Global Trade and Fuels Assessment -
Future Trends and Effects of Requiring
Clean Fuels in the Marine Sector
Draft Report
EnviicnmBntHl Protection
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Global Trade and Fuels Assessment -
Future Trends and Effects of Requiring
Clean Fuels in the Marine Sector
Draft Report
Assessment and Standards Division
Office of Transportation and Air Quality
U.S. Environmental Protection Agency
NOTICE
Prepared for EPA by
RTI International
Research Triangle Park, NC
EnSys Energy & Systems, Inc.
Lexington, Ma
Navigistics Counsulting
Boxborough, Ma
EPA Contract No. EP-C-05-040
This technical report does not necessarily represent final EPA decisions or
positions. It is intended to present technical analysis of issues using data
that are currently available. The purpose in the release of such reports is to
facilitate the exchange of technical information and to inform the public of
technical developments.
SER&
United States
Environmental Protection
Agency
EPA420-D-07-006
October 2007
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CONTENTS
Section Page
1 Introduction 1-1
1.1 Regulations and Options for Compliance 1-2
1.2 Summary of the Analysis 1-5
1.3 Organization of the Report 1-8
2 Overview of the Marine Fuels Industry 2-1
2.1 Marine Fuels Types 2-2
2.2 Refining of Petroleum Products (Including Marine Fuels) 2-4
2.3 Bunker Fuel Suppliers 2-17
3 Demand for Bunker Fuels in the Marine Industry 3-1
3.1 Summary of the Modeling Approach 3-1
3.2 Methods of Forecasting Bunker Fuel Consumption 3-4
3.3 Results ofBunkerFuel Forecasts 3-21
3.4 Implications of Bunker Fuel Forecasts for the WORLD Model Analysis 3-31
4 Estimating Business- as-Usual Proj ections Using the WORLD Model 4-1
4.1 Overview of Enhancements to the WORLD Model 4-1
4.2 Bunker Fuel Forecasts Used in the WORLD Model Analysis 4-3
4.3 WORLD Model Assumptions and Structural Changes 4-7
4.4 Input Prices for the WORLD Model 4-25
4.5 Reporting 4-26
5 The WORLD Model's Projections for 2012 and 2020 5-1
5.1 Supply-Demand Balance 5-1
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5.2 Refining Capacity Additions 5-4
5.3 Refining Economics and Prices 5-7
5.4 Crude and Product Trade 5-11
5.5 Bunker Fuels Quality and Blending 5-12
6 Summary and Implications for Future SECA Analyses 6-1
References R-l
Appendix A: Status of Technology and Trading Options for Compliance with
Advanced Bunkers Regulations A-l
Appendix B: Review of Refinery Process Costs B-l
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SECTION 1
INTRODUCTION
The U.S. Environmental Protection Agency (EPA), along with other regulatory bodies in
the U.S. and Canada, are considering whether to designate one or more SOX Emission Control
Areas (SEC As) along the North American coastline, as provided for by MARPOL Annex VI.
This addition to the international MARPOL treaty went into effect on May 19, 2005 and places
limits on both NOX and SOX emissions. According to the terms of the treaty, ships calling on
ports in signatory countries must use bunker fuel with a sulfur content at or below 4.5 percent.
Countries participating in the treaty are also permitted to request designation of SEC As, in which
ships must treat their exhaust to a level not exceeding 6.0 grams of SOX per kilowatt-hour or
further reduce the sulfur content of their fuel to 1.5 percent. The Baltic and North Sea areas have
already been designated as SECAs, and the effective dates of compliance in these bodies of
water are 2006 and 2007, respectively.
To evaluate possible recommendations regarding North American SECAs, EPA requires
a thorough examination of potential responses by the petroleum-refining and ocean-transport
industries to such a designation, along with any resulting economic impacts. As Task Order #1
under this contract between RTI International and EPA, this report provides a foundation for
these recommendations through developing the knowledge, data, and modeling capabilities
needed for such an analysis. Thus, the analytic team comprised of RTI, EnSys Energy &
Systems, and Navigistics Consulting has assessed current and future conditions in global-fuels
market to provide this foundation. Accomplishing the goals of this report involved several
component tasks:
• Examining the current petroleum-refining industry and bunker-fuel markets,
• Developing a model of shipping activities with Navigistics Consulting to estimate future
demands formaline bunker fuels, and
• Enhancing the EnSys model of petroleum refining (World Oil Refining Logistics and
Demand, or the WORLD model) to include the new information on bunker-fuel markets
and then using the model to establish baseline projections of future refining activities.
This section provides a background for the analysis by discussing existing regulations on
marine bunker fuels. It then summarizes how the components of the analysis are implemented
and examines the resulting implications of "Business-as-Usual" (BaU), or baseline, conditions
for the international marine fuel markets in the years 2012 and 2020.
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1.1 Regulations and Options for Compliance
Existing regulations regarding marine bunker fuels provide an important backdrop for the
modeling conducted in this analysis and, as such, are summarized in this section - along with an
initial discussion of how bunker-fuel markets may comply with regulations. The International
Maritime Organization's (IMO) "MARPOL Annex VT' sets out a series of regulations impacting
international marine bunker fuels. These new regulations center on limits for emissions of nitrous
oxides (NOX), sulfur oxides (SOX), and volatile organic compounds (VOCs). Fuel quality
regulations in Annex VI have been implemented in the form of the ISO-8217 2005 specification
(see Figure 4-2 for details and discussion). This specification updates selected bunker qualities,
provides protections to prevent the blending of used lubricating oil (ULO) into marine fuels, and
limits the presence of refinery streams which contain high levels of "catalyst fines".
The MARPOL Annex VI sets limits on NOX emissions as a function of ships' engine
speed, which range from a high of 17 grams per kilowatt-hour (gm/kWh) for engines running at
less than 130 rpm to a low of 9.8 gm/kWh for engines running at or above 2000 rpm. Since
residual bunker fuels contain nitrogen that is typically at a level equal to around 20% of the
fuel's sulfur content, NOX emissions will be impacted in part by fuel quality (as well as by
specific combustion conditions). For example, a bunker fuel containing 3% sulfur will contain
around 0.6% nitrogen, which translates into around 3 gm of NOX per kWh (Hanashima, 2006).
This level is well below the standard set forNOx emissions, however, residuum desulfurization
in a refinery also reduces nitrogen levels and can therefore play into the comparative economics
of bunker-fuel sulfur reduction versus other options (e.g., on-board abatement of SOx).1
Through the ISO-8217 specifications, MARPOL Annex VI sets a limit on SOX emissions,
expressed as a maximum 4.5% fuel sulfur content. This compares to a prior maximum limit of
5%. The new level was set based on a survey of residual bunkers qualities (the intermediate fuel
oil, or "IFO," grades), which showed that essentially all bunkers currently supplied have sulfur
contents below 4.5% (see Figure 1-1). Since the same survey showed global average residual
bunker fuel content is currently around 2.7%, this change has limited practical impact on bunkers
quality. More significant for any potential future SOX regulations is the fact that MARPOL
Annex VI explicitly allows for on-board abatement as an alternative means for meeting SOX
requirements (thus recognizing that the ultimate goal is a reduction in SOX emissions, rather than
1 To cover the eventuality that NOX may need to be considered in any future investigations of SECAs, EnSys added
the nitrogen contents of residual streams to the WORLD model, along with impacts on nitrogen content of
desulfurization.
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a reduction of fuel sulfur content per se). The IMO, however, has yet to set up necessary
guidelines for this provision.
26.0
21.0
9.0
4.0
4.0
0.5
23.0
12.0
1.0
0.0
Below 0.5 -1.0 1.0 - 1.5 1.5 - 2.0 2.0 - 2.5 2.5 - 3.0 3.0 - 3.5 3.5 - 4.0 4.0 - 4.5 Below
0.5 4.5
Residual fuel oil sulphur content, % m/m
Figure 1-1. Sulfur Content in Bunker Fuels
Figure 1-2 below illustrates the current timeline of the MARPOL Annex VI and other
SECA-related regulations. In addition establishing emissions limits and considering reductions
achieved through on-board abatement, MARPOL Annex VI and ISO-8217 2005 explicitly allow
for the existence of regional SEC As. In the European Union (EU), these agreements have been
established with a marine fuel sulfur maxima of 1.5%, potentially advancing to 0.2% and 0.1%
on marine distillates. Again, these regulations recognize on-board abatement as an alternative,
with a stated standard of 6 gm SOx / kWh (to correspond to the initial 1.5% sulfur limit).
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Legislative overview - IMO and European Union
„ « y
£004
acae
11 Jkugu* MH
EU Member SH« low
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«UHional SEC AS
Figure 1-2. Timeline of MARPOL Annex VI and SECA Implementation
Beyond currently announced initiatives, it appears likely that the MARPOL Annex VI
regulations and newly effective EU SEC As are only the first steps of progressively tightening
regulation of marine fuels qualities. This is being driven by the fact that, as major steps are
being taken to reduce sulfur in other products, especially in gasoline and non-marine distillates,
bunkers are becoming an increasingly significant - and unacceptable - source of SOX and other
emissions. Already, there is a review of MARPOL Annex VI underway with international
consultative meetings. Current intentions are for a second round of EVIO/ISO marine fuels
regulations to be established by 2008 and be enforceable by 2011/2012, with potential further
steps beyond. In addition, the EU is expected to tighten the initial SECA regulations beyond
2008. Required residual bunker-fuel sulfur levels could move to as low as 0.5% regionally, or
even globally. One current element of uncertainty is the size of the geographic areas of future
SECAs, i.e., how many miles offshore they will apply. This in turn affects the proportion of total
bunkers consumption that will need to comply with SECA regulations. Anticipated policy
decisions on this issue will have significant implications for any analysis conducted in the future
regarding the potential effects of North American SECAs.
The above proposals focus on improving the quality of the current mix of distillate and
residual bunkers fuels in the future. More radical alternative have been put forward as part of the
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on-going review by the IMO of MARPOL Annex VI. One group (INTERTANKO) is proposing
that all marine bunker fuels be converted to MDO (i.e. no more residual bunker fuels) with a
maximum sulfur content of 1% initially, dropping to 0.5% after 2015. Benefits claimed include
greater reductions in SOx, NOx and PM, elimination of need for on-board scrubbing and
simplification of on-board fuel handling and storage, creation of a single global standard for
marine bunkers and an associated level competitive playing field among shippers. Improved
vessel safety is also cited since the regulation would avoid the need for vessels to change fuel
types when entering or leaving SECA areas, thereby eliminating associated risk of engine
outage, vessel loss of control and potential environmental disaster.
Other groups, including BEVICO (an owners' organization covering a claimed 65% of the
world merchant fleet), have proposed that all vessels use MDO (no IFO) within SECA areas.
This would lead to a partial shift in bunker demand from IFO to MDO.
The vigorous debate that has developed among the parties concerned with global
shipping and fuels is on-going at the time of writing of this report. As a result, the realm of
potential policy decisions on marine bunkers and hence analytical requirements goes beyond the
immediate Annex VI and SECA regulations and has potentially far reaching implications for US
and global refining and oil markets.
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Marine Environment Protection Committee (MEPC) - 53rd session 18-22 July 2005
Review of Annex VI
The Committee agreed on the need to undertake a review of Annex VI and the NOx
Technical Code with a view to revising the regulations to take account of current
technology and the need to further reduce emissions from ships. MEPC instructed the
Sub-Committee on Bulk Liquids and Gases (BLG) to carry out the review by 2007, and
specifically to:
examine available and developing techniques for the reduction of emissions of air
pollutants; review the relevant technologies and the potential for a reduction of
NOx emissions and recommend future limits for NOx emissions;
_ review technology and the need for a reduction of SOx emissions and justify and
recommend future limits for SOx emissions;
_ consider the need, justification and possibility of controlling volatile organic
compounds emissions from cargoes;
with a view to controlling emissions of particulate matter (PM), study current
emission levels of PM from marine engines, including their size distribution and
quantity, and recommend actions to be taken for the reduction of PM from ships.
