Refiners perspective on the changes ahead

Rob Cox21st March, 2017

What is IPIECA?

• Global oil and gas association for environmental and social issues• Formed in 1974 following the launch of UNEP• The only global association involving both the upstream and downstream oil

and gas industry• Membership covers over half of the world’s oil production

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http://www.ipieca.org

IPIECA members

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Addressing a wide range of topics

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Timeline

MARPOL = IMO’s International Convention for the Prevention of Pollution from ShipsMEPC = IMO’s Marine Environmental Protection Committee

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• Bunker Fuel Sulphur regulation changes

• Evolutionary changes:─ 4.50% S to 3.50% S─ 1.50% S to 1.00% S Tightening fuel specification - adjustments within refinery processes

• Paradigm shifts─ 1.00% S to 0.10% S: from LSFO to MGO─ 3.50% S to 0.50% S: from HSFO to desulphurized distillate and/or resid streams Major change in fuel type, implemented globally over a large volume in a short

transition time - major shift in refinery operations needed to produce marine fuels• Refining changes to produce new marine fuels• Refining changes to process fuels no longer needed on the market

Dealing with changes

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2015 ECA• 1% HSFO 0.10% MGO

2015 ECA Fuel S Change

MARPOL = IMO’s International Convention for the Prevention of Pollution from ShipsMEPC = IMO’s Marine Environmental Protection Committee

Data sources:BP Statistical Review of World Energy, June 2015Marine and Energy Consulting Ltd, Outlook for Marine Bunker & Fuel Oil to 2035, May 2014EnSys/Navigistics, Supplemental Marine Fuel Availability Study, 15 July 2016

IMO Review

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2015 ECA• 1% HSFO 0.10% MGO

2020 3.50% HSFO 0.50% Fuel

The Challenge

MARPOL = IMO’s International Convention for the Prevention of Pollution from ShipsMEPC = IMO’s Marine Environmental Protection Committee

Data sources:BP Statistical Review of World Energy, June 2015Marine and Energy Consulting Ltd, Outlook for Marine Bunker & Fuel Oil to 2035, May 2014EnSys/Navigistics, Supplemental Marine Fuel Availability Study, 15 July 2016

IMO Review

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Product Trends

Data source: BP Statistical Review of World Energy, June 2015

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2015 ECA• 1% HSFO 0.10% MGO

2020 (or 2025)• 3.50% HSFO 0.50% Fuel

The Challenge

MARPOL = IMO’s International Convention for the Prevention of Pollution from ShipsMEPC = IMO’s Marine Environmental Protection Committee

Data sources:BP Statistical Review of World Energy, June 2015Marine and Energy Consulting Ltd, Outlook for Marine Bunker & Fuel Oil to 2035, May 2014EnSys/Navigist6cs, Supplemental Marine Fuel Availability Study, 15 July 2016

IMO Review

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• Effective switch volume depends on scrubber penetration by 2020• Factors affecting scrubber installations:

• Economics – pay back period based on spread HSFO – 0.50% S fuel• Expectation on how spread may evolve• Dry dock schedule of ship• Scrubber suppliers and shipyard capacities

• S-curve to model penetration

Scrubber Penetration

Data sources: CE Delft, Assessment of Fuel Oil Availability – Final Report, July 2016EnSys/Navigist6cs, Supplemental Marine Fuel Availability Study, 15 July 2016 Note: 1 Mton/yr = ~18.4 kbd 11

• Fuel availability modelling studies pointed at fuel quality aspects that will need attention─ Meeting commercial fuel specifications – but these may evolve─ Flash Point─ Stability─ Compatibility

• What to expect in the real world?• 0.50% S demand will likely be met by a mix of components (distillates, low

sulphur residuals) and new fuel oil formulations as the market responds over time and new streams are introduced

• Too early for details – new formulations will depend on initiatives by individual suppliers

