand from 2012 levels by about 214 MTPA. Projecting LSF Supply

To achieve global compliance, refineries are expected to meet the new demand of LSF. The overnight increase in production is about 4 years of normal growth for refineries (Bunkerspot). If refiners are to meet demand, they must work with what is currently available along with projects set to be complete by 2020. For example, coking units are considered very important to producing distillates, but they require several years and $1-2 billion to implement (Bunkerspot). Though they may alleviate the market post-2020, they are not seriously considered by the reports.

The main question both studies address is if refineries can produce sufficient LSF for the maritime market, along with other distillate-consuming markets. Predicting LSF production is by far the most detailed analysis of both reports. The primary projection considered is the composition and capacity of refineries. Other important projections considered are the supply of appropriate crude oil, and the projected state of other markets that consume distillate products.

Crude Processing Capacity

Overall, Table 4 demonstrates the reports projected similar crude processing capacities. If the reports agree on general refinery capacity, there must be a conflict in the capacity of specific units which limit the output of LSF.


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Table 4. Projected Crude Distillation Capacity for 2020 Total

(MTPA) Africa Asia Europe North America

Latin America

Middle East Russia

CE 5020 3% 31% 15% 26% 8% 9% 8% EN 5088 4% 33% 16% 21% 8% 10% 8%

See Appendix B for report data. Refinery Unit Capacity Both reports generally agree with refinery unit capacities, including HDS units. However, there is a great divide when it comes to the projected capacities of HDS subunits: Hydrogen and Sulfur Plants.

“We have assumed that all units have sufficient sulphur plant capacity because this is generally the case. If this assumption is not accurate, refineries will need to expand the capacity of their sulphur plants capacity to fulfill 2020 demand (CEp59).”

CE has assumed sulfur plant capacity will be available and did not make their own projection. CE explains their reasoning in more detail in their Appendix B (p116). CE believes a general refinery practice is to have abundant sulfur plant capacity because if desulfurization were to increase, sulfur plants would be the limiting factor. CE assessed data provided by the Oil and Gas Journal and acknowledge that sulfur plant capacity will need to expand in some regions, but that it is not of serious concern, as refiners can expand within the timeframe. Insufficient hydrogen was also noted, but was dismissed as it can be transported to refineries if necessary.

EN projected the capacity of sulfur and hydrogen plants and came up with similar projections to the Oil and Gas Journal. EN suggests the installation of sulfur plants during 2016-2019 needs to increase by 60-75% and hydrogen plant projects need to increase by 30-50% (ENp8).

The great divide between these reports is not if these units ‘can’ be expanded by 2020, but if they ‘will.’ CE has assumed they will, but EN has reasonable doubts. If it is even feasible to meet the timeframe, expansion projects would likely be delayed or aborted in the approval process because the post-2020 market is so uncertain (Bunkerport). There is a strong possibility the price of LSF will be so high that it will encourage the continued implementation of scrubbers and LNG, reducing the demand for LSF and leaving refinery investments abandoned within years. EN criticizes CE for assuming refineries will automatically meet the demand, but technically the IMO only asked ‘can’ the market adapt by 2020, and did not ask ‘will’ the market adapt. Supply Summary

The most significant difference in the supply analysis is the opinion on sulfur and hydrogen plant capacity. Both agree it will need to expand, but disagree on if refineries will expand in time. This factor impacts their projection of LSF production, as demonstrated in Table 5. The total projected LSF supply difference is 19%.


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Table 5. Projected LSF Supply for 2020 (MTPA)

See Appendix C for report data and calculations. Projected Accessibility and Market Impacts

Table 6 summarizes the main findings of the reports. CE claims LSF demand will be met and EN claims there will be a global shortage of LSF by 63 MTPA. EN predicts that even if some refineries do manage to expand capacity, there would still be a deficit of 50 MTPA (EN Recap).

Table 6. Summary of Projected Supply and Demand of LSF for 2020

See Appendix D for report data and calculations.

Regional Trade Flows

The reports agree there will be regional shortages and surpluses of LSF, and changes in interregional trade of crudes and refined products will be necessary to achieve (or attempt) global compliance. Regional LSF supplies generally depend on access to appropriate crude oil, available refinery capacity, blending capabilities, and the demand for LSF in the local area. The reports projected the LSF accessibility for each region and determined probable interregional trade flows. Projections are presented in Appendix D.

CE makes it clear the Middle East will have surpluses, and North America, Asia, and Africa will have shortages. EN does not discuss but provides a raw data table that suggests a different scenario, with North America, Latin America, and Russia having surpluses, and the Middle East and Asia as having shortages.

Projected Costs

Table 6. Projected costs of Marine Fuels for 2020 ($/ton). LSF (<0.1%) LSF (<0.5%) HFO CE EN CE EN CE EN

2020 616 841 595 725 466 396 See Appendix E for data and calculations.

CE EN LSF (<0.1) 39 29 LSF (<0.5) 233 192 Total LSF 272 221

Supply Demand

CE EN CE EN Total LSF 272 221 272 284


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Conclusion Summary of Reports

CE claims there will be regional shortages of LSF, but is confident a global balance can be achieved assuming refineries expand hydrogen and sulfur plant capacity, and trade flows adjust. Also, the projected decrease in distillate demand from other markets will alleviate the strain on refineries. BIMCo has criticized CE for neglecting to address how refiners are expected to add capacity, if the available LSF will be compatible with ships, and how much a disruption an overnight change in demand would cause to the market (WMN).

EN claims there will be a global LSF shortage because refineries have insufficient capacity, specifically because there is a lack of sulfur and hydrogen plants. Competing distillate markets will not help this issue. The shortage of LSF will make full compliance impossible, and even if there were sufficient capacity, an attempt to meet compliance would cause severe market strain and cause more environmental damage than if there were no sulfur cap at all. EN concluded there needs to be more time for the market to adjust, or to incentivize early adoption of low sulfur solutions. There were many important projections agreed upon, yet disagreements in the refinery desulfurization analysis are the main reason the reports contrasted in opinion. Both reports agree refineries need to be properly equipped with sulfur and hydrogen plants by 2020. Where they differ is if this will actually happen. CE assumes refineries will automatically expand, and EN argues expansion is not that simple and refineries will not see the long-term incentive to do so.

BIMCo claims implementing the 2020 date is irresponsible because the accessibility of LSF is still uncertain and there needs to be a more in-depth analysis. The impacts of a shortage could be severe to the market, especially for developing nations (WMN). Ultimately, the IMO sided with CE and at the time of this report, there has been no official explanation for their reasoning. It can only be speculated that the IMO sided with CE because they only wanted to know if 2020 compliance was possible. An IMO transition team has been assigned to address challenges as 2020 approaches. Author’s Note:

On a subjective note, it makes sense why the IMO sided with CE. An unexpected challenge in the comparison of these reports was locating and understanding EN’s projections. Relatively, the CE report presents its findings clearly and the EN report does so poorly. EnSys and Navigant are well-regarded consultants within the industry and they make valid points in their report, but their projections are poorly articulated (see Appendices). It seems possible the IMO couldn’t fully understand EN’s reasoning and didn’t have confidence in their conclusion.