Since reduction of NOx and SOx emission is expected to also reduce PM emission,
estimate the level of PM emission reduction through this route;
- consider reducing NOx and PM emission limits for existing engines;
_ consider whether Annex VI emission reductions or limitations should be extended to
include diesel engines that use alternative fuels and engine systems/power plants
other than diesel engines; and
review the texts of Annex VI, NOx Technical Code and related guidelines and
recommend necessary amendments.
The language in the Annex VI regulations, and the economics of the refining and
shipping industries, lead to a situation where several, non-exclusive, options can potentially be
used to achieve compliance with SEC As. While some of these options are not fully explored in
this report (they will be evaluated in the next steps of the analysis), it is still important to note the
range of responses. Among these options are:
1) Desulfurize refinery fuels and use lower sulfur content fuel.
2) Switch entirely or partially to middle distillates for bunker fuel.
3) Reduce SOX emissions via on-board scrubbers (also helps reduce particulate matter, PM).
4) Reduce NOX emissions by lowering nitrogen content of the fuel.
5) NOX and PM reductions via on-board emission controls and engine design.
6) Undertake custom blending of fuels on board and/or use segregated bunkers tanks.
7) Establish emissions trading, which could allow trading of marine and shore-based credits.
8) Switch to alternative fuel sources (e.g., LNG).
9) To the extent feasible, some ship owners might also elect non-compliance through re-
registration of ships to a country that has not ratified the EVIO standards.
There is general industry agreement in principle on the need for SOX emissions reduction.
There are, however, major industry concerns over operational issues, such as custom blending of
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fuels on board due to safety and other concerns (Gregory, 2006). Similarly, there is industry
agreement about a reduction in NOx limits for new engines, but also concerns about the
application of NOX limitations to existing engines due to practicality and cost factors (Metcalf,
2006) and concerns about a regional approach to NOX controls due to technical considerations
(Gregory, 2006).
With regard to emissions trading and sulfur reduction, the European Commission has
been asked to give particular consideration to proposals for alternative or complementary
measures and to consider submitting proposals on economic instruments in their 2008 review.
For NOx reductions, the Commission studies suggest that, given the range of technologies, there
is a sound basis for a trading environment (Madden, 2006). In addition, SOX emissions trading
and compliance monitoring schemes are being actively promoted.
Initial studies indicate on-board scrubbing is cheaper in terms of cost per ton of SOX
removed than refinery residual desulfurization. However, the technology is only just reaching
the commercial demonstration stage (with initial positive results). Issues have also been raised
over how to ensure compliance and how to dispose onshore of the resulting sludge waste.
Scrubbing requires an extended lead time to achieve widespread utilization and is least costly
when built in to new ships, rather than retrofitted onto existing ones (where retrofit costs are
estimated on the order of $14 million). Current estimates also indicate ships will have to spend
appreciable time in SECA areas for scrubbing to be economic. Conversely, building a refinery
residual desulfurization unit with ancillaries could cost of the order of $500 million and, if done,
would create a feedstock that could be more attractive for upgrading to light clean fuels than for
sale as low-sulfur residual fuel for bunkers or inland use. Within any one SECA, it is not certain
what proportion of compliance will be achieved by scrubbing versus fuel supply and what the
impact on that balance is of complementary regulations on NOX and PM in addition to SOX.
1.2 Summary of the Analysis
The purpose of this report is to develop the information and modeling techniques that
would be required if EPA decides to proceed with an analysis of the potential effects of
designating North American SECAs as part of the MARPOL Annex VI. In support of these
goals, this report details the development of techniques to estimate bunker demands in the
shipping industry and also enhancements that have been made to the EnSys WORLD model of
the petroleum-refining industry. The resulting information from these processes is used to
establish baseline projections of international petroleum markets in the years 2012 and 2020,
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against which the effects of SEC As - and other potential regulatory scenarios - on shipping and
bunker fuel demands could be evaluated.
RTI and Navigistics Consulting developed a multi-step approach for estimating future
bunker demands involving: (1) identifying major trade routes, (2) estimating volumes of cargo of
various types on each route, (3) identifying types of ship serving those routes and carrying those
cargoes, (4) characterizing types of engines used by those ships, and (5) identifying the types and
estimated quantities of fuels used by those engines. In general, this approach can be described as
an "activity-based" approach with a focus on the international cargo vessels that represent the
majority of fuel consumption. Similar techniques for combining data on specific vessels with
data on engine characteristics have been used in other analyses (e.g., Corbett and Koehler [2003,
2004]; Koehler [2003]; Corbett and Wang [2005]; and Gregory [2006]). The approach in this
analysis extends these previous works by linking ship data to projections of world-wide trade
flows from Global Insights (2005) in order to determine the total number of trips undertaken in
each year and hence fuel use.
The methodology gives the following results for historical and forecasted bunker-fuel
consumption:
• World-wide bunker use in 2001 is estimated at 278 million tons, of which around 212
million tons are residual fuels.
• Between 2001 and 2020, total consumption grows at an average annual rate of 3.1%
(from 2006 to 2020, the growth rate is 2.6%).
• Around 47 million tons of bunker fuel was used in 2001 to transport international cargo
flows into and out of the United States (not all of which is purchased in the U.S.).
• This fuel consumption related to U.S. trade is forecasted to grow at around 3.7% between
2001 and 2020 (or 3.4% from 2006 to 2020), which is somewhat higher than the world
average because of high growth in container traffic arriving at U.S. ports.
The estimates of world-wide bunkers are quite similar to those in the published works
cited above, in spite of differences in techniques. Koehler (2003) uses calculations of average
engine loads, run times, and specific fuel consumption for the existing vessel fleet to come up
with bunker fuel demands of around 281 million tons. Similarly, Corbett and Koehler (2003,
2004) estimate bunker demands at 289 million tons in 2001. These findings on fuel consumption
tend to be significantly higher than data published by the International Energy Agency (IEA),
which places international marine bunkers at around 140 million tons per year, of which around
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120 million tons are residual fuels (see the discussion of these points in Section 4.2). Given the
far-reaching implications of these demand estimates for petroleum markets and related potential
effects of future SEC As, this analysis has chosen to evaluate baseline conditions in the refining
industry for both lEA's bunker-fuel estimates and the estimates developed in this report (termed
the "RTF' estimates for clarity).
For this report, these two bunker-fuel estimates are incorporated in the EnSys WORLD
model, which is a comprehensive, bottom up model of the global oil downstream. It
encompasses crudes and non-crudes supply, refining operations and investment, crude, products
and intermediates trading/transport, product blending/quality and demand. It yields as outputs
detailed simulations of how this global system can be expected to operate under a wide range of
different circumstances, with outputs including price effects as well projections of sector
operations and investments. WORLD is not a forecasting tool per se, but rather uses as a starting
point a global supply-demand world-oil price outlook - in this study, the outlook is based on the
Energy Information Administration's (EIA) Annual Energy Outlook 2006 Reference Case.
To accomplish the goals of this study, WORLD has been expanded to incorporate seven
grades of bunker fuels, covering the major distillate and residual grades used in the marine
shipping industry. The latest international specifications applying to low-sulfur grades of these
fuels were also included because of their applicability for future SEC As. In addition, flexibility
was built in to allow the model user to vary the proportion of SECA compliance that is achieved
through fuel sulfur reduction versus other means such as on-board abatement or emissions
trading. This was necessary since it is feasible that widespread adoption of on-board abatement
could enable shippers to continue using high sulfur bunker fuels - and might even enable refiners
to raise the sulfur level towards the upper limit of 4.5% from today's average global level of
2.7% and still meet required SOx emission standards. In addition, the model was given the
capability of covering the "extreme" scenario of switching residual bunkers entirely to marine
diesel. In addition, since any eventual estimates of bunker-fuel production costs in SECA cases
will derive directly from refinery processing costs, a technology review of the WORLD model
assumptions was undertaken. This involved checking on capital costs for the processes with the
most influence on costs of reducing sulfur in bunkers; also on examining and adjusting
processing and blending options to guard against production of unstable bunker fuels. Finally, to
ensure that the model was correctly specified for any future policy scenarios that might be run on
implementation of SEC As, the related regulations were thoroughly reviewed.
Once these processes were complete, business-as-usual cases (consistent with the
regional oil supply and demand projections from AEO) were set up in WORLD. The resulting
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Ball cases for the years 2012 and 2020 were then executed on both the TEA and RTI bunkers
estimates - key results from all four cases are included in the body of the report. The full results
are rich in detail, however, the important drivers that will impact on future SEC A analyses
revolve around the outlook for product demand. Since the rigorous analysis of shipping activity
and fuel consumption conducted in this report estimates high bunkers demands, the impacts of
SEC As or other marine fuels regulations will be similarly greater than for those estimated using
lower demand forecasts. A second major driver evident in these and other WORLD analyses is
that the on-going shift toward distillates, especially in Europe and non-OECD regions, will
materially alter gasoline and distillate trade patterns, their product pricing and refining
investments and economics. These developments will in turn impact the market and supply
effects of SECAs and other global marine fuels regulations.
The overall objective of the refinery modeling conducted under Task #1 of this contract
was to develop and implement any modifications to the WORLD model that are needed to
accommodate details of bunkers grades and other issues such as updated technology costs, etc.
These features have been successfully implemented and applied (the 2012 and 2020 Ball cases
were developed and represent a sound starting basis to examine the impacts of broader SECA
regulations and/or tighter global marine fuels limits). Section 5 provides details of the WORLD
model estimates for the Ball cases.
This modeling foundation is particularly important because the nature of the MARPOL
Annex VI regulations and goals, and the characteristics of the international marine fuels industry,
mean that there is a much greater potential for variability in future scenarios than is true for most
types of fuels regulations. The WORLD model can be used to case study such alternative
scenarios and address key uncertainties through case studies. Among these, which will be
important in the follow-up SECA analyses, are the following:
• The regional make up of bunkers demand.
• Associated with this, the extent to which consumption of low sulfur bunkers for
SECA compliance will be met by supplies within the SECA or elsewhere.
• The extent of switching, either regionally or globally, to marine distillate fuels.
• The degree to which compliance with the MARPOL regulations will be achieved
through improved fuel quality versus via on-board scrubbing and/or emissions
trading. Using the WORLD model, plausible "high" and "low" scenarios can be
applied and analyzed (the model has already been set up to deal with these).
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• Whether bunkers blend compositions will need to be still further restricted to capture
ship operational limits such as relate to fuel instability.
1.3 Organization of this Report
The remainder of this report is organized as follows to accomplish the goals of Task #1:
Section 2 presents a profile of the marine bunker fuels, their refining processes, and
the overall supply chain used to deliver the fuels to marine vessels.
• Section 3 develops a model of shipping activity and estimates bunker fuel demands.
• Section 4 describes how the analysis of baseline conditions in petroleum markets is
implemented in the WORLD model.
• Section 5 then presents estimated results from the WORLD model regarding Ball
conditions in 2012 and 2020.
Section 6 summarizes and discusses implications for future SECA analyses.
• Appendix A provides additional information on options for reducing SOx emissions.
• Appendix B reviews cost assumptions regarding refinery technologies used in the
analysis of the WORLD model.
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SECTION 2
OVERVIEW OF THE MARINE FUELS INDUSTRY
This section provides an overview of the marine fuels industry, which is a very complex
network of organizational and trade relationships and is also quite geographically dispersed. The
supply chain for this industry begins with integrated petroleum refineries, where "bottoms" from
atmospheric and vacuum distillation unit operations are combined to form the bulk of residual
fuel stocks (see Section 2.2). Marine distillates historically come from poorer quality distillate
recycle streams that are unsuitable for upgrading to diesel fuel or other low-sulfur products. The
dominant producers of marine fuels are divisions of the major petroleum firms such as Shell
Trading (STUSCO) and BP Marine. Around the world, these large producers are joined by
hundreds of smaller firms that contract to transport, blend, and sell low-quality stocks to the
shipping industry.
Although some of the major petroleum refiners also contract for and deliver marine fuels,
much of the worldwide volume is sold to firms that operate bunkering facilities around the
world. These large firms, including the Chemoil Group, O.W. Bunker, and the Chinese
government-owned Chimbusco, purchase blended stocks from the producers and also blend,
transport, and store some products themselves. As much as 25 percent of the world's marine
fuels are purchased and resold by brokers or other intermediaries that never actually take
physical control of the bunker fuel. Arbitrage activities of these firms help keep the worldwide
market efficient, as excess price differentials are quickly exploited and eliminated.
