Global Trade and Fuels Assessment—
   Additional EGA Modeling Scenarios
United States
Environmental Protection
Agency

-------
                 Global Trade and Fuels Assessment—
                  Additional EGA Modeling Scenarios
                               Assessment and Standards Division
                              Office of Transportation and Air Quality
                              U.S. Environmental Protection Agency
                                    Prepared for EPA by

                                     RTI International

                                         and

                                 EnSys Energy & Systems Inc.
                                 EPA Contract No. EP-C-08-008
                               RTI Project Number 0211577.002.002
v>EPA
United States                                       EPA-420-R-09-009
Environmental Protection                                 ..   „„_
Agency                                          MaY2009

-------
                                    CONTENTS


Section                                                                         Page


   1    Introduction	1-1


   2    Review of the Bunker Fuel Demand Modeling	2-1

        2.1   Summary of the Bunker Fuel Demand Modeling Approach	2-1

        2.2   Results of Bunker Fuel Forecasts	2-2


   3    U.S. and Canadian EGA Fuel Demand Estimates	3-1

        3.1   Summary of Original EGA Fuel Demand Modeling Approach	3-1

        3.2   Original EGA Fuel Demand Estimates for 2020	3-2

        3.3   Inclusion  of Environment Canada's 2020 Fuel Demand Estimates and
             Innocent Passage of U.S.-Related Voyages in Canadian Waters	3-2

        3.4   2020 Fuel Demand Estimates for the United States and Canada	3-4


   4    Revised Business-as-Usual WORLD Model Cases	4-1

        4.1   WORLD  Model Enhancements	4-1

        4.2   WORLD  Model Revised Assumptions	4-2
             4.2.1  IEO2008 Outlook—Supply/Demand/Price Basis	4-2
             4.2.2  Product Quality	4-11
             4.2.3  Regional Bunker Demands	4-12
             4.2.4  Regulatory Outlook for Bunker Fuels	4-12
             4.2.5  U.S. and Canadian EC A Affected Bunker Fuel Volume	4-14
             4.2.6  Refinery Capacity and Projects	4-14
             4.2.7  Refinery Technology and Costs	4-17
             4.2.8  Transportation	4-18

        4.3   Prices Input to the WORLD Model	4-20
             4.3.1  Marker Crude Price	4-20
             4.3.2  Natural Gas and Miscellaneous Input Prices	4-20
                                         in

-------
     4.4  Reporting	4-21






5    Revised WORLD Model for EGA	5-1




     5.1  Supply-Demand Balance	5-1




     5.2  Refining Capacity Additions	5-3




     5.3  Refining Economics and Prices	5-6




     5.4  EGA Costs	5-10




     5.5  Refining and CC>2 Emissions Impacts	5-11




     5.6  Marine Fuels Composition	5-13






References	R-l
                                      IV

-------
                                     FIGURES

Number                                                                         Page
   2-1.   Method for Estimating Bunker Fuel Demand	2-3
   2-2.   Worldwide Bunker Fuel Use	2-4
   2-3.   Annual Growth Rate in Worldwide Bunker Fuel Use	2-5
   2-4.   Worldwide Trade Flows	2-6
   2-5.   Annual Growth Rate in Worldwide Trade Flows	2-6
   2-6.   Worldwide IFO380 Use	2-8
   2-7.   Worldwide IFO180 Use	2-8
   2-8.   Worldwide MDO-MGO Use	2-9
   2-9.   Bunker Fuel Used by the International Cargo Fleet Importing to and Exporting
         From the United States (by Region)	2-9
   2-10. Annual Growth Rate in Bunker Fuel Used by the International Cargo Fleet
         Importing to and Exporting from the United States (by Region)	2-10
   2-11. Bunker Fuel Used by the International Cargo Fleet Importing to and Exporting
         from the United States (by Vessel/Cargo Type)	2-10
   2-12. Annual Growth Rate in Bunker Fuel Used by the International Cargo Fleet
         Importing to and Exporting from the United States (by Vessel/Cargo Type)	2-11
   2-13. U.S. Trade Flows—Imports Plus Exports	2-11
   2-14. Annual Growth in U.S. Trade Flows—Imports Plus Exports	2-12

   4-1.   IEO 2008 Oil Price Projections	4-8

-------
                                      TABLES

Number                                                                         Page
   3-1.   2020 EGA Fuel Demand Estimates, International Trading Ships	3-3
   3-2.   2020 EGA Fuel Demand Estimates, All Ships	3-3
   3-3.   2020 Canadian EGA Fuel Demand Estimates, All Ships (Including Innocent
         Passage of U.S.-Related Voyages)	3-4
   3-4.   2020 EGA Fuel Demand Estimates, All Ships, United States and Canada	3-5

   4-1.   IEO 2008 World Total Liquids Production, by Region and Country, Reference
         Case, 1990-2030 (Million Barrels Oil Equivalent per Day)	4-3
   4-2.   IEO 2008 World Unconventional Liquids Production, by Region and Country,
         Reference Case,  1990-2030 (Million Barrels Oil Equivalent per Day)	4-4
   4-3.   IEO 2008 World Total Liquids Production, by Region and Country, High Price
         Case, 1990-2030 (Million Barrels Oil Equivalent per Day)	4-5
   4-4.   IEO 2008 World Unconventional Liquids Production, by Region and Country,
         High Price Case, 1990-2030 (Million Barrels per Day)	4-6
   4-5.   IEO 2008 World Liquids Consumption, by Region, Reference Case, 1990-
         2030 (Million Barrels Oil Equivalent per Day)	4-7
   4-6.   IEO 2008 World Liquids Consumption, by Region, High Price Case, 1990-
         2030 (Million Barrels Oil Equivalent per Day)	4-8
   4-7.   Annual Product Growth Rates Applied in the 2020 Reference and High Price
         Cases	4-10
   4-8.   World Regional Bunker Sales	4-13
   4-9.   United States and Canada Affected Bunker Fuel Demand, 2020	4-15
   4-10. Refinery Base Capacity and Assessed Additions	4-16
   4-11. Key Price and Cost Premises for 2020 WORLD Cases	4-19
   4-12. WORLD Tanker Rates	4-19

   5-1.   WORLD Reference and EGA Case Inputs and Summary Results—Supply,
         2020	5-2
   5-2.   WORLD Reference and EGA Case Inputs and Summary Results—Demand,
         2020	5-3
   5-3.   WORLD Input Refinery Base Capacity and Assessed Additions	5-4
   5-4.   WORLD Refinery  Capacity Additions, Investments, and Utilizations 2020	5-5
   5-5.   2020 Price Results From WORLD Case Analyses	5-7
                                         VI

-------
5-6.  2020 Price Results From WORLD Case Analyses	5-8
5-7.  2020 WORLD Output Product Price Differentials	5-9
5-8.  2020 WORLD Output Product Supply Costs and CO2 Emissions	5-11
5-9.  2020 WORLD Output Refinery Investment, Throughput, and CO2 Emissions,
     United States and Canada	5-12
5-10. 2020 WORLD Output Product Supply Costs, United States and Canada	5-13
5-11. 2020 Projected Bunker Fuel Demands	5-14
5-12. WORLD Projected Bunker Fuel Compositions	5-16
                                     vn

-------
                                      SECTION 1
                                  INTRODUCTION

       The U.S. Environmental Protection Agency (EPA), along with other regulatory bodies in
the United States and Canada, is considering whether to designate an Emission Control Area
(EGA) along the North American coastlines, as provided for by MARPOL Annex VI. This
addition to the international MARPOL treaty went into effect on May 19, 2005, and was
amended in October 2008. Annex VI places global limits on fuel sulfur levels and exhaust
emission rates for NOX In addition, countries participating in the treaty are also permitted to
request designation of EGAs, in which ships must comply with more stringent limits on fuel
sulfur levels and NOX emissions. The Baltic and North Sea areas have already been designated as
EGAs, and the effective dates of compliance in these bodies of water were 2006 and 2007,
respectively. The current fuel sulfur limit in EGAs is 1.5%.  This limit is reduced to 1.0% Sulfur
in March 2010 and further reduced to 0.1% S in January 2015.

       To evaluate possible recommendations regarding a North American EGA, EPA is
performing a thorough examination of potential responses by the petroleum-refining and ocean-
transport industries to such a designation, along with any resulting economic impacts. EPA
contracted with RTI International to provide a foundation for these recommendations through
developing the knowledge, data, and modeling capabilities needed for such an analysis; to assess
technology  alternatives for reducing sulfur emissions from ships; and to estimate the impact a
EGA designation would have on the petroleum-refining and ocean transport industries.

       Under the prior EPA contract number EP-C-05-040, the RTI, EnSys,  and Navigistics
team undertook an extensive analysis of the potential impacts of a U.S. EGA. That study is
documented in the November 2008 report Global Trade and Fuels Assessment—Future Trends
and Effects of Requiring Clean Fuels in the Marine Sector (U.S. Environmental Protection
Agency [EPA], 2008). (Hereafter in this new report, the earlier document is referred to as the
"2007 Study.") The 2007 Study was initiated in 2006 and used premises and forecasts available
at that time to establish business-as-usual (BAU) outlooks, which in turn were used to establish
EGA cases and costs. Since then, global energy markets and economies have seen dramatic
changes.

       The objective of this report is to supplement the prior work with additional analysis and
refinery modeling to support EPA's EGA implementation analyses. First, RTI revised intra-ECA
fuel consumption estimates to include estimates generated by Environment Canada (EC) and
innocent passage of ships bound for U.S. ports in Canadian  waters. The original analysis
                                          1-1

-------
included only innocent passage of U.S.-flagged ships off the coast of British Columbia. EC
provided RTI with fuel consumption estimates based on Canadian port calls. RTI included this
data in the EGA fuel consumption estimates and new innocent passage estimates for U.S.-related
voyages passing in Canadian waters. This revised fuel consumption demand for both the United
States and Canada was supplied to EnSys for additional WORLD modeling cases.

       Second, this new study and report were to reassess the potential cost and other impacts of
a U.S. and Canadian EGA under updated assumptions and recognizing current uncertainty in the
outlook for the world oil market and refining. The original 2007 Study analyzed scenarios
against horizons of 2012 and 2020. This new 2008 study focused  solely on 2020 but incorporated
EGA analyses against two global projections for 2020, one based  on the Energy Information
Administration (EIA) International Energy Outlook 2008 (U.S. Department of Energy [DOE],
2008) reference case and the second on the corresponding high price case. The results from
additional  modeling scenarios provide projections of the cost, refining, and CO2 emissions
impacts of a U.S. and Canadian EGA in the year 2020 and against two different world oil price,
supply, and demand outlooks.
                                          1-2

-------
                                      SECTION 2
              REVIEW OF THE BUNKER FUEL DEMAND MODELING

       This section discusses the demand side of the marine fuels market. The consumption
forecasts in this section provide a baseline for the WORLD model, against which the shipping
industry's possible response to the adoption of a U.S. or North American EGA regulation could
be evaluated.
2.1    Summary of the Bunker Fuel Demand Modeling Approach
       The final report, entitled Global Trade and Fuels Assessment—Future Trends and Effects
of Requiring Clean Fuels in the Marine Sector (EPA, 2008), presents a detailed description and
discussion of the bunker fuel demand modeling approach and its results. The following
discussion is a summary that is presented for readers' convenience. In general, the approach used
to estimate marine bunker fuel use can be described as an "activity-based" approach with a focus
on the international cargo vessels that represent the majority of fuel consumption. Components
of the estimation included the following:
       •   identifying major trade routes,
       •   estimating volumes of cargo of various types on each route,
       •   identifying types of ships serving those routes and carrying those cargoes,
       •   characterizing types of engines used by those ships, and
       •   identifying the types and estimated quantities of fuels used by those engines.
       Implementing this approach involves combining information from a variety of sources:
data on the existing fleet of shipping vessels from Clarksons (2005), information from Corbett
and Wang (2005) and various industry sources on engine characteristics, and projections of
future global trade flows from Global  Insights  (2005).  The data on vessels and engines provide a
characterization of fuel use associated with delivering a particular load of cargo, and the data  on
trade flows control how many times, and over what distances, these loads have to be delivered.

       Estimating fuel consumption through an activity-based methodology that combines data
on specific vessels with data on engine characteristics is similar to the approaches used in
Corbett and Koehler (2003, 2004), Koehler (2003), Corbett and Wang (2005), and Gregory
(2006). The approach in this report extends previous analyses by linking these ship data to
projections of worldwide trade flows to determine the total number of trips undertaken in each
year—and hence, fuel  use—rather than using estimates of the number of hours a ship/engine
typically  runs in a year.
                                          2-1

-------
       Accordingly, the model estimates fuel consumption based on an underlying economic
model's projections of international trade by commodity category (Global Insights, 2005).
Demand for marine fuels is derived from the demand for transportation of various types of
cargoes by ship, which, in turn, is derived from the demand for commodities that are produced in
one region of the world and consumed in another. The flow of commodities is matched with
typical vessels for that trade (characterized according to size, engine horsepower, age, specific
fuel oil consumption, and engine load factors). Next, typical voyage parameters are assigned,
including average ship speed, round-trip mileage, tonnes of cargo shipped, and days in port. Fuel
consumption for each trade route and commodity type thus depends on commodity projections,
ship characteristics, and voyage characteristics.

       Figure 2-1 illustrates the broad steps involved in developing baseline projections of
marine fuel consumption. It is a multistep process that relies on data and forecasts from
numerous sources,  some of which are listed above, to inform the projections. The flow chart in
the figure illustrates the relationships to be profiled in characterizing baseline marine fuel
consumption by cargo vessels.

       Also, although the focus of this analysis of bunker fuel forecasts is on projecting use by
vessels carrying cargo among international ports, it includes other vessel types when estimating
total demand for bunker fuels, as discussed below. These vessel types include passenger vessels,
such as ferries and  cruise ships;  service vessels, such as tugs and offshore supply vessels (OSVs);
and military vessels.
2.2    Results of Bunker Fuel Forecasts
       Figure 2-2 shows estimated worldwide bunker fuel consumption by vessel type. Fuel
consumption in year 2001 was equal to 278 million tonnes, which can be compared to the
estimate in Corbett and Koehler (2004) of 289 million tonnes. By 2020, bunker fuel demand
approaches 500 million tonnes per year. Note that the "historical" bunker fuel data shown going
back to  1995 are also model estimates based on historical Global Insights trade flows.
(Comparisons of these estimates with others in the literature are discussed in more detail in
Section 4.2 of the 2007 Study, given their importance to the modeling of the petroleum-refining
industry in the WORLD model.)
                                           2-2

-------
         Ship Analysis: by Vessel Type and Size Category
                     Inputs
         Outputs
           Deadweight for all Vessels of
               Given Type & Size3
      Average Cargo
      Carried (Tons)
«•{ A
            Horsepower, Year of Build
              for all Vessels of Given
                  Type & Size3
            Specific Fuel Consumption
           (g/SHP-HR) by Year of Buildb
    Average Daily Fuel
      Consumption
       (Tons/Day)
             Engine Load Factors0
                           Average Daily Fuel
                         Consumption (Tons/Day)
                        - Main, Aux. Engine at Sea
                           -Aux. Engine in Port
                        4 B  )
         Trade Analysis: by Commodity and Trade Route
                      Inputs
         Outputs
               Average Ship Speed0
               Round Trip Mileage
              Tons of Cargo Shipped6
                                               Days at Sea and in
                                                Port, per Voyage
            Average Cargo Carried/''
                per Ship Voyage  (. '
                                               Number of Voyages
         Total Estimated Bunker Fuel Demand
              Average Daily Fuel Consumption
                        (Tons/Day)
                 - Main, Aux. Engine at Sea
                    -Aux. Engine in Port
B
            Total Days at Sea
               and in Port   ^
                Bunker Fuel
                  Demand
            Driven by changes in engine efficiency.
             Driven by growth in
              commodity flows.
        a - Clarksons Ship Register Database
        b - Engine Manufacturers' Data, Technical Papers
        c - Corbett and Wang (2005) "Emission Inventory Review: SECA Inventory Progress Discussion"
        d - Combined trade routes and heavy leg analysis
        e - Global Insight Inc. (Gil) Trade Flow Projections


Figure 2-1.    Method for Estimating Bunker Fuel Demand
                                                     2-3

-------
          600 !
          500
          400
          300
          200 -
          100
d Military Vessels
• Natural Gas
DDryBulk
• Passenger Ships
DPetroleum
D General Car go
• Fishing Vessels
D Chemicals
H Container
D Other
BCrudeOil
Figure 2-2.   Worldwide Bunker Fuel Use
Source: Global Insights, Inc. 2005. World Trade Service. Customized Data Export.

       Figure 2-3 shows the annual growth rates by vessel type/cargo that underlie the
projections in Figure 2-2. The projected total annual growth is generally between 2.5% and 3.5%
over the time period between 2006 and 2020 and generally declines over time, resulting in an
average annual growth of around 2.6%. As shown in the "container" categories in Figures 2-2
and 2-3, fuel consumption by container ships is the fastest-growing component of worldwide
bunker fuel demand; in 2004, consumption by container ships was around 75 million tonnes,
growing to 87 million tonnes by 2006 and close to 180 million tonnes by 2020. (The historical
estimates can be compared to Gregory [2006], which places container-ship consumption in 2004
at 85 million tonnes, based on installed power.) While overall growth  is less than 3% per year,
growth in container-ship demand remains above 5% per year on an average annual basis for the
next 15 years. Across all vessel types, growth in bunker fuel consumption is somewhat lower
than the worldwide GDP growth forecasts from EIA (International Energy Outlook 2005 [DOE,
2005]) of around 3.9% per year but higher than International Energy Agency (IEA) estimates of
overall fuel consumption growth (around 1.6% in the World Energy Outlook 2005). Demand
estimates reflect the long-term outlook based on forecasted needs and not short-term economic
scenarios.  The estimated growth in marine bunker demand over the next 15 yearslis consistent
with the historical growth rate of 2.7% per year observed in LEA data between 1983 and 2003.
                                          2-4

-------
      10%
      -2%
vo
00
-O- Total
-A- Crude Oil
— Other
o r-i
o o
-*~ Container
Chemicals
Fishing Vessels
^H ^H *-H
O O O
—*~ General Cargo -•" Dry Bulk
H(- Petroleum ^~ Natural Gas
Passenger Ships Military Vessels
c
r
c
r
Figure 2-3.    Annual Growth Rate in Worldwide Bunker Fuel Use
Source: Global Insights, Inc. 2005. World Trade Service. Customized Data Export.