Also, many believe IMO committed to 2020 because of political pressure (SB). The IMO is a sub-organization of the UN, which is committed to achieving Sustainable Development Goals (SDGs) by 2030. Achieving these goals requires significant action in the development of clean energy and the reduction of environmental damage. Also, a study has claimed extending the implementation date to 2025 would cause 200,000 premature deaths because of air pollution (SB). Extending the implementation date because of potential market strain while being aware of this information would severely damage the IMO’s reputation.

Michael Ramsey | Energy & Environment Professional | Norwalk, CT | [email protected] |


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Considerations & FAQ for Potential LSF Consumers: Do you have confidence in the IMO’s decision?

Both reports agree there will be market strain, but EN goes further to say it will be much more intense and will last longer. This report comparison indicates a potential assumption flaw in the CE analysis, and EN provides data and reason to back it up. Considering EN agreed on nearly every other significant projection, the claim by EN should not be taken lightly.

If the market is capable of adapting, will it?

The ability of refineries to produce LSF was analyzed, but the economic opportunities and challenges for them was not. Refinery configurations, inputs, and products are expected to change, causing a chain reaction with an unpredictable outcome (TM4). Some major suppliers (BP, Shell) have committed to meet this new demand, but others will transition into irrelevant markets (Platts). As mentioned, some refiners considering investing may never get past the approval process because the post-2020 market is so unclear. Fuel Specifications and Supply

LSF encompasses various fuel blends that have different properties like viscosity, flash point, and density. Ship owners will need to determine which fuel blend their ship is compatible with, and if it will be available on their routes. If not, they must change refueling patterns.

In ECAs, ship owners have reported issues finding the proper fuel because of unreliable supply and incompatibility issues. Ports will have different supplies of LSF blends, and they will all have their own engine compatibilities. Ship engines were designed to run on residual fuel, and the added complexity of varying levels of distillates are known to create issues (Platts). Compliance The IMO has decided to implement the sulfur cap regulations, but has left the enforcement aspect to individual ports and states. It is expected compliance will be ensured via documentation and fuel sampling. When a ship fuels, they will likely be given a bunker delivery note which states the sulfur content of fuel supplied, and the fuel may be sampled to verify (IMO). The challenge is to ensure compliance when at open sea. The industry has raised concerns about the level of enforcement to ensure an even playing field. In the 2015 ECA, only 30% of violations were sanctioned, and some fines were as low as $1,500 compared to savings of $100,000 per trip. Numerous shipping organizations have committed to compliance and support the development of robust and transparent enforcement (Platts). It seems methods to enforce compliance are currently weak, but in development. Further Reading: S&P Global: Platts “The IMO’s 202 Global Sulfur Cap. What a 2020 Sulfur-Constrained World Means for Shipping Lines, Refineries and Bunker Suppliers.” Bunkerspot. “Stress Test. 2020: Can Refiners Meet the Sulphur Deadline?”


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SOURCES

Report Access and Summary: CE Delft (2015) Assessment of Fuel Oil Availability Netherlands http://www.cedelft.eu/publicatie/assessment_of_fuel_oil_availability/1858 Report Access and Summary: EnSys/Navigant (2015) Supplemental Marine Fuel Availability Study Massachusetts http://www.ensysenergy.com/downloads/supplemental-marine-fuels-availability-study-2/ EN Recap: “IMO Decides on Jan 1 2020 for Global 0.5% Sulphur Cap.” EnSys. December 2016. Retrieved from http://www.ensysenergy.com/posts/ensys-navigistics-present-imo-mepc70/ Other: SB (Health Study): “T&E and Seas at Risk: Delay of 0.5% Sulfur Cap from 2020 "Unacceptable and Unjustifiable" October, 2016. Ship and Bunker. Retrived from http://shipandbunker.com/news/world/273795-te-and-seas-at-risk-delay-of-05-sulfur-cap-from-2020-unacceptable-and-unjustifiable SB (Political Pressure): “Postponing 0.50% Sulfur Cap to 2025 May be Considered Politically Unacceptable: ICS” May, 2016. Ship and Bunker. Retrieved from http://shipandbunker.com/news/world/713837-postponing-050-sulfur-cap-to-2025-may-be-considered-politically-unacceptable-ics WMN (BIMCo criticism): “BIMCO Calls IMO Study on Low Sulphur Fuel Availability in 2020 ‘Flawed’” World Maritime News. October 2016. Retrieved from http://worldmaritimenews.com/archives/203792/bimco-calls-imo-study-on-fuel-oil-availability-in-2020-flawed/ JOC: “Low-sulfur fuel to come with high price for container carriers” Aug 2016. JOC. Retrieved from http://www.joc.com/regulation-policy/transportation-regulations/international-transportation-regulations/low-sulphur-fuel-come-high-price-container-carriers_20160815.html TM1: Auers, John. “He (It) Ain’t Heavy, He’s (It’s) My Brother (Bunker)” Turner, Mason & Company. February 2016. TM2: Auers, John. “It Ain’t Heavy, It’s My Bunker Part 2: Winners and Losers” Turner, Mason & Company. March 2016. TM3: Amand, David. “It Ain’t Heavy, It’s My Bunker Part 3: The Decision Looms” Turner, Mason & Company. September 2016.


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TM4: Auers, John. “It Ain’t Heavy, It’s My Bunker Part 4: What Do Impending New Bunker Specs Mean for Refiners” Turner, Mason & Company. October 2016. Viscopedia (LSF Table Summary): Bunker Oil-Marine Fuel Oil. http://www.viscopedia.com/viscosity-tables/substances/bunker-oil-marine-fuel-oil/ DN (Diesel Net): https://www.dieselnet.com/standards/us/fuel.php CLG. Arun Arora “Refinery Configurations for maximizing middle distillates.” Chevron Lummus Global. 2011. Retrieved from http://www.cbi.com/getattachment/8c995e6e-0f53-43fe-938d-6f69cc946fe8/Refinery-configurations-for-maximising.aspx Platt. “The IMO’s 202 Global Sulfur Cap. What a 2020 Sulfur-Constrained World Means for Shipping Lines, Refineries and Bunker Suppliers.” S&P Global: Platts. October 2016. Retrieved from https://www.spglobal.com/our-insights/What-a-2020-Sulfur-Constrained-World-Means-for-Shipping-Lines-Refineries-and-Bunker-Suppliers.html Bunkerpsot. “Stress Test. 2020: Can Refiners Meet the Sulphur Deadline?” Bunkerspot. January 2017. Retrieved from http://www.ensysenergy.com/downloads/bunkerspot-stress-test-2020-can-refiners-meet-sulphur-deadline/


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APPENDIX A: Demand Data EN Overall Demand Data p51

Market Share Demand Data & Calculations p52

Supplemental Marine Fuel Availability Study July 15, 2016

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2017 380 219 213 219 219 386 1.7%

2018 823 1,052 443 833 833 1,219 5.2%

2019 1,700 4,426 877 3,375 3,375 4,593 19.7%

Exhibit 3-24 ECA Proxy Predicted Scrubber Penetration Adjusted, cumulative

The adjusted ECA proxy scenario shows that 19.7% of the ex-ECA fleet is predicted to be equipped with scrubbers by year-end 2019. This equates to 15.9% of the HFO consumed (2012 basis). To this we must add the ECA scrubber equipped ship HFO consumption predicted for year-end 2019, this yields a Global total HFO consumption (on ships equipped with scrubbers of 18.7%).