The final stage of the marine fuel supply chain is the bunkering itself, which can either be
done while the ship is docked at a port or directly from bunker barges while the ship is anchored.
There are hundreds of bunkering ports around the world and thousands of firms that provide the
actual bunkering service. Logistics and transport cost factors influence the location of these
bunker ports. In addition to being located close to supply sources (petroleum refineries) and
consumers of transported goods (major population centers), bunkering ports are often
strategically located along high-density shipping lanes. The largest port of this type is in
Singapore and handles more than twice as much bunker fuel volume as the next biggest provider.
Panama and Gibraltar are other examples of strategically located facilities. In North America, the
largest facilities follow the general pattern suggested by location theory. Los Angeles, San
Francisco, New York, Philadelphia, Houston, and New Orleans are close to both refinery supply
and transport destinations.
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The following subsections briefly review characteristics of marine fuels, the petroleum
refining process (focusing on distillation and additional downstream treatment processes that
further refine crude oil into higher-value petroleum products), and the supply chains that deliver
the refined marine fuels.
2.1 Marine Fuel Types
Marine fuels used in vessel bunkering are primarily comprised of heavy distillate and
residual fuels. For this reason, the remainder of this subsection focuses on these two refinery
production outputs (the complete refining process is discussed in more detail in Section 2.2).
There are three major types of marine fuel: diesel, residual, and a combination of the two to
create a fuel type known as "intermediate" fuel oil (IFO). A large number of marine fuel grades
within these three types represent the broad spectrum of fuels available to the shipping industry
for vessel bunkering. In this section, the various grades of marine fuel are introduced using the
colloquial industry names to group the different fuels types. See Section 4 for a more specific
breakdown of the product specifications of marine fuels.
Distillate and residual fuels are blended into various combinations to derive the different
grades of marine fuel oil. Table 2.1 lists examples of the major marine fuel grades and their
vernacular industry nomenclature. In terms of cost, distillates are more expensive than
intermediates, and residual fuels are the cheapest marine fuel-oil option.
Table 2-1. Marine Fuel Types
Fuel Type Fuel Grade
Colloquial Industry Name
Distillate DMX, DMA, DMB, DMC
Intermediate RME/F-25, RMG/H-35
Gas Oil or Marine Gas Oil (MGO)
Marine Diesel Fuel or Intermediate Fuel Oil
(IFO180andIFO380)
Residual RMA- RMH, RMK, and RML Fuel Oil or Residual Fuel Oil
Source: Adapted from EPA, 1999.
Marine fuel characteristics depending on the refinery systems complexity (Spreutels and
Vermeire, 2001). Hydroskimming create marine fuels by blending straight run product streams,
while more advanced cracking refineries use produce similar products by blending outputs from
catcracker and visbreaker units. See section 2.2 for highlights these manufacturing
specifications.
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Distillates and/or residual fuel oil stocks are blended with blending components or cutter
stocks to achieve internationally-accepted product specifications provided by the 1987 (revised
in 1996) international standard, ISO 8217, that defines the requirements for fuel grades for use in
marine diesel engines. Marine fuel grades carry three letters, the first "D" or "R" specifies
"distillate fuel" vs. "residual fuel". The second "M" signifies "marine fuel" use. The third letter
designates the individual grade. Distillate marine (DM) fuels have three grades from A to C.
Residual marine (RM) fuels have fifteen grades depicted by letters A through H, K and L. For
example, RME -35 stands for "Residual Marine fuel E at a maximum viscosity (at 100 degrees
C) of 35 centistokes (EPA, 1999).
Marine Fuel Blending Stocks
As described in Section 2.2, "hydroskimming" type refineries produce straight run stocks
used in marine fuel blending, including light diesel, heavy diesel, and straight run residue. More
complex refineries derive similar blending stock components as the output from fluidized bed
catalytic cracking (FCC) units which includes light and heavy diesel, as well as light cycle gas
oil (LCO) and heavy cycle gas oil (HCO). HCO also comes from the residual output from
visbreaker units. These blending stocks are mixed with existing product streams from a refinery
to manufacture a variety of marine fuel grades.
Marine Gas Oil (MGO)
Marine gas oil is the result of blending LCO with distillate oil to produce one of the
highest marine fuel grades. MGO is more expensive because it is a lighter fraction and better
quality fuel that diesel fuel. This type of fuel is produced at cracking refineries after vacuum
distillate feedstock is put through a FCC catcracker. The catcracker produces FCC gasoline and
LCO. MGO is a fuel best suited for faster moving engines (Spreutels and Vermeire, 2001).
Marine Distillate Oil (MDO)
Straight run marine gas oil and distillate type marine distillate oil (MDO) are
manufactured by combining kerosene, light, and heavy gasoil fractions. DMA and DMB are
typically used in small to medium sized marine vessels. Distillate fuels or heavy (high and low
sulfur) distillates, and light fuel oil represent the more expensive range of marine fuels as they
are most closely related to diesel fuel used in other transportation sectors. DMC is heavier fuel
oil and may sometimes be referred to as an intermediate fuel oil because it can be blended with
residual fuel. MDO is manufactured by blending DMC with 10 to 15 percent residual fuel
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(Spreutels and Vermeire, 2001). MDO is a more expensive than the more common intermediate
fuel types.
Intermediate Fuel Oil (IFO)
Residual marine fuel grade G (RMG-35) is one of the more common residual fuels used
in transoceanic sea-going vessels. Also know as IFO380, this residual marine fuel is
manufactured at the refinery and contains visbroken residue, HCO, and LCO (Spreutels and
Vermeire, 2001). IFO380 typically has a high sulfur content of 5 percent. IFOs less than 380
such as IFO 180 represent a blend starting with IFO380 and blending it with a cutterstock of
marine diesel, gasoil, LCO, or some combination of the three. IFO 180 has a lower viscosity and
metals content, but maintains the same sulfur content as IFO380.
2.2 Refining of Petroleum Products (Including Marine Fuels)
The refining processes used to produce petroleum products, including marine fuels,
involve the physical, thermal and chemical separation of crude oil into its major distillation
fractions, followed by further processing (through a series of separation and conversion steps)
into finished petroleum products. EPA's sector notebook of the petroleum industry (EPA, 1995)
details the primary products of refineries grouped into three major categories: fuels (motor
gasoline, diesel and distillate fuel oil, liquefied petroleum gas, jet fuel, residual fuel oil, kerosene,
and coke); finished nonfuel products (solvents, lubricating oils, greases, petroleum wax,
petroleum jelly, asphalt, and coke); and chemical industry feedstocks (naphtha, ethane,
propane, butane, ethylene, propylene, butylenes, butadiene, benzene, toluene, and xylene). This
discussion focuses on the "fuels" product category, and specifically the distillate and residual
fuels that are blended to form marine fuels.
Refineries are complex operations and often have unique configurations based on the
properties of the crude oil to be refined (which varies significantly depending on the source) and
the desired distribution of refined products. The major unit operations outlined below represent
a generic set of operations found in refineries around the world. Figure 2-1 illustrates general
unit operations and product flows for a typical refinery. These refinery operations can be broken
down into four major stages: distillation, desulfurization, refining, and blending.
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Basic Refining Concepts
Atmospheric
Distillation
Tower
(Crude Unit)
Gases
Straight Run
Gasoline
Naphtha
Kerosene
Light Gas Oil
Gas Processing
Processed Gasoline
Further processed to gasoline
Heavy naphtha for jet fuel
Further processed to Jet Fuel,
Diesel and Fuel Oils
Further processed to Gasoline,
Diesel and Fuel Oil
Further processed to Gasoline,
Diesel and Fuel Oil
Further processed to Gasoline,
Diesel, Fuel Oil, and Lube Stocks
Figure 2-1. Basic Refining Process and Product Streams
Source: Adapted from Marcogliese, 2005.
Following an initial desalting process to remove corrosive salts and excess water, crude
oil is fed into an atmospheric distillation column that separates the feed into the subsequent
distillation fractions. The lightest of the fractions, which include light gasoline, ethane, propane,
and butane (also know as the top gases), are further processed through reforming and
isomerization to produce gasoline or may be diverted to lower-value uses such as liquefied
petroleum (LP) gas and petrochemical feedstocks. The middle-boiling fractions, which include
kerosene, gasoil, and spindle oil, make up most of the aviation fuel, diesel, and heating oil
produced from the crude feed. The remaining undistilled liquids (called "bottoms") represent the
heavier fractions that require vacuum distillation at very low pressures (0.2 to 0.7 psia) to
facilitate volatilization and separation. Vacuum distillates and residues can be further processed
through catalytic cracking and visbreaking into low-value products such as residual fuel oil,
asphalt, or petroleum coke.
The lower middle distillates may also require additional processing through additional
downstream processing. These fractions are treated using one of several techniques including:
"cracking/visbreaking," which breaks apart large hydrocarbon molecules into smaller ones; and
"combining" (e.g., alkylation, and isomerization), which joins smaller hydrocarbons to create
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larger more useful molecules, or reshaping them into higher value molecules. Additionally
catalytic "hydrocracking" is a downstream processing method used to crack fractions that can
not be cracked in typical cracking units. These fractions include middle distillates, cycle oils,
residual fuel oils, and reduced crudes. Typically, the feedstock to a hydrocracking unit is first
hydrotreated to eliminate any impurities (e.g., sulfur, nitrogen, oxygen, halides, and trace metals)
that could deactivate the catalyst.
Following the completion of downstream processing stages, several product streams are
blended by the refinery to produce finished products. Generally, these blending operations
include gasoline, middle distillate, and fuel oil blending.
2.2.1 Primary Refinery Inputs
Crude oil is the dominant input in the manufacture of refined petroleum products,
accounting for approximately 79 percent of total material costs of U.S. refineries, or $132 billion
in 2002, according to the latest Economic Census (U.S. Bureau of the Census, 2004). Table 2-2
provides a summary of these inputs. Similarly, crude accounts for over 92 percent of the volume
of refinery inputs in the United States. Crude oil is likely to have greater representative share of
both material costs and inputs in developing countries due fewer environmental regulatory
product specifications.
Table 2-2. Total U.S. Refinery Input of Crude Oil and Petroleum Products in 2004
Product
Crude Oil
Natural Gas Liquids
Other Liquids
Other Hydrocarbons/Oxygenates
Other Hydrocarbons-Hydrogen
Oxygenates
Fuel Ethanol
MTBE
All Other Oxygenates
Unfinished Oils (net)
Motor Gasoline Blending Components (net)
Aviation Gasoline Blending Components (net)
Total Input to US Refineries
Year 2004
(1,000s barrels)
5,663,861
154,356
316,838
150,674
28,039
122,635
74,095
47,600
940
186,826
-18,558
-2,104
6,135,055
% of Total
92.3%
2.5%
5.2%
2.5%
0.5%
2.0%
1.2%
0.8%
0.0%
3.0%
-0.3%
0.0%
100.0%
Source: EIA, 2005a.
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Crude Oil
Characteristics of crude oil - including relative density, sulfur, and acid content - have a
significant influence on the distribution of petroleum products a refinery is able to produce. The
cost of production also varies significantly depending on the type of crude oil used in the refining
process. Such characteristics tend to vary significantly based on the crude's regional origins.
Crude-oil density can be measured using the API gravity number, which provides a
measure of relative density. Crude oils are typically classified as light, medium, and heavy oils.
Light crude has the highest API number, equating to low density, which makes this crude type
the easiest to refine into gasoline products. Heavy crudes, with the lowest API number and
higher relative density, require additional processing to obtain the same distribution of refinery
products.
Sulfur content determines whether a specific type of crude is "sweet" (low sulfur) or
"sour" (high sulfur). Sweet crude is defined as crude oil with a sulfur content of less than 0.5
percent, and sour crude has sulfur content higher than 0.5 percent. Sweet crude is less corrosive
due to low levels of sulfur compounds such as hydrogen sulfide (H2S). Sour crude requires
additional equipment and processing to extract the higher amounts for sulfur.