       Growth in fuel use by container ships and the overall contribution by these vessels to
worldwide demand are driven by several factors. The first is overall growth in worldwide GDP
mentioned above. This growth leads to increases in international trade flows over time (shown in
Figures 2-4 and 2-5). These figures  illustrate that, although container trade is smaller in total
volume than other categories, it is the fastest-growing component of the trade flows. Measuring
trade flows in tonnes of goods, as shown in Figure 2-4, also does not provide a good proxy for
the fuel consumption needed to transport the goods. Liquids and dry bulk are much denser than
container goods, for example. It is estimated that utilization rates for container  ships (comparing
deadweight tonnes of capacity to  actual cargo transported) are around 50%. Thus, it takes
approximately twice as many ships  to transport the same amount of container tonnes compared
to liquid/dry bulk tonnes. This relationship tends to influence total bunker fuel use and weight it
toward container trade. In addition,  growth rates in particular trade flows, such as Asia to the
United States, will also influence overall fuel consumption, especially as related to container
ships, as discussed below in relation to U.S. regional trade flows.
                                          2-5

-------
            9,000
            8,000
               @ Container ID General Cargo D Dry Bulk H Crude Oil D Chemicals D Petroleum D Natural Gas
Figure 2-4.   Worldwide Trade Flows
Source: Global Insights, Inc. 2005. World Trade Service. Customized Data Export.
           10%
            0%
               §
                     -O- Total
                     -*- Crude Oil
1 Container
 Chemicals
1 General Cargo
1 Petroleum
• Dry Bulk
• Natural Gas
Figure 2-5.   Annual Growth Rate in Worldwide Trade Flows
Source: Global Insights, Inc. 2005. World Trade Service. Customized Data Export.
                                                2-6

-------
       Figures 2-6 through 2-8 show estimated consumption of specific grades of bunker fuels
from Figure 2-2.

       Figures 2-9 through 2-12 present estimates of fuel use by the international cargo fleet
engaged in delivering trade goods to and exporting trade goods from the United States. These
estimates comprise part of the total worldwide bunker fuel use shown in Figure 2-2 and do not
include fuel used for domestic navigation. The results in Figure 2-9 show estimated historical
bunker fuel use in year 2001 of around 47 million tonnes. (Note that, while this fuel is used to
carry trade goods to and from the United States, it is not necessarily all purchased in the United
States and is not all burned in U.S. waters.) This amount grows to over 90 million tonnes by
2020, with the most growth occurring on trade routes from the East Coast and the "South
Pacific" region of the West Coast.

       Figure 2-10 shows the annual growth rate projections for the fuel consumption estimates
in Figure 2-9. The South Pacific and East Coast regions of the United States are growing the
fastest, largely as the result of container ship trade (see Figures 2-11 and 2-12). Overall, the
average annual growth rate in marine bunkers associated with future U.S. trade flows is 3.4%
between 2005 and 2020. This growth rate is somewhat higher than worldwide totals but is
similar to estimated GDP growth in the United States of 3.1% between 2005 and 2020 (DOE,
2006) and is influenced by particular components of U.S. trade flows.

       The projected growth rate in bunker fuel consumption related to U.S. imports and exports
is driven by container ship trade (see Figures 2-13 and 2-14), which grows by  more than 4% per
year. U.S. trade volumes are also influenced by high worldwide growth in GDP and resulting
demand for U.S. goods. Along with the fact that container ships use a disproportionately large
amount of fuel to move a given number of tonnes of cargo, fuel use by container ships is also
influenced by shifts in trading routes over time. In the future, trade is expected to shift to the
Pacific region (an increase in Asia-U.S. routes), which causes the average distance per voyage to
increase. Thus, while ship efficiency is increasing over time as older ships retire, this effect is
dominated by the increase in voyage distance, leading to higher bunker fuel growth.
                                          2-7

-------
            400
            350
                         n Military Vessels   •Passenger Ships    •Fishing Vessels    QOther



                         • NaturalGas      DPetroleum       BChemicals       DCrudeOil



                         DDryBulk         IE General Car go    BContainer
                                                                                            o
                                                                                            r^
                                                                                            o
Figure 2-6.    Worldwide IFO380 Use


Source: Global Insights, Inc. 2005. World Trade Service. Customized Data Export.
o
o
o
El Military Vessels
• NaturalGas
DDryBulk
•ft
o
o
• Passenger Ships
DPetroleum
H General Car go
o
o
• Fishin g Vessels
DChemicals
HContainer
•ft
o
Q Other
HCrudeOil
                                                                                            o
                                                                                            r^<
                                                                                            o
Figure 2-7.    Worldwide IFO180 Use


Source: Global Insights, Inc. 2005. World Trade Service. Customized Data Export.
                                                  2-8

-------
            120
            100
         g


         B
         o
o
§
(S
El Military Vessels
• Natural Gas
DDryBulk

-------
             10%
                             1 United States
                             1 US Great Lakes
1 US South Pacific

1 US Gulf
1 US North Pacific

1 US East Coast
Figure 2-10.  Annual Growth Rate in Bunker Fuel Used by the International Cargo Fleet
              Importing to and Exporting from the United States (by Region)
Source: Global Insights, Inc. 2005. World Trade Service. Customized Data Export.
               B Container ID General Cargo D Dry Bulk D Crude Oil D Chemicals D Petroleum D Natural Gas
Figure 2-11.  Bunker Fuel Used by the International Cargo Fleet Importing to and
              Exporting from the United States (by Vessel/Cargo Type)
Source: Global Insights, Inc. 2005. World Trade Service. Customized Data Export.
                                            2-10

-------
            10%
             8%
          a
             0%
            -4%
                     -O- Total
                     -A- Crude Oil
-•" Container
-K- Chemicals
• General Cargo
• Petroleum
• Dry Bulk
• Natural Gas
Figure 2-12.   Annual Growth Rate in Bunker Fuel Used by the International Cargo Fleet
               Importing to and Exporting from the United States (by Vessel/Cargo Type)
Source: Global Insights, Inc. 2005. World Trade Service. Customized Data Export.
              2,000
              1,800
                 B Container D General Cargo D Dry Bulk Q Crude Oil D Chemicals D Petroleum D Natural Gas
Figure 2-13.   U.S. Trade Flows—Imports Plus Exports
Source: Global Insights, Inc. 2005. World Trade Service. Customized Data Export.
                                             2-11

-------
            10%
             8%
          H
          _e
          g>
          So
          «
          J=
          fi  2%
                §
                      -O- Total
                      -A- Crude Oil
1 Container
 Chemicals
1 General Cargo
1 Petroleum
1 Dry Bulk
1 Natural Gas
Figure 2-14.  Annual Growth in U.S. Trade Flows—Imports Plus Exports
Source: Global Insights, Inc. 2005. World Trade Service. Customized Data Export.
                                              2-12

-------
                                      SECTION 3
              U.S. AND CANADIAN ECA FUEL DEMAND ESTIMATES

       This section details combined fuel demand estimates for a potential U.S. and Canadian
ECA. RTFs original ECA fuel demand estimates were combined with data from Environment
Canada (EC) and were augmented with additional fuel demand modeling results for innocent
passage of U.S.-related voyages in Canadian waters.
3.1    Summary of Original ECA Fuel Demand Modeling Approach
       In general, estimating the amount of bunker fuel consumed within ECA boundaries
involved reviewing U.S.-related trade routes, estimating whether and to what extent ships would
alter their routing to minimize travel within the ECA, and calculating the volume of fuel
consumed within the ECA boundaries. As such, the primary input for the ECA fuel consumption
analysis was the time series of bunker fuel consumption from Section 2 disaggregated by route
and by commodity type. The discussion in this section does not reiterate the activity-based
methodology for developing the time-series data; rather, this discussion focuses  on how fuel
consumption in U.S. trading routes was apportioned to the ECA.

       Key steps in the ECA fuel consumption analysis included the following:
       •   isolating the trading routes, voyage characteristics, and fuel consumption estimates
          for U.S.-related shipping activity;
       •   calculating the distance traveled within the ECA boundaries for each route;
       •   estimating whether ships would adjust routing to optimize time spent within the ECA;
       •   calculating the number of days each voyage spent in U.S. ports; and
       •   apportioning estimated intra-ECA fuel consumption estimates by major U.S. ECA
          zones by reviewing the distance each voyage traveled within the zones.
       There are five distinct regions for which fuel consumption estimates were generated, as
established by the U.S. coastline:
       •   North Pacific, including the Alaskan Coast from Kodiak Island east and south to the
          Oregon-California land border;
       •   South Pacific, including all U.S. waters off the coast of California;
       •   Gulf Coast, covering U.S. waters from Brownsville, Texas,  to the Florida Keys;
       •   East Coast, encompassing U.S. waters from the Florida Keys and the Straits of
          Florida to Maine; and
       •   Great Lakes, including all of Lake Michigan and U.S. waters of the other four lakes
          up through the end of the U.S. portion of the St. Lawrence River at Cornwall Island.
                                          3-1

-------
       EPA requested that RTI provide fuel consumption estimates for a potential EGA in which
the outer EGA boundary is set at 200 nm off the Pacific, East, and Gulf Coasts. The potential
EGA modeled in this effort included the following characteristics:
       •   The EGA boundary in the North Pacific is just east of Kodiak Island, Alaska; the
          Bering Sea and U.S. territorial waters established by the Aleutian Islands are
          excluded from the EGA.
       •   Western Canadian waters are assumed to be part of the EGA; innocent passage of
          U.S.-related voyages (i.e., commodities, containers, Jones Act, and other vessels) in
          Western Canadian waters is included in the U.S. North Pacific EGA fuel consumption
          estimates.
       •   U.S. territorial waters in the Great Lakes are included in the EGA.
       •   U.S. territorial waters established by Hawaii are excluded from the EGA scenarios.
       •   U.S. territorial waters established by overseas territories and protectorates are
          excluded from the EGA, with the exception of Puerto Rico, which is included in the
          East Coast estimates.
       In brief, RTI and Navigistics reviewed the industry-standard distance, voyage time, and
routing information employed in the global fuel consumption analysis to identify distance
traveled within the EGA. We used the ratio of distance traveled in EGAs to total distance
traveled to apportion global at-sea fuel consumption estimates. We derived estimates of port fuel
consumption in the United States by reviewing the ports of call and assigning relevant in-port
fuel consumption to the EGA.
3.2    Original  ECA Fuel Demand Estimates for 2020
       It is estimated that in 2020, international trading ships will consume 10.7 million tonnes
of fuel within the modeled ECA boundary (Table  3-1). Including domestic ships, it is estimated
that total ECA fuel consumption will amount to 16.2 million tonnes (Table 3-2).
3.3    Inclusion of Environment Canada's 2020 Fuel Demand Estimates and Innocent
       Passage of U.S.-Related Voyages in Canadian Waters
       EC supplied EPA and RTI with results from its own fuel demand  analyses for 2020 for
operation within  200 nm of Canada's coasts. In consultation with EC, RTI converted EC's fuel
demand estimates from megalitres to tonnes assuming that the distribution of fuel grades and
average ship fuel consumption patterns for voyages in U.S. waters were the same as those in
Canadian waters.
                                          3-2

-------
Table 3-1.   2020 ECA Fuel Demand Estimates, International Trading Ships

Commodity
Group
International
commodities trade




International
container trade




International trade
subtotal






Region
U.S. -Great Lakes
U.S.-Gulf
U.S. -North Pacific
U.S.-South Pacific
U.S.-East
ECA subtotal
U.S. -Great Lakes
U.S.-Gulf
U.S. -North Pacific
U.S.-South Pacific
U.S.-East
ECA subtotal
U.S. -Great Lakes
U.S.-Gulf
U.S.-North Pacific
U.S.-South Pacific
U.S.-East
ECA subtotal
IFO380
(thousand
tonnes)
98
1,528
121
141
748
2,636

630
573
1,089
2,335
4,627
98
2,159
694
1,230
3,083
7,264
IFO180
(thousand
tonnes)
33
358
45
51
207
693

222
183
514
884
1,804
33
580
228
565
1,091
2,497
MDO/MGO
(thousand
tonnes)
17
190
28
41
159
435

61
54
115
231
462
17
251
82
156
390
897
Total
(thousand
tonnes)
149
2,076
194
233
1,114
3,765

914
810
1,719
3,451
6,893
149
2,989
1,004
1,952
4,564
10,658
Source: Authors' calculations.
Table 3-2. 2020
Commodity
Group
International trade
subtotal




Domestic fleet
(Jones Act and
other vessels)



Total ECA





ECA Fuel Demand

Region
U.S. -Great Lakes
U.S.-Gulf
U.S. -North Pacific
U.S.-South Pacific
U.S.-East
ECA subtotal
U.S. -Great Lakes
U.S.-Gulf
U.S. -North Pacific
U.S.-South Pacific
U.S.-East
ECA subtotal
U.S. -Great Lakes
U.S.-Gulf
U.S.-North Pacific
U.S.-South Pacific
U.S.-East
ECA total
Estimates, All
IFO380
(thousand
tonnes)
98
2,159
694
1,230
3,083
7,264
129
707
578
369
557
2,340
227
2,865
1,272
1,599
3,639
9,603
Ships
IFO180
(thousand
tonnes)
33
580
228
565
1,091
2,497
61
107
119
71
90
448
95
687
347
636
1,181
2,945

MDO/MGO
(thousand
tonnes)
17
251
82
156
390
897
252
401
722
607
746
2,727
270
651
804
763
1,136
3,624

Total
(thousand
tonnes)
149
2,989
1,004
1,952
4,564
10,658
443
1,214
1,419
1,046
1,393
5,515
592
4,203
2,423
2,998
5,957
16,173
Source: Authors' calculations.
                                          3-3

-------
       RTI also modeled fuel consumption for innocent passage of U.S.-related voyages in
Canadian waters because EC's analysis, which was based on port call data, did not capture this
fuel demand. In essence, per the methodology in Section 3.1, the distance traveled in the
modeled EGA for U.S. routes passing through Canadian waters was expanded and the
incremental demand was grouped into EC's categories: Canada-East, Canada-West, and Canada-
Great Lakes. Table 3-3 presents the summary fuel demand estimates for the modeled Canadian
EGA in 2020. (The Saint Lawrence Seaway was assigned to Canada-East.)
Table 3-3.   2020  Canadian ECA Fuel Demand Estimates, All Ships (Including Innocent
            Passage of U.S.-Related Voyages)



Canadian ECA
(incl. innocent
passage of U.S. -
related voyages)


Region
Canada-East
Canada-Great Lakes
Canada-West
Total
IFO380
(thousand
tonnes)
1,415
113
864
2,392
IFO180
(thousand
tonnes)
327
32
284
642
MDO/MGO
(thousand
tonnes)
361
111
76
548
Total
(thousand
tonnes)
2,103
256
1,223
3,583
Source: Environment Canada and authors' calculations.

3.4    2020 Fuel Demand Estimates for the United States and Canada
       Table 3-4 presents the combined fuel demand estimates for the United States and Canada
that were inputted into the additional WORLD modeling cases presented in the following
chapters. Total fuel demand for the modeled ECA was estimated at 19,755 thousand tonnes.
                                         3-4

-------
Table 3-4.  2020 ECA Fuel Demand Estimates, All Ships, United States and Canada
Region
U.S. ECA U.S.-Great Lakes
U.S.-Gulf
U.S.-North Pacific
U.S.-South Pacific
U.S.-East
U.S. subtotal
Canadian ECA Canada-East
Canada-Great Lakes
Canada-West
Canada subtotal
United States and Canada
IFO380
(thousand
tonnes)
227
2,865
1,272
1,599
3,639
9,603
1,415
113
864
2,392
11,996
IFO180
(thousand
tonnes)
95
687
347
636
1,181
2,945
327
32
284
642
3,587
MDO/MGO
(thousand
tonnes)
270
651
804
763
1,136
3,624
361
111
76
548
4,172
Total
(thousand
tonnes)
592
4,203
2,423
2,998
5,957
16,173
2,103
256
1,223
3,583
19,755
Source: Authors' calculations.
                                        3-5

-------
                                     SECTION 4
              REVISED BUSINESS-AS-USUAL WORLD MODEL CASES

       The 2007 Study included extensive modifications to the WORLD model and then its
application to BAU and EGA cases for 2012 and 2020. The purpose of these modifications was
to create the ability to model EGA-type scenarios and to include the most recent information
available in terms of both bunker fuel demand projections as developed by the RTI team and
global oil outlook. The cases were based on the EIA Annual Energy Outlook 2006 reference case
for overall world oil price, supply, demand outlook and regional summaries. The 2008 Study
relied on EIA's International Energy Outlook 2008 (DOE, 2008). Two scenarios were
developed, one based  on the IEO reference case and the second on the high price case. The
WORLD modifications made for the 2007 Study are briefly summarized below, followed by
discussion of the specific premises used as the basis for the 2020 BAU cases.
4.1     WORLD Model Enhancements
       WORLD is a comprehensive, bottom-up model of the global oil downstream that
includes crude and noncrude supplies; refining operations and investments; the trading and
transport of crude, products, and intermediates; and product blending/quality and demand. Its
detailed simulations are capable of estimating how the global system can be expected to operate
under a wide range of different circumstances, generating model outputs, such as price effects
and projections of refinery operations and investments. As a key component of the 2007 Study, a
series of upgrades was made.  These were fully documented in the 2007 Study Report. They
included the following:
       •   A major expansion of the detail with which WORLD represents marine bunker fuels,
          their demand, types,  specifications, and blending
       •   Building in the ability within WORLD to switch between 'TEA" and "RTI" bases for
          bunker fuel demand.  The RTI basis has now essentially been adopted by the
          International Maritime Organization (EVIO), as EVIO's own projections are very close
          to those developed by RTI and Navigistics under the 2007 Study. The RTI projections
          essentially double the demand volume for bunker fuels versus that which is reported
          by the IEA. The view was taken in both the 2007 Study and 2008 Study that current
          low reported bunker  demand represents a misreporting of fuel rather than missing
          barrels.
       •   A detailed review of actual marine bunker grades and qualities in the marketplace,
          based in part on then-parallel EnSys and Navigistics assignments for the American
          Petroleum  Institute (API) and EVIO
                                         4-1

-------
       •   Enhancements to the model to address issues related to bunker fuel stability, leading
          to processing constraints and to limits on the levels of certain component streams that
          could be blended into IFO bunker grades
       •   Enhancements to the model, first added under work for API, to compute refinery
          emissions of CC>2, based on refining operations and fuels, and the emissions from
          combustion of marine fuels, based on their type. This feature enabled potential
          reductions in CC>2 emissions, resulting primarily from switching to marine distillates
          from IFO, to be compared with the CC>2 emissions increases resulting from the
          additional refinery processing required to produce lower sulfur marine fuels and to
          convert heavy IFO fuels to distillate grades.
       In addition, procedures have been embodied into the model to enable iteration on results
so that there is close convergence between the assumed (input) and produced (output) gravities
for marine fuels.  This is necessary  because marine fuel demands are defined in tonnes.
4.2    WORLD Model Revised Assumptions
4.2.1  IEO 2008 Outlook—Supply/Demand/Price Basis
       Since the 2007 Study, we have revised the WORLD model, primarily to make use of new
information available from the EIA. Overall oil supply, demand, and price parameters were set in
the model based, on the International Energy Outlook (IEO) 2008 reference and high price cases.
Key information from these projections is summarized in Tables 4-1 through 4-6 and in Figure
4-1. These exhibits show the marked difference between the two scenarios. Under the reference
case, global total oil demand is projected to rise from 84.3 million barrels per day (bpd) in 2005
to 101.3 million bpd in 2020, a rise of 16 million bpd. In the high price case,  2020 demand is
projected at 91.7 million bpd, 9.6 million bpd lower than under the reference case. Equally
significant, the increase in demand versus 2005 is cut to 7.4 million bpd, half that of the
reference case.