This equates to 48.2 million tons per year in 2020 or 0.9 mb/d of HFO consumption in 2020.

We believe that the ECA proxy adjusted scenario is the most reasonable scenario to use for scrubber penetration and HFO fuel consumption in 2020.

3.6 Marine Fuel Demand and “Switch” Volumes in 2020

To calculate our central marine fuel demand scenarios for 2020, we energy balanced with constant energy between cases (scrubber energy use excluded so as not to impact “switch” volumes). The energy balanced (final) Navigistics 2020 marine fuel demand and “switch” volumes are shown in Exhibit 3-25.

Exhibit 3-25 Navigistics 2020 Marine Fuel Demand (Energy balanced)

Exhibit 3-26 summarizes marine fuel demands by type and total for the 2020 Base Case (no Global Fuel) and for the three Global Fuel scenarios. Final volumes used in WORLD cases were arrived at by applying the 90:10 (High MDO) and 50:50 (Low MDO) to set the


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proportions of Global MDO versus Global heavier fuels allowed to meet total Global Fuel demand.

Exhibit 3-26 2020 Marine Fuel Demand Cases

Millions b/d 2020:no 2020:yes 2020:Effect of global rule

2020 2020 2020

Scenario Global 0.5% fuel no yes Effect of 0.5

NavLow HFO 4.11 0.85 (3.26)NavLow MDO 1.75 5.14 3.39

NavLow ECA 0.57 0.57NavLow LNG 0.44 0.44 0.00NavLow Total fuel 6.31 6.43 0.13NavLow Total HFO+MDO 5.86 5.99 0.13NavLow Scrubber % of total fuel 13.3%

n.b. Scrubber % of total fuel mmtpa 15%

NavMod HFO 4.49 0.85 (3.63)NavMod MDO 1.75 5.52 3.77

NavMod ECA 0.57 0.57NavMod LNG 0.44 0.44 0.00NavMod Total fuel 6.68 6.82 0.14NavMod Total HFO+MDO 6.24 6.38 0.14NavMod Scrubber % of total fuel mb/d 12.5%

n.b. Scrubber % of total fuel mmtpa 14%

NavHi HFO 4.86 0.85 (4.01)NavHi MDO 1.75 5.92 4.17

NavHi ECA 0.57 0.57NavHi LNG 0.44 0.44 0.00NavHi Total fuel 7.05 7.21 0.16NavHi Total HFO+MDO 6.61 6.77 0.16NavHi Scrubber % of total fuel 11.8%

n.b. Scrubber % of total fuel mmtpa 13%2020 Base Case2020 Global Fuel Cases

Summary of Marine Fuels Demand Cases

ENDataandCalculations

Average(Mod) BaseWithSCap

Datato%Market

HFO(>0.5) 4.49 0.85 12%%ScrubberPen -- 14 14%LSF(<0.5&<0.1) 1.75 5.52 81%

ECA(<.1) 0.57 0.57 8%LNG 0.44 0.44 6%

TotalHFO+LSF 6.68 6.37 93%TotalMarineFuel 6.82

Solution PenetrationHFO+Scrubber 13%

LSF<0.5 73%LSF<0.1 8%LNG 6%Total 100%


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APPENDIX A Continued: CE Demand Data CE p38

38 July 2016 7.G68 - Assessment of Fuel Oil Availability

The Third IMO GHG Study 2014 estimated that in 2012 14% of the energy provided by petroleum fuels was MGO and 86% HFO. MGO was typically consumed by smaller auxiliary engines and high-speed diesel engines, although an increasing share of auxiliary engines are fitted to be able to run on HFO. The Third IMO GHG Study 2014 estimated that in 2012 the share of fuel used in ECAs was 6.3%. A large proportion of this fuel will be MGO, but some will be HFO (for ships fitted with a scrubber) or LNG. It is expected that by 2020, more ships will be able to run their auxiliary engines on HFO than in 2012. In total, we expect that 15% of the energy consumed by ships that do not have an EGCS and do not run on LNG will be provided by MGO with a sulphur content of 0.10% or less and the remainder by HFO with a sulphur content between 0.10% and 0.50% m/m. This is a conservative estimate, because increasing the amount of MGO by increasing middle distillate production requires less hydroprocessing capacity and is therefore easier to realise than increasing the amount of compliant HFO. Assuming that the regional shares of fuels do not change between 2012 and 2020, the projection of base-case marine fuel demand is presented in Table 24.

Table 24 Global and regional marine fuel demand (2020) - base case

Sulphur (% m/m) Petroleum-derived fuels LNG <0.10% 0.10-0.50% >0.50% In ECAs Outside ECAs Globally in

combination with an EGCS

Globally

Million tonnes per year Africa 2 12 1 0.6

Asia 18 110 15 3.1

Europe 9 54 8 1.2

North America 4 26 3 3.4

Latin America 3 21 3 0.1

Middle East 1 5 4 1.8

Russia & CIS 1 7 1 1.8

Global 39 233 36 12 Source: This report. Table 25 presents global fuel demand for the low case and high case. In the low case, the demand for petroleum fuels with a sulphur content of 0.50% m/m or less is 15% lower than in the base case. In the high case, the demand for petroleum fuels with a sulphur content of 0.50% m/m or less is 24% higher than in the base case.


3.4 Regional demand for maritime fuels in 2012

The data on regional demand for maritime fuels in 2012 adopted in this study are provided in Table 8. The first set of columns reports absolute regional demand, the second the relative regional share for each fuel type.

Table 8 Regional demand for maritime fuels and relative shares in 2012 (million tonnes per year)

HFO MGO LNG HFO MGO LNG

Million tonnes Regional share (%)

Africa 7 3 0.51 3 5 7

Asia 95 31 1.92 42 48 24

Europe 52 15 0.64 23 23 8

North America 21 7 2.04 9 11 26

Latin America 18 6 0.17 8 9 2

Middle East 25 1 1.29 11 2 16

Russia & CIS 10 2 1.34 4 3 17

TOTALS 228 64 8 100% 100% 100%

Source: This report. Note: Because of rounding values may not add to totals. The approach used to derive disaggregated regional demands was as follows: � disaggregate global fuel demand based on the IEA shares of regional fuel

sales; � verify regional fuel demand data against third-party data sources,

adjusting as required; � specifically for LNG a slightly different approach was adopted, using

spatially explicit data from the bottom-up method of the Third GHG IMO Study and IEA statistics on natural gas.