Crude oils' relative density and sulfur content vary, depending on the region of the world
that it was extracted from. Light, sweet crude types typically have the highest prices due to
limited availability and high demand. Heavy, sour crude typically sells at a discount relative to
the light sweet crude due to its relative abundance, compared to light sweet, and its high sulfur
content. Light sweet crude includes WTI (West Texas Intermediate) found in the western
hemisphere, and Brent (North Sea Crude) found in Europe. Heavy sour crude includes Arabian
Heavy (Middle East) and Maya (Mexico). Figure 2-2 illustrates the spectrum of crude qualities.
Density is plotted along the horizontal and sulfur content along the vertical axis.
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3.5 -
3 -
_. Z5 "
II 2
|;
|g 1.5
w w.
"" 1 -
0.5 -
0 -
Maya
i Arabian Heavy
• Arabian Medium
_ Mars Blend
AFateh
A OPEC Basket
Urals
Arabian Light
Iran Light
Alaska North Slope
(ANS)
Cabinda •
Brent BlendA
AWTI
• Bonny Light
Tapis Blend
20
25
30 35
API Gravity
(Heavy => Light)
40
45
50
Figure 2-2. Quality by Crude Type
Source: Adapted from Marcogliese, 2005.
Note: A = Benchmark Crude Types
In Figure 2-2, crude types near the lower right-hand corner of the figure represent the
crude types that require the least amount of processing. As you move towards the top left-hand
corner of the figure, the crude is more difficult to process. The majority of the world's supply of
crude oil is light to medium sour, which is trending towards heavier and more sour crude as
reserves of light sweet crude are depleted (Marcogliese, 2005).
WTI, Brent, and Dubai Fateh are the most commonly used benchmarks. These
benchmark crude types are used in international trading, and varying qualities of crude are sold
at a discount or premium relative to the benchmark price. OPEC has its own reference known as
the OPEC Basket, which consists of 11 crude types and represents the weighted average of
density and sulfur content for all the member countries' crude types, according to production
levels and export volumes. Table 2-3 lists these 11 crudes:
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Table 2-3. Crude Oil Types Included in the OPEC Basket
Type of Crude Country of Origin
Saharan Blend Algeria
Minas Indonesia
Iran Heavy Islamic Republic of Iran
Basra Light Iraq
Kuwait Export Kuwait
Es Sider Libya
Bonny Light Nigeria
Qatar Marine Qatar
Arab Light Saudi Arabia
Murban UAE
BCF 17 Venezuela
Source: EIA, 2005b.
Blending Stocks and Additives
Following initial atmospheric distillation of crude oil, a variety of specialized inputs may
be added to output product streams (see Figure 2-1) in downstream units to enhance the
refinery's ability to recover a desired mix of products. Among these products might be
unfinished oil, residual fuel oil used as input to a vacuum distillation unit (see Table 2-2 for a list
of additives). Motor gasoline and aviation fuels require blending components that include
oxygenates as well as other hydrocarbons. While they are counted as "refinery inputs," they are
brought to saleable specifications in terminals and blending facilities, not in conventional
refineries.
2.2.2 Refinery Production Models
Across the globe, refineries are typically concentrated near major consumption areas,
based on the principal that transporting crude oil is cheaper than transporting refined products.
In addition, proximity to consumption areas allows refineries to more quickly respond to
seasonal or weather-related demand shifts (Trench, 2005). Their goal is to meet the regional
demand for petroleum products, hence maximizing the value of product mix produced. For
example, in the United States, as well as other developed countries, refineries strive to maximize
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gasoline and low-sulfur diesel fuels, while simultaneously minimizing output of lower value
heavy oils such as residual fuel and petroleum coke.
Building on the basic refinery concepts presented in Figure 2-1, refineries can be grouped
into four basic configurations: topping, hydroskimming, cracking {medium conversion), and
coking (high conversion). Each configuration builds on the previous production model by
adding on additional downstream processing equipment that allows the refinery to further expand
its yield of the desired mix of petroleum products.
Topping Refineries
Topping refineries are the simplest example of a refinery production model. Their
primary function is to produce feedstocks for petrochemical manufacturing. Topping refineries
typically consist of storage tanks, an atmospheric distillation unit, and recovery facilities for top
gases and light hydrocarbons such as ethane/propane/butane. These facilities produce naphtha,
but do not produce gasoline (Reliance, 2005).
Hydroskimming Refineries
Building on the basic topping configuration, hydroskimming refineries incorporate
hydrotreating (distillate desulfurizer) and catalytic-reforming units to improve the output of high
value fuels such as distillates and straight-run gasoline. Table 2-4 lists the typical mix of product
yields from hydroskimming refineries.
Table 2-4. Typical Production Yield from a Hydroskimming Refinery
Product
Propane/butane
Gasoline
Distillate
Heavy fuel oil & other
Total Yield
% Yield
4%
30%
34%
32%
100%
Source: Marcogliese, 2005.
Note: Gasoline includes reformulated gasoline (RFG), conventional, CARB, and Premium. Distillate includes jet fuel, diesel,
and heating oil.
These facilities typically rely primarily on light sweet crude as their primary input in
order to minimize the resulting heavy fuel and residual fuel products because they have limited
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upgrading capabilities of distilled fractions. Hydrotreating removes impurities such as sulfur,
nitrogen, oxygen, halides and trace metals. Hydrotreating also upgrades the quality of these
fractions by converting olefms and diolefms to paraffins to reduce gum formation in fuels (EPA,
1995). Catalytic reforming units process straight-run low-octane gasoline and naphthas into
high-octane aromatics through four reactions that to create aromatics by removing hydrogen
from the feedstock (see EPA [1995] for details of these reactions).
Cracking Refineries
Cracking refineries build in complexity from the hydroskimming configuration by adding
vacuum distillation, catalytic cracking, and alkylation units. The vacuum distillation unit further
fractionates heavy "bottoms" from the atmospheric distillation process into gas oil and residual
fuel. Table 2-5 lists the typical mix of product yields from cracking refineries. The total yield of
104% represents a volumetric gain due to the cat cracker's ability to convert large hydrocarbon
molecules into multiple smaller molecules. These facilities typically rely on light sour crude as
the primary input. Moderate upgrading capabilities allow cracking refineries to increase the
yield of higher value products as well as gain volumetric output per volume of crude oil input
(Marcogliese, 2005).
Table 2-5. Typical Production Yield from a Cracking Refinery
Product
Propane/butane
Gasoline
Distillate
Heavy fuel oil & other
Total Yield
% Yield
8%
45%
27%
26%
104%
Source: Marcogliese, 2005.
Note: Gasoline includes reformulated gasoline (RFG), conventional, CARB, and Premium. Distillate includes jet fuel, diesel,
and heating oil.
The catalytic cracking unit (i.e., fluidized and moving-bed) uses heat, pressure, and
catalysts to breakdown heavy complex hydrocarbon molecules (i.e., gas oil) into smaller/lighter
molecules such as Light Cycle Oil (LCO). LCO is then processed with other distillates in the
hydrotreating process to remove to produce diesel and heating oils. Once the LCO and FCC
Gasoline are removed, an alkylation unit converts the remaining iosbutane feedstock into
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alkylates (i.e., propane/butane liquids), which are widely-used blending additives in high octane
gasoline production.
Coking Refineries
Coking refineries extend the cracking refinery by adding hydrogen processing,
hydrocracker, and delayed coking units to increase their capabilities to convert fuel oil into
distillates (Reliance, 2005). Coking refineries are able to use medium to heavy sour crude as the
primary input to the refining process. These refineries also have the highest light product yields
and volume gains, compared to other refinery configurations (Marcogliese, 2005).
Table 2-6. Typical Production Yield from Coking Refineries
Product
Propane/butane
Gasoline
Distillate
Heavy fuel oil & other
Total Yield
% Yield
7%
58%
28%
15%
108%
Source: Marcogliese, 2005.
Note: Gasoline includes reformulated gasoline (RFG), conventional, CARB, and Premium. Distillate includes jet fuel, diesel,
and heating oil.
The hydrogen facility produces hydrogen that is used as a feedstock in the hydrocracker
as well as the hydrotreater units. The hydrocracker units apply hydrogen and significant pressure
in a fixed-bed catalytic cracking reactor. Feedstocks for this unit include low distillate fractions,
as well as LCO, residual fuel oils. The hydrogen mitigates the formation of residual fuels and
increases the yield in middle distillate fuels such as diesel and jet fuels (EPA, 1995). Delayed
coking is a thermal cracking process that upgrades and converts petroleum residuum (heavy fuel
oil) into liquid and gas product streams. The delayed coker unit eliminates residual fuel oil
leaving behind a solid concentrated carbon material know as petroleum coke (Ellis and Paul,
1998).
2.2.3 Refineries Arou ndthe World
There are major concentrations of refineries around the world, representing 674
individual installations and 82.4 million barrels per day of crude oil refining capacity at the end
of 2004 (OGJ, 2004). The number of operable refineries had fallen by 43 from 717 in 2003,
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which represented a decline of 6.4 percent. Over the last five years, the number of refineries
worldwide has declined, while the total crude capacity has continued to rise (Nakamura, 2004).
Table 2-7 summarizes the number, estimated crude capacity, and fuel "processing"
capacity for refineries in seven world regions at the end of 2004. Historically, the mature
markets of the United States and Europe have contained the largest number of refineries.
However, recent dramatic growth in Asian markets has resulted in increased number of refineries
in South Korea, along with other South Pacific countries.
Table 2-7. Refinery Presence by World Region in 2004
Refinery Crude Capacity F«els Processing Processing
Region <-„,,„/ Capacity Capacity as
Africa
Asia & Oceania
Central & South America
Eastern Europe & Former U. S. S.R.
Middle East
North America
Western Europe
World Total
46
161
66
86
45
159
111
674
(barrels\calendar day) '*•
3,230,362
20,695,031
6,572,359
9,764,712
6,471,615
20,476,228
15,198,594
82,408,901
506,470
2,052,728
529,190
1,467,693
691,730
5,598,388
2,480,458
13,326,657
• of Crude
2.4%
10.0%
3.5%
15.0%
10.5%
86.5%
76.8%
16.2%
Source: OGJ, 2004.
a. Processing capabilities are defined as conversion capacity (catalytic cracking, and hydrocracking) and fuels producing processes (catalytic
reforming and alkylation) divided by crude distillation capacity (% on crude) this measure represents the presence of downstream processing
technology that improves the refinery's ability to produce high value refined products such as high octane gasoline.
The concentrations of refineries in Asia, North America, and Western Europe represent
approximately 68 percent of total refinery capacity. North American and Western European
refineries have invested heavily in processing units that will maximize their output of gasoline
and other high value outputs. This is illustrated by their processing capabilities as a percent of
crude capacity. In other regions of the world, refineries rely on atmospheric distillation to obtain
straight-run product streams. As a result, residual fuel oil tends to be a greater share of total
refinery output in these regions.
Refineries typically address regional fuel demands, while maintaining only a minimal
stock of additional output for international trade and unexpected supply shocks due to weather.
They are constrained by local demand, as well as the crude types that are proximal to the facility.
Table 2-8 lists the 25 largest refinery companies of the world by total crude capacity. These
firms represent 60 percent of the world's crude refining capacity. The refinery companies on this
list have focused on expanding capacity and reducing the total number of operable refineries
over the last ten years (Nakamura, 2004).
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Table 2-8. World Largest Refinery Companies by Capacity in 2004
_ , „ Crude Capacity
Rank Company (1,000s b/cd)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Source:
ExxonMobil Corp.
Royal Dutch/Shell
BPPLC
Sinopec
Petroles de Venezuela SA
Total SA
ConocoPhillips
ChevronTexaco Corp.
Saudi Aramco
Petroleo Brasileiro
Valero Energy Corp.
Petroleos Mexicanos
China National Petroleum Corp.
National Iranian Oil Corp.
Nippon Oil Co. Ltd.
OAO Lukoil
Respsol YPF SA
Kuwait National Petroleum Co.
OAO Yukos
Pertamina
Marathon Ashland Petroleum LLC
Agip Petroli SpA
Sunoco Inc.
SK Corp.
Indian Oil Corp. Ltd.
Nakamura, 2004.