       The two scenarios represent appreciably different views of how the world's oil sector,
economics, policies, and oil intensity could evolve. Under the reference case (Figure 4-1), prices
for light sweet crude oil follow a relatively flat profile and are at $(2006) 60/barrel (bbl) in 2020.
Under the high price case, they maintain an update trajectory and are at $(2006) 102/bbl by 2020.
Nominal  prices will be higher. Associated with this, and driven also by policy initiatives, oil
demand growth in Organisation for Economic Co-operation and Development (OECD) regions
is low in the reference case (0.3% per year average from 2005 through 2030) and slightly
negative (- 0.1% per year) under the high price case. Under both scenarios, the oil demand
growth takes place in non-OECD regions. What varies is the rate of growth: 2.2% per year
                                          4-2

-------
Table 4-1.  IEO 2008 World Total Liquids Production, by Region and Country, Reference
           Case, 1990-2030 (Million Barrels Oil Equivalent per Day)
Region/Country
OPEC
Asia (Indonesia)
Middle East
Iran
Iraq
Kuwait
Qatar
Saudi Arabia
United Arab Emirates
North Africa
Algeria
Libya
West Africa
Angola
Nigeria
South America
Ecuador
Venezuela
Non-OPEC
OECD
OECD North America
United States
Canada
Mexico
OECD Europe
OECD Asia
Japan
South Korea
Australia and New Zealand
Non-OECD
Non-OECD Europe and Eurasia
Russia
Caspian area
Other
Non-OECD Asia
China
India
Other
Middle East (Non-OPEC)
Africa
Central and South America
Brazil
Other
Total World
History
1990
25.2
1.5
16.1
3.1
2.1
1.2
0.4
7.0
2.3
2.7
1.3
1.4
2.3
0.5
1.8
2.5
0.3
2.3
41.1
20.0
14.7
9.7
2.0
3.0
4.5
0.8
0.1
0.0
0.7
21.1
11.6
10.1
1.1
0.4
4.4
2.8
0.7
1.0
1.3
1.7
2.1
0.8
1.3
66.3
2005
36.1
1.1
23.8
4.2
1.9
2.7
1.1
11.1
2.8
3.8
2.1
1.7
3.9
1.3
2.6
3.4
0.5
2.9
48.2
21.8
15.1
8.2
3.1
3.8
5.9
0.7
0.1
0.0
0.6
26.5
11.9
9.5
2.1
0.3
6.5
3.7
0.8
1.9
1.7
2.6
3.8
1.9
1.8
84.3

2010
37.4
0.9
23.7
4.1
2.0
2.6
1.6
10.5
2.9
4.7
2.7
2.0
5.1
2.5
2.6
3.0
0.4
2.5
51.8
21.5
16.2
9.4
3.8
3.0
4.5
0.8
0.1
0.0
0.6
30.3
14.0
10.2
3.5
0.3
6.9
3.8
1.1
2.0
1.5
3.0
4.9
3.2
1.7
89.2
Projections
2020
44.4
0.9
28.8
4.0
3.4
3.0
2.7
12.6
3.0
5.1
3.4
1.8
5.9
2.8
3.1
3.6
0.5
3.1
57.0
21.5
17.2
10.2
4.6
2.4
3.5
0.8
0.2
0.0
0.6
35.5
16.8
12.1
4.5
0.2
7.4
4.0
1.2
2.2
1.5
3.7
6.0
4.3
1.7
101.3

2030
49.3
1.0
31.8
4.5
4.0
3.3
3.2
13.7
3.1
5.8
4.0
1.7
6.7
3.1
3.5
4.1
0.6
3.5
63.2
22.3
18.0
9.8
5.3
2.8
3.4
0.9
0.2
0.1
0.7
40.9
18.9
13.5
5.1
0.3
7.7
4.1
1.3
2.3
1.6
4.5
8.2
5.7
2.5
112.5
Average Annual
Percentage Change,
2005-2030
1.3
-0.7
1.2
0.2
3.1
0.9
4.3
0.8
0.3
1.7
2.6
0.1
2.2
3.7
1.2
0.8
0.5
0.9
1.1
0.1
0.7
0.7
2.2
-1.1
-2.1
0.8
1.4
5.8
0.4
1.8
1.8
1.4
3.6
-0.9
0.7
0.4
1.8
0.7
-0.2
2.3
3.1
4.4
1.2
1.2
                                       4-3

-------
Table 4-2.  IEO 2008 World Unconventional Liquids Production, by Region and Country,
           Reference Case, 1990-2030 (Million Barrels Oil Equivalent per Day)
History

Region/Country 1990 2005
OPEC 0.0 0.8
Biofuels 0.0 0.0
Ultra-heavy oil (Venezuela) 0.0 0.6
Coal-to-liquids 0.0 0.0
Gas-to-liquids (primarily Qatar) 0.0 0.0
Non-OPEC 0.6 1.7
OECD 0.5 1.5
Biofuels 0.0 0.2
Oil sands/bitumen (Canada) 0.4 1.1
Ultra-heavy Oil (Mexico) 0.0 0.0
Coal-to-liquids 0.0 0.0
Gas-to-liquids 0.0 0.0
Shale oil 0.0 0.0
Non-OECD 0.1 0.2
Biofuels 0.1 0.3
Ultra-heavy oil 0.0 0.0
Coal-to-liquids 0.1 0.1
Gas-to-liquids 0.0 0.0
Shale oil 0.0 0.0
World
Biofuels 0.2 0.5
Oil sands/bitumen 0.4 1.1
Ultra-heavy oil 0.0 0.6
Coal-to-liquids 0.1 0.1
Gas-to-liquids 0.0 0.0
Shale oil 0.0 0.0
World Total 0.6 2.5
Selected Country Highlights
Biofuels
Brazil 0.1 0.2
China 0.0 0.1
India 0.0 0.0
United States 0.0 0.2
Coal-to-liquids
Australia and New Zealand 0.0 0.0
China 0.0 0.0
Germany 0.0 0.0
India 0.0 0.0
South Africa 0.1 0.1
United States 0.0 0.0
Gas-to-liquids
Qatar 0.0 0.0
South Africa 0.0 0.0
Projections Average Annual
Percentage Change,
2010 2020 2030 2005-2030
0.9 1.3 1.6 3.1
0.0 0.0 0.0 —
0.9 1.0 1.3 3.0
0.0 0.0 0.0 —
0.0 0.2 0.3 —
3.6 6.1 8.1 6.4
2.7 4.7 6.1 5.9
0.6 1.0 1.4 7.7
1.9 3.3 4.2 5.5
0.0 0.0 0.1 —
0.0 0.2 0.3 25.0
0.0 0.0 0.0 —
0.0 0.0 0.0 —
0.9 1.4 2.0 8.7
0.6 1.0 1.3 5.7
0.0 0.0 0.0 —
0.2 0.3 0.7 6.7
0.1 0.1 0.1 —
0.0 0.0 0.0 1.7

1.3 2.1 2.7 6.7
1.9 3.3 4.2 5.5
0.9 1.1 1.3 3.2
0.2 0.5 1.0 8.2
0.1 0.3 0.3 —
0.0 0.0 0.0 1.7
4.5 7.4 9.7 5.6


0.3 0.5 0.7 5.4
0.2 0.2 0.1 2.6
0.1 0.1 0.1 3.6
0.5 0.9 1.2 8.1

0.0 0.0 0.0 —
0.0 0.0 0.2 —
0.0 0.0 0.0 0.0
0.0 0.0 0.1 —
0.2 0.3 0.3 3.9
0.0 0.2 0.2 —

0.0 0.2 0.2 —
0.1 0.1 0.1 —
                                       4-4

-------
Table 4-3.  IEO 2008 World Total Liquids Production, by Region and Country, High
           Price Case, 1990-2030 (Million Barrels Oil Equivalent per Day)


Region/Country
OPEC
Asia (Indonesia)
Middle East
Iran
Iraq
Kuwait
Qatar
Saudi Arabia
United Arab Emirates
North Africa
Algeria
Libya
West Africa
Angola
Nigeria
South America
Ecuador
Venezuela
Non-OPEC
OECD
OECD North America
United States
Canada
Mexico
OECD Europe
OECD Asia
Japan
South Korea
Australia and New Zealand
Non-OECD
Non-OECD Europe and Eurasia
Russia
Caspian Area
Other
Non-OECD Asia
China
India
Other
Middle East (Non-OPEC)
Africa
Central and South America
Brazil
Other
Total World
History

1990
25.2
1.5
16.1
3.1
2.1
1.2
0.4
7.0
2.3
2.7
1.3
1.4
2.3
0.5
1.8
2.5
0.3
2.3
41.1
20.0
14.7
9.7
2.0
3.0
4.5
0.8
0.1
0.0
0.7
21.1
11.6
10.1
1.1
0.4
4.4
2.8
0.7
1.0
1.3
1.7
2.1
0.8
1.3
66.3

2005
36.1
1.1
23.8
4.2
1.9
2.7
1.1
11.1
2.8
3.8
2.1
1.7
3.9
1.3
2.6
3.4
0.5
2.9
48.2
21.8
15.1
8.2
3.1
3.8
5.9
0.7
0.1
0.0
0.6
26.5
11.9
9.5
2.1
0.3
6.5
3.7
0.8
1.9
1.7
2.6
3.8
1.9
1.8
84.3


2010
37.3
0.9
23.7
4.1
2.0
2.6
1.6
10.5
2.9
4.7
2.7
2.0
5.0
2.4
2.6
3.0
0.4
2.5
51.4
21.5
16.2
9.2
3.9
3.1
4.5
0.8
0.1
0.0
0.6
29.9
14.2
10.4
3.5
0.3
6.4
3.6
1.0
1.9
1.5
2.9
5.0
3.2
1.7
88.7
Projections

2020
35.0
0.7
22.3
3.0
2.5
2.3
2.4
9.7
2.4
4.0
2.6
1.3
4.5
2.1
2.4
3.5
0.4
3.1
56.7
23.8
19.9
10.3
7.3
2.3
3.2
0.8
0.1
0.0
0.6
32.9
14.9
10.7
4.0
0.2
7.0
3.7
1.2
2.0
1.4
3.7
5.9
4.3
1.6
91.7


2030
35.5
0.7
22.1
2.9
2.6
2.2
2.8
9.4
2.2
4.1
2.8
1.2
4.5
2.0
2.4
4.1
0.4
3.8
63.7
27.6
23.8
11.5
9.8
2.5
3.0
0.8
0.1
0.1
0.6
36.1
15.5
11.0
4.2
0.2
7.2
3.8
1.3
2.1
1.4
4.3
7.8
5.5
2.3
99.3
Average Annual
Percentage Change,
2005-2030
-0.1
-1.8
-0.3
-1.5
1.3
-0.7
3.7
-0.7
-1.0
0.2
1.2
-1.4
0.5
1.9
-0.3
0.8
-1.3
1.1
1.1
1.0
1.8
1.3
4.7
-1.6
-2.7
0.4
0.5
8.4
-0.1
1.3
1.0
0.6
2.8
-1.4
0.4
0.1
2.0
0.3
-0.9
2.1
2.9
4.2
0.8
0.7
                                       4-5

-------
Table 4-4.  IEO 2008 World Unconventional Liquids Production, by Region and Country,
           High Price Case, 1990-2030 (Million Barrels per Day)


Region/Country
OPEC
Biofuels
Ultra-heavy oil (Venezuela)
Coal-to-liquids
Gas-to-liquids (primarily Qatar)
Non-OPEC
OECD
Biofuels
Oil sands/bitumen (Canada)
Ultra-heavy oil (Mexico)
Coal-to-liquids
Gas-to-liquids
Shale oil
Non-OECD
Biofuels
Ultra-heavy oil
Coal-to-liquids
Gas-to-liquids
Shale oil
World
Biofuels
Oil sands/bitumen
Ultra-heavy oil
Coal-to-liquids
Gas-to-liquids
Shale oil
World Total
Selected Country Highlights
Biofuels
Brazil
China
India
United States
Coal-to-liquids
Australia and New Zealand
China
Germany
India
South Africa
United States
Gas-to-liquids
Qatar
South Africa
History



1990 2005
0.0
0.0
0.0
0.0
0.0
0.6
0.5
0.0
0.4
0.0
0.0
0.0
0.0
0.1
0.1
0.0
0.1
0.0
0.0

0.2
0.4
0.0
0.1
0.0
0.0
0.6


0.1
0.0
0.0
0.0

0.0
0.0
0.0
0.0
0.1
0.0

0.0
0.0
0.8
0.0
0.6
0.0
0.0
Projections

2010
1.0
0.0
0.9
0.0
0.0
1.7 2.9
1.5
0.2
1.1
0.0
0.0
0.0
0.0
0.2
0.3
0.0
0.1
0.0
0.0
2.7
0.6
2.0
0.0
0.0
0.0
0.0
0.2
0.7
0.0
0.2
0.1
0.0

0.5
1.1
0.6
0.1
0.0
0.0
2.5
1.3
2.0
0.9
0.2
0.1
0.0
3.8


0.2
0.1
0.0
0.2

0.0
0.0
0.0
0.0
0.1
0.0

0.0
0.0

0.3
0.2
0.1
0.5

0.0
0.0
0.0
0.0
0.2
0.0

0.0
0.1

2020
2.0
0.0
1.5
0.0
0.4
10.4
7.8
1.1
6.1
0.1
0.2
0.1
0.0
2.6
1.8
0.0
0.6
0.1
0.0

3.0
6.1
1.6
0.8
0.6
0.0
12.3


1.0
0.3
0.2
0.9

0.0
0.1
0.0
0.0
0.5
0.2

0.3
0.1

2030
2.7
0.1
2.1
0.0
0.5
16.3
12.0
1.5
8.7
0.1
1.2
0.1
0.1
4.2
2.7
0.0
1.4
0.1
0.0

4.2
8.7
2.3
2.7
0.7
0.2
19.0


1.5
0.3
0.2
1.2

0.0
0.5
0.0
0.2
0.7
1.2

0.4
0.1
Average Annual
Percentage Change,
2005-2030
5.2
—
5.2
—
—
9.4
8.8
8.0
8.7
—
32.9
—
—
12.0
8.9
—
9.9
—
4.7

8.6
8.7
5.4
12.8
—
13.6
8.5


8.5
5.7
6.7
7.9

—
—
3.0
—
7.0
—

—
—
                                       4-6

-------
Table 4-5.  IEO 2008 World Liquids Consumption, by Region, Reference Case, 1990-2030
           (Million Barrels Oil Equivalent per Day)
Region/Country
OECD
OECD North America
United States
Canada
Mexico
OECD Europe
OECD Asia
Japan
South Korea
Australia/New Zealand
Total OECD
Non-OECD
Non-OECD Europe and Eurasia
Russia
Other
Non-OECD Asia
China
India
Other non-OECD Asia
Middle East
Africa
Central and South America
Brazil
Other Central and South America
Total non-OECD
Total World
History
1990

20.5
17.0
1.7
1.8
13.7
7.2
5.3
1.0
0.8
41.4

9.4
5.4
3.9
6.6
2.3
1.2
3.1
3.5
2.1
3.8
1.5
2.3
25.3
66.6
2005

25.2
20.8
2.3
2.1
15.5
8.6
5.4
2.2
1.1
49.3

4.8
2.8
2.1
15.3
6.7
2.4
6.1
5.9
2.9
5.5
2.2
3.3
34.3
83.6

2010

25.3
20.7
2.4
2.2
15.4
8.4
5.0
2.4
1.1
49.1

5.5
3.0
2.5
18.1
8.8
2.7
6.6
6.8
3.4
6.3
2.5
3.8
40.1
89.2
Projections
2020

26.7
21.6
2.5
2.6
16.0
9.0
5.0
2.7
1.2
51.6

6.3
o o
J.J
2.9
24.3
11.7
3.8
8.7
8.2
4.0
7.0
2.8
4.1
49.7
101.3

2030

28.0
22.3
2.6
3.1
16.0
9.2
4.9
3.0
1.3
53.3

6.9
3.5
3.4
30.8
15.7
4.9
10.3
9.5
4.3
7.8
o o
J.J
4.5
59.3
112.5
Average Annual
Percentage Change,
2005-2030

0.4
0.3
0.6
1.6
0.1
0.3
-0.4
1.3
0.9
0.3

1.4
0.9
2.0
2.9
3.4
2.8
2.1
2.0
1.6
1.4
1.7
1.3
2.2
1.2
                                        4-7

-------
Table 4-6.  IEO 2008 World Liquids Consumption, by Region, High Price Case, 1990-
            2030 (Million Barrels Oil Equivalent per Day)
Region/Country
OECD
OECD North America
United States
Canada
Mexico
OECD Europe
OECD Asia
Japan
South Korea
Australia/New Zealand
Total OECD
Non-OECD
Non-OECD Europe and Eurasia
Russia
Other
Non-OECD Asia
China
India
Other non-OECD Asia
Middle East
Africa
Central and South America
Brazil
Other Central and South America
Total non-OECD
Total World
History
1990

20.5
17.0
1.7
1.8
13.7
7.2
5.3
1.0
0.8
41.4

9.4
5.4
3.9
6.6
2.3
1.2
3.1
3.5
2.1
3.8
1.5
2.3
25.3
66.6
2005

25.2
20.8
2.3
2.1
15.5
8.6
5.4
2.2
1.1
49.3

4.8
2.8
2.1
15.3
6.7
2.4
6.1
5.9
2.9
5.5
2.2
3.3
34.3
83.6
Projections
2010

25.1
20.6
2.4
2.1
15.3
8.4
4.9
2.4
1.1
48.8

5.4
3.0
2.4
18.0
8.7
2.7
6.6
6.8
3.4
6.2
2.5
3.7
39.7
88.6
2020

25.1
20.5
2.3
2.4
14.4
7.9
4.4
2.4
1.1
47.5

5.7
3.0
2.6
21.0
10.1
3.2
7.6
7.8
3.6
6.2
2.5
3.7
44.2
91.7
Average Annual
Percentage Change,
2030 2005-2030

26.1
21.1
2.3
2.7
14.4
8.0
4.3
2.5
1.2
48.5

6.2
3.1
3.1
25.2
12.5
3.7
8.9
8.7
3.9
6.8
2.8
4.1
50.8
99.3

0.1
0.1
0.1
1.0
-0.3
-0.3
-0.9
0.6
0.5
-0.1

1.0
0.5
1.6
2.0
2.5
1.7
1.5
1.6
1.1
0.9
1.0
0.8
1.6
0.7
                                   light sweet crude
                                                                     ieh Price
Figure 4-1.    IEO 2008 Oil Price Projections
Source: U.S. Department of Energy, Energy Information Administration. 2008. International Energy Outlook 2008.
       Washington, DC: U.S. Department of Energy.
                                           4-8

-------
average under the reference case, and 1.6% per year under the high price case. In both scenarios,
the highest growth rates are projected for non-OECD Asia, followed by the Middle East.