Further details can be found in Annex A, Section A.3.

3.5 Regional supply of maritime fuels in 2012

Asia is the world’s largest petroleum product producer. In 2012, Asia’s total refinery production reached 1,266 million tonnes per year, accounting for 32% of global total refinery production (Table 9). Asia’s marine heavy fuel oil and MGO made up 42 and 48% of global production, respectively.


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APPENDIX B: Regional Refinery Capacity Data CEp45

ENp125


Table 30 Regional Refinery Capacity 30 June 2019 (change since 2012) - million tonnes per year

Crude Distillation

Africa Asia Europe North America

Latin America

Middle East

Russia & CIS

Global

197 (+11%)

1,630 (+9%)

723 (-9%)

1,047 (+2%)

484 (+33%)

502 (+26%)

437 (+23%)

5,020 (+8%)

Secondary Processing Units Light Oil Processing

Reforming 23 (+15%)

163 (+5%)

105.9 (-8%)

186 (-6%)

29 (+5%)

58 (+52%)

61 (+15%)

626 (+3%)

Isomerization 2.8 (+100%)

13.4 (+47%)

24.3 (-8%)

38 (0%)

2.4 (0%)

22.6 (+163%)

17.8 (+324%)

122 (+30%)

Alkylation/ polymerization

2 (+54%)

17 (+9%)

14.3 (-8%)

65 (-2%)

11.2 (0%)

5 (+6%)

3.8 (+153%)

118 (+1%)

Conversion

Coking 4.4 (-2%)

132 (+28%)

33.7 (+23%)

159 (+20%)

45 (+62%)

23 (+461%)

23 (+78%)

421 (+35%)

Catalytic cracking 16.6 (+38%)

298 (+16%)

111 (-7%)

309 (-4%)

91.6 (0%)

48.6 (+54%)

41 (+50%)

916 (+6%)

Hydrocracking 11.3 (+126%)

177 (+16%)

102 (+18%)

124 (+27%)

6.59 (+18%)

54.39 (+63%)

56 (+700%)

532 (+37%)

Hydroprocessing

Gasoline 0 (0%)

49.9 (+73%)

20.6 (+1%)

96 (+5%)

6.22 (+196%)

15.5 (+638%)

15.7 (+362%)

204 (+38%)

Naphtha 25.5 (+9%)

163 (-1%)

175 (-8%)

272 (+10%)

47 (+53%)

68 (+33%)

59 (+13%)

810 (+7%)

Middle distillates 26.4 (+44%)

407 (+11%)

250 (-5%)

305 (+14%)

49 (+23%)

140 (+118%)

128 (+49%)

1,306 (+18%)

Heavy oil/residual Fuel

4.5 (+13%)

184 (+22%)

75 (-6%)

156 (-2%)

31.1 (+23%)

32 (+36%)

23 (+17%)

507 (+15%)

Source: Stratas Advisors, 2015-2016. On the basis of Oil and Gas Journal Data, FuelsEurope, IEA, EIA, OPEC. Announced projects as of Dec 2015, assumed to be online on June 2019 when no start-up year is indicated.

Note: The numbers in bracket () are capacity changes since 2012.

5.4 Crude quality and volume for each region

The crude slate used by refineries in each region comprises an indigenous-imports pool and is particular for each region. All regions primarily use indigenous oil, resorting only to crude imports if their indigenous crude does not represent the best fit for their refineries or if indigenous production does not meet their domestic demand. The refinery crude inputs used in each region are detailed in Section B.2. The crude slate outlook to 2020 is based on Stratas Advisors’ global crude outlook, trade flow outlook to 2020 and crude oil assay database. Table 31 summarizes Stratas Advisors’ best estimates of the volume and quality of crude slate processed on each region in 2020, used in model runs to assess 2020 refinery production projections (base case).

Supplemental Marine Fuel Availability Study

July 15, 2016

125

did not attempt to isolate out secondary capacity in the Inland Isolated Captured in WORLD category but, based on the impact on distillation capacity, we estimate the net Inland Isolated Not Captured in WORLD secondary capacity would be around 4-5% of the global totals.

The ‘bottom line’ of this assessment is that the effect of isolated inland refineries is small but it nonetheless leads to a minor degree of over-optimisation in the WORLD Model results. Restrictions of time and budget prevented EnSys from addressing this issue by re-working the Model’s refining groups but this could be done in the future.

Exhibit 5-19 Isolated Refining Capacity - Distillation

Region On Water Inland Not Isolated

Total Inland Isolated

Inland Isolated

Captured in WORLD

Total Inland

Isolated Not

Captured in WORLD

Total Distillation

Capacity

On Water

Inland Not

Isolated

Inland Isolated

Inland Isolated

not Captured

in WORLD

United States 10,501,971 5,043,340 2,654,151 1,914,760 739,391 18,199,462 58% 28% 15% 4%Canada 543,200 777,600 619,450 609,450 10,000 1,940,250 28% 40% 32% 1%South America 5,774,692 1,804,934 387,700 - 387,700 7,967,326 72% 23% 5% 5%Europe 10,715,812 2,880,481 1,853,300 - 1,853,300 15,449,593 69% 19% 12% 12%FSU 1,317,113 4,607,533 2,100,941 - 2,100,941 8,025,587 16% 57% 26% 26%Middle East 7,007,933 2,019,770 458,850 - 458,850 9,486,553 74% 21% 5% 5%Africa 3,530,906 152,680 417,600 - 417,600 4,101,186 86% 4% 10% 10%China 5,488,926 5,605,029 2,006,845 - 2,006,845 13,100,800 42% 43% 15% 15%Other Asia-Pacific 15,791,269 2,084,640 972,853 - 972,853 18,848,762 84% 11% 5% 5%WORLD 60,671,822 24,976,007 11,471,690 2,524,210 8,947,480 97,119,518 62.5% 25.7% 11.8% 9.2%

Capacity %Crude & Condensate Distillation Capacity - b/cd

Refining Capacity - Capability to Contribute to Marine Fuels Production - Distillation

Grand total global capacity differs slightly from base data used in WORLD as this analysis does not include a small number of corrections EnSys applied within the Model


15

APPENDIX C: Supply Data EN Data

The supply of LSF and other marine fuels was projected by EN with their proprietary model (WORLD). The data presented in the EN report is found in section 6.3.8 starting on p177. In the demand analysis performed by EN, the High and Low scenarios were averaged to calculate the Main projection. As both scenario supply projections are provided, this process was repeated for supply.