• ISO 8217 will consider 0.50% S developments in their next revision cycle• LNG will play a role as well in meeting marine fuel demand

Future Marine Fuel Mix

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05

101520253035

'00 '05 '10 '15 '20 '25 '30 '35

Lighter Product Mix Requires Higher Conversion Complexity

Virgin light ends

Atmos.Pipe-still

Naphtha Hydrofining Reformer

Distillate Hydrofining

LPG

Naphtha

Gasoline

Jet Fuel/Kerosene

Diesel/Distillate

Fuel Oil

CrudeOil

Vacuum Pipe-still

Alkylation

CokerGasoline

Jet Fuel/Diesel

Cracked Light Ends

Gas Oil

Gas Oil

Light Ends

AsphaltFuel Oil

Coke

Low Conversion Refinery Additional Medium and High Conversion Processing

Additional High Conversion Processing

Coker

Medium and High Conversion Unit RunsMBD

FCCU

HDC

Total

VGO Hydrocracker

(HDC)

Fluid Catalytic Cracking (FCC)

Source: ExxonMobil

EnSys/Navigistics study modelling work indicates far reaching changes needed within the global refining industry to meet 2020 marine fuel requirements, e.g:• Increased coker unit throughputs to upgrade residual streams

• Carbon removal process more crude oil required (+ 0.2-1.2 mb/d)

• Vacuum unit throughputs increase producing more vacuum gasoil (VGO)

Shifting Fluid Catalytic Cracking feedstock from VGO to resid• Can lead to increased refinery SO2 emissions• Regulatory constraints – need for added abatement facilities

Refining Changes Needed -1

Source: EnSys/Navigistics, Supplemental Marine Fuel Availability Study, 15 July 2016

Refinery challenges and opportunities will varyDecisions made by individual refiners

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• Increased severity on desulphurization/hydrocracking units• Substantial increases in H2, Sulphur recovery plant load• Decreases catalyst life – may not be sustainable

• 20% of export crude trade changes• Trade of non-crude supply, intermediates and finished products

increases, with 30% changing trade routes• 2 – 4.5% increase in global refining CO2 emissions predicted by

integrated refinery model associated with increased Sulphur removal and increased crude runs/coke output

Refining Changes Needed - 2

Source: EnSys/Navigistics, Supplemental Marine Fuel Availability Study, 15 July 2016

Refinery challenges and opportunities will varyDecisions made by individual refiners

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• Production of 0.50% S fuel requires a substantial Sulphur reduction in refinery products in a short period

• Raises required Sulphur recovery from 63 kton/day to 72 kton/day (~+15%)• Demand for hydrogen will increase accordingly

Hydrogen and Sulphur Removal – EnSys Assessment

Sulphur reduction to meet ULS

standards ppm

Timescale in years

Stages?

Gasoline / petrol

100 – 1000 10 - 20 yes

Diesel 1000 – 10000 10 – 20 yes

Annex VI 20000 - 30000 months no

Data sources: EnSys/Navigistics, Supplemental Marine Fuel Availability Study, 15 July 2016EnSys/Navigistics: Presentation at MEPC 70, 24 October 2016Marine and Energy Consulting Ltd, Outlook for Marine Bunker & Fuel Oil to 2035, May 20148 March 2017 14

• IMO decision on 2020 implementation of the 0.50% S rule removes an important uncertainty

• Two main compliance options

• Some uncertainties remain:• Evolution of global marine fuel demand• Penetration of scrubbers ahead of 2020• IMO implementation measures• Evolution of local “compliant fuels” market

Conclusion -1

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• Refining is an integrated business with numerous interdependencies – changes impact what products can be produced – all fractions must be used

• Refining industry preparation for the 2020 implementation

• Industry has track record of responding to regulatory changes• Investments are based on global market conditions and

regulatory outlook• Decisions made by individual refiners• Difficult to predict how well supply and demand will balance• Other market actors and supply chains involved – e.g. road

transport fuels

Conclusion - 2

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