       Both scenarios anticipate significant growth in "unconventional" liquids (Tables 4-3 and
4-4.). The combined categories of biofuels, oil sands, ultra-heavy oil, coal-to-liquids, and gas-to-
liquids1 are projected to experience total growth from 2005 through 2030 of 5.6% and 8.5% per
year under the reference and high price cases, respectively.2 Oil sands (mainly Canada) and ultra-
heavy oil (mainly Venezuela) bring in a mixture of crude oil types, ranging from bitumen to fully
upgraded synthetic crude oil. The other streams bring in light clean gasoline and diesel range
streams that lower what would otherwise be the level of refinery crude processing and
upgrading.

       The top-down IEO global and regional projections for supply and demand were used to
tune detailed  supply premises, including production by crude type by country/region, based on
internal WORLD model data and projections. Non-crude supply in the model was detailed by
major fuel type and region. Detailed regional product demands for 2020 were set using a year
2000 basis of historical data by product type with base growth rates by region and product,
which in turn were tuned to fit LEO region-by-region projections for total petroleum products
demand. In addition, and as was performed for the 2007 Study and documented in prior reports,
the detailed 2020 demand projections were adjusted from an 'TEA" to "RTF bunker basis.  The
latter employs higher and more accurate demand projections for marine bunker fuel. The
adjustments reallocate grades within the distillate pool but have little impact on total distillate
demand, reduce the size and  growth rate of inland residual fuel, and increase the projected
demand for marine IFO fuels. The net impact on total global oil demand was an increase under
the 2020 reference case of 1.2 million bpd versus the original IEO figure. For the high price case,
the increase was 1.65 million bpd. Details of the global supply and demand premises built in to
the 2020 WORLD cases are set out in the case results tables (Tables 5-1 and 5-2 in Section 5).

       Table 4-7 sets out the product growth rates (2000 to 2020) that applied in the 2020
reference and high price cases after demand adjustment to the RTI basis. These were based on
regional and global parameters currently built in to the WORLD model.
1 "Unconventional" supplies as defined by EIA also include shale oil, but this has no projected supply until after
   2020.
2 Minor adjustments were made to the EIA IEO biofuels projections to increase biofuels, especially biodiesel supply
   in Europe.

                                           4-9

-------
Table 4-7.   Annual Product Growth Rates Applied in the 2020 Reference and High Price
            Cases

RTI Basis — Bunkers Projection
Ethane
LPG
Naphtha
Gasoline
Kero/jet
Gas oil/diesel/NO2
Gas oil/diesel— BKRS— MGO + MDO
Residual — Inland, including RFO
Residual— BKRS— IFO 1 80
Residual— BKRS— IFO3 80
Other
Transport losses
Total oil demand
2000 to 2020
Reference Case
1.41%
0.98%
3.22%
1.08%
1.22%
2.16%
3.08%
- 1.16%
3.03%
2.93%
0.98%
1.15%
1.50%
2000 to 2020
High Price Case
1.20%
0.62%
2.55%
0.58%
0.66%
1.58%
3.06%
- 1.83%
3.05%
2.94%
0.72%
1.15%
1.02%
       Again, the two scenarios are quite distinct. The reference case projects global oil demand
growth at 1.5% per year from 2005 through 2030, while for the high price case, the rate is 1%
per year. As discussed elsewhere, this leads to the reference case exhibiting a global oil demand
increase by 2020 of 16 million bpd relative to 2005, whereas the increase under the high price
case is under half that level. Key factors built in to the demand growth projections are believed to
be broadly in line with those of other current forecasts:

       •  the strongest growth was for distillates among the major fuel categories, driven by its
          role as an engine of economic growth worldwide and supported by continuing
          dieselization in Europe;
       •  moderate growth for gasoline, especially under the high price scenario, with its
          underlying premises of transport fuel efficiency policy initiatives;
       •  moderate growth in demand for gasoline is partially compensated by projected strong
          growth for naphtha,  driven by sustained increases in demand for petrochemical
          products;
       •  declining inland residual fuel consumption; and
       •  significant growth for marine fuels.

       As can be seen,  the growth rates for marine fuels are essentially identical in both
scenarios. This is because, to maintain consistency with air quality modeling that had been
                                          4-10

-------
undertaken by EPA, the "inventory" (i.e., projected demand) associated with marine fuels needed
                  3
to be kept constant.  The bunker demand projections used in the 2020 cases were discussed in
Section 3 and are summarized in Table 4-8.

4.2.2  Product Quality

       The 2020 BAU case was on the basis of a "best estimate" of fuel quality, given
implementation of already active regulations and continuation of current product quality trends.
Specific premises built in to the cases are discussed below.

4.2.2.1 Industrialized World (United States, Canada, Europe, Japan, Australia)
       *  Gasoline and on-road and off-road diesel ultra-low sulfur regulations are fully in
          place by the 2010/2012 time frame (i.e., with an essentially total phase-out of
          nonultra low-sulfur gasolines and diesel fuels).
       •  Gasoline clear pool octanes remain flat.
       •  Methyl tertiary butyl ether (MTBE), although phased out in the United States, is
          assumed not to have been phased out in other world regions.
       •  Regulations that impact other fuels' quality (e.g., EPA toxics "anti-backsliding," Euro
          V, and CARBIII) are in place.
       •  Consumption of high-sulfur inland residual fuel  has been entirely replaced by low-
          sulfur fuel (1% or less).

4.2.2.2 Non-OECD Regions
       *  Completion of lead phase-out in gasoline.
       •  An overall gradual upward trend in regional pool octanes, so that, by 2020, all non-
          OECD regions are within 1 octane or less of U.S. average pool octane. Globally, the
          octane rise is moderated by the fact that the large gasoline volumes in OECD regions
          are projected to remain at constant, or even slightly declining, octane levels.
       •  Progressive adoption of advanced (generally Euro II/III/IV) fuel standards for
          transport fuels, so that the majority of transport fuel demand has reached advanced
          standards by 2020.
       •  A gradual or partial trend toward mandates for low-sulfur residual fuel for inland use.
3 While keeping global marine fuel demand constant across both scenarios arguably means that marine demand is
   overstated in the high price case, the impact or distortion is possibly less than it might at first appear. This is
   because marine fuel demand is driven primarily by trade, which in turn is driven by economic growth. The IEO
   2008 reference and high price cases used the same underlying global economic growth rate (4% p.a. 2005
   through 2030, per IEO Tables A3 and D4 [DOE, 2008]).


                                           4-11

-------
4.2.3  Regional Bunker Demands
       As discussed above, the WORLD EGA modeling was performed using RTI projections
for bunker fuel base demand and growth4. The bunker demand projections were taken directly
from findings discussed in Section 3. The resulting 2020 volumes, totaling 495 million tpa, are
detailed by region in Table 4-8. The table reflects the stark difference in bunker fuels
consumption as computed by the RTI team, using rigorous methods, for the 2003 base year with
the far lower figure reported by the TEA for that year. The table sets out the regional allocation of
marine fuels demands totaling to the RTI figure. As discussed elsewhere in the report, the EVIO
has now adopted marine fuels demand data and projections very close to those that were
developed by the RTI team. In addition, the IEA has a project under way to reassess its own
estimates of bunker fuels demand.
4.2.4  Regulatory Outlook for Bunker Fuels
       For the BAU case, the bunker demand and quality basis drew on prior work while also
recognizing EVIO regulations expected to be soon in place:
       •  The EVIO MARPOL Annex VI regulations which have recently been agreed and
          which are expected to be ratified during 2009/2010 were projected to be the primary
          governing regulations in place in 2020, but on the following basis:
          —  the global 3.5% sulfur standard for IFO fuels would be in effect, and thus—
             implicitly—the regulation to bring all non-ECA fuels to 0.5%  sulfur maximum
             would not by then be in effect;
          —  the 0.1% sulfur standard for EGA fuels, to apply from 2015, would be in effect;
             and
          —  the only EGAs in operation in the base cases would be the two already in
             existence in Northern Europe (Baltic and North Sea/English Channel).
       •  In addition,
          -  the EU 0.1% marine diesel sulfur rule would be in effect, and
          —  the California low-sulfur marine diesel rule would be in effect.
       •  Based on industry feedback from prior studies for API and IMO:
          -  a ratio of 70% MGO (ISO8217 DMA standard fuel) to 30% MDO (ISO8217
             DMB standard fuel) was applied.
4 Base cases were first developed using the "IEA" bunkers demand basis and were then adjusted to the "RTI" basis
   as the starting point for assessing EGA impacts.

                                          4-12

-------
Table 4-8.  World Regional Bunker Sales
Bunker Sales
World Region 2003
Basis IEA
USECa 6.0
USGICEb 8.9
USWCCWC 5.5
GrtCARd 4.5
SthAnf 5.4
AfWestf 1.2
AfN-EMg 4.6
Af-E-Sh 3.7
EUR-No1 32.4
EUR-SoJ 14.9
EUR-Eak 0.5
CaspRg1 0.0
RusFSU111 0.4
MEGulf1 10.3
Paclnd0 6.1
PacHip 37.6
China 5.4
RoAsiaq 0.3
World 147.8
2003
RTI
7.5
11.6
8.4
11.7
16.8
2.3
12.3
7.1
42.3
27.1
1.4
0.0
7.8
25.0
25.9
57.0
31.5
9.2
304.9
a U.S. East Coast
b U.S. Gulf Coast and Interior, plus Eastern
c U.S. West Coast, plus Western Canada
d Greater Caribbean
e South America
f Africa West

Comparison
Delta
1.5
2.6
2.9
7.2
11.4
1.1
7.6
3.5
9.9
12.2
0.9
0.0
7.3
14.7
19.8
19.5
26.1
8.9
157.2
Canada

RTI vs. IEA
(Percent)
124%
130%
152%
260%
312%
186%
265%
194%
131%
182%
293%
0%
1,865%
242%
421%
152%
587%
2,853%
206%


Bunker
Sales
2020
RTI
11.2
17.2
12.5
21.5
24.0
2.9
16.1
10.0
60.0
42.4
2.6
0.0
12.3
36.8
31.6
78.4
101.5
14.1
495.3


Growth
Rates From
2003
2020
RTI
2.7%
2.7%
2.7%
3.4%
2.5%
1.9%
1.8%
2.2%
2.5%
2.8%
4.0%
3.1%
3.2%
2.7%
1.3%
2.2%
8.7%
2.9%
3.2%


8 Africa North and the Mediterranean
h Africa East and South
1 Europe North
J Europe South
k Europe East
1 Caspian Region
m Russia/Former Soviet Union
n Middle East Gulf
0 Pacific Industrialized
p Pacific High Growth
q Rest of Asia




















                                       4-13

-------
       The effect of these premises was to lead to a 2020 base case situation where, effectively,
current bunker fuel standards apply in all regions.5 The 70:30 MGO:MDO ratio was applied in
essentially every region except Northern Europe. The projected global average proportion of
marine distillate in total marine fuel was 27% (62% in Northern Europe). Projected proportions
of IFO180 in total IFO180 plus 380 varied from region to region but averaged 14% worldwide.

       Annex VI allows for alternative technologies to be used to achieve equivalent emission
reductions as operating on low sulfur fuel. One approach may to be to continue to operate on
high sulfur fuel and use an exhaust gas cleaning device (scrubber) to remove sulfur from the
exhaust. For the purpose of this analysis, we did not consider the impact that the use of scrubbers
could have on low sulfur fuel demand. To the extent that scrubbers are used in the  future, the use
of scrubbers would be expected to directionally reduce demand for low sulfur fuel  in EGAs..
4.2.5 U.S. and Canadian ECA Affected Bunker Fuel Volume
       As discussed in Section 3, affected fuel volumes under a potential U.S. and Canada ECA
were estimated. These are summarized in Table 4-9. Under the potential U.S. and Canada ECA,
the affected fuel volume was projected to be 19.8 million tpa. This comprises 4% of projected
total global marine fuel demand. Of the 19.8 million tpa projected to be consumed  within a U.S.
and Canadian ECA, 65% is projected to be lifted in the United States and Canada,  and the other
35% in other world regions as ships on voyages originating in those regions and bound for the
United States or Canada take on bunkers that are compliant with the U.S. and Canadian ECA
standards. The 12.9  million tpa of EGA-compliant fuel projected to be lifted within the United
States or Canada comprises 32% of total liftings (40.9 million tpa) within the region.
4.2.6 Refinery Capacity and Projects
       The WORLD model contains a detailed bottom-up database by process unit and refinery
worldwide. This is brought up to date as new refinery capacity survey data are published. EnSys
has found, however, that extensive cross-checking of and corrections to data presented in sources
such as Oil & Gas Journal (OGJ) are necessary. The WORLD cases were run with a capacity
database that was based on January 2008 OGJ data, with extensive review and revision.
Assessed base capacity totaled 86.7 million bpcd, as listed in Table 4-10.
1 The MARPOL Annex VI rule cuts maximum worldwide IFO sulfur from 4.5% to 3.5%, but the current average is
   around 3%, with only few samples exceeding 4%. Thus, the intent of the regulation is understood to be primarily
   to prevent any material deterioration from the actual qualities of IFO fuels in the marketplace today.

                                          4-14

-------
Table 4-9.   United States and Canada Affected Bunker Fuel Demand, 2020

WORLD
USEC
USGICE
USWCCW
GrtCAR
SthAm
AfWest
AfN-EM
Af-E-S
EUR-No
EUR-So
EUR-Ea
CaspRg
RusFSU
MEGulf
Paclnd
PacHi
China
RoAsia
Total
Fuel Production Zones (United
IFO380
2.4
2.6
2.4
0.8
0.2
0.0
0.1
0.0
0.5
0.3
0.0
0.0
0.1
0.2
0.2
0.4
1.6
0.2
12.0
States and Canada
million tonnes/year
IFO180
0.7
0.7
0.7
0.2
0.1
0.0
0.0
0.0
0.2
0.1
0.0
0.0
0.0
0.0
0.1
0.1
0.6
0.1
3.6
Related
MDO
0.3
0.3
0.5
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
1.3
Voyage Fuel Demand)
MGO
0.7
0.7
1.1
0.1
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
2.9

Total
4.0
4.3
4.6
1.1
0.3
0.1
0.1
0.0
0.7
0.5
0.1
0.0
0.2
0.3
0.3
0.6
2.3
0.3
19.8
       The projects database used for the WORLD cases was based on detailed review of project
announcements as of third quarter 2008. In WORLD, projects are classified at four levels: under
construction, under engineering, planned, and announcement. These correspond to descending
levels of follow-through to completion and also an increasing tendency for project delays versus
the initial start-up target date. The model user sets parameters by region that govern both the
proportion of each class of project to be completed and the associated delay profile.

       Since mid-2005 especially, there have been numerous announcements of new projects,
many for major refinery expansions or new grassroots refineries. Nearly 24 million bpd of
refinery crude unit capacity expansion projects are currently listed. These span a spectrum from
projects already under construction, and therefore almost certain to go ahead, to others that are
little more than announcements and thus highly speculative or uncertain. Based on experience,
                                          4-15

-------
Table 4-10. Refinery Base Capacity and Assessed Additions


USEC
USGICE
USWCCW
GrtCAR
SthAM
AfWest
AfN-EM
Af-E-S
EUR-No
EUR-So
EUR-Ea
CaspRg
RusFSU
MEGulf
Paclnd
PacHi
China
RoAsia
Total
Base Capacity
Jan. 2008
1.67
13.95
3.80
5.08
3.06
0.76
2.27
0.72
9.56
5.74
2.14
1.32
7.16
6.66
5.50
7.77
6.80
2.77
86.70
Additions
Reference Case
0.00
0.94
0.09
0.15
0.27
0.01
0.06
0.00
0.01
0.27
0.10
0.01
0.25
2.96
0.02
0.16
1.69
1.03
8.01
Allowed
High Price Case
0.00
0.77
0.07
0.15
0.25
0.00
0.06
0.00
0.00
0.09
0.00
0.00
0.00
0.23
0.02
0.16
1.33
1.00
4.12
Note: Base capacity plus allowed projects make up the total starting capacity before WORLD model additions
       million bpcd.

factors were applied to curtail less likely projects in order to arrive at a realistic level of projects
likely to go ahead.

       As discussed elsewhere in the report, the IEO reference case (DOE, 2008) projects an
increase in global oil products demand of 16 million bpd between 2005 and 2020, with the high
price case undergoing an increase of under half this. Recognizing these two different situations,
different approaches were taken to  assessing the level of projects to be allowed. For the reference
case, the underlying premise was that essentially  all of the projects currently under construction
would go ahead and that additional probable projects (essentially those under engineering)
should be allowed for. The result was to allow a total of 8 million bpd of new projects under the
reference case scenario, as listed in Table 4-10. For the high price case, with its much-reduced
demand growth through 2020, the more conservative assumption was made that refiners would
forestall many projects.  As a result, only those projects already under construction were allowed,
                                           4-16

-------
resulting in 4.1 million bpcd, as set out in Table 4-10. The primary difference between the two
sets of assessed projects was that, in the high price case, almost 2.75 million bpd of Middle East
projects not yet under construction were removed.