This data was first divided into categories of %S (<0.1, <0.5, >0.5). High and Low scenarios were averaged and then converted from ‘million barrels per day’ to ‘million tons per year’ to properly compare to CE’s projections. ENp178


178

million bpd Total HS IFO

Total 0.5% IFO

/ Hybrid

Total Original

MDO

Total ECA MDO

Total Global 0.5% MDO

Total Marine

Distillate

Total Marine

Fuel

Change vs. Base

Case

(DMA) (DMA) (DMB)kerosenes 0.00 0.00 0.20 0.09 0.07 0.35 0.35 (0.12)middle distillates 0.07 0.02 0.86 0.22 0.53 1.61 1.70 0.41cracked stocks 0.19 0.04 0.12 0.04 0.43 0.58 0.82 0.03VGO (non HDS) 0.09 0.09 0.00 0.07 0.70 0.77 0.95 0.64VGO HDS 0.00 0.00 0.00 0.16 0.16 0.32 0.32 0.18resid LS / HDS < 1% 0.00 1.48 0.00 0.00 0.00 0.00 1.49 1.45resid MS 1-2% 0.01 0.17 0.00 0.00 0.00 0.00 0.18 0.11resid HS > 2% 0.46 0.00 0.00 0.00 0.00 0.00 0.46 (2.54)resid visbroken 0.03 0.00 0.00 0.00 0.00 0.00 0.03 (0.10)

Total 0.86 1.81 1.18 0.57 1.89 3.64 6.30 0.05

Total distillates (incl cracked stocks) 0.26 0.06 1.18 0.34 1.03 2.55 2.87 0.32Total VGO 0.09 0.09 0.00 0.23 0.86 1.09 1.27 0.82Total resid 0.50 1.65 0.00 0.00 0.00 0.00 2.16 (1.09)

0.86 1.81 1.18 0.57 1.89 3.64 6.30 0.05

Total distillates (incl cracked stocks) 31% 3% 100% 60% 54% 70% 46%Total VGO 11% 5% 0% 40% 45% 30% 20%Total resid 59% 91% 0% 0% 0% 0% 34%Total 100% 100% 100% 100% 100% 100% 100%of whichatmos resid HS > 3% 0.33 0.00 0.00 0.00 0.00 0.00 0.33 (1.97)vacuum resid HS > 3% 0.13 0.00 0.00 0.00 0.00 0.00 0.13 (0.57)visbroken resid HS > 3% 0.03 0.00 0.00 0.00 0.00 0.00 0.03 (0.09)Total resid HS > 3% 0.49 (2.63)HS resid as % of total resid 97% 0% 0% 0% 0% 0% 23%

Marine Fuel Pool Blends 2020 Mid Switch Volume Low MDO Case


16

C. EN Supply Data Continued Note: This table is titled ‘Mid Switch Low.’ It was assumed this is a typo, and is actually ‘Mid Switch High’. The last column on the right compares to Mid Switch Low, implying the table is not actually Mid Switch Low. EN p179


179

million bpd Total HS IFO

Total 0.5% IFO

/ Hybrid

Total Original

MDO

Total ECA MDO

Total Global 0.5% MDO

Total Marine

Distillate

Total Marine

Fuel

Change vs. Base

Case

Change vs. Low

MDO Case

(DMA) (DMA) (DMB)kerosenes 0.00 0.00 0.30 0.09 0.20 0.59 0.59 0.11 0.23middle distillates 0.06 0.00 0.76 0.22 1.00 1.98 2.04 0.75 0.34cracked stocks 0.17 0.02 0.12 0.03 0.62 0.76 0.95 0.17 0.13VGO (non HDS) 0.10 0.01 0.00 0.06 1.42 1.48 1.59 1.28 0.64VGO HDS 0.00 0.00 0.00 0.17 0.18 0.36 0.36 0.21 0.03resid LS / HDS < 1% 0.00 0.30 0.00 0.00 0.00 0.00 0.30 0.26 (1.19)resid MS 1-2% 0.02 0.03 0.00 0.00 0.00 0.00 0.05 (0.02) (0.13)resid HS > 2% 0.48 0.00 0.00 0.00 0.00 0.00 0.48 (2.51) 0.02resid visbroken 0.03 0.00 0.00 0.00 0.00 0.00 0.03 (0.11) (0.00)

Total 0.86 0.36 1.18 0.57 3.41 5.17 6.38 0.14 0.08

Total distillates (incl cracked stocks) 0.23 0.02 1.18 0.34 1.81 3.33 3.58 1.03 0.71Total VGO 0.10 0.01 0.00 0.23 1.60 1.83 1.95 1.49 0.68Total resid 0.53 0.33 0.00 0.00 0.00 0.00 0.86 (2.38) (1.30)

0.86 0.36 1.18 0.57 3.41 5.17 6.38 0.14 0.08

Total distillates (incl cracked stocks) 26% 5% 100% 59% 53% 65% 56%Total VGO 12% 3% 0% 41% 47% 35% 31%Total resid 61% 92% 0% 0% 0% 0% 13%Total 100% 100% 100% 100% 100% 100% 100%of whichatmos resid HS > 3% 0.39 0.00 0.00 0.00 0.00 0.00 0.39 (1.91) 0.06vacuum resid HS > 3% 0.09 0.00 0.00 0.00 0.00 0.00 0.09 (0.61) (0.04)visbroken resid HS > 3% 0.02 0.00 0.00 0.00 0.00 0.00 0.02 (0.10) (0.01)Total resid HS > 3% 0.50 (2.62) 0.01HS resid as % of total resid 95% 0% 0% 0% 0% 0% 58%

Marine Fuel Pool Blends 2020 Mid Switch Volume Low MDO Case


17

C. EN Supply Data Continued Calculations to determine EN projected LSF supply:

(Conversion info provided on next page)

Note: These supply calculations initially did not match up with the supply claims EN make. This was when ‘Original MDO’ was considered a LSF, as MDO was assumed to be a low sulfur distillate product. When ‘Original MDO’ is considered a non-LSF (>0.5), the calculations match the supply claims of EN. This makes sense, as MDO is a distillate fuel with traces of residual fuel, typically high in sulfur. The term ‘Original’ is also considered to imply ‘prior to sulfur cap,’ along with the fact that the quantity doesn’t change from the base case (EN p177).

mb/d HS HFO 0.5% Blend

Original MDO

ECA MDO

Global 0.5% MDO

Total Marine Distillate

Total Fuel

%S (>0.5) (<0.5) (>0.5) <0.1 <0.5 --- -- Mid Low 0.86 1.81 1.18 0.57 1.89 3.64 6.31 Mid High 0.86 0.36 1.18 0.57 3.41 5.17 6.38 Average 0.86 1.09 1.18 0.57 2.65 4.41 6.35 Convert

to MTPA 48 59 59 29 133 221 328

Global Marine Fuel Production (MTPA) Mid High Mid Low Average

LSF (<0.1) 29 29 29 LSF (<0.5) 191 193 192 HFO (>0.5) 48 48 48

Total LS Fuel 220 222 221 Total Marine Fuel 268 270 269


18

C. EN Supply Data Continued EN Conversion units for Supply Calculations (EN p180)


180

6.3.9 Marine Fuels Global Average Densities – 2020 Base and Mid Switch Cases

Densities bbl / tonne s.g. API

Gravitymmbpd mmtpa mmtpa mmbpd

2020 Base Case3.5% IFO380 6.4589 0.9737 13.8 1 56.51 100 1.773.5% IFO180 6.5531 0.9597 15.9 1 55.70 100 1.80

0.1% ECA DMA 7.2163 0.8715 30.9 1 50.58 100 1.981%/0.5% DMA 7.2756 0.8644 32.2 1 50.17 100 1.99

2020 Mid Switch High MDO Case

3.5% IFO380 6.4509 0.9749 13.6 1 56.58 100 1.773.5% IFO180 6.5723 0.9569 16.4 1 55.54 100 1.800.5% Global IFO 6.5929 0.9539 16.8 1 55.36 100 1.810.5% Global IFO/VGO 6.7334 0.9340 20.0 1 54.21 100 1.84

