The Wilhelmsen Premier Marine Fuels -  Bunker Seminar- Autumn 2009

Is it possible to ban the use of heavy fuel oil as bunkers?Possible consequences of the proposals after the Full City spill and

the implementation of MARPOL Annex VI

Lysaker 8 October 2009

Erik.Ranheim@INTERTANKO.com

Manager Research and Projects

International Association of Independent Tanker Owners

A non-governmental organization established in Oslo in 1970 torepresent the interests of tanker operators

at international, regional, national and local levels

Membership260 Members45 countries

3,100 tankers250 million dwt

330 Associate Members

Spokesman – information service - meeting place

Oslo - London - Washington – Singapore - Brussels

INTERTANKO

Norway wants to ban the use of HFO as bunkers after the Full City accident

A great deal of misunderstandings and wrong information?

Full city became a tanker Bunkers became crude oil Norway championed Annex VI?

Catastrophe? The accident to a large

extent became a question of using Heavy Fuel oil as bunkers

Does shipping have to switch to lighter bunkers?

Can it be done?

Shipping and the emission

• Fleet ~ 60,000 ships (above 400 GT)

• Carries ~ 7,507,000,000 ts goods per year, over

• An average distance of 4,400 miles, which

• Carries ~ 80% of total world trade

• Consumes ~ 11% of world oil

• Represents ~ 2.7% of CO2 emission

• Emission of SOX, NOX, etc regulated by MARPOL Annex VI

• Regulations on GHGs on the way

but

The world fleet is cost-efficient pollution per tonne-mile is superior to any other transportation mode

Economics of scale: One VLCC ~ 8,000 tank trucks

Shipping and the environment

Shipping burns the dirties part of the barrel Burning the Residual Marine Fuels cause

emission with: SO2

NOx Heavy metals Soot/particles

Emission cause: Premature deaths, (39,000 per year in Europe)

(James Corbett prof. University of Delaware)

Destruction of nature, acidification, utrophication, etc…

Reducing harmful emissions from ships

May 2005 MARPOL Annex VI into force, but max 4.5%/ 1.5% SECA sulphur limit unacceptable to many parties.

IMO started to work for stricter requirements

INTERTANKO’s was seeking a solution that was:• Ensuring a solid platform of requirements;

• Realistic and feasible;

• Produced a long term and positive reduction emissions from ships; and

• Contributed to a long term and a predictable regulatory regime

INTERTANKO saw that:– The world was moving towards cleaner fuels– No abatement technology was available– The introduction of multiple SECAs was problematic

Reducing harmful emissions from ships

• Onboard abatement technology– Scrubbers, filters, separators, catalysts

(Reg 4… any fitting any fitting, material, appliance or apparatus to be fitted in a ship or other procedures, alternative fuel oils, or compliance methods used as an alternative to that required by this Annex if such methods are at least as effective in terms of emissions reductions as that required by Annex VI

• ECAs– Sulphur/Nitrogen Emission Control Areas

• Type and quality of fuel – Heavy fuel oil = a blending of refinery residues and

distillate– Middle Distillates = gasoil and diesel

Why switching to distillates? Why switching to distillates?

Cleaner, Simpler and more Efficient ships

INTERTANKO proposed switching to distillates: a long term simple, solution for 10 good reasons: 1. Reduced overall fuel

consumption 2. A global reduction of emission

• SO2 - 60-80%, • PM - 80-90%, • NOx -15%, • No heavy metals, • Less soot

Reduced health problems for crew and dockworkers No onboard waste No control or monitoring problems

Why switching to distillates? Why switching to distillates?

• ..continue:

6. Cause less engine breakdowns7. Cause far less pollution when pilled8. Provides a opportunity for the

development of more efficient engines (w. less emission)

9. Applies to all ships and all current engines

10. No safety problem in connection with switching fuels

Cleaner, Simpler and more Efficient ships

New measures adopted at MEPC 58: SOx emissions

Emission Control Area (ECA) 1.0% limit

2010 2012 2015 202520202018

Global 3.5% limit

ECA 0.1% limit:

IMO review

Global 0.5% limit

Extension?