       The main regions expected to see expansions are the United States, the Middle East
(depending on the scenario), China, and the rest of Asia (including India). Capacity expansion in
Europe is projected to be minimal. While Table 4-10 lists crude unit major capacity additions,
the complete project database covers the full suite of refinery processes, including upgrading and
desulfurization (for further detail, see Table 5-4). In the BAU cases,  the model adds capacity, on
top of the input base plus assessed projects, to meet demand growth, product mix shifts, and
quality changes. To do so, it uses first the low-cost revamp and debottlenecking potential
allowed and then balances on  major new unit additions.
4.2.7 Refinery Technology and Costs
       As documented in the  2007 Study for the EPA, the WORLD  technology database was the
subject of extensive review  by EnSys at that time. This review included yields and capital costs
on several units. Further work was also undertaken in parallel studies for API and EVIO.

       The process unit capital costs in WORLD are based on the year 2000 (U.S. Gulf Coast).
Since 2003 especially, there has been a considerable escalation in capital costs. By 2008,
downstream capital costs were estimated to be in the region of 75% above those obtaining in
2000 (i.e., a factor of 1.75).  As a result of the current economic recession, these costs are
reported to be dropping. The assumption was made that, by 2020 and under the reference case
outlook, a resumption of global economic growth would have reasserted pressures  on all
commodities, leading to cost levels similar to those of today. Therefore, a factor of 1.75 was
applied, as shown in Table 4-11. Under the high price case (which has  the same underlying
economic growth projection but a lower level of energy intensity), the  presumption was made
that higher prices for crude oil and thus potentially for other commodities would lead to capital
costs somewhat higher than those obtaining under the reference scenario. A factor of 2.0 was
applied relative to base year 2000 cost levels for the high price cases. The same factors were
used to escalate refinery other variable operating (OVC) costs, which include mainly catalysts
and chemicals.

       WORLD results are  sensitive to the interplay between crude (and fuel) costs, refinery
capital costs, and freight rates:
                                          4-17

-------
       •  Raising crude oil prices results in more refinery capacity investment, especially in
          upgrading processes, with the logical effect of reducing the volume of (now high-
          cost) raw material used to make a given product slate.
       •  Raising refinery process unit costs has an opposite effect; total dollar investments
          may rise, but the new capacity bought for the money is less, and the industry responds
          by using somewhat more crude oil.
       •  Raising tanker freight rates has the effect of, in turn, justifying additional refinery
          process investment to minimize high-cost interregional movements of crude and
          products.
       This analysis for the EPA reflects that we have entered into a high-cost world where the
traditional levels of and relationships between capital  cost, crude and fuel costs, and transport
costs are being rewritten. In the BAU cases, higher crude oil price (vs. history) was a given and,
hence, also higher refinery fuel and natural gas prices. Both refinery  capital costs and tanker
freight rates were moved upward relative to history. This resulted in  scenarios where all costs—
crude, fuel, OVCs, and freight—were elevated versus past historical  levels.

       Table 4-11 summarizes key cost parameters used in the reference and high price
WORLD cases. The IEO projections primarily report  prices for light sweet crude imported into
the USA. These were close to $(2006) 60 and 102/bbl respectively. The IEO also contains
information on the projected average price of crude oil imported to the USA. This is of lower
quality than that of light sweet crude, and thus lower price. The average import prices were use
to obtain prices for Saudi Light, the marker crude price that is the only crude price input to the
WORLD model.
4.2.8  Transportation
       WORLD contains details of interregional crude, noncrude, finished, and intermediate
product movements by tanker, pipeline, and minor modes. Each tanker movement is assigned to
one of five tanker size classes, and freight costs are built up based on the Worldscale flat rate
times the percentage of Worldscale plus ancillary costs, such as canal dues and lightering, where
applicable, as well as duties. Reflecting the factors reviewed above, Worldscale percentage rates
were applied (Table 4-12) that were higher than recent freight rate history.

       In WORLD, freight rates are arrived at by multiplying the percentage of WorldScale by
the WorldScale 100 flat rate. (Other cost items, such as canal tariffs or lightering, are also added
in, where relevant.)
                                           4-18

-------
Table 4-11. Key Price and Cost Premises for 2020 WORLD Cases


IE02008
Reference
IEO 2008
High Price
Crude Price $2006/bbl
Light Sweet
Average Import (1) (2)
Other Input Prices $2006
Natural Gas Price $/MMBtu (3) (4)
Purchased Electricity c/kwh (4)
Steam Coal $/MMBtu
Steam Coal $/short ton
Petroleum Coke High Sulfur $/ton
Capital & Operating Costs
Capital Costs Factor versus 2000
OVC Costs Factor versus 2000
Marine Freight Costs
59.70
51.55

6.21
5.90
172
34.97
35

1.75
1.75
1
102.07
88.14

7.29
6.11
182
37.73
37

2.00
2.00
1.25
 Notes:
 1. Average Import price for 2020 High Price case derived using same ratio of Average Import to Light Sweet as in
 Reference Case
 2. Average Import price taken as approximating to OPEC basket price from which Saudi Light crude marker price
 derived
 3. Basis is Industrial User natural gas prices taken from AEO 2008 Reference and High Price cases. (These are
 understood to be the same prices as used in the IEO 2008.)
 4. US regional (PADD) and international prices for natural gas and electric power are derived from the US prices
 using regional differences.
Table 4-12. WORLD Tanker Rates
Tanker Class
MR2
Pana Max
AFRAMax
Suez Max
VLCC
Size DWT
40,000
55,000
70,000
135,000
270,000
Percent of WorldScale 2020
285
248
230
180
100
        In the EGA cases, shifts from IFO to marine diesel will inevitably increase bunker fuel
costs to affected shippers operating in a potential U.S. and Canadian EC A, thereby impacting
freight rates. EnSys did not attempt to compute the effect that these would have on freight rates
for tankers operating into and out of the United States and Canada.
                                               4-19

-------
       As a component of recent assignments, care has been taken in WORLD to build in
accurate representations of major new, expanded, and existing pipelines. Particular emphasis has
been put on ensuring an accurate profile of pipelines and expansions for export routes for crudes
(including syncrudes) from Canada and export routes both east and west from Russia and the
Caspian. For Canada, the BAU premise was that one, but not both, of the export lines to the West
Coast/PADD V/Pacific would go ahead. This premise impacts the amount of syncrude and
conventional crudes routed into the U.S. PADDs II, IV, and potentially III, versus west to PADD
V and Asian regions. For Russia, based on recent developments, the BAU case assumed the
pipeline to the Pacific would go ahead and would have a spur into China. In reality, this latter
scenario will most likely partially displace growing rail movements of crude into China from
Russia that were already in the model.
4.3    Prices Input to the WORLD Model
4.3.1  Marker Crude Price
       WORLD operates with a single marker crude price, and all other crudes and nearly all
noncrude supplies and product demands are fixed. WORLD outputs prices for all crude oils,
noncrude supply streams, and  finished products based on the scenario and the single input
marker crude price. WORLD model uses the Saudi Light FOB as the single input marker crude
price; however, EIA does not provide projections for this price. Therefore,  we use the average
US import price as an approximation for the OPEC basket price from which the Saudi Light
Crude marker price is derived. The average crude oil import price projections in the IEO outlook
are shown in Table 4-11.
4.3.2  Natural Gas and Miscellaneous Input Prices
       Certain other prices are also inputs in the model. The most important among these are
natural gas prices, as natural gas is the balancing refinery fuel supply in most regions and a
primary feedstock for hydrogen production. WORLD also uses input prices for purchased
electricity and also petroleum  coke and sulfur by-products. Prices for natural gas, electricity, and
petroleum coke were derived from the LEO projections, petroleum coke being linked to coal
prices (see Table 4-11).

       The LEO high price case projects a significant increase in crude oil prices by 2020 but
relatively small increases in natural gas and especially  coal—and, hence, coke. In the WORLD
model, decreases in the prices  of natural gas and coke relative to crude oil simultaneously tend to
increase the attractiveness of adding hydrogen derived from natural gas and to reduce the
attractiveness of carbon rejection via coking. This is especially the case when crude prices are
                                          4-20

-------
high, as in the IEO high price case. The effects on WORLD projections, in terms of raising
projected expansions for hydrocracking and lowering those for coking, are evident in the
WORLD cases results, as shown in Table 5-3.
4.4    Reporting
       The WORLD model's standard reports had been previously modified to accommodate
the revised distillate and residual fuels product structure. Standard reports provide global and
regional information on the following:
       •  refinery throughputs, capacity additions, investments;
       •  interregional crude, intermediate, and product movements;
       •  supply/demand balance;
       •  crude free on board (FOB) and cost insurance and freight (GIF) prices; and
       •  regional product prices.
       Blend reports had also been added for the marine fuel grades.
                                          4-21

-------
                                     SECTION 5
                        REVISED WORLD MODEL FOR ECA

       This section presents results for the 2020 WORLD BAU and ECA model cases, based on
the projections and premises reviewed in Section 4. BAU projections were estimated for the
two IEO scenarios using both the TEA and the RTI bunker demand assumptions. The RTI base
cases were then used to assess the cost and other impacts of a potential U.S. and Canadian ECA.
Thus, a total of six cases were run, comprising the TEA basis, the RTI basis, and RTI and ECA
cases for each of the LEO reference and high price outlooks. Key inputs to and results from these
cases are set out in Tables 5-1 through 5-9. These include comparisons of the RTI base case
versus RTI and ECA cases to illustrate impacts of the U.S. and Canadian ECA.

5.1    Supply-Demand Balance

       Tables 5-1 and 5-2 summarize the 2020 supply and demand inputs and model run  results
for the  four base cases and the two ECA cases. As discussed in Section 4, the IEA base case was
matched to the IEO 2008 scenario. A second base case was run with RTFs forecast, which
increases bunker and total residual demand globally. Then the ECA base case was applied to the
RTI base case. The needed incremental supply was taken to be OPEC crude. WORLD results
generally do not match exactly the underlying forecast numbers for total oil supply and demand.
This is  because several demand factors, including internal refinery fuel, coke, and sulfur by-
products, are dynamic within WORLD and are not fixed.

       The 2020 cases reflect the overall global trend for an increase in demand to be
predominantly light, clean products and for global growth to be concentrated in distillates.

       As explained in Section 4.2.3, base cases were first developed using the "IEA" bunkers
demand basis in order to be consistent with the implicit basis of the IEO projections. These were
then adjusted to the "RTI" bunkers basis to generate base cases that were the basis  of the ECA
analyses. Adopting the RTI fuel demand forecasts leads to a 2020 reference case global demand
for all residual fuels of 10.52 million bpd versus 9.44 million bpd, based on LEA forecasts. The
10.52 million bpd total, however, contains 6.64 million bpd of IFO fuel, as compared with 3.28
under the IEA basis. Thus, RTFs forecasts indicate that estimated impacts of EGAs or other
marine fuel regulations will be greater than those projected by applying IEA forecasts. The same
point applies to marine distillate fuels and under the  high price scenario.
                                          5-1

-------
Table 5-1.   WORLD Reference and ECA Case Inputs and Summary Results—Supply,
               2020
Case
Year
Bunkers Demand Basis
MGO Fuel Type - North America SECAs
MDO Fuel Type - North America SECAs
MGO Sulfur Limit - North America SECAs
MDO Sulfur Limit - North America SECAs
IFO Sulfur - North America SECAs
SEGA Basis
Bunkers Demand Basis
Scrubber Usage
IEA Bkrs RTI Bkrs
Ref Ref
2020
IEA
DMA
DMA


n.a
Base
IEA
0%
2020
RTI
DMA
DMA


n.a
Base
RTI
0%
RTI ECA IEA Bkrs RTI Bkrs
Ref High High
2020
RTI
DMA
DMA
0.1%
0.1%
n.a
US/Can
RTI
0%
2020
IEA
DMA
DMA


n.a
Base
IEA
0%
2020
RTI
DMA
DMA


n.a
Base
RTI
0%
RTI ECA ECA vs ECA vs
High RTI Ref RTI High
2020
RTI
DMA
DMA
0.1%
0.1%
n.a
US/Can
RTI
0%
SUPPLY - CRUDES (INCLUDES SYNCRUDES & CONDENSATES)
                                     MMBPD    MMBPD
Crude gross production
of which
Crude Direct Use
Crude Direct Loss Total
Crude net to refineries before losses
85.495

 0.339
 0.151
85.005
86.683

 0.339
 0.151
86.194
MMBPD    MMBPD

 86.737     73.918

  0.339      0.339
  0.151      0.132
 86.247     73.447
MMBPD

 75.593

  0.339
  0.132
 75.121
MMBPD

 75.622

  0.339
  0.132
 75.150
MMBPD

 0.054

 0.000
 0.000
 0.054
MMBPD

 0.029

 0.000
 0.000
 0.029
Crudes net to refineries after transport losses
GSY-SYN CRUDE                         4.113     4.113      4.113     6.126      6.126      6.126     (0.000)      0.000
GCO - CONDENSATE                       4.305     4.304      4.304     4.304      4.304      4.304     (0.000)     (0.000)
GSW-SWEET <0.5S                       25.392    25.709     25.709    21.051     21.481     21.481     (0.000)      0.000
GLR-LTSR>36API>0.5%S                 10.849    11.067     11.067     9.070      9.366      9.367     (0.000)      0.000
GMR-MDSR 36-29 API >.5S                 28.371    28.929     28.983    22.376     23.190     23.219     0.054      0.029
GHR-HVYSR 20-29 API >.5S                 10.353    10.447     10.447     9.095      9.226      9.226     (0.000)      0.000
GXR-XHVYSR<20API>.5S                  1.472     1.472      1.472     1.291      1.291      1.291     0.000      0.000
CRUDE SUPPLY TO REFINERIES              84.854    86.041     86.095    73.312     74.984     75.013     0.054      0.029
Crude Direct Loss in Refineries

SUPPLY - NON CRUDES
NGL ETHANE
NGLs C3+
PETCHEM RETURNS
BIOMASS
METHANOL (EX NGS)
GTL LIQUIDS (EX NGS)
CTL LIQUIDS (EX COAL)
HYDROGEN (EX NGS)
TOTAL
REFINERY PROCESS GAIN
1.680
6.255
0.955
1.499
0.147
0.303
0.500
0.974
12.313
3.028
1.680
6.255
0.955
1.499
0.149
0.303
0.500
0.925
12.266
2.956
1.680
6.255
0.955
1.499
0.148
0.303
0.500
0.937
12.277
2.978
1.680
6.096
0.844
2.999
0.127
0.603
0.800
0.908
14.057
2.470
1.680
6.096
0.844
2.999
0.127
0.603
0.800
0.839
13.988
2.403
1.680
6.096
0.844
2.999
0.126
0.603
0.800
0.860
14.009
2.408
0.000
0.000
0.000
0.000
(0.001)
0.000
0.000
0.012
0.011
0.021
0.000
0.000
0.000
0.000
(0.001)
0.000
0.000
0.021
0.021
0.005
        As illustrated in Table 5-2, a primary effect of the U.S.  and Canadian ECA is to shift
some 0.26 million bpd of IFO fuel worldwide to marine distillate. The resulting increase in
marine distillate is higher at 0.29 million bpd1 because the model takes into account the lower
heat content of marine distillates,  per barrel, relative to that of IFO fuels.
1 The shifted IFO and marine distillate volumes in million bpd are slightly different between the reference and high
   price cases. This is because the model starts with tonnes of marine fuel, and resulting gravities may differ
   slightly from case to case.
                                                     5-2

-------
Table 5-2.  WORLD Reference and ECA Case Inputs and Summary Results—Demand,
             2020
Case
                                IEA Bkrs
                                    Ref
     RTI Bkrs
         Ref
      RTI ECA
          Ref
     IEA Bkrs
        High
      RTI Bkrs
         High
      RTI ECA
         High
       ECAvs
       RTI Ref
       ECAvs
      RTI High
DEMAND
million bpd
EXTERNAL DEMANDS - FINISHED PRODUCTS NON SOLIDS
ETHANE
LPG
NAPHTHA
GASOLINE
JET/KERO
DISTILLATE TOTAL
DISTILLATE (NON BUNKERS)
DISTILLATE (BUNKERS)
RESIDUAL (IFO BUNKERS)
RESIDUAL (NON BUNKERS)
RESIDUAL FUEL (TOTAL)
OTHER PRODUCTS (excl coke.sulphur)
CRUDE DIRECT USE
1.680
7.498
8.131
24.377
8.152
31.031
30.331
0.700
3.279
6.163
9.442
4.467
0.339
1.680
7.498
8.131
24.377
8.152
31.173
28.770
2.403
6.641
3.877
10.518
4.467
0.339
1.680
7.498
8.131
24.377
8.152
31.460
28.770
2.690
6.379
3.877
10.256
4.467
0.339
1.680
6.716
7.146
22.077
7.301
27.750
27.047
0.703
3.291
5.489
8.780
4.011
0.339
1.680
6.716
7.146
22.077
7.301
28.059
25.665
2.394
6.653
3.468
10.121
4.011
0.339
1.680
6.716
7.146
22.077
7.301
28.350
25.665
2.685
6.389
3.468
9.857
4.011
0.339
0.000
0.000
0.000
0.000
0.000
0.287
0.000
0.287
(0.263)
0.000
(0.263)
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.291
0.000
0.291
(0.264)
0.000
(0.264)
0.000
0.000
TOTAL
                                   95.117
EXTERNAL DEMANDS - FINISHED PRODUCTS SOLIDS
PETR COKE TOTAL MMBPD
ELEMENTAL SULPHUR MMBPD
1.417
0.183
                                           96.336
1.287
0.169
                                                    96.359
1.327
0.173
                                                            85.800
1.037
0.156
                                                                     87.450
0.947
0.141
                                                                              87.477
0.971
0.144
                                                                                       0.024
0.040
0.003
                                                                                               0.027
0.024
0.003
TOTAL
INTERNAL DEMANDS/CONSUMPTION
                                   1.600
                                            1.456
                                                     1.500
                                                             1.193
                                                                               1.115
TOTAL INCL NATURAL GAS                6.552     6.517      6.534     5.708      5.681     5.704