0.1% ECA DMA 7.2271 0.8702 31.1 1 50.50 100 1.981%/0.5% DMA 7.2579 0.8665 31.8 1 50.29 100 1.990.5% Global DMB 7.0870 0.8874 28.0 1 51.50 100 1.94

WORLD Results - Global Weight Average Marine Fuel Densities & Conversion Factors

mmbpd to mmtpa mmtpa to mmbpd


19

C Continued: CE Supply Data CE p47


supply gap, the price will remain between the price of 0.10% S MGO and 1% S HFO, maintaining a price differential of about $ 47/tonne.

5.6 Projection results: base case

The calibrated model developed for 2012 was updated using the following information for the base case for 2020: 1. Regional refinery capacities were updated as detailed in Section B.4.1. 2. The capacity of hydroprocessing units (hydrocrackers, FCC gasoil feed

hydrotreating, residue hydrocracking (HOL) and gasoil hydrotreating) were downsized to 90% in order to give a realistic representation of capacity utilization (90% max.) in various regions (see Table 35).

3. The sulphur removal in hydrodesulphurization units (such as gas oil hydrotreaters, residual hydrotreaters and atmospheric oil hydrotreaters) was limited to 90% or less (Table 36).

4. Fuel specifications were updated for 2020, based on the information in Section B.4.3. The MGO/HFO sulphur specification was further tightened by 10% For HFO the max. specification of 0.50% m/m S was thus reduced to 0.45% m/m S, and for MGO from 0.10% to 0.09% m/m S. This was done to guarantee a certain margin in the model.

5. Based on 2020 demand numbers, the maximum and minimum of refinery products and refinery inputs range were updated.

6. The price for 2020 was updated. Fuel oil and crude updated prices are reported in Table 32.

Table 33 and Table 34 summarize the global and regional refinery projections for 2020, including marine fuels. The projections show that global supply will just be able to meet global demand for marine fuel oils in 2020 in terms of both quantity and sulphur specification.

Table 33 Global Refinery Production (2020 (2012)) - million tonnes per year

Refinery Production (Base case - 2020 (2012)) (1, 2, 3) Production in 2020

(2012) Demand in 2020

(2012) Gasoline 1,086 (963) 1,086 (963)

Naphtha 305 (256) 305(3) (256)

Jet/Kero Fuel 331 (324) 331 (324)

Middle Distillate 1,521 (1,316) 1,521 (1,316)

of which MGO (S ≤ 0.10% m/m) (4) 39 (64) 39 (64)

Total Marine Heavy Fuel Oil (HFO) 269 (228) 269 (228)

Marine HFO (S ≤ 0.50% m/m) (5) 233 (0) 233 (0)

Marine HFO (S > 0.50% m/m) 36 (228) 36 (228)

Non-marine Heavy Fuel Oil (6) 194 (272) 194 (272)

LPG 110 (113) 110(3) (113)

Other (7) 537 (784) 537 (784)

Total (marine + non-marine, refinery only) 4,159 (3,984) 4,159 (3,984)

Total (non-Marine only from refinery) 3,852 (3,692) 3,852 (3,692)

Source: Stratas Advisors; CE Delft. (1) Production numbers in brackets () are 2012 numbers from Table 4 and Table 5. (2) Demand numbers are from Table 4 and Table 26. (3) For LPG, naphtha and other products demand is also met from NGL (Natural Gas Liquids)

plants, coal mining and upstream, the table shows only demand met from refineries. (4) Note that this is just MGO with a sulphur content of 0.10% m/m or less. Low-sulphur marine

HFO also contains low-viscosity fuels. (5) Some of these fuels have a sufficiently low viscosity to be used in small main engines and

auxiliary engines instead of MGO.


20

APPENDIX D: Regional Trade ENProjectedTradeFlowofLSF

CE p51


165

Refined Products Movements MMBPD Distillate Bunkers All (MGO, ECA MGO, Gl.obal MDO)

Total Exports

Total Local + Exports

Producing Regions 1.19United States

Canada Latin America

Africa Europe FSU Middle East

PacInd China Other Asia/Pac

United States 0.34 0.89 0.55 0.02 0.10 0.01 0.14 0.00 0.00 0.08 0.00 0.00Canada 0.00 0.03 0.00 0.03 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Latin America 0.31 0.66 0.00 0.00 0.34 0.03 0.02 0.00 0.00 0.00 0.00 0.26Africa 0.00 0.13 0.00 0.00 0.00 0.13 0.00 0.00 0.00 0.00 0.00 0.00

Europe 0.06 0.84 0.00 0.00 0.00 0.05 0.78 0.00 0.01 0.00 0.00 0.00FSU 0.24 0.45 0.00 0.00 0.00 0.00 0.12 0.21 0.00 0.12 0.00 0.00

Middle East 0.02 0.27 0.00 0.00 0.00 0.00 0.00 0.00 0.25 0.00 0.00 0.02PacInd 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00China 0.00 0.74 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.74 0.00

Other Asia/Pac 0.21 1.15 0.00 0.00 0.00 0.00 0.00 0.00 0.21 0.00 0.00 0.94Total Imports 1.19 0.00 0.02 0.10 0.10 0.28 0.00 0.22 0.20 0.00 0.28

5.16 0.55 0.06 0.44 0.22 1.05 0.21 0.47 0.20 0.74 1.22

Refined Products Movements MMBPD RESIDUAL FUELS - TOTAL

Total Exports

Total Local + Exports

Producing Regions 0.89United States

Canada Latin America

Africa Europe FSU Middle East

PacInd China Other Asia/Pac

United States 0.13 0.34 0.21 0.00 0.09 0.02 0.00 0.00 0.00 0.00 0.00 0.02Canada 0.02 0.08 0.00 0.07 0.00 0.02 0.00 0.00 0.00 0.00 0.00 0.00

Latin America 0.06 0.54 0.00 0.01 0.47 0.03 0.00 0.00 0.00 0.00 0.00 0.03Africa 0.02 0.29 0.00 0.00 0.00 0.28 0.02 0.00 0.00 0.00 0.00 0.00