5,693
4,934
3,867
2,793
2,641
2,622
2,615
2,063
2,061
1,965
1,930
1,851
1,782
1,474
1,157
1,150
1,106
1,085
1,048
993
935
906
880
817
777
Many of the largest refinery companies have been investing heavily to supply Asian
markets due to anticipated long-term growth in the region, which growing at approximately four
percent, compared to the more mature markets of Europe and Japan that are expected to grow at
less than one half of one percent (Mergent, 2005). This high growth in Asia can largely be
attributed to expected growth in the transportation sector, including both freight shipping and
personal vehicles.
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As discussed, refinery products are diverse in character and functionality, and the specific
mix of products will vary dramatically depending on the refinery's configuration and type of
crude used. Table 2-9 summaries how these effects alter production of different refinery
products varies across regions of world in 2003.
Table 2-9. World Refinery Product Outputs of World Refineries per Day for 2003
Region
Africa
Asia & Oceania
Central & South America
Eastern Europe & FSU
Middle East
North America
Western Europe
World Total
Motor
Gasoline
0.5
3.8
1.3
1.0
0.9
9.7
3.7
20.8
Distillate
Fuel Oil
0.7
6.0
1.7
1.5
1.8
4.6
5.7
22.1
Residual
Fuel Oil
(Million Barrels
0.7
2.9
1.1
1.5
1.7
1.2
2.2
11.3
Other
per Day)
0.8
7.1
1.9
1.5
2.1
5.8
4.7
23.9
Total Refinery
Products
2.7
19.8
5.9
5.6
6.4
21.4
16.3
78.1
Source: EIA, 2005d.
Motor gasoline is the highest-value product in the refinery output mix, hence facilities
typically engineer their unit operations to maximize its production. In North America, motor
gasoline is typically the largest share of refined products - representing 45 percent of refinery
output per day - while distillate and residual fuel accounted for 22 and 6 percent, respectively, in
North America's refineries output. However, in all other major regions of the world, motor
gasoline represented around 20 percent of total refinery output on average. Figure 2-3 illustrates
these regional differences in the distribution of motor gasoline, diesel, and residual fuel
production for seven world regions.
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12
10
n Motor Gasoline 0 Distillate Fuel Oil H Residual Fuel Oil
9
a.
1
1
1
North America Asia & Oceania Western Europe Middle East Central & South Eastern Europe & Africa
America FSU
World Region
Figure 2-3. Product Outputs of World Refineries per Day in 2003
Source: EIA, 2005d.
Distillate fuel represents the largest share of refinery outputs for all regions outside of
North America, on average accounting for 31 percent of total refinery products in 2002.
Residual fuel oil accounted for an additional 18 percent, on average. Other products such as
petroleum feedstocks, jet fuels, and LPG gas accounted for 18, 5, and 5 percent respectively.
The demands for gasoline in mature markets (e.g., United States, Europe, and Japan), and
resulting refinery configurations, have resulted in dramatic reductions in production of residual
and distillates. North American refinery executives agree that relative market prices for refined
motor gasoline make it a more attractive refinery output than low-sulfur residual fuels
(BunkerWorld, 2005). Despite the potential of hydroprocessing to treat high sulfur residual
fuels, the technology is not yet cost effective for refiners.
For these reasons, bunker fuels may witness shortages as refineries continue to keep pace
with demands for motor gasoline and other high value refined products in the North America and
Western Europe, where motor gasoline prices are equally high relative to other refined products
(these trends are included in the WORLD model and discussed in Sections 4 and 5). Industry
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experts have estimated that the North America could witness a shortage of low-sulfur residual
fuel of 20 million metric tons per year by 2015 and a surplus of high sulfur residual oil of 40
million metric tons per year (BunkerWorld, 2005). To address these shortages, the industry
expects an increase in low-sulfur residual fuel oil imported from South America or other areas of
the world with low conversion capacity (and thus high residual fuel output).
In developing regions such as the African, the Middle Eastern, and Asian markets,
availability of sweet crude supplies, coupled with limited conversion capacity in existing
regional refineries, will result in continued production of residual fuels. Over time, as sweet
crude becomes increasingly scarce and the sulfur content of crude feedstocks increases,
refineries in these regions will be forced to upgrade their conversion capacity by adding
additional downstream processing to existing facilities or the share of heavy distillates and
residual fuel oils of their total refinery outputs will increase.
Finally, as China's market for fuel demand increases, Chinese oil companies are
beginning to compete with U.S. and European companies for depleting supplies of the world's
crude oil. The Energy Information Administration (EIA) predicts that China will begin to invest
in petroleum products in countries around the world, including Canada and South America,
which have traditionally represented over 25 percent of the United States' energy imports. China
signed its first oil deal with Venezuela in 2004, marking the beginning of a battle for resources
with more mature markets such as the United States. If China continues to increase its presence
in the West through acquiring petroleum resources that traditionally supplied residual fuel-oil
demands in North America, any shortages in residual fuel-oil could increase exponentially
(Mergent, 2005).
2.3 Bunker Fuel Suppliers
The supply chain providing marine fuels to the shipping industry is a complex network of
organizational and trade relationships and is quite geographically dispersed. Aside from
integrated petroleum refiners such as the operations discussed in Section 2.2, the industry's
supply chain includes traders, suppliers, brokers, bunkering-service providers or facility
operators, and bunkering ports. The information available on different segments of the bunker-
fuel supply chain varies dramatically, and hence this section not comprehensive, but rather
intended to provide an overview of the industry focusing on four of the largest bunkering ports
(Singapore, Rotterdam, Fujairah and Houston).
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Around the world, there are approximately 400 major bunkering ports. Logistics and
transport cost factors influence the location of these bunker ports as well as local environmental
regulations. In addition to being located close to supply sources (petroleum refineries) and
consumers of transported goods (major population centers), bunkering ports are often
strategically located along high-density shipping lanes. For example, Singapore handles more
than twice the bunker-fuel volume of Rotterdam, the next largest port. Panama and Gibraltar are
examples of strategically located facilities. In North America, the largest facilities follow the
general pattern suggested by location theory - with Los Angeles, San Francisco, New York,
Philadelphia, Houston, and New Orleans close to both refinery supply and transport destinations.
2.3.1 Singapore
Singapore's strategic location, in regards to the Straight of Malacca, makes it the largest
port in the world in terms of cargo throughput and bunker-fuel sales. The total cargo throughput
in 2005 equaled 423 million tons. The port of Singapore handles large volumes of oil1 and dry
bulk cargo. In 2005, Singapore surpassed Hong Kong by almost 1 million twenty-foot equivalent
units (TEUs) and claimed the lead in handling containerized cargo (Sina, 2006). Its tonnage of
containerized, oil, and dry-bulk cargo has been steadily increasing over the past five years.
Although the number of vessel calls has been slowly declining, Singapore still handles more
vessel calls than any other port in the world - almost 173,000 vessel calls in 2005. (MPAS,
2005a).
The port of Singapore is also the largest bunker fuel market in the world. Bunker
turnover was reported at 25.48 mmt (million metric tons) in 2005 (MPAS, 2006b). Turnover at
the port grew at the average rate of 5.6 percent over the past six years, equaling 20.8 mmt in
2003 and 23.6 mmt in 2004. Heavy fuel-oil sales accounted for 71 percent of total bunker sales
by volume in 2004, with lighter fuel and distillate oils accounting for 19 percent and others
(including lube oils) for remaining 2 percent. (MPAS, 2005c). The majority of bunker deliveries
to vessels in the port of Singapore are made by bunker tankers, however, other types of deliveries
are available as well.
Refineries
Singapore is the one of the top three refining centers in the world, accompanied by
Houston and Rotterdam. Petroleum refining accounted for approximately 16.5 percent of
Singapore's Gross Domestic Product (GDP) in 2004. Singapore's refineries have major
influence on Asian markets: their petroleum product exports were valued at $17.5 billion in
1 Including chemical and gas
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2004.2 Singapore also exported $4.7 billion worth of bunker fuels, which equalled 2.6 percent of
national GDP (SMTI, 2005).
Operating at 92 percent capacity, the top three refineries in Singapore have a combined
production of around 1.3 million bpd (EIA, 2005f). Out of that quantity, bunker fuels consumed
in the Singapore shipping market comprise approximately 400,000 bpd. Another 400,000 bpd
are consumed locally for various purposes, and the remainder (mostly gasoline and diesel fuels)
are exported to Vietnam, China, and Indonesia (Reuters, 2006).
Refineries producing bunker fuel that is sold in the local market are:
• Jurong Island Refinery, owned by ExxonMobil
o Capacity of 605,000 bpd
• Pulau Bukom Island Refinery, owned by Royal Dutch/Shell
o Capacity of 458,000 bpd
• SRC Jurong Island Refinery, partially owned by Singapore Refining
Corporation (SRC), partially owned by ChevronTexaco through its subsidiary
Caltex
o Primary plant - a joint venture between SPC and Caltex (ChevronTexaco)
with 285,000 bpd capacity
o Owns a bunker storage terminal on the Pulau Sebarok Island, with storage
capacity of 1.4 million barrels
These three refineries have a combined storage capacity of 88 million barrels, and the
demands for storage have been increasing. Singapore's three largest independent storage
operators, Vopak, Oiltanking, and Tankstore, have been utilizing 90 percent of their combined
total capacity of 22.3 million barrels in the past five years. Production plans are underway that,
when complete, will almost triple the storage capacity of local operators (EIA, 2005f).
Even though refining has a strong presence in Singapore, imports of refined petroleum
products equalled $12.6 billion (11.4 percent of national GDP) (SMTI, 2005). Consumption of
imported oil products reached 750,000 bpd in 2004 (EIA, 2005f). The Singapore bunker fuel
market is very diverse - fuel from all major refineries around the world gets delivered to the port.
" Numbers are reported in US dollars
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Even though no numerical data are readily available, based on qualitative assessments, majority
of these world imports come from Venezuela, Chile, and Russia (Bunkerworld, 2005d).
Bunker Traders
There are 233 companies that serve as traders in the Singapore shipping market. Among
them are smaller local companies such as Bunker House Petroleum, as well as larger
international oil companies such as Lukoil and OW Bunker. Among the leaders are OW Bunker
and Hin Leong, the latter of which recently scheduled construction of the largest petroleum
terminal in the area with total storage capacity of 14.5 million barrels.
Bunker Suppliers
Thirty-four companies serve as bunker suppliers, with an additional 18 that perform
functions of suppliers and traders. Three refinery operators are also among top four suppliers
(British Petroleum, Shell, and ExxonMobil). They are joined by Global Energy Trading, a
smaller company that owns and operates 14 vessels at the port. Other major suppliers include
Consort Bunkers, Singapore Petroleum Company, Chevron Singapore, OW Bunker, and
Chemoil (SMP, 2006).
Barge Operators
The number of independent barge operators is also large: there are 32 companies
performing this function in the port of Singapore. The bunker barge fleet contained
approximately 120 vessels of various sizes in 2005 (Bunkerworld, 2005e). The largest among the
barge operators is Ocean Tankers, a sister company of Hin Leong, which owns and operates 70
bunker barges.
2.3.2 Rotterdam
Rotterdam is the second largest port in the world with throughput of more than 369
million tonnes of cargo in 2005 (Port Authority of Rotterdam, 2005). Some 30,000 seagoing
vessels call at the port every year and 110-120 thousand inland vessels. Activities related to the
port contribute around 12 percent of the Gross National Product of the Netherlands
(Bunkerworld, 2000). Overall, the port of Rotterdam has experienced a 5 percent increase in
3 Consort Bunkers Pte Ltd, Searights Maritime Services Pte ltd, Bunker House Petroleum Pte Ltd, Northwest
Resources Pte Ltd, Golden Island Diesel Oil Trading Pte Ltd, Lukoil Asia Pacific Pte Ltd, Alliance Oil Trading
Pte Ltd, Costank (S) Pte Ltd, Sentek Marine & Trading Pte Ltd, Lian Hoe Leong & Brothers Pte Ltd, Standard
Oil & Marine Services Pte Ltd, Panoil Petroleum Pte Ltd, Ocean Bunkering Services Pte Ltd (owned by Hin
Leong Marine International Pte Ltd), O. W. Bunker Far East Pte Ltd, The Barrel Oil Pte Ltd, Fratelli Cosulich
Bunkers (S) Pte Ltd, Prestige Marine Services Pte Ltd, Gas Trade (S) Pte Ltd, Wired Bunkering Pte Ltd, Cockett
Marine Oil (Asia) Pte Ltd, Ignition Point Pte Ltd, Prospeibiz Petroleum (S) Pte Ltd
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cargo handling with the majority of growth coming from container cargo, which had a 12 percent
increase to 9.3 million TEUs between 2004 and 2005. General cargo was up 7 percent, or 7
million tonnes, to a total of 110 million tonnes in 2005.