OTHER LOSSES                        0.091     0.091      0.091     0.079     0.079     0.079

TOTAL INTERNAL CONS & LOSS EXCL NAT (     4.612     4.555      4.574     3.802      3.732     3.744

TRANSPORT/DISTRIBUTION LOSSES

TRANSPORT LOSS TOTAL	0.211     0.213	0.213     0.188	0.192	0.192
                                                                                       0.043
                                                    0.017

                                                    0.000
                                                    0.000
                                                    0.019
                                                    0.000
                                                                                               0.027
REFINERY FUEL - CRUDE BASED STREAMS
PROCESS GAS
FCC CATALYST COKE
MINOR STREAMS
RESIDUAL FUEL
TOTAL CRUDE BASED STREAMS
NATURAL GAS TO RFO
2.549
0.513
0.004
1.449
4.515
2.037
2.514
0.490
0.003
1.451
4.459
2.058
2.533
0.488
0.003
1.454
4.478
2.055
2.096
0.370
0.002
1.249
3.717
1.991
2.062
0.349
0.010
1.226
3.647
2.034
2.068
0.348
0.010
1.233
3.658
2.046
0.019
(0.002)
0.000
0.003
0.019
(0.002)
0.006
(0.001)
0.000
0.006
0.011
0.012
                                                    0.023

                                                    0.000
                                                    0.000
                                                    0.011
                                                            0.000
-ALLOCATION TO CRUDE
- ALLOCATION TO PRODUCTS & INTERMEDIA
0.151
0.060
0.152
0.061
0.152
0.061
0.135
0.054
0.137
0.055
0.137
0.055
0.000
0.000
0.000
0.000
5.2     Refining Capacity Additions

        Table 5-3 summarizes base capacity and projects data included as inputs into the
WORLD model cases. The information reinforces the view that there is potential  for surpluses
among selected secondary units. Under the reference and high price outlooks, assessed coking
project additions comprise increases of 44% and 23%, respectively, over base 2008 capacity.
Total upgrading additions (coking plus FCC plus hydrocracking) are at the level of over 90% of
the additions to distillation capacity under both the reference and high price cases.
Desulfurization capacity additions are at the levels of, respectively, 131% and  147% of
distillation additions. These additions are consistent with the result that "spare" coking capacity
                                                5-3

-------
Table 5-3.  WORLD Input Refinery Base Capacity and Assessed Additions

   Refinery Base Capacity & Assessed Additions
   Base capacity plus allowed additions make up the total starting capacity before WORLD model additions
million bpcd

Crude distillation
Coking
Catalytic cracking (FCC)
Hydrocracking
Total upgrading
Total upgrading as % of distillation
Desulfurization
Desulfurization as % of distillation
Hydrogen plant (million SCFD)
Sulfur plant (tons per day)
Base
Capacity
Jan 2008
86.70
4.77
15.45
5.37
25.59
29.5%
51.70
59.6%
9253
76909
Additions Allowed
Reference
Case
8.01
2.11
2.23
2.96
7.31
91.2%
10.50
131.1%
6006
24578
increase
on base
9.2%
44.3%
14.4%
55.2%
28.6%
20.3%

64.9%
32.0%
High Price
Case
4.12
1.12
1.18
1.58
3.88
94.2%
6.08
147.6%
2448
12848
% increase
on base
4.7%
23.4%
7.6%
29.4%
15.2%
11.8%

26.5%
16.7%
especially is being used, at least in the high price cases, to process IFO (see below). This
underlying situation acts, if anything, to moderate the EGA costs computed under the high price
case.

       Table 5-4 summarizes the WORLD results for refinery capacity additions, investments,
and utilizations for each case. A major effect of switching bunker demand from the TEA basis to
the RTI basis is to ease the requirement for residual fuel upgrading and desulfurization. As a
consequence, less refining investment (on top of base capacity, plus allowed projects) is needed
by 2020 under the RTI basis ($102.5 billion) in the reference case than under the TEA basis
($110.5 billion).2 Under the high price case, the reduction is larger, from $151.7 billion to $139.1
billion. Note that the absolute levels of investment cannot be compared between the reference
and high price scenarios because the former includes 8 million bpcd of projects, whereas the
latter includes 4.1 million bpd, as discussed in Section 4.
: The capital investments detailed in current WORLD reports are generally lower than those projected by IEA, for
   example, for the same time frame. A reason for this is that the WORLD reports do not include an allowance for
   ongoing capital replacement. This is typically estimated at 1.5% to 3% per year of the total installed capital base
   (which, of course, grows over time). It is EnSys's intent to expand the WORLD reports in the future to make the
   basis consistent with IEA and others.
                                             5-4

-------
Table 5-4.   WORLD Refinery Capacity Additions, Investments, and Utilizations 2020
                              IEA Bkrs  RTI Bkrs
                                  Ref      Ref
RTI EGA IEA Bkrs
    Ref    High
RTI Bkrs
   High
RTI EGA
   High
EGA vs   EGA vs
RTI Ref  RTI High
CAPACITY ADDITIONS & INVESTMENTS - OVER & ABOVE 2008 BASE + ASSESSED PROJECTS
Note: the investments shown below are for original capital cost only. They not not include annual capital replacement, typically
reckoned at 2-3% p.a. of the installed capacity base.
WORLD INVESTMENTS OVER KNOWN PROJECTS $(2006) billion
REVAMP
DEBOTTLENECKING
MAJOR NEW UNITS
TOTAL REFINING
$ 4.2 $
$ 0.6 $
$ 105.7 $
$ 110.5 $
: 4.0 $
: 0.7 $
: 97.8 $
: 102.5 $
4.2 $
0.7 $
100.8 $
105.7 $
5.4 $
1.3 $
144.9 $
151.7 $
5.5 $
1.4 $
132.1 $
139.1 $
5.3 $
1.4 $
138.0 $
144.8 $
0.16 $
0.01 $
3.03 $
3.20 $
(0.20)
-
5.91
5.70
CRUDE DISTILLATION BASE CAPACITY & ADDITIONS
BASE CAPACITY
FIRM CONSTRUCTION
DEBOTTLENECKING ADDITIONS
MAJOR NEW UNIT ADDITIONS
TOTAL ADDITIONS OVER BASE
TOTAL BASE + ADDITIONS
TOTAL CRUDE CAP USED
REFINERY UTILIZATION
SECONDARY PROCESSING ADDITIONS
VACUUM DISTILLATION
COKING+VISBREAKING
CATALYTIC CRACKING
HYDRO-CRACKING (TOTAL)
CATALYTIC REFORMING - New
CATALYTIC REFORMING - Revamp
DESULPHURIZATION (TOTAL)
- GASOLINE -ULS
- DISTILLATE ULS - NEW
- DISTILLATE ULS - REVAMP
- DISTILLATE CONV/LS
-VGO/RESID
HYDROGEN (MMBFOED)
HYDROGEN (million SCFD)
SULPHUR PLANT (TPD)
86.70
8.01
0.60
6.70
15.31
102.01
84.85
83.2%
86.70
8.01
0.70
7.89
16.60
103.30
86.04
83.3%
86.70
8.01
0.68
7.95
16.64
103.34
86.10
83.3%
86.70
4.12
0.52
1.90
6.54
93.24
73.31
78.6%
86.70
4.12
0.68
3.19
7.99
94.69
74.98
79.2%
86.70
4.12
0.68
3.14
7.94
94.64
75.01
79.3%
0.00
0.00
(0.02)
0.05
0.04
0.04
0.05
0.02%
0.00
0.00
0.00
(0.05)
(0.05)
(0.05)
0.03
0.07%
- DEBOTTLENECKING PLUS MAJOR NEW UNITS
0.25
0.37
0.02
0.951

1.003
6.244
2.631
1.57
1.328
0.447
0.264
0.583
11,454
8200
0.23
0.34
0.02
0.545

0.969
5.699
2.589
1.28
1.250
0.433
0.151
0.530
10,404
8110
0.21
0.36
0.02
0.664

1.024
5.867
2.585
1.42
1.250
0.458
0.154
0.541
10,622
8250
0.08
0.10
0.00
2.046

0.884
4.608
1.855
0.79
1.024
0.609
0.327
0.666
13,087
9710
0.06
0.14
0.00
1.648

0.916
4.065
1.832
0.56
0.987
0.428
0.254
0.570
11,197
7840
0.06
0.13
0.00
1.846

0.882
4.124
1.827
0.55
0.991
0.497
0.259
0.599
11,765
7960
(0.02)
0.02
(0.01)
0.12
0.00
0.06
0.17
(0.00)
0.14
0.00
0.02
0.00
0.011
218
140
0.00
(0.00)
0.00
0.20
0.00
(0.03)
0.06
(0.01)
(0.01)
0.00
0.07
0.00
0.029
568
120
       With the 8 million bpd of projects included under the reference scenario, global 2020
refinery utilizations are projected at 83.2%-83.3%. Even having dropped back projects to 4
million bpd under the high price case, the 11 million bpd reduction in demand under that
scenario, plus the increase in noncrude supply, leads to projected 2020 high price utilization rates
of around 79.3% (i.e., 4% below those in the reference cases). The implication is that, even if no
more refinery projects are implemented by 2020 beyond those under construction today, under
the high price scenario, there will be more primary and secondary capacity available. This could
mitigate potential EGA impacts on fuel costs as output from the model in the high price scenario,
as shown in Tables 5-4, 5-5, 5-6, and 5-8 (furthest right-hand-side column). Computed EGA
costs will be higher if refinery utilizations are higher.

       The high price cases illustrate the effects discussed in Section 4 of scenarios under which
crude price rises substantially, while prices for natural gas and petroleum coke do not. Despite an
                                             5-5

-------
11 million bpd reduction in global oil demand, capacity additions for hydrocracking over and
above known projects are approximately 1 million bpcd higher under the high price case than
under the reference case. Coking additions also drop. In part, the extra hydrocracking capacity is
offset by—or taking over the role of—desulfurization capacity additions, implying fairly fine
economic choices between hydrocracking and desulfurization economics.

       The overall effects of the EGA cases are to increase global refining investments (by
$3.2-$5.7 billion). This results from increases in hydrocracking, desulfurization, coking, and
supporting hydrogen and sulfur plant capacities required to undertake the conversion of high
sulfur IFO to 0.1% sulfur marine distillate and to reduce the sulfur level of MGO and MDO
volumes affected under the EGA cases. That coking unit throughputs increase is evident in the
higher levels of petroleum coke output under the EGA cases. The low level of coker capacity
increase indicates potential underutilization of coker units in the reference and especially the
high price base cases. Again, the modeled EGA costs are sensitive to this. Recent EnSys
WORLD studies indicate that recent and current coking capacity expansions, combined with
declines in the output of heavy crudes from Venezuela and Mexico,  plus growth under the RTI
cases in total residual fuel demand, will lead to surplus coking capacity. Other analysts have also
reached the same conclusion.

5.3    Refining Economics and Prices

       Tables 5-5, 5-6 and 5-7 summarize key price results from the 2020 cases. In reviewing
these results, it should be noted that the WORLD model was run for 2020 in the "long-run"
mode. In other words, opportunities for investment were kept open, and price results equate to
long-run equilibrium prices and not to the short-run ones, under which investment opportunities
are not permitted. Long-run equilibrium prices are more stable than short-run prices because they
incorporate an assumed long-run return on capital. Short-run prices can be  relatively higher or
lower, depending on whether refining capacity is tight or slack.

       A central feature of these and other recent EnSys WORLD cases is  that the global higher
growth rates for distillates relative to gasoline, driven by Europe's dieselization policy and
distillate-oriented demand growth in many non-OECD regions,  lead to a situation where future
distillate prices are projected to exceed those for gasoline. In the projected 2020 reference
scenario, ultra-low sulfur diesel to ultra-low sulfur gasoline premiums are projected to be in the
range of $7/bbl U.S. Gulf Coast (USGC) and $12 to $17/bbl in Asia and, especially, Europe.
Under the high price scenario, the differentials are correspondingly higher, over $16/bbl USGC
and $24 to $27/bbl in Europe and Asia. Gasoline premiums relative to residual fuel are moderate,
                                           5-6

-------
Table 5-5.   2020 Price Results From WORLD Case Analyses
IEA Bkrs RTI Bkrs RTI EGA IEA Bkrs RTI Bkrs RTI ECA EGA vs EGA vs
Ref Ref Ref High High High RTI Ref RTI High
CRUDE PRICES (FOB)
SAUDI LIGHT (input marker crude price)
WORLD Output Crude Prices
WEST TEXAS INTERMEDIATE
BRENT
DUBAI
SAUDI HEAVY
MAYAN

WORLD Output Product Prices
USEC
LPG
PETCHEM NAPHTHA
CG-ULS PREMIUM
CG - ULS REGULAR
RFC - PREMIUM (0/5.7/10% ETOH)
RFC - REGULAR (0/5.7/10% ETOH)
KERO/JET JTA/A1
DSL NO2 ULSD (50-10 PPM)
NO2 HEATING OIL (US)
RESID .3-1.0%
MGO DMA
MDOHS
MDO LS (vs MDO HS)
IF0380 LS
IFO380 HS
USGC
LPG
PETCHEM NAPHTHA
CG-ULS PREMIUM
CG - ULS REGULAR
RFC - PREMIUM (0/5.7/10% ETOH)
RFC - REGULAR (0/5.7/10% ETOH)
KERO/JET JTA/A1
DSL N02 ULSD (50 -10 PPM)
RESID .3-1.0%
MGO DMA
MDOHS
MDO LS (vs MDO HS)
IFO380 LS
IFO380 HS
uswc
LPG
PETCHEM NAPHTHA
CG-ULS PREMIUM
CG - ULS REGULAR
GARB RFC PREMIUM (0/5.7% ETOH)
GARB RFC REGULAR (0/5.7% ETOH)
KERO/JET JTA/A1
DSL NO2 ULSD (50-10 PPM)
DSL NO2 RFD / GARB
RESID .3-1.0%
MGO DMA
MDOHS
MDOLS
IF0380 LS
IFO380 HS
$/barrel
$ 51.55 $

$ 56.46 $
$ 55.27 $
$ 51.28 $
$ 48.34 $
$ 48.21 $
$ 8.25 $


$ 47.02 $
$ 46.34 $
$ 60.98 $
$ 58.72 $
$ 60.85 $
$ 58.60 $
$ 64.49 $
$ 68.17 $
$ 62.91 $
$ 53.22 $
$
$


$ 50.35 $
$/barrel
$ 46.71 $
$ 46.36 $
$ 61.22 $
$ 59.53 $
$ 59.70 $
$ 57.69 $
$ 63.47 $
$ 67.15 $
$ 52.95 $
$
$ 60.14 $
-
-
$ 49.89 $

$ 49.37 $
$ 43.35 $
$ 62.74 $
$ 60.68 $
$ 61.67 $
$ 60.37 $
$ 64.52 $
$ 67.62 $
$ 67.62 $
$ 53.18 $
$
$


$ 49.56 $

51.55 $

56.51 $
55.13 $
51.30 $
48.71 $
48.18 $
8.33 $


47.27 $
46.34 $
61.01 $
58.72 $
60.87 $
58.57 $
64.44 $
68.12 $
63.27 $
53.04 $
62.39 $
60.19 $
$

49.21 $

46.95 $
46.43 $
61.24 $
59.57 $
59.71 $
57.73 $
63.42 $
67.10 $
53.03 $
61.45 $
60.50 $
$
-
49.98 $

49.61 $
43.09 $
62.70 $
60.70 $
61.69 $
60.42 $
64.46 $
67.59 $
67.59 $
53.63 $
60.73 $
59.67 $
$

50.28 $

51.55 $

56.51 $
55.11 $
51.28 $
48.67 $
48.16 $
8.35 $


47.10 $
46.10 $
60.89 $
58.59 $
60.72 $
58.45 $
64.70 $
68.30 $
63.41 $
52.83 $
62.62 -
59.97 -
63.25 -

48.38 $

46.79 $
46.19 $
61.13 $
59.45 $
59.57 $
57.58 $
63.68 $
67.28 $
52.99 $
61.67 -
60.56 $
62.02 -
-
49.99 $

49.45 $
42.94 $
62.53 $
60.62 $
61.56 $
60.34 $
64.73 $
67.86 $
67.86 $
53.47 $
61.66 -
59.46 -
62.73 -

50.03 $

88.14 $

92.95 $
92.33 $
87.26 $
82.89 $
80.26 $
12.69 $


75.59 $
73.08 $
91.14 $
91.71 $
92.38 $
89.50 $
104.93 $
110.10 $
103.44 $
88.61 $
$
$


82.88 $

75.48 $
72.81 $
92.36 $
91.96 $
91.21 $
88.59 $
103.91 $
109.08 $
86.99 $
$
99.68 $
-
-
81.97 $

79.15 $
72.75 $
96.36 $
94.06 $
96.90 $
95.34 $
106.87 $
110.47 $
110.47 $
87.45 $
$
$


81.33 $

88.14 $

92.47 $
91.76 $
87.14 $
84.14 $
81.23 $
11.24 $


75.30 $
72.51 $
89.79 $
91.21 $
92.04 $
88.92 $
104.07 $
108.82 $
103.14 $
87.35 $
101.75 $
99.71 $
$

82.33 $

75.19 $
72.24 $
91.07 $
91.62 $
90.87 $
88.22 $
103.05 $
107.80 $
86.66 $
100.73 $
99.69 $
$
-
81.74 $

78.85 $
70.71 $
95.11 $
93.50 $
96.36 $
94.77 $
105.76 $
108.75 $
108.75 $
88.34 $
102.93 $
101.53 $
$

83.13 $

88.14 $

92.53 $
91.79 $
87.13 $
84.07 $
80.70 $
11.83 $


75.24 $
72.26 $
89.75 $
91.16 $
91.91 $
88.77 $
104.44 $
109.18 $
103.29 $
87.18 $
101.97 $
99.18 $
102.94 $

80.73 $

75.13 $
71.98 $
91.02 $
91.47 $
90.74 $
88.06 $
103.42 $
108.16 $
86.64 $
100.92 $
99.71 $
101.46 $

81.72 $

78.79 $
70.33 $
95.07 $
93.25 $
96.15 $
94.56 $
106.05 $
109.02 $
109.02 $
87.91 $
103.49 $
101.67 $
104.02 $

81.94 $

$

$
(0.02) $
(0.02) $
(0.04) $
(0.02) $
0.02 $


(0.16) $
(0.24) $
(0.11) $
(0.13) $
(0.14) $
(0.12) $
0.26 $
0.18 $
0.14 $
(0.22) $
0.23 $
(0.22) $
3.06 $