Europe 0.23 0.57 0.00 0.00 0.00 0.08 0.34 0.02 0.11 0.00 0.00 0.03FSU 0.23 0.42 0.00 0.00 0.00 0.00 0.02 0.19 0.00 0.00 0.00 0.21

Middle East 0.14 1.24 0.00 0.00 0.00 0.02 0.02 0.00 1.10 0.00 0.00 0.10PacInd 0.03 0.16 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.13 0.00 0.03China 0.00 0.13 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.13 0.00

Other Asia/Pac 0.03 1.17 0.00 0.00 0.00 0.00 0.00 0.00 0.03 0.00 0.00 1.13Total Imports 0.89 0.00 0.01 0.09 0.16 0.06 0.02 0.14 0.00 0.00 0.42

4.93 0.21 0.07 0.56 0.44 0.40 0.20 1.24 0.13 0.13 1.55

Consuming Regions

Consuming Regions


Table 37 Global marine fuel demand and supply (2020) base case - million tonnes per year

Base case marine fuel demand 2020 (supply)

Sulphur (% m/m) Petroleum-derived fuels LNG

<0.10% 0.10-0.50% >0.50%

Africa 2 (2) 12 (9) 1 (1) 0.6

Asia 18 (18) 110 (104) 15 (15) 3.1

Europe 9 (9) 54 (55) 8 (8) 1.2

North America 4 (4) 26 (17) 3 (3) 3.4

Latin America 3 (3) 21 (24) 3 (3) 0.1

Middle East 1 (1) 5 (18) 4 (4) 1.8

Russia & CIS 1 (1) 7 (7) 1 (1) 1.8

World 39 (39) 233 (233) 36 (36) 12

Source: Stratas Advisors, 2015-2016. Because of rounding values may not add to totals. Supply model results are in brackets. Stratas Advisors’ fuel oil trade flow outlook to 2020 suggests that North America could import HFO (<0.50%) from Latin America, and Europe. Africa could import HFO (<0.50%) from Middle East. Asia could import HFO (<0.50%) from Middle East (Table 38).

Table 38 Trade flows of HFO <0.50 m/m S % for (2020), million tonnes per year

From/to l (S<0.50%)


Latin America

Middle East

Russia & CIS

Middle East 3 6 0 4 0 0 0

Europe 0 0 0 1 0 0 0

Latin America 0 0 0 3 0 0 0

Source: Stratas Advisors. 2015-2016.

5.7 Projection results: sensitivity analysis

The supply model runs were organized around a base case scenario with sensitivities as shown in Table 39. The cases include the high and low case, as well tests of the maximum amount of compliant fuel (petroleum fuels with a sulphur content of 0.50% m/m or less) that can be produced and sensitivities with regards to the sulphur content of the crude oil slate. A further explanation of each model run is provided below the table.


21

APPENDIX E: Price Data CE p46


Table 31 Refinery Input, Crude Oil and Quality (2020, (2012))


Latin America

Middle East

Russia & CIS

Crude Oil (million

tonnes per year)

136

(108)

1328

(1233)

527

(662)

932

(827)

323

(285)

448

(334)

320

(329)

API gravity 35.41

(35.92)

35.26

(35.76)

34.48

(35.71)

30.6

(30.8)

26.2

(25.2)

31.34

(31.46)

32.5

(32.5)

Sulphur %S (m/m) 0.68

(0.64)

1.07

(1.03)

1.01

(0.77)

1.59

(1.55)

1.44

(1.45)

2.01

(1.92)

1.32

(1.32)

Source: Stratas Advisors. Note: 2012 numbers are in brackets ( ).

Africa refinery input is light sweet crude (35°API, S<0.70% m/m). Middle East

refinery input is sour crude (S>1.90% m/m). Latin America refinery inputs is

mostly heavy crude (<25°API) while North America refineries input is medium

sour (mostly imports) and light sweet crude (mostly domestic production).

5.5 Projected Crude and Refinery Products prices

Stratas Advisors maintain price historical data on major refinery inputs and

product prices. The forecasting methodology starts by assessing these data to

identify major drivers influencing global benchmark prices. The model

incorporates the drivers that factor in a variety of assumptions and potential

scenarios. The refinery fuel prices are highly influenced by input cost (mainly

crude price) and other factors such as demand, supply, GDP and geopolitical

risks.

The price differences between HFO with a sulphur content of max. 1% m/m

and MGO with a sulphur content of 0.50% m/m as well as MGO with a sulphur

content of 0.10% m/m or less are inputs to the assessment of the uptake of

scrubbers and alternative fuels.

The following prices are added as a guidance to assess the fuel price used in

the model.

Table 32 Refinery Products and Crude Oil prices (USD/tonnes except for Brent)

Product 2010 2012 2014 2016 2018 2020 MGO 0.10% m/m SUL 672 997 896 452 552 616

Fuel oil 0.50% m/m SUL - - - - - 595

Fuel oil 1% m/m SUL 625 918 809 390 497 569

Fuel oil 3% m/m SUL 521 741 616 252 377 466

Brent crude (USD/bbl) 80 112 99 49 63 77

Source: Stratas Advisors; CE Delft, www.bunkerindex.com.

The fuel oil sulphur quality and crude oil price are major drivers of fuel oil

price. The current fuel grade of 0.10% m/m S is high-sulphur diesel and is the

price benchmark for MGO (0.10% m/m S). For HFO (0.50% m/m), the price will

be above the fuel oil price of 1% m/m S. The guidance of 0.50% m/m sulphur

HFO is taken from 0.10% high-sulphur diesel (MGO) and 1% S (heavy fuel oil).

For 2020 (Table 32) the 0.50% HFO price is guided entirely by 0.10% high-

sulphur diesel (MGO) and fuel oil 1% m/m SUL. Depending on the demand


22

D. EN Price Data and Calculations

The EN LSF price projections needed to be calculated from data tables. On the following page is the data table provided by EN titled ‘WORLD Global Premises & Results’ from page 118 (WORLD is their market model). Selected data were from the average of ‘Mid Switch High’ and ‘Mid Switch Low’ scenarios (like demand and supply). There were three regions addressed (US Gulf Coast, Northwest Europe, and Singapore). Each region’s LSF prices were determined and averaged for a global representation. To determine the projected price:

1. Collected base scenario (2020: Base No 0.5% Fuel) cost for each fuel in ‘$/ton’.

- Conversion factors are from table used in supply calculations (bbl/tonne*s.g.) - EN calls LSF <0.1 ‘Diesel ULS.’

2. The ‘Price Change’ percentages (from base) were applied from the Mid High and Low scenarios.

3. Confirmed prices by comparing to info from ‘$/tonne (using standard gravities)’ section. ULS Diesel (LSF <0.1) was not provided, which was why steps 1 & 2 were done to determine it. There are slight differences but they are reasonably close to have confidence these are the accurate EN projected prices.