Rotterdam is also the largest bunker port in Europe. Bunker turnover in 2004 for the port
was 12.5 million cubic meters (m ). In 2002 and 2003, bunker turnover was 10.6 and 11.4
million m , respectively (Port Authority of Rotterdam, 2004a). These volumes include heavy
fuel oil, light gas oil, distillate oil, and lube oils (heavy fuel oil represents the majority of overall
bunker turnover). Russian oil imports represent a significant share of total refined oil product
supply. Between 2002 and 2003, Russian imports of crude and refined oil products grew by 17
percent (Port Authority of Rotterdam, 2004b).
Refineries
The Port of Rotterdam has a significant petroleum refinery presence (in 2004, oil
refineries represented 6.5 percent of the 58,000 workers directly employed by the Port).
However, due to environmental regulations and European fuel market conditions, refineries in
the region around Rotterdam are producing much less heavy fuel oil (3-3.5% sulphur), which
typically dominates bunker markets. Consequently, the local refinery output can no longer cover
the Rotterdam bunker demand.
This shortage has led to increased reliance on fuel oil from import sources. Fuel oil
imports are estimated to be 300 to 400 thousand metric tonnes per day. As mentioned earlier,
Russian fuel oil products typically dominate the market. Venezuelan fuel oils are also a common
import in the Rotterdam bunker market.
The local refineries that still produce bunkers sold in the Rotterdam market include:
• The Pernis Refinery , owned by Royal Dutch/Shell;
o Capacity approximately 416,000 b/d.
• NEREFCO (Netherlands Refining Co.), owned by BP (69%) and Texaco (31%).
o Capacity in excess of 3 80,000 b/d.
• Q-8 refinery, owned by Kuwait Petroleum Corporation.
o Capacity about 75,500 b/d.
• The Esso Refinery (ExxonMobil) does not produce fuel oil, but the company sources
from a plant in Antwerp, Belgium with capacity of 225,000 b/d.
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Bunker Traders
Bunker traders secure bunker volumes for their shipping clients in local supply markets
or in their own refined-products distribution channels. Traders include both major oil companies
as well as independents. Both types perform the functional service of in the timely procurement
of bunker fuel orders. Traders act as midway between local customers and refinery suppliers,
where the majority of transactions occur under long term contracts.
Traders in the Rotterdam market include oil majors, such as Shell Marine Products, and
Lukoil. Shell Marine Products utilizes the majority of its' Pernis refinery's marine fuel output
for its own clients (Bunkerworld, 2000), while the majority of NEREFCO's output is purchased
by independent traders in the local fuel-barge market.
Independents typically purchase their bunker fuel on the local barge market. In addition,
it is common for traders to import cargos of bunker fuel and store the fuel in rented storage tanks
in the petroleum zones of the port. Vitol, Allround Fuel Trading/Chemoil, and the oil majors,
especially Texaco, BP and Elf (TotalFinaElf), are the largest bunker traders of import oil product
cargos (Bunkerworld, 2000).
Bunker Suppliers
Physical supplying of bunker fuel to ships is conducted by barge in the bunkering
designated zones. Europort and Botlek areas are two primary bunkering areas within the port of
Rotterdam. In 2000, over 90 percent of the bunkers in Rotterdam were delivered by barge
(Bunkerworld, 2000).
Barges are loaded at various fuel-terminal facilities owned by Vopak and the oil majors.
Most suppliers, including the oil majors, do not own or operate their own barges. Most majors
and some independents have specially dedicated barges or barges on exclusive time charter.
Among many independents, it is common practice to pool barge transportation services
(Bunkerworld, 2000).
Due to the nature of physically supplying bunkers, large storage capacity is needed to
enable flexibility in the suppliers' ability to respond to sudden fluctuations in bunker demand.
The most recent example of traders enlarging storage capacity is the partnership of Lukoil and
Fuel Transport Services (FTS)/Hofftrans (a local barge operator) partnering to build a bulk
terminal named the Service Terminal Rotterdam (STR). STR is designed for better bunkering
and ship-ship transhipment. This expansion is estimated to increase total storage capacity to
120,000 m3. Another expansion is currently under way by the Vitol Group, which is
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3
constructing a 278,000 m storage tank terminal in the Europort area. The Vitol facility is
expected to begin operations in 2006 and will provide jetties capable of accommodating vessels
ranging between bunker barges and very large crude oil carriers (VLCCs).
Barge Operators
The biggest barge operator is VT/Unilloyd, which works exclusively in transportation
and owns more than 20 barges. FTS/Hoftrans has around 10 barges of up to 2000 mt capacity. A
group of companies, which includes the suppliers Atlantic/Postoils, operate their own fleet of 21
barges ranging from 300-3,900 mt capacity. These barges also deliver on behalf of other
suppliers (Bunkerworld, 2000).
Additionally, some suppliers own their own fleet of barges. One example is Argos
Bunkers BV, which has its own fleet of six barges ranging from 200 to 1,400 mt capacity, plus
the company charters three more barges ranging from 700-2,000 mt. Ceetrans/Ceebunker
Services BV is owned by Argos and has access to the same barges. Frisol Bunkering BV has
three time-chartered barges totalling 4,270 mtin capacity. NIOC (Netherlands Independent Oil
Co.) has access to the 23 strong barge fleet of its Belgian parent company, Wiljo Bunkering NV
(Bunkerworld, 2000).
2.3.3 Fujairah
Fujairah is the third largest bunkering port in the world, supplying over 12 million mt of
bunker fuel annually (Gulf News, 2006). The Fujairah bunker market is comprised of three port
areas, which include the United Arab Emirates (UAE) ports of Khor Fakkan, Fujairah and Kalba.
Fujairah is situated in the middle of these three ports, with Khor Fakkan to the north. The three
ports and their offshore counterpart in the Gulf of Oman, constitute "the Fujairah bunker market"
- although there are some local differences, unless otherwise stated, "Fujairah" is seen as
incorporating the entire area (Bunkerworld, 2002). Fujairah is located in the outer Gulf, just
outside the Straits of Hormuz, which are the gateway to the Arabian Gulf (the inner Gulf).
Because of their proximity to Middle Eastern oil production, Fujairah's bunker customers are
predominately VLCCs, which are often anchored in the Gulf of Oman waiting for cargo in the
inner Gulf.
While official data regarding the turnover of bunker fuel in the Fujairah market are not
available, industry experts have estimated the annual volume to be over 12 million metric tons
(mt) in 2002, with an average monthly supply volume of bunkers of around 1 million mt.
Because tankers are the major customers in the Fujairah market, large bunkers rather than
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numerous small deliveries are the norm. The average supply volume varies between 2,000 mt to
15,000 mt (Bunkerworld, 2002). Assuming an average volume per vessel, this implies that
approximately 120,000 bunkering transactions take place in the Fujairah market each year.
Several estimates exist regarding the market share of each bunker fuel grade. IFO 380 is
estimated to account for between 80-95 percent of total bunkers supplied. The remaining 5-20
percent are split between IFO 180 and MGO, but exact shares are not available. Typically,
Fujairah is host to the most competitive pricing of bunker fuel in the Arabian Gulf. However,
the price differences between IFO 380 and 180 cst grades in Fujairah are typically higher than
those found in Singapore or Rotterdam (Bunkerworld, 2002). The significant price difference
between IFO 380 and 180 is due to a lack of cheap cutter stock typically used in blending to
create lighter fuel grades in the Arabian Gulf. As a result, Fujairah's bunker suppliers are forced
to use MGO in blending activities. This, more expensive, alternative makes purchasing lighter
grades of residual fuel such as IFO 180 less attractive in the Fujairah market (Bunkerworld,
2002).
Refineries
Fujairah itself has only one refinery facility- the Fujairah Refinery Company (FRC)
(Nakamura, 2005). The FRC plays a vital role in supplying straight-run fuel oil to the Fujairah
bunker market and has been attributed as what enabled the port to emerge as a leader in the
region. Metro Oil Corporation ran the facility until the late 1990s when it was shutdown. The
F AL Energy Company took over the facility in 2004 to utilize its 460,000 m3 of storage capacity
(Nakamura, 2005). The Fujairah government in 2005 announced a desire to revitalize the facility
and update processing technologies. Currently, the FRC refinery does not contribute a huge
amount of bunkers to the local market.
The Abu Dhabi National Oil Company (ADNOC) operates two refineries in the UAE,
including the Umm Al Nar and Ruwais refineries. The two refineries produce over 23 million
mt of products annually, which are sold to both international and local markets (Bunkerworld,
2002). The Umm Al Nar refinery processes 150,000 bpd of crude oil, and the Ruwais refinery
has two units with a total design capacity of 350,000 bpd. The Emirates National Oil Company
Limited (ENOC) operates the 120,000 bpd Jebel Ali plant (Nakamura, 2005).
Other refineries located near Fujairah cover 14 major refineries and include: Bahrain
National Oil Company's refinery, Aramco's five Saudi refineries, the National Iranian Oil
Company's (NIOC) six refineries in Iran, and from Kuwait Petroleum Corporation's (KPC) three
Kuwaiti plants (Nakarmura, 2005; Bunkerworld, 2002).
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Bunker Traders
Through contracts with local suppliers, bunker traders arrange supply deliveries in the
Fujairah bunker market. These firms provide services that ensure that bunker supplies are
available and delivered in timely fashion. The Fujairah bunker market is presently serviced by
approximately 11 trading companies that include FAL Energy Company, GAC Bunkers Co., and
FAMM Middle East Ltd.
Bunker Suppliers
The offshore terminals in Fujairah make it an ideal bunkering stop-off for both inbound
and outbound tankers leaving the Gulf (Bunkerworld, 2002). Typical bunkering entails bunker
barges loading from storage tankers and supplying bunkers to passing vessel traffic that is
moving through the Hormuz strait between the Arabian Gulf and the Gulf of Oman.
Most suppliers import their products and then store bunkers in large tankers that reside in
the Gulf or in shore-based fuel terminals. The majority of companies purchase product from
refineries in the UAE or other regional refineries. The port of Fujairah is serviced by 20
suppliers, representing a mix of local business as well as international bunker suppliers such as
German based Bominflot, BP Marine Middle East located in Dubai, UAE.
EPPCO International, a joint venture between ENOC and Caltex, owns and operates
some of the largest refined-petroleum terminalling facilities in the UAE. The terminals are
spread between Jebel Ali and Fujairah, and represent 6.44 million barrels in storage capacity. In
2002, Vopak ENOC Fujairah Terminal Company had 30 tanks (10 tanks designed to handle fuel
oil) with a total capacity of Imillion m3 storing fuel oil, gasoil, gasoline, naphtha, and jet
kerosene. The Vopak terminal offers products to the local market via three berths capable of
accommodating vessels up to 175,000dwt (Bluewater, 2002). Additional capacities are designed
to serve the active fuel-oil market offshore, whether for cargo trading or for bunkering purposes.
Other examples of suppliers in the Fujairah market include FAL and EPPOC. The
longest established bunker company in the UAE is FAL Energy Company, which leases storage
capacity at the Fujairah Refinery (FRC) and has 24 tanks with a combined capacity of 422,000
cubic meters storing fuel oil, gasoil, naphtha, and jet kerosene. Finally, the Emirates Petroleum
Products Co. (Eppco), a subsidiary of ENOC, expanded its existing storage capacity from
100,000 m3 to over 150,000 m3 in 2003. These investments in supplier infrastructure indicate the
growing importance of this bunker market.
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Barge Operators
The Fujairah market is largely served through off-shore deliveries by barge. For this
reason, many suppliers operate their own barge fleet in the Gulf of Oman. In addition, there are
eight independent barge operators offering service. The FAL Energy Company has a number of
bunkering vessels operating in both the Arabian Gulf and the Gulf of Oman. Larger international
suppliers such as ExxonMobile's Marine Fuels (EMMF) Company often contract with
independent barge operators in the Fujairah market, following detailed certification by EMMF
(EMMF, 2006).