(0.82) $

(0.16) $
(0.25) $
(0.11) $
(0.12) $
(0.14) $
(0.15) $
0.26 $
0.18 $
(0.04) $
0.22 $
0.06 $
1.52 $
n.a.
0.01 $

(0.16) $
(0.16) $
(0.17) $
(0.08) $
(0.13) $
(0.08) $
0.27 $
0.27 $
0.27 $
(0.17) $
0.93 $
(0.21) $
3.06 $
n.a.
(0.25) $



0.06
0.03
(0.01)
(0.07)
(0.53)
0.59


(0.06)
(0.26)
(0.04)
(0.06)
(0.14)
(0.15)
0.37
0.36
0.15
(0.17)
0.22
(0.52)
3.24

(1.60)

(0.06)
(0.26)
(0.05)
(0.15)
(0.13)
(0.16)
0.37
0.36
(0.02)
0.19
0.02
1.77
n.a.
(0.02)

(0.06)
(0.39)
(0.04)
(0.25)
(0.21)
(0.22)
0.29
0.27
0.27
(0.42)
0.56
0.14
2.49
n.a.
(1.19)
                                      5-7

-------
Table 5-6.  2020 Price Results From WORLD Case Analyses
IEA Bkrs RTI Bkrs RTI EGA IEA Bkrs RTI Bkrs RTI EGA
Case
WORLD Output Product Prices
Northwest Europe
LPG
PETCHEM NAPHTHA
RFC - PREMIUM (EURO III/IV/V)
RFC - REGULAR (EURO III/IV/V)
KERO/JET JTA/A1
DSL N02 MSD (1000-5000 PPM)
DSL N02 RFD / CARB
RESID. 3-1.0%
MGO DMA
MDOHS
MDOLS
IFO380 LS
IFO380 HS
Asia - Singapore
LPG
PETCHEM NAPHTHA
RFC - PREMIUM (EURO III/IV/V)
RFC - REGULAR (EURO III/IV/V)
KERO/JET JTA/A1
DSL NO2 MSD (1000-5000 PPM)
DSL NO2 LSD (500 PPM)
DSL NO2 RFD / CARB
RESID .3-1.0%
MGO DMA
MDOHS
MDO LS (vs MDO HS)
IF0380 LS
IFO380 HS
Ref


$ 50.06 $
$ 45.92 $
$ 56.66 $
$ 54.61 $
$ 67.34 $
$ 66.97 $
$ 71.40 $
$ 51.10 $
$ 65.22 $
$ 61.86 $
$ 64.96 $
.
$ 49.35 $

$ 52.51 $
$ 47.71 $
$ 59.13 $
$ 55.97 $
$ 65.34 $
$ 64.75 $
$ 66.17 $
$ 68.56 $
$ 53.45 $
$ 64.49 $
$ 63.23 $


$ 48.64 $
Ref


50.14 $
45.75 $
56.68 $
54.58 $
66.96 $
66.98 $
71.09 $
51.51 $
65.01 $
61.44 $
64.39 $
.
50.38 $

52.48 $
47.66 $
59.38 $
56.07 $
64.47 $
63.96 $
65.30 $
67.50 $
53.28 $
63.74 $
62.65 $
$

49.75 $
Ref


49.97 $
45.52 $
56.58 $
54.46 $
67.28 $
67.32 $
71.39 $
51.40 $
65.47 $
61.79 $
65.49 $
.
50.26 $

52.55 $
47.52 $
59.23 $
55.92 $
64.59 $
64.10 $
65.43 $
67.65 $
53.20 $
63.88 $
62.76 $
64.91 -

49.65 $
High


79.55 $
74.04 $
91.14 $
88.12 $
111.17 $
111.24 $
115.17 $
87.18 $
107.83 $
101.57 $
106.85 $
.
83.23 $

82.23 $
77.05 $
91.73 $
88.79 $
109.09 $
108.57 $
110.14 $
113.28 $
87.43 $
108.22 $
106.12 $


81.41 $
High


78.88 $
72.98 $
90.50 $
87.46 $
110.81 $
111.10 $
114.83 $
86.90 $
107.74 $
101.23 $
106.56 $
.
84.87 $

81.93 $
76.23 $
91.36 $
88.24 $
109.14 $
108.85 $
110.20 $
113.34 $
87.45 $
108.60 $
106.64 $
$

85.09 $
High


78.84 3
72.67 3
90.44 3
87.38 3
110.97 !
111.24 :
114.99 !
86.83 3
107.90 !
101.42 !
107.93 !

84.74 3

81.87 !
75.95 3
91.25 3
88.04 3
109.31 !
109.03 !
110.39 :
113.57 :
87.34 3
108.77 !
106.75 !
109.92 :

84.83 3
ECAvs
RTI Ref


; (0.16)
; (0.23)
; (o.io)
> (0.12)
6 0.32
6 0.33
6 0.30
> (0.10)
5 0.46
5 0.35
5 4.05

; (0.13)

5 0.07
> (0.14)
> (0.15)
; (0.15)
5 0.12
5 0.13
5 0.13
5 0.15
; (o.os)
5 0.14
6 0.11
6 2.26
n.a.
> (0.11)
ECAvs
RTI High


$ (0.04)
$ (0.31)
$ (0.06)
$ (0.08)
$ 0.16
$ 0.14
$ 0.16
$ (0.07)
$ 0.16
$ 0.19
$ 6.70

$ (0.13)

$ (0.05)
$ (0.28)
$ (0.11)
$ (0.20)
$ 0.18
$ 0.18
$ 0.19
$ 0.22
$ (0.11)
$ 0.17
$ 0.11
$ 3.28
n.a.
$ (0.25)

-------
Table 5-7.   2020 WORLD Output Product Price Differentials
Case
                               IEA Bkrs
                                   Ref
RTI Bkrs
    Ref
RTI EGA
    Ref
IEA Bkrs
   High
RTI Bkrs
   High
RTI EGA
   High
EGA vs   EGA vs
RTI Ref  RTI High
WORLD Output Product Price Differentials
USEC
                              $/barrel
Diesel (ULS)-Gasoline (CG Regular ULS)    $    9.45  $    9.40  $     9.71  $   18.39 $    17.61  $   18.02  $    0.32 $    0.41
Gasoline (CG Regular ULS) - Resid HSIFO 380 $    8.37  $    9.52  $    10.21  $   8.83 $    8.89  $   10.43  $    0.69 $    1.54
Diesel (ULS) - Resid HSIFO 380          $   17.81  $   18.91  $    19.92  $   27.23 $    26.49  $   28.45  $    1.01 $    1.95
MDO HS - IFO380 HS                     n.a.  $   10.98  $    11.59      n.a. $    17.38  $   18.46  $    0.61 $    1.08
Resid  1%S-IFO380HS               $    2.87  $    3.84  $     4.44  $   5.73 $    5.02  $    6.45  $    0.61 $    1.43
Diesel ULS - MDO HS                     n.a.  $    7.93  $     8.33      n.a. $    9.12  $    9.99  $    0.40 $    0.88

USGC
Diesel (ULS) - Gasoline (CG Regular ULS) $
Gasoline (CG Regular ULS) - Resid HS IFO 380 $
Diesel (ULS) - Resid HS IFO 380 $
MDO HS - IF0380 HS $
Resid 1%S-IF0380HS $
Diesel ULS - MDO HS $
7.62 $
9.64 $
17.26 $
10.25 $
1.75 $
7.01 $
7.53 $
9.59 $
17.12 $
10.52 $
1.12 $
6.60 $
7.83 $
9.46 $
17.30 $
10.57 $
1.15 $
6.73 $
17.12 $
10.00 $
27.12 $
17.71 $
3.96 $
9.41 $
16.18 $
9.88 $
26.06 $
17.94 $
2.03 $
8.11 $
16.69 $
9.75 $
26.44 $
17.99 $
2.09 $
8.45 $
0.31 $
(0.13) $
0.18 $
0.05 $
0.02 $
0.12 $
0.51
(0.13)
0.38
0.04
0.06
0.33
uswc
Diesel (ULS) - Gasoline (CG Regular ULS) $
Gasoline (CG Regular ULS) - Resid HS IFO 380 $
Distillate (ULS) - Resid HS IFO 380 $
MDO HS - IFO380 HS
Resid 1%S-IF0380HS $
Diesel ULS - MDO HS
6.95 $
11.11 $
18.06 $
n.a. $
3.62 $
n.a. $
6.89 $
10.42 $
17.32 $
9.40 $
3.36 $
7.92 $
7.24 $
10.59 $
17.83 $
9.43
3.44 $
8.40
16.41 $
12.73 $
29.14 $
n.a. $
6.12 $
n.a. $
15.26 $
10.37 $
25.63 $
18.40 $
5.21 $
7.22 $
15.77 $
11.31 $
27.08 $
19.73 $
5.97 $
7.35 $
0.35 $
0.16 $
0.51 $
0.03 $
0.08 $
0.48 $
0.52
0.94
1.46
1.33
0.76
0.13
Northwest Europe
Diesel (ULS Euro) - Gasoline (RFC Regular Eurc $
Gasoline (RFC Regular Euro) - Resid HS IFO 38 $
Diesel (ULS Euro) - Resid HS IFO 380 $
MDO HS - IFO380 HS $
Resid 1%S- IFO380HS $
Diesel ULS - MDO HS $
Asia - Singapore
Diesel (ULS) - Gasoline (CG Regular ULS) $
Gasoline (CG Regular ULS) - Resid HS IFO 380 $
Diesel (ULS) - Resid HS IFO 380 $
MDO HS - IF0380 HS $
Resid 1%S-IF0380HS $
Diesel ULS - MDO HS $
16.79 $
5.26 $
22.05 $
12.51 $
1.75 $
9.54 $

12.59 $
7.33 $
19.92 $
14.59 $
4.81 $
5.32 $
16.51 $
4.20 $
20.71 $
11.06 $
1.12 $
9.65 $

11.43 $
6.31 $
17.74 $
12.90 $
3.52 $
4.85 $
16.93 $
4.20 $
21.13 $
11.53 $
1.15 $
9.60 $

11.73 $
6.27 $
18.00 $
13.12 $
3.55 $
4.89 $
27.06 $
4.89 $
31.94 $
18.34 $
3.96 $
13.60 $

24.50 $
7.38 $
31.88 $
24.71 $
6.03 $
7.17 $
27.37 $
2.59 $
29.96 $
16.36 $
2.03 $
13.61 $

25.10 $
3.16 $
28.26 $
21.55 $
2.37 $
6.71 $
27.60 $
2.64 $
30.25 $
16.68 $
2.09 $
13.57 $

25.52 $
3.21 $
28.73 $
21.92 $
2.51 $
6.82 $
0.42 $
0.01 $
0.42 $
0.47 $
0.02 $
(0.05) $

0.30 $
(0.04) $
0.26 $
0.22 $
0.03 $
0.04 $
0.23
0.05
0.28
0.32
0.06
(0.04)

0.42
0.06
0.48
0.36
0.14
0.11
around $9/bbl USGC and lower in Europe, especially, which has a systemic gasoline surplus as a
result of active dieselization policies. Projected gasoline prices are essentially on a par with light
sweet crude in both USGC and Northern Europe.

        In short, the result is that—based on the premises which, inter alia, keep gasoline in
relative surplus and have distillates as major growth products—the imbalances being
experienced today in oil markets are likely to be sustained over time. High distillate price
premiums and weak gasoline prices relative to crude could lead to some shift back to gasoline
and away from diesel, but  the scope would appear to be limited, given the mainly different uses
for the two fuels. It must also be pointed out that the modeling undertaken here does not allow
for the advent of any revolutionary new refinery processes (e.g., condensing naphtha/gasoline
                                               5-9

-------
boiling range streams to diesel). Thus, sustained distillate premiums are underpinned by the high
capital and operating costs of hydrocracking, the primary route to incremental diesel once
distillate ex crude has been maximized.3

       Growth in marine IFO demand, plus the availability of significant resid upgrading
capacity, helps buoy residual fuel prices. IFO380 prices are around $6.50/bbl below light sweet
crude in the reference cases; in the high price cases, prices are around $11/bbl below light sweet
crude USGC and $7/bbl in Northwest Europe. Should heavy sour crude output resurge or less
coking capacity be brought onstream than estimated, IFO380 prices are likely to be lower
relative to distillate, potentially raising costs of conversion under a potential EGA.

       The impact of the modeled EGA is to raise distillate prices (marine and nonmarine
diesels, also jet fuel and kerosene) across all world regions and to lower those of gasoline,
naphtha,  LPG, and residual fuel. (The processes of coking and hydrocracking required to convert
IFO to diesel do generate some gasoline, naphtha, and LPG streams, thus easing supply on these
products.)

5.4    ECA Costs

       Tables 5-8, 5-9, and 5-10 summarize WORLD results for product supply costs and CO2
emissions.  The results indicate increases in product supply costs4 under the modeled U.S. and
Canadian ECA of $0.45 and $0.65/bbl across all marine fuels worldwide and $0.02 and
$0.06/bbl across all petroleum products worldwide; these costs are projected under, respectively,
the reference and high price scenarios (Table 5-8). The  cost effects are most marked in the
United States and Canada.  Marine fuels cost increase under the potential ECA in the United
States and Canada is projected at $2.91/bbl under the reference scenario and  $4.33/bbl under the
high price scenario. Average impacts across all U.S. and Canadian products are $0.10  and
$0.17/bbl, respectively.

       Other regions are also affected to a lesser degree. Across regions outside the United
States and Canada, marine fuel cost increases are projected to be $0.45/bbl and $0.65/bbl,
respectively.
3 The version of the WORLD model used for this study embodied options for fluid catalytic cracking (FCC) units
   that exist and that raise FCC distillate (cycle oil) yields. FCC operations appear likely to move in that direction
   and also to take in more atmospheric residua over time, thereby raising distillate output. However, such distillate
   is of poor quality and requires further processing, either via hydrotreating or hydrocracking.
4 Product supply costs are defined here as referring to the costs of finished petroleum products, refined and delivered
   to major market centers. They thus exclude costs of final distribution and of federal or other taxes.

                                            5-10

-------
5.5     Refining and COi Emissions Impacts

        Global refinery crude throughputs rise by 0.054 and 0.029 million bpd in the U.S. and
Canadian EGA cases under,  respectively, the reference and high price scenarios. These increases
are occasioned by the increased use of coking, which produces solid by-product that does not
contribute to (fixed) liquid product demand. The increase in crude use is smaller in the high price
case because of the higher cost of using crude oil, including relative to increased use

Table 5-8.   2020 WORLD Output Product Supply Costs and CO2 Emissions
                                 IEA Bkrs  RTI Bkrs
                                      Ref      Ref
                RTI EGA  IEA Bkrs
                    Ref     High
                         RTI Bkrs
                            High
                        RTI EGA
                            High
                          ECAvs
                          RTI Ref
                          ECAvs
                         RTI High
WORLD Output Global Total Oil Products Cost
(excludes internal costs for refinery fuel consumption)
              $ million/day
LPG & Naphtha 5
Gasoline J
Light Distillates (Jet/Kero) 5
Middle Distillates (excluding bunker fuels) J
Residual Fuels (excluding bunker fuels) J
Other Products 5
Marine Bunkers Fuels J
Total $ million / day !
Total $ billion /year J
Global Marine Fuels Cost as Percent of Total
Marine Fuels Global Average Cost $/bbl ;
All Products Global Average Cost $/bbl :
6 760 $
6 1,389 $
6 532 $
6 2,036 $
6 316 $
6 313 $
6 205 $
5 5,551 $
6 2,026 $
3.69%
6 51.47 $
$ 54.66 $
760 $
1,389 $
528 $
1,921 $
201 $
313 $
485 $
5,597 $
2,043 $
8.66%
53.60 $
54.58 $
758 $
1,386 $
530 $
1,927 $
200 $
313 $
490 $
5,604 $
2,046 $
8.75%
54.05 $
54.60 $
1,086 $
1,991 $
793 $
3,002 $
476 $
436 $
345 $
8,130 $
2,967 $
4.25%
86.45 $
89.36 $
1,074 $
1,975 $
789 $
2,836 $
303 $
438 $
821 $
8,236 $
3,006 $
9.97%
90.76 $
89.07 $
1,072 $
1,973 $
791 $
2,842 $
302 $
437 $
830 $
8,247 $
3,010 $
10.06%
91.42 $
89.13 $
(2.3) $
(3.1) $
1.7 $
5.5 $
(0.2) $
(0.2) $
5.4 $
6.8 $
2.5 $
0.09%
0.45 $
0.02 $
(2.3)
(2.4)
1.9
6.6
(0.3)
(0.8)
8.4
11.1
4.0
0.09%
0.65
0.06
WORLD Output CO2 Emissions
              million tonnes per year
Global Marine Fuels CO2 Emissions
Global Refinery CO2 Emissions
Total
                                     689.6
                                             1540.0
                                                      1539.3
                                                               690.4
                                                                        1541.9
                                                                                 1540.0
                                    1100.5
                                             1089.7
                                                      1093.1
                                                               953.2
                                                                         940.7
                                                                                  945.7
                                                                                           (0.78)
                                                                (1.89)
from H2 Plant
from Refinery Fuel
from Sulfur Plant Tail Gas Unit
from Flare Loss
85.5
965.8
2.1
47.1
81.1
958.8
2.0
47.8
82.2
961.0
2.0
47.8
79.6
831.0
1.8
40.7
73.6
823.8
1.6
41.6
75.5
826.9
1.7
41.7
1.08
2.24
0.04
0.03
1.87
3.11
0.04
0.02
                                                                                            3.38
                                                                                                    5.03
Total from Petroleum Coke
Total from Refinery Incl Petroleum Coke
 308.0
1408.5
 279.8
1369.5
 288.5
1381.6
 225.5
1178.7
 205.9
1146.6
 211.1
1156.8
 8.71
12.09
 5.13
10.16
Combined Refinery + Marine Fuel CO2 Emissions
Excl Petroleum Coke
Incl Petroleum Coke
1790.1
2098.1
2629.7
2909.6
2632.3
2920.9
1643.5
1869.1
2482.5
2688.5
2485.7
2696.7
 2.61
11.31
 3.14
 8.27
                                                  5-11

-------
Table 5-9.   2020 WORLD Output Refinery Investment, Throughput, and CO2 Emissions,
            United States and Canada
IEA Bkrs RTI Bkrs