1. BASE(2020nocap)

$/barrel ULSDiesel LSF(0.5) HFOUSGulfCoast 109.92 86.36 71.55

Europe 109 96.71 73.71Singapore 108.98 91.66 73.25Average 109 92 73

Convertto$/tons 687 590 462

2. %increaseofbase(withcap) ULSDiesel LSF(0.5) HFO

USGulfCoast 0.225 0.1 -0.155Europe 0.22 0.12 -0.13

Singapore 0.225 0.47 -0.14Average 22% 23% -14%Projected 841 725 396

3. Convertto$/ton MGO(1/0.5) HFOUSGulfCoast 679 388

Europe 775.5 412Singapore 728 402Average 728 400


23

D. EN Price Data and Calculations Continued EN p118


118

Exhibit 5-16 WORLD Premises & Results – Crude & Product Prices

Actual Prices, Projected Marginal Prices / Supply Costs & Differentials

2015: Base Case

Calibration

2015: Base Case

Adjusted

2020: Base No 0.5%

Fuel

2020: Low Switch High

MDO

2020: Mid Switch High

MDO

2020: High Switch High

MDO

2020: Low Switch Low

MDO

2020: Mid Switch Low

MDO

2020: High Switch

Low MDOSAUDI LIGHT (input marker crude price) $49.50 $49.50 $76.03 $76.03 $76.03 $76.03 $76.03 $76.03 $76.03WTI - Brent ($3.32) ($2.63) ($2.15) ($1.30) ($1.31) ($1.60) ($2.04) ($2.13) ($2.18)Brent - Dubai $3.44 $2.97 $3.16 $5.96 $6.15 $6.39 $5.32 $5.50 $5.70Brent - Mayan $8.56 $7.04 $10.04 $20.66 $21.70 $22.58 $15.88 $16.27 $16.74

US Gulf Coast $/barrelGasoline - CG Regular $67.28 $64.32 $100.42 $115.36 $118.12 $121.25 $108.85 $110.50 $113.53Diesel ULS $67.96 $65.67 $109.92 $132.65 $137.05 $142.14 $128.53 $132.45 $137.39MGO 1% / 0.5% $57.85 $56.53 $86.36 $95.25 $96.80 $99.80 $92.01 $93.15 $95.80IFO380 HS $44.84 $45.76 $71.55 $57.05 $57.32 $58.47 $63.17 $63.94 $65.13Gasoline - IFO380 HS $22.44 $18.56 $28.88 $58.32 $60.80 $62.78 $45.67 $46.56 $48.41Diesel ULS - IFO380 HS $23.12 $19.91 $38.37 $75.61 $79.73 $83.66 $65.36 $68.51 $72.26Marine Diesel - IFO380 HS $13.01 $10.78 $14.82 $38.20 $39.48 $41.33 $28.83 $29.22 $30.67$/tonne (using standard gravities)MGO 1% / 0.5% $413 $404 $617 $681 $692 $713 $658 $666 $685IFO380 HS $287 $292 $457 $365 $366 $374 $404 $409 $416Marine Diesel - IFO380 HS $127 $112 $160 $316 $325 $340 $254 $257 $268Price Changes ($/barrel basis)Gasoline vs 2020 Base Case 15% 18% 21% 8% 10% 13%ULS Diesel vs 2020 Base Case 21% 25% 29% 17% 20% 25%Marine Diesel vs 2020 Base Case 10% 12% 16% 7% 8% 11%IFO380 HS % vs 2020 Base Case -20% -20% -18% -12% -11% -9%

Northwest Europe $/barrelGasoline - EURO V 95 RON $64.54 $61.24 $95.70 $109.86 $112.38 $115.57 $103.76 $105.29 $108.15Diesel ULSD $67.22 $64.95 $109.00 $130.85 $135.25 $140.33 $126.75 $130.59 $135.77MGO 1% / 0.5% $62.83 $61.31 $96.71 $108.63 $111.26 $114.21 $103.97 $105.81 $108.63IFO380 HS $46.78 $47.26 $73.71 $62.07 $62.12 $62.97 $65.83 $66.70 $68.31Gasoline - IFO380 HS $17.76 $13.98 $21.98 $47.79 $50.26 $52.60 $37.93 $38.59 $39.84Diesel ULS - IFO380 HS $20.44 $17.69 $35.29 $68.77 $73.13 $77.36 $60.92 $63.89 $67.46Marine Diesel - IFO380 HS $16.04 $14.05 $23.00 $46.56 $49.14 $51.24 $38.14 $39.11 $40.32$/tonne (using standard gravities)MGO 1% / 0.5% $449 $438 $691 $776 $795 $816 $743 $756 $776IFO380 HS $299 $302 $471 $397 $397 $402 $421 $426 $437Marine Diesel - IFO380 HS $150 $136 $220 $380 $398 $414 $322 $330 $340Price Changes ($/barrel basis)Gasoline vs 2020 Base Case 15% 17% 21% 8% 10% 13%ULS Diesel vs 2020 Base Case 20% 24% 29% 16% 20% 25%Marine Diesel vs 2020 Base Case 12% 15% 18% 7% 9% 12%IFO380 HS % vs 2020 Base Case -16% -16% -15% -11% -10% -7%

Singapore $/barrelGasoline ULS Regular $66.10 $63.34 $101.21 $116.49 $119.33 $122.48 $109.94 $111.60 $114.65Diesel LSD $68.04 $65.86 $108.98 $131.59 $136.28 $141.31 $127.14 $130.80 $136.07MGO 1% / 0.5% $59.22 $58.37 $91.66 $101.82 $104.45 $108.06 $97.51 $99.38 $102.83IFO380 HS $45.30 $46.59 $73.25 $60.20 $59.86 $61.04 $64.86 $65.71 $68.23Gasoline - IFO380 HS $20.80 $16.76 $27.96 $56.29 $59.46 $61.45 $45.08 $45.89 $46.42Diesel - IFO380 HS $22.75 $19.27 $35.72 $71.39 $76.42 $80.28 $62.27 $65.08 $67.84Marine Diesel - IFO380 HS $13.92 $11.79 $18.41 $41.62 $44.59 $47.02 $32.65 $33.66 $34.60$/tonne (using standard gravities)MGO 1% / 0.5% $423 $417 $655 $728 $746 $772 $697 $710 $735IFO380 HS $289 $298 $468 $385 $383 $390 $415 $420 $436Marine Diesel - IFO380 HS $134 $119 $187 $343 $364 $382 $282 $290 $299Price Changes ($/barrel basis)Gasoline vs 2020 Base Case 15% 18% 21% 9% 10% 13%ULS Diesel vs 2020 Base Case 21% 25% 30% 17% 20% 25%Marine Diesel vs 2020 Base Case 11% 14% 18% 6% 8% 12%IFO380 HS % vs 2020 Base Case -18% -18% -17% -11% -10% -7%2015 Actual Prices from Bloomberg other than MGO $/tonne prices which are from Clarkson Research Services Shipping Intelligence Network (SIN)

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LOW SULFUR FUEL IN 2020 - NAMEPA...Low Sulfur Fuel in 2020 6 Table 4. Projected Crude Distillation...

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