No measures against ships that do not receive adequate supply

EU fuel directive 0.1% limit in ports 01.01.0

New measures adopted at MEPC 58: NOx emissions

Current regulation Tier I: existing ships built after 2000, base line

2010 2011 2016

Tier I: ships built 1990s engine>5000 kWh, cylinders = >90 ltrs

Tier II: 15.5% - - 21.8% reduction

ships built on, after 1 Jan 2011

Many preconditions: engine rating, fuel consumption, durability, cost/benefit, availability of efficient upgrading system , upgrading at

the ship’s first renewal survey

Tier II: 80% reduction ships built on, after 1 Jan 2016

Power output > 750 kWIn Emission Control Areas (ECAs) ONLY

The world is moving away from HFOOil consumption by product - % share

Source: INTERTANKO/BP Review

% share mbd

0%

6%

12%

18%

24%

30%

36%19

6519

6619

6719

6819

6919

7019

7119

7219

7319

7419

7519

7619

7719

7819

7919

8019

8119

8219

8319

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

08

5

21

37

53

69

85

Mdl distil. - % share

Fuel oil - % share

N America FO %

Total - ts

How much MDO is needed for shipping

Bunker use 2007, HFO 324 m ts/ MD(G)O 54 m ts (14.4% of total)

Assume increase until 2015: 2% increase p.a. (2% reduction in 2009), and Increased use of MDO, (req. by ECAs); and Improved fuel efficiency, results in

The need of 425 m ts of bunkers in 2015 Assumes that 20% of bunkers

used is MDO in 2015 The HFO contains some 20-30%

cutter stock, which means that: MDO will have to replace in 2015~

425*0.8*0.75 = 255 m ts of HFO

GLOBAL BUNKERING

Rest of the World 66%

North Sea 18%

Baltic Sea 3%

USA 12.70%

Canada & Mexico 0.30%

Source: Poten & Partners

ECA

ECA 2012

At what price?Middle distillate price compared to HFO price

Fujarah

Source: INTERTANKO/Bunker World

%

20%

40%

60%

80%

100%

120%

140%Ju

n-00

Dec

-00

Jun-

01

Dec

-01

Jun-

02

Dec

-02

Jun-

03

Dec

-03

Jun-

04

Dec

-04

Jun-

05

Dec

-05

Jun-

06

Dec

-06

Jun-

07

Dec

-07

Jun-

08

Dec

-08

Jun-

09

“Many refineries will be challenged if no action is taken to meet future quality and emission legislation”

Residue upgrading projects of both the refinery and the communicate will be satisfied:• “Enhance financial performance• Eliminate high sulphur fuel projects• Replace obsolete utility faculties• Meet future product specifications• Reduce total refinery emission• Provide cost-effective H2 production based on converting residue• Produce power for refinery use and export • Increase feedstock flexibility – chance to use low-cost crude oils.• Secure or even expand and business opportunities”

Dr. Joachim Wolff: license and service manager for liquid and gas gasification for Shell Global Solutions. PhD from university of Dresden in thermodynamics.Piete Zuideveld: departmental manger of the gasification and hydrogen manufacturing technical department in Shell Global Solutions. Working for Shell for 27 years and has experience in gasification, gas treating, gas to liquids and gas business development.

Source: http://www.shell.com/home/content/globalsolutions-en/knowledge_centre/pres_speeches_papers/2006/refinery_residuals_010206.html

Enhance financial performance reduce emission

more business opportunities

Techno-economic analysis of the impact of the reduction of sulphur

content of Residual Marine Fuels in Europe CONCAWE report no 2/06

The oil companies’ European Association for environment, health and safety in refining and distribution

Quotes from CONCAWE report no 2/06 Residue desulphurisation is not a trivial matter. The process involved are complex, the plants are costly and delicate to operate. Blended fuel stability can cause problems, especially with the heavier sulphur residues. Conversion [to lighter products] also requires costly plants but delivers distillates that are inherently more valuable than residues. Its economic prospects are therefore much better than desulphurisation. Conversion is likely to be more expensive than desulphurisation, but not by a large margin. As a result partial or full conversion will always be an option when desulphurisation is considered. ….”refineries have a clear incentive for further conversion of its entire residual streams to distillate products compared to residue desulphurisation to produce more LSFO”……………

Desulphurisation of Residue Marine Fuel complex,expensive, the same is conversion,but delivers more valuable distillates andandBlended fuel stability can cause problems

Annex VI requires cleaner products:

DnV reported that a large number of LSFsdeliveries contain excessive levels of highly abrasive catalyst fines (AL+Si) from central Eu. Ports (abrasive/instable/ignition problems)

Refiners upgrade to reduce HFO production

Cepsa's Huelva refinery, include the construction of a new hydrocracking conversion facility with a 2 m tpa middle distillates capacity. Raising total crude oil distillation capacity only 17% will increase middle distillate production by 39%.