USA/Canada Detail
WORLD Output Refinery Investments $(2006)bn
US East Coast $
US Gulf Coast, Interior, Canada East $
US West Coast, Canada West $
Total USA+Canada $
Total Other Regions $
Total World $
WORLD Output Refinery Throughputs mmbpd
US East Coast
US Gulf Coast, Interior, Canada East
US West Coast, Canada West
Total USA+Canada
Total Other Regions
Total World
Ref


1.28 $
14.54 $
2.23 $
18.05 $
92.49 $
110.54 $

1.38
12.65
3.42
17.45
67.41
84.85
Ref


1.37 $
14.52 $
1.39 $
17.28 $
85.23 $
102.51 $

1.38
12.59
3.30
17.27
68.77
86.04
RTI EGA IEA Bkrs RTI Bkrs RTI EGA
Ref


1.20 $
14.80 $
1.57 $
17.56 $
88.14 $
105.70 $

1.38
12.63
3.28
17.29
68.81
86.10
High


0.60 $
27.56 $
2.14 $
30.30 $
121.38 $
151.69 $

1.38
11.28
3.39
16.05
57.27
73.31
High


1.03 $
26.14 $
1.38 $
28.56 $
110.51 $
139.07 $

1.38
11.20
3.39
15.97
59.02
74.98
High


0.94 3
27.30 S
1.61 S
29.85 i
114.92 S
144.77 S

1.38
11.23
3.41
16.02
58.99
75.01
ECAvs
RTI Ref


> (0.17)
6 0.28
6 0.18
t 0.29
6 2.91
6 3.20

0.00
0.04
(0.02)
0.02
0.04
0.05
ECAvs
RTI High


$ (0.10)
$ 1.16
$ 0.22
$ 1.29
$ 4.41
$ 5.70

0.00
0.03
0.02
0.05
(0.02)
0.03
WORLD Output Refinery CO2 Emissions million tonnes/year
US East Coast
US Gulf Coast, Interior, Canada East
US West Coast, Canada West
Total USA+Canada
Total Other Regions
Total World
17.5
191.2
52.5
261.2
790.0
1051.2
17.4
189.6
50.2
257.2
782.8
1039.9
17.1
190.2
50.3
257.6
785.6
1043.2
16.1
170.9
48.6
235.6
675.0
910.6
16.6
168.0
46.9
231.6
665.8
897.4
17.2
169.2
47.7
234.1
668.3
902.4
(0.26)
0.57
0.17
0.48
2.83
3.31
0.54
1.14
0.81
2.49
2.49
4.97
These CO2 emissions do not include those from sulfur plant tail gas unit or from flare
of natural gas for hydrogen. Hydrogen from natural gas is projected to increase by 0.011 million
bfoed in the reference scenario EGA and 0.021 million bfoed in the high price EGA scenario
(Table 5-1). The refinery throughput increases occur primarily in the United States and Canada.

       Under the EGA cases, global CO2 emissions from marine fuels decline by 0.8 and 1.9
million tpa under, respectively, the reference and high price scenarios. This compares to refinery
CO2 emissions increases associated with additional processing to produce the higher standard
marine fuels of 3.4 and 5.0 million tpa. If the CC>2 emissions associated with the additional
outputs of petroleum coke are added in, total refinery plus coke CC>2 emissions rise by,
respectively, 12.1  and 10.1 million tpa. Under the high price scenario, 50% of the global refinery
CC>2 emissions increases occur in the United States and Canada.  Under the reference scenario,
the proportion is lower.
                                          5-12

-------
Table 5-10. 2020 WORLD Output Product Supply Costs, United States and Canada
                                IEA Bkrs RTI Bkrs
                                   Ref    Ref
RTI ECA  IEA Bkrs
   Ref    High
RTI Bkrs
   High
RTI ECA
   High
ECA vs  ECA vs
RTI Ref RTI High
WORLD Output US & Canada Oil Products Supply Co
(excludes internal costs for refinery fuel consumption)
                                             $ million / day
LPG & Naphtha
Gasoline
Light Distillates (Jet/Kero)
Middle Distillates (excluding bunker fuels)
Residual Fuels (excluding bunker fuels)
Other Products
Marine Bunkers Fuels
Total $ million / day
Total $ billion / year
USA - Canada Total Demand
All Products USA/Canada Average Cost - $/bbl
US & Canada Marine Fuels Cost as Percent of Total
Marine Fuels US & Canada Average Cost $/bbl
$ 89 $
$ 576 $
$ 126 $
$ 364 $
$ 25 $
$ 75 $
$ 35 $
$ 1,291 $
$ 471 $
24.50
$ 52.67 $
2.73%
$ 50.30 $
90 $
576 $
126 $
354 $
23 $
74 $
40 $
1 ,283 $
468 $
24.37
52.65 $
3.12%
52.87 $
89 $
575 $
127 $
355 $
23 $
74 $
43 $
1 ,286 $
470 $
24.39
52.75 $
3.35%
55.78 $
135 $
833 $
194 $
554 $
39 $
106 $
58 $
1,919 $
700 $
23.21
82.70 $
3.03%
82.73 $
134 $
829 $
192 $
532 $
36 $
106 $
66 $
1 ,895 $
692 $
23.09
82.08 $
3.50%
87.39 $
133 $
827 $
192 $
534 $
36 $
106 $
71 $
1 ,900 $
693 $
23.10
82.25 $
3.73%
91.73 $
(0.34) $
(1.17) $
0.52 $
1.04 $
(0.02) $
0.19 $
3.01 $
3.24 $
1.18 $

0.10 $
0.20%
2.91 $
(0.22)
(1.29)
0.64
1.64
(0.02)
(0.14)
4.50
5.11
1.87

0.17
0.21%
4.33
PRODUCT MANUFACTURING/SUPPLY COSTS

WORLD Output Other Regions Oil Products Supply Cost
(excludes internal costs for refinery fuel consumption)
                                             $ million/day
LPG & Naphtha
Gasoline
Light Distillates (Jet/Kero)
Middle Distillates (excluding bunker fuels)
Residual Fuels (excluding bunker fuels)
Other Products
Marine Bunkers Fuels
Total $ million /day
Total $ billion / year
Total Other Regions Marine Fuels Cost as % of Total
Marine Fuels Total Other Regions Average Cost $/bbl
Marine Fuels Total All Reqions Average Cost $/bbl
$ 671 $
$ 813 $
$ 406 $
$ 1,672 $
$ 291 $
$ 238 $
$ 170 $
$ 4,260 $
$ 1,555 $
4.0%
$ 51 .72 $
$ 51 .47 $
670 $
813 $
402 $
1 ,567 $
177 $
239 $
445 $
4,314 $
1 ,575 $
10.3%
53.67 $
53.60 $
669 $
811 $
404 $
1,571 $
177 $
239 $
447 $
4,318 $
1 ,576 $
10.4%
53.89 $
54.05 $
952 $
1,158 $
600 $
2,449 $
437 $
329 $
287 $
6,211 $
2,267 $
4.6%
87.24 $
86.45 $
941 $
1,146 $
597 $
2,304 $
267 $
331 $
755 $
6,341 $
2,314 $
11.9%
91.07 $
90.76 $
938 $
1,145 $
599 $
2,309 $
266 $
331 $
759 $
6,347 $
2,317 $
12.0%
91.39 $
91.42 $
(1.91) $
(1.92) $
1.20 $
4.46 $
(0.23) $
(0.38) $
2.37 $
3.59 $
1.31 $
0.05%
0.23 $
0.45 $
(2.09)
(1.11)
1.27
4.95
(0.30)
(0.64)
3.87
5.95
2.17
0.05%
0.32
0.65
5.6    Marine Fuels Composition

       Table 5-11 contains the breakdown of marine bunker demand, which drives the refining
changes under the ECA scenarios. It illustrates the projected shift from IFO to low sulfur marine
distillate (MDO) and, secondarily from high sulfur to low sulfur MDO. Although not evident
from the table, ECA-affected MGO volumes were also reduced in sulfur content. The table
further shows how the US/Canada ECA is projected to impact marine fuels lifted both within and
outside the USA and Canada as ships trading in to the USA and Canada from overseas must
taken on ECA fuel for eventual passage through the US/Canada ECA zones.

       Table 5-12 summarizes the global compositions of IFO, high and low sulfur MDO and of
MGO across the cases. The IFO blends are dominated by residual streams and secondarily
cracked stocks. The significant proportions of projected atmospheric resid in IFO are driven by
the high volumes of IFO demand - some 6.6 million bpd - projected for total IFO in the 2020
base cases. Also, regions with more complex refineries, including the USA and Canada, have
low proportions of atmospheric resid in IFO, other regions, notably the FSU, Middle East and
Asia, have much higher proportions.
                                           5-13

-------
Table 5-11. 2020 Projected Bunker Fuel Demands
IEA Bkrs RTI Bkrs RTI EGA IEA Bkrs RTI Bkrs RTI EGA
Ref Ref Ref High High High
Marine Bunkers Demands
Total USA+Canada
MGO
MDO-HS
MDO-LS
Total Distillate Bunkers
IF0180LS
IF0180HS
IFO380 LS
IFO380 HS
Total IFO Bunkers
Grand Total Bunkers - USA/Canada
Other World Regions
MGO
MDO-HS
MDO-LS
Total Distillate Bunkers
IF0180LS
IF0180HS
IFO380 LS
IFO380 HS
Total IFO Bunkers
Grand Total Bunkers - Other Regions
Total World Bunkers Demand
MGO
MDO-HS
MDO-LS
Total Distillate Bunkers
IF0180LS
IF0180HS
IFO380 LS
IFO380 HS
Total IFO Bunkers
Grand Total Bunkers -All Regions
IFO HS Shifted to Distillate - million bpd
IFO HS Shifted to Distillate - % of Global Total IFO
Total World Bunkers Demand
MGO
MDO-HS
MDO-LS
Total Distillate Bunkers
IFO180LS
IFO180HS
IF0380 LS
IF0380 HS
Total IFO Bunkers
Grand Total Bunkers -All Regions
IFO HS Shifted to Distillate - million tpa
IFO HS Shifted to Distillate - % of Global Total IFO

million bpd
0.000 0.142
0.002 0.055
0.000 0.000
0.002 0.197
0.000 0.000
0.076 0.064
0.000 0.000
0.622 0.497
0.698 0.561
0.700 0.758
million bpd
0.183 1.282
0.154 0.483
0.361 0.441
0.698 2.206
0.000 0.000
0.345 0.859
0.000 0.000
2.235 5.221
2.580 6.080
3.278 8.286
million bpd
0.183 1.424
0.156 0.538
0.361 0.441
0.700 2.403
0.000 0.000
0.421 0.923
0.000 0.000
2.858 5.719
3.279 6.641
3.979 9.044


million tpa
9.0 69.5
7.8 26.8
17.9 21.9
34.7 118.1
0.0 0.0
23.7 51.6
0.0 0.0
162.1 322.2
185.9 373.8
220.6 491.9




0.142
0.035
0.201
0.378
0.000
0.027
0.000
0.367
0.395
0.773

1.277
0.483
0.552
2.312
0.000
0.834
0.000
5.150
5.984
8.296

1.419
0.518
0.753
2.690
0.000
0.861
0.000
5.517
6.379
9.068



69.5
26.0
36.9
132.4
0.0
48.0
0.0
311.0
359.0
491.4




0.000
0.002
0.000
0.002
0.000
0.076
0.000
0.624
0.701
0.703

0.185
0.154
0.362
0.701
0.000
0.349
0.000
2.242
2.591
3.292

0.185
0.156
0.362
0.703
0.000
0.425
0.000
2.866
3.291
3.994



9.1
7.7
17.9
34.8
0.0
23.8
0.0
162.3
186.1
220.8




0.142
0.055
0.000
0.197
0.000
0.064
0.000
0.498
0.562
0.759

1.273
0.482
0.442
2.197
0.000
0.861
0.000
5.230
6.091
8.288

1.415
0.537
0.442
2.394
0.000
0.925
0.000
5.728
6.653
9.047



69.5
26.8
21.9
118.2
0.0
51.4
0.0
322.7
374.2
492.4




0.142
0.034
0.201
0.377
0.000
0.027
0.000
0.368
0.395
0.772

1.274
0.482
0.552
2.308
0.000
0.837
0.000
5.157
5.994
8.302

1.416
0.516
0.753
2.685
0.000
0.864
0.000
5.525
6.389
9.074



69.5
25.8
37.0
132.4
0.0
48.1
0.0
311.1
359.2
491.6


EGA vs EGA vs
RTI Ref RTI High


0.000
(0.020)
0.201
0.181
0.000
(0.037)
0.000
(0.130)
(0.166)
0.015

(0.005)
0.000
0.092
0.106
0.000
(0.025)
0.000
(0.071)
(0.096)
0.009

(0.005)
(0.020)
0.312
0.287
0.000
(0.062)
0.000
(0.201)
(0.263)
0.024
0.263
4.0%

0.0
(0.8)
15.1
14.3
0.0
(3.6)
0.0
(11.2)
(14.8)
(0.5)
14.8
4.0%


0.000
(0.021)
0.201
0.180
0.000
(0.037)
0.000
(0.130)
(0.167)
0.013

0.001
0.000
0.091
0.111
0.000
(0.024)
0.000
(0.073)
(0.097)
0.014

0.001
(0.021)
0.311
0.291
0.000
(0.061)
0.000
(0.203)
(0.264)
0.027
0.264
4.0%

0.0
(0.9)
15.1
14.2
0.0
(3.4)
0.0
(11.6)
(15.0)
(0.8)
15.0
4.0%
       The MDO (DMB) grades are dominated by middle distillate and heavy distillate/light
vacuum gasoil streams. The low (0.1%) sulfur MDO contains much higher proportions of low
sulfur light and middle distillates than present in the high sulfur MDO. The MGO compositions
show a shift away from heavy distillate/light vacuum gasoil fractions and toward light and
middle distillates in the EGA cases.
                                          5-14

-------
Table 5-12.   WORLD Projected Bunker Fuel
Compositions

Case
lEABkrs RTI
Ref
Bkrs RTI
Ref
EGA IEA Bkrs RTI Bkrs
Ref
High
High
Composition of Total IFO Fuel Global Average
light and middle distillates low S
light and middle distillates medium / high S
heavy distillate / light vacuum gasoil
heavy vacuum gasoil
atmospheric residua
vacuum residua
visbroken residua
cracked stocks
total
Composition of Marine Diesel (MDO DMB
light and middle distillates low S
light and middle distillates medium / high S
heavy distillate / light vacuum gasoil
heavy vacuum gasoil
atmospheric residua
vacuum residua
visbroken residua
cracked stocks
total
Composition of Marine Diesel (MDO DMB
light and middle distillates low S
light and middle distillates medium / high S
heavy distillate / light vacuum gasoil
heavy vacuum gasoil
atmospheric residua
vacuum residua
visbroken residua
cracked stocks
total
Composition of Marine Gasoil (MGO DMA
light and middle distillates low S
light and middle distillates medium / high S
heavy distillate / light vacuum gasoil
heavy vacuum gasoil
atmospheric residua
vacuum residua
visbroken residua
cracked stocks
total

1%
6%
2%
54%
13%
6%
18%
100%

1%
6%
0%
63%
11%
6%
12%
100%

1%
6%
1%
65%
10%
6%
11%
100%

2%
5%
1%
61%
11%
7%
14%
100%

1%
9%
1%
62%
11%
7%
10%
100%
Grade) High Sulfur Global Average
1%
45%
47%
1%



7%
100%
Grade) Low Sulfur (0
17%
48%
28%




6%
100%
1%
57%
30%
3%

0%

10%
100%
1%
53%
33%
3%

0%

10%
100%
0%
55%
39%
1%

0%

5%
100%
1%
54%
34%
4%



8%
100%
.1%) Global Average
14%
52%
23%
4%



7%
100%
21%
56%
16%
0%



6%
100%
22%
50%
24%
4%




100%
18%
49%
23%
4%



6%
100%
Grade) Global Average
4%
64%
27%




4%
100%
5%
69%
21%




4%
100%
6%
71%
19%




3%
100%
4%
62%
26%




7%
100%
7%
69%
20%




4%
100%
RTI EGA
High
volume %

1%
9%
1%
62%
10%
8%
9%
100%
volume %
1%
48%
34%
5%



12%
100%
volume %
20%
52%
26%
0%



2%
100%
volume %
2%
76%
16%




6%
100%
                                      5-15

-------
                                   REFERENCES

Clarksons Shipping Database. 2005. .

Corbett, James, and Horst Koehler. 2003. "Updated Emissions from Ocean Shipping." Journal of
       Geophysical Research 108, D204650.

Corbett, James, and Horst Koehler. 2004. "Considering Alternative Input Parameters in an
       Activity-Based Fuel Consumption and Emissions Model: Reply to Comment by Oyvind
       Endersen et al. on 'Updated Emissions from Ocean Shipping'." Journal of Geophysical
       Research 109, D23303.

Corbett, James, and Chengfeng Wang. 2005. "Emission Inventory Review EGA Inventory
       Progress Discussion." Paper presented at the U.S. Environmental Protection Agency
       EGA Team Meeting Number 2, Washington, DC, October 26.

Global Insights, Inc. 2005. World Trade Service. Customized Data Export.

Gregory, D. 2006.  "Emissions Trading: A Potential Tool for the Shipping Industry?" Paper
       presented at the Bunker Fuel: MARPOL Annex VI Consultation Meeting, Arlington, VA,
       February 2006.

Koehler, H. W. 2003.  "NOX Emissions from Oceangoing Ships: Calculation and Evaluation."
       Proceedings ofICES03, 2003 Spring Technical Conference of the ASME Internal
       Combustion Engine Division. Paper No. ICES2003-689.

U.S. Department of Energy, Energy Information Administration. 2005. International Energy
       Outlook 2005. DOE/EIA-0484(2005). Washington, DC: U.S. Department of Energy.

U.S. Department of Energy, Energy Information Administration. 2006. Annual Energy Outlook
       2006. DOE/EIA-0383(2006). Washington, DC: U.S. Department of Energy.

U.S. Department of Energy, Energy Information Administration. 2008. International Energy
       Outlook 2008. Washington, DC: U.S. Department of Energy.

U.S. Environmental Protection Agency. 2008. Global Trade and Fuels Assessment—Future
       Trends and Effects of Requiring Clean Fuels in the Marine Sector. EPA420-R-08-021.
       Washington, DC: U.S. Environmental Protection Agency.
                                         R-l

-------