2.3.4 Houston
The Port of Houston ranks second in U.S. foreign waterborne commerce and total
tonnage. In 2004, 6,539 ships called at Houston (traffic is dominated by container ships, tankers
and bulk carriers). Houston is a mix of private and public terminals. The areas controlled by the
Port of Houston Authority can be divided into four main areas:
• The City Dock, also called the Turning Basin
• Barbours Cut Terminal, the main terminal for containers ( 940,000 TEU's in 1996)
• Jacintoport Terminal, a general cargo handling port
• Woodhouse Terminal, for ro-ro cargo vessels
Development of a new container terminal is now at the design stage at the Port. It is
intended to alleviate pressure at the Barbours Cut Terminal, which was forecast to pass one
million TEUs by 1998.
Refineries
Surrounding the port of Houston, local refineries include (among others) ExxonMobile's
Baytown Refinery, BP's Texas City Refinery, Marathon Ashland's Texas City and the Valero
Refinery. While these refineries represent a significant share of the U.S. capacity in refined
products, they do not produce marine fuels. Typically, marine fuel is imported from countries in
the western hemisphere where refinery production of heavy fuel oil is greater than in the United
States. These imports most often come from Venezuela, Aruba, and Mexico.
Bunker Traders
Iso Industry Fuels and Chemoil Corporation are the two bunker traders associated with
the Port of Houston bunker market. In addition, there are several international trading groups
conducting transactions in the Houston bunker market.
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Bunker Suppliers
There are between six and 15 major suppliers operating in the Houston Port area. Major
suppliers to the area include Shell Marine Products, Valero Marketing and Supply Co., Chemoil
Corp., BP Marine Fuels, and Bominflot Atlantic LLC.
In addition, there are several smaller suppliers that have storage terminals in or near the
port area and operate barge delivery services. Houston Marine Services and Midstream Fuel
Services operate storage terminals, bunker supply vessels, and fleets of barges along the Gulf
coast. Matrix Marine Fuels, Enjet, and Difco Fuel Systems are examples of smaller suppliers in
the Houston bunkering market. Suncoast Resources delivers primarily by truck at local berths,
supplied by a network of fuel terminals in the Houston area (Bunkerworld, 2000).
Barge Operators
Currently, only very limited information is available on the barge market in Houston.
Most existing barge operations appear to be conducted by local suppliers.
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SECTION 3
DEMAND FOR BUNKER FUELS IN THE MARINE INDUSTRY
This section discusses the demand side of the marine fuels market. The analysis of
current and expected future shipping activity in this section is used to estimate regional and
world-wide projections of future marine bunkers demand through the year 2020. These
consumption forecasts then 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 SEC A
regulation could be evaluated.
3.1 Summary of the Modeling Approach
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 include:
• identifying maj or trade routes,
• estimating volumes of cargo of various types on each route,
• identifying types of ship 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 though 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 world-wide trade flows in order 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.
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Accordingly, the model developed in this section 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, tons 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 3-1 illustrates the broad steps involved in developing baseline projections of
marine fuel consumption. It is a multi-step 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, while 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, discussed below, include
passenger vessels such as ferries and cruise ships, service vessels such as tugs and offshore
supply vessels (OSV), and military vessels.
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Ship Analysis: by Vessel Type and Size Category
Inputs
Outputs
Deadweight for all Vessels of
Given Type & Size3
Average Cargo
Carried (Tons)
Horsepower, Year of Build
for all Vessels of Given
Type & Size3
Specific Fuel Consumption
(g/SHP-HR) by Year of Build"
Average Daily Fuel
Consumption
(Tons/Day)
Engine Load Factors0
Average Daily Fuel
Consumption (Tons/Day)
- Main, Aux. Engine at Sea
- Aux. Engine in Port
-W B
Trade Analysis: by Commodity and Trade Route
Inputs
Average Ship Speed0
Round Trip Mileaged
Tons of Cargo Shipped6
Average Cargo Carried/'
per Ship Voyage I
Outputs
Days at Sea and in
Port, per Voyage
Number of Voyages
Total Estimated Bunker Fuel Demand
Average Daily Fuel Consumption
(Tons/Day)
- Main, Aux. Engine at Sea f~
-Aux. Engine in Port V
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 3-1. Method for Estimating Bunker Fuel Demand
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3.2 Methods of Forecasting Bunker Fuel Consumption
Underlying the projections of bunker-fuel consumption by cargo vessels worldwide are
projected flows of commodities between regions of the world. These are commodities produced
in one region of the world and demanded in another.
3.2.1 Composite Commodities and Regions
The first step in analyzing trade flows was examining the relevant omposite commodities
and obtaining forecasts for them, which are based on the following categories:
• liquid bulk - crude oil
• liquid bulk - refined petroleum products
• liquid bulk - residual petroleum products
• liquid bulk - chemicals (organic and inorganic)
• liquid bulk -gas (including LNG and LPG)
• dry bulk (e.g. grain, coal, steel, ores and scrap)
• general cargo (including neobulk, lumber/forest products)
• containerizable cargo
Next, countries of the world were grouped into approximately 20 larger regions. Table 3-
1 shows the mapping of countries to regions. From Global Insight, Inc. (Gil) World Trade
Service, a specialized forecast was obtained that reports flows of each commodity among regions
for the period 1995-2024. GIFs forecast of shipments of these commodities among these
regions drives the overall forecast of demand for shipping services and thus for marine fuels.
Gil is a widely recognized macroeconomic forecasting firm. The Gil World Trade
Service provides annual macroeconometric analysis and forecasts of economic activity and trade
for over 200 individual countries and for the global economy. Gil provides integrated analyses
and forecasts for individual countries and regions of the world and for the world economy as a
whole, including an analysis of the relationship of each region's economy to the world economy.
To facilitate integration of the fuel demand analysis with the fuel supply analysis, Gil grouped its
countries and regions into aggregate regions comparable to those used in EnSys Energy's
WORLD model. The aggregate regions and associated source countries/regions are shown in
Table 3-1.
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Table 3-1. Aggregate Regions and Associated Countries
Aggregate Regions Containing Gil Base Countries / Regions
U.S. Atlantic Coast
U.S. Great Lakes
U.S. Gulf Coast
E. Canada3
W. Canada3
U.S. Pacific North
U.S. Pacific South
Greater Caribbean
South America
Africa - West
Africa-North/East-
Mediterranean
Africa-East/South
Europe-North
Europe-South
Europe-East
Caspian Region
Russia/FSU
Middle East Gulf
Australia/NZ
Japan
Pacific-High Growth
China
Rest of Asia
U.S. Atlantic Coast
U.S. Great Lakes
U.S. Gulf Coast
Canada3
Canada3
U.S. Pacific North
U.S. Pacific South
Colombia, Mexico, Venezuela, Caribbean Basin, Central America
Argentina, Brazil, Chile, Peru, Other East and West Coast of S. America
Western Africa
Mediterranean Northern Africa, Egypt, Israel
Kenya, Other Eastern Africa, South Africa, Other Southern Africa
Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Netherlands, Norway,
Sweden, Switzerland, United Kingdom
Greece, Italy, Portugal, Spain, Turkey, Other Europe
Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovak Republic
Southeast CIS
The Baltic States, Russia Federation, Other Western CIS
Jordan, Saudi Arabia, UAE, Other Persian Gulf
Australia, New Zealand
Japan
Hong Kong S.A.R., Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan,
Thailand
China
Viet Nam, India, Pakistan, Other Indian Subcontinent
'Canada is treated as a single destination in the Gil base model. Shares of Canadian imports from and exports to
regions of the world in 2004 are used to divide Canada trade into shipments to/from Eastern Canada ports and
shipments to/from Western Canada ports. (Transport Canada, 2004).
The Gil World Trade Forecasting Model is a non-linear multi-stage econometric switch
model.(Gil, 2005) It uses several data sources, economic theory, and multi-stage modeling
linked by top-down control adjustment to capture and project commodity flows in the world.
There is no single data source that provides a complete baseline picture of international trade.
Gil bases their model on UN historical international trade data (published by Statistics Canada).
These data are supplemented with OECD International Trade by Commodity Statistics to reflect
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more realistic data for developing countries, and the U.S. Customs and IMF Direction of Trade
data to calibrate and enhance historical commodity trade flows. Additional macroeconomic data
(such as population, GDP, GDP Deflators, industrial output, foreign exchange rates, and export
prices by country, and geographical distances are used as exogenous variables.
The general structure of the model for calculating trade flows assumes a country's
imports from another country are driven by the importing country's demand forces (given that
the exporting country possesses enough supply capacity), and affected by exporting country's
export price and importing country's import cost for the commodity. Gil then estimates demand
forces, country-specific exporting capacities, export prices, and import costs. To arrive at each
country's trade with each of its trading partners, non-linear multi-stage switch modeling is
required.
Switch models are not continuous functions. Thus, they can not be estimated using
conventional derivative methods; a direct search method is used instead. Although uncommon
for economics, this method is widely used in other scientific fields. A direct search method
estimates switch functions, while allowing one to define error minimization functions and set
boundaries for model parameters. Gil's approach to forecasting is unorthodox as well. Gil
contends that the three commonly used approaches—bottom-up, top-down, and manual (hybrid)
approach—fail because of their limitations1. Gil uses a system that could be referred to as
controlled top-down approach.
Gil defines four levels, with the bottom level being the most detailed: commodity flows
between each pair of countries/regions. The third level is how much of each commodity each
country exports/imports from the world. The second level is the total commodity flows that each
country exports/imports from the world, and the first level is world trade of total commodities.
The second, third, and fourth levels have their own behavioral equations, but individual forecasts
at the lower levels are forecast under the constraint of their aggregate forecast at the higher level.
Thus, if there is a discrepancy between the sum of individual forecasts and aggregate forecasts,
the program identifies the items that could be adjusted and adjusts them step by step to eliminate
the discrepancy.
1 The bottom-up approach forbids forecasted items to be a subject to total resource constraints or equilibrium. For
example, this approach would disallow the possibility of country's import limitations due to income constraint.
The top-down approach requires forecasted items to have identical dynamic patterns. However, the historical
data reveals it is rare to find a country's imports of a commodity from two different countries to exhibit identical
dynamic patterns. The hybrid method solves the problems of the latter two, but is very time consuming.
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GIFs output for this project included detailed annual region-to-region trade flows for
eight composite commodities, for the period 1995 to 2024. The projections for 2012 and 2020
are shown, along with baseline data for 2005, in Table 3-2. In 2005, dry bulk accounts for 41
percent of the total trade volume. Crude oil accounts for 28 percent, and containers account for
12 percent. Dry bulk and crude oil shipments grow more slowly over the forecast period than do
container shipments; by 2020, dry bulk is 39 percent of the total, crude oil is 26 percent, and
containers have risen to 17 percent.
Table 3-2. World Trade Estimates for Composite Commodities, 2005, 2012, and 2020
Commodity Type
Dry Bulk
Grade Oil
Container
Refined Petroleum
General Cargo
Residual Petroleum and Other Liquids
Chemicals
Natural Gas
Total International Cargo Demand
2005
(in million tons)
2,473
1,703
714
416
281
190
122
79
5,979
2012
(in million tons)
3,051
2,011
1,048
471
363
213
175
91
7,426
2020
(in million tons)
3,453
2,243
1,517
510
452
223
228
105
8,737
3.2.2 Ship Analysis by Vessel Type and Size
Different types of vessels are required to transport these different commodities to the
various regions of the world. Profiles of these vessels were developed to provide a
characterization of ships assigned to transport commodities of each type along each route. These
profiles analyze data provided by the Clarksons Ship Register (Clarksons, 2005) on size,
horsepower, age, and engine fuel efficiency to identify typical vessels of each overall vessel type
and each size category. The main purpose of the analysis is to determine the average amount of
cargo carried by and average daily fuel consumption of each vessel type.
First, the eight Gil commodity categories were mapped to the type of vessel that would
be used to transport them. These assignments appear in Table 3-3.