Essar Oil Gujarat refinery“Conversion of entire negative margin FO into high value added products and Pet Coke.” Own power plant using residues will fuel the Own power plant using residues will fuel the refineryrefinery

Neste Porvo refinery - commissioned 1965,

One of the most versatile and modern in Europe. A new diesel line started up in summer 2007 enables the refinery to upgrade heavy fuel oil.

The world biggest, Reliance Jamnagar refinery, with a large delayed coker, produces no fuel oil.

Sannazzaro Refinery Po Valley projects to reduce the yield of fuel oil to zero by 2012 .

Regional requirements ECAsRegional requirements ECAs

Emission Control Areas, the Baltic and the North Sea

European Union (EU) Sulphur Directive: Ships at berth (including at anchor) in an EU port must use fuel with maximum 0.1% sulphur content California Air Resources Board (CARB) regulation: As from 1 January 2012 ships must use fuels with maxium 0.1% sulphur content for their main and auxiliary engines when when within 24 nm of the shorewithin 24 nm of the shore

May 2006

Nov 2007

USA and Canada 200 nm ECA (1 Aug 2012?)

• Air pollution knows no borders• Most ships operate close to shore • International shipping needs global regulations • Switching fuels – a safety problem• More ECAs on the way (Tokyo Bay Med, Norwegian Sea, Australia, Malacca?)

Why not scrubbers?Why not scrubbers?

• Still under testing (5 pilot tests known*)

• Large • Expensive• Difficult (impossible?) to install• CO2 emission (buffering effect)• leaves hazardous waste onboard which no-one wants• Tonnes of seawater need to be pumped through the ship and processed• Pump redundancy

We are involved in transportation – not waste treatment

*Ferry Pride of Kent (Krystallon) , Passenger Ship Zaandam (Krystallon), Tanker MS Suula (Wärtsilä), CABU Baru, (Clean Marine Klaveness), ferry Tor Ficaria

Refinery Capacity Additions – by region?

The graph indicate that refinery capacity is projected to increase by 9.8 mbd 2008-2014. According to IEA high economic growth scenario oil demand will increase by some 2 mbd over this period (reduction on 2008 and 2009). Most of the increased capacity increase over the period 2008-2014 is projected to come in Asia (4.9 mbd), but in 2013-15 most of the capacity increase will come in the Middle East (1.7 mbd for this period). The IEA Medium Term Oil Market Report has an overview of refinery expansions 2009-2014. Totally 7.5 mbd is expected to be added over this period of which 2.4 mbd in China, 1.7 mbd in other Asia/Pacific and 1.2 mbd in north

America. The biggest expansion is expected in 2009 (1.8 mbd) of which 0.6 mbd in China and 0.9 mbd in the rest of Asia..

Refinery output OECD

The US – 16 mbd Europe – 15 mbd Asia/Pacific – 7 mbd

Others7%

Gasoline56%

Jet Fuel9%

Distillates24%

Residuals4%

Others28%

Residuals10%

Distillates36%

Jet Fuel6%

Gasoline20%

Residuals8%

Distillates20%

Jet Fuel10%

Gasoline16%

Others46%

Incidents attended by ITOPF over the past 5 years

NumberNumber

Source: ITOPF Source: ITOPF provides (objective technical advice and information on all aspects provides (objective technical advice and information on all aspects of pollution response and the effects of spills on the marine environment). of pollution response and the effects of spills on the marine environment).

2

89147 1317121014

0

3

6

9

12

15

18

2004 2005 2006 2007 2008

Tankers: 40 Non tanker: 66

Revised Annex VI will gradually come into force as from 2010 in ECAs (2020 (25) sulphur emission limit 0.5% down from 3.5%)

INTERTANKO seeks: long term practicable measures necessary to reduce emission

Shipping is energy efficient - but burning the dirties part of the barrel cause pollution

Testing of abatement technology not completed There are 10 good reasons for switching to distillates Refineries are dynamic Large investments necessary over a prolonged

period - no matter solution Burning of HFO is cheap because the real costs

are not charged The real costs involved are the costs to the society

which will be mainly be the impact on the environment (cost effect of increased freight will be marginal)

The oil industry is moving towards cleaner fuels

Summary