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Table 3-3. Assignment of Commodities to Vessel Types
Gil Commodity
Ship Category
"Type" Defined in Clarksons Register"
Liquid bulk - crude oil
Liquid bulk - refined
petroleum products
Crude Oil Tankers
Product Tankers
Tanker
Product Carrier
Liquid bulk - residual
petroleum products
Liquid bulk - chemicals
(organic and inorganic)
Liquid bulk - natural gas
(including LNG and LPG)
Dry bulk (e.g. grain, coal,
steel, ores and scrap)
General cargo (including
neobulk, lumber/forest
products)
Containerizable cargo
Product Tankers
Chemical Tankers
Gas Carriers
Dry Bulk Carriers
General Cargo
Container Ships
Product Carrier
Chemical & Oil Carrier
LNG Carrier, LPG Carrier, Chemical & LPG Carrier,
Ethylene/LPG, Ethylene/LPG/Chemical,
LNG/Ethylene/LPG, LNG/Regasification, LPG/Chemical,
LPG/Oil, Oil & Liquid Gas Carrier
Bulk Carrier
General Cargo Liner, Reefer, General Cargo Tramp, Reefer
Fish Carrier, Ro-Ro, Reefer/Container, Ro-Ro
Freight/Passenger, Reefer/Fleet Replen., Ro-Ro/Container,
Reefer/General Cargo, Ro-Ro/Lo-Lo, Reefer/Pallets
Carrier, Reefer/Pass./Ro-Ro, Reefer/Ro-Ro Cargo
Fully Cellular Container
a Vessel operators self-report these types to Clarksons Research Services for inclusion in their shipping databases.
Each of these vessel types were further classified by size in deadweight tons (DWT).
Appropriate size categories were identified based on both industry definitions and natural size
breaks within the data. Table 3-4 summarizes these subcategories, and provides other
information on the general characteristics of vessels represented in the Clarksons' data. The size
descriptions imply the size limitations as defined by canals or straits through which ships of that
size can pass. Crude oil tankers (VLCC) are the largest by DWT; the largest container ships
(Suezmax) are also very large. For each ship type and size category, data on typical ships'
capacity in DWT, speed, and horsepower are used to estimate average daily fuel consumption.
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Table 3-4. Fleet Characteristics in Clarksons Data
Ship Type
Container
General Cargo
Dry Bulk
Crude Oil Tanker
Chemical Tanker
Petroleum Product
Tanker
Natural Gas
Carrier
Other
Total
Size by DWT
Suezmax
PostPanamax
Panamax
Intermediate
Feeder
All
Capesize
Panamax
Handymax
Handy
VLCC
Suezmax
AFRAmax
Panamax
Handymax
Coastal
All
AFRAmax
Panamax
Handy
Coastal
VLGC
LGC
Midsize
All
Minimum
Size (DWT)
83,000
56,500
42,100
14,000
0
Maximum
Size
(DWT)
140,000
83,000
56,500
42,100
14,000
All
79,000
54,000
40,000
0
180,000
120,000
75,000
43,000
27,000
0
0
79,000
54,000
40,000
0
180,000
120,000
75,000
43,000
27,000
All
68,000
40,000
27,000
0
60,000
35,000
0
0
68,000
40,000
27,000
0
60,000
35,000
All
Number
of Ships
101
465
375
1,507
1,100
3,214
715
1,287
991
2,155
470
268
511
164
100
377
2,391
226
352
236
349
157
140
863
7,675
26,189
Total
DWT
(millions)
9.83
30.96
18.04
39.80
8.84
26.65
114.22
90.17
46.50
58.09
136.75
40.63
51.83
10.32
3.45
3.85
38.80
19.94
16.92
7.90
3.15
11.57
6.88
4.79
88.51
888.40
Total
Horse
Power
(millions)
8.56
29.30
15.04
32.38
7.91
27.07
13.81
16.71
10.69
19.58
15.29
5.82
8.58
2.17
1.13
1.98
15.54
3.60
4.19
2.56
1.54
5.63
2.55
3.74
53.60
308.96
Source: Authors' calculations based on data from Clarksons Ship Register (2005).
Fleet Average Daily Fuel Consumption
Average fuel consumption for each vessel type and size category was estimated in a
multi-step process using individual vessel data on engine characteristics. Clarksons' Ship
Register provides each ship's horsepower (HP), type of propulsion (diesel or steam), and year of
build. These characteristics are then matched to information on typical Specific Fuel Oil
Consumption (SFOC) from engine manufacturers and the technical literature. SFOC is
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measured in grams of fuel burned per horsepower-hour, so to determine the average daily fuel
consumption of the fleet, the following equation is used:
Fleet AFC = -
iev,s
SFOC, x HP, x
24
1,000,000
(3.1)
where /' denotes an individual ship of vessel type v and size category s. This calculation results
in a fleet average value for daily fuel consumption, measured in metric tons per day.
Key Assumptions Affecting the Forecast
The specific SFOC numbers used for this analysis are based on historical data provided
by Wartsila Sulzer, a popular manufacturer of diesel engines for marine vessels. An additional
10% has been added to their "test bed" or "catalogue" numbers to account for the guaranteed
tolerance level and an in-service SFOC differential.2 Figure 3-2 shows data used in the model
regarding the evolution of specific fuel oil consumption rates for diesel engines over time. (For
steam engines, a fixed SFOC of 220 g/HP-hr is used)
Engine efficiency in terms of SFOC has improved over time, most noticeably in the early
1980s in response to rising fuel prices. However, there is a tradeoff between improving fuel
efficiency and reducing emissions. Conversations with engine manufacturers indicate that it is
reasonable to assume SFOC will remain constant for the 15 year time horizon of this study,
particularly as they focus on meeting more stringent NOx emissions requirements, such as those
imposed by MARPOL Annex VI.
' Overall this 10 percent estimate is consistent with other analyses which show variation between the "test bed"
SFOC values reported in manufacturers' product catalogues and the actual SFOCs observed in service. The
difference is explained by the fact that old, used engines consume more than brand new engines and that fuels
used in-service may be different than the test bed ISO fuels. See Koehler (2003).
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200
180
160
140
120
100
- 80
jg 60
vi 40
20
i,
o
.8
"5.
0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Figure 3-2. Specific Fuel Oil Consumption Over Time
Source: Authors' calculations based on communications with Wartsila Sulzer and other diesel engine manufacturers.
The values for fleet average daily fuel consumption calculated in Equation 3.1 are based
on installed horsepower, and therefore they must be scaled down to reflect true engine loads.
Engine load factors reported by Corbett and Wang (2005) are used to estimate average daily fuel
consumption (tons/day) for the propulsion engine and auxiliary engines, both at sea and in port.
These assumptions are summarized in Table 3-5.
Table 3-5. Assumptions Regarding Engine Loads
Vessel Type
Container Vessels
General Cargo Carriers
Dry Bulk Carriers
Crude Oil Tankers
Chemical Tankers
Petroleum Product Tankers
Natural Gas Carrier
Other
Main Engine Auxiliary Engine as
Load Factor Percent of Main Engine
80%
80%
75%
75%
75%
75%
75%
70%
22.0 %
19.1%
22.2 %
21.1%
21.1%
21.1%
21.1%
20.0 %
Auxiliary Engine as Percent of
Main Engine at Sea
11.0%
9.5 %
11.1%
10.6 %
10.6 %
10.6 %
10.6 %
10.0 %
Source: Corbett, James and Chengfeng Wang. October 26, 2005. "Emission Inventory Review SECA Inventory
Progress Discussion." page 11.
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Changing Fleet Characteristics
The population of vessels operating is assumed to change over time as older vessels are
scrapped and new ones are built. In our analysis, vessels built over 25 years ago are retired and
are assumed to be replaced by new ships of the most up-to-date configuration. Specifically,
these ships are assumed to have a new engine (rated at the current SFOC) and are assumed to
weigh as much as the average ship built in 2005. So even though improvements in SFOC over
the next 15 years are not assumed, the fuel efficiency of the fleet as a whole is expected to
improve over time through retirement and replacement. In the same way, even though specific
increases in the size of ships being built are not projected, the total deadweight of the fleet will
increase over time as smaller ships retire and are replaced. The analysis also reflects trends on
the trade routes between Asia and North America or Europe for container ships to increase in
size over time.
3.2.3 Trade Analysis by Commodity Type and Trade Route
Based on information from Navigisties Consulting, the distribution of ship size categories
deployed on each of the trade routes were identified. For example, to serve the large crude oil
trade from the Middle East Gulf region to the U.S. Gulf region, 98% of the deadweight tonnage
is carried on Very Large Crude Carriers (VLCCs) while the remaining 2% is carried on the
smaller Suezmax vessels. In addition to the volume of trade being moved, the limitations of the
canals through which the vessels must pass determine the size categories deployed on each trade
route. These size category distributions are assumed to remain constant throughout the forecast
horizon, with the exception of two of the largest container trade routes. We introduce
Malacamax containerships (>11,000 TEU) to Trans-Pacific trade per a recent container vessel
forecast for the ports of San Pedro Bay and at a similar rate to Europe-Asia trade (Mercator
Transport Group, 2005).
Once a vessel type and size distribution have been assigned to each region pair and
commodity trade type, a set of voyage parameters are estimated. Days at sea and in port are
based primarily on ports called, sea distance, and ship speed. The number of voyages is based on
the cargo volume projected by Gil to move along a given route and the cargo capacity of the
vessels on that route.
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Days at Sea and Days in Port
Most trades are characterized by voyages that are essentially round trips, moving from a
single region of origin to a single destination region, and back.3 For these trades, Navigistics
Consulting identified ports that were either in the middle of the trade region or ports through
which the particular commodity was most likely to travel. For example, the Port of Singapore
was selected as the port of origin for the Pacific High-Growth region for most commodities, but
for dry bulk, Inchon was selected. Then, for each route, information was gathered on the
distances between ports (NGA, 2001 and MaritimeChain, 2005).4 Since carriers of crude oil,
chemicals, petroleum products, natural gas, and dry bulk tend to travel full for a delivery and
then return empty, round-trip distances were used to determine the length of the voyage. The
days at sea are calculated by dividing the sea distance by the average vessel speed:
(3.2)
round trip di stance route
DaysatSeaPerVoyagevsroute =
speedvsx 24x1.1508
Table 3-6 presents the values used for speed by vessel type (based on Corbett and Wang, 2005).
These values are the same for all size categories and are assumed to remain constant over the
forecast period.
Table 3-6. Vessel Speed by Type
Vessel Type Speed (knots)
Grade Oil Tankers 13.2
Petroleum Product Tankers 13.2
Chemical Tankers 13.2
Natural Gas Carriers 13.2
Dry Bulk Carriers 14.1
General Cargo Vessels 12.3
Container Vessels 19.9a
Other 12.7
a Length of voyages by container ships estimated from additional sources. See below.
Vessels may stop at multiple ports within each region, but we assume that, for the most part, they do not string
together trips to multiple regions. Two important exceptions to this are the general cargo and container trades,
which are described in further detail below.
4 http://maritimechain.com/. This calculator provides nautical distances, which account for the particular routes
vessels must take when traveling from port to port, e.g. movement through straights or canals.
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Source: Corbett, James and Chengfeng Wang. October 26, 2005. "Emission Inventory Review SECA Inventory
Progress Discussion." page 11.
In addition to calculating the average days at sea per voyage, the average days in port per
voyage are also estimated. It is assumed that most types of cargo vessels spend 4 days in port
per voyage; however, this can vary somewhat by commodity and by port.5 Tables 3-7 and 3-8
shows the results of these estimates of voyages lengths - focusing on U.S. trade routes. Table 3-
7 presents average lengths across types of non-container vessels (these times are cargo specific
and vary slightly based on the speed of the vessels - speeds are taken from Dr. Corbett's work).
Two sources are used for non-container trades and voyage times in Table 3-7 - Worldscale
(2002), and Maritime Chain (2005).
The Worldscale tables, based on underlying BP Shipping Marine Distance Tables, are the
industry standard for measuring port-to-port distances, particularly for tanker traffic. The reported
distances account for common routes through channels, canals, or straits. This distance information
was supplemented by data from Maritime Chain, a web service that provides port-to-port distances
along with some information about which channels, canals, or straits must be passed on the voyage.
This distance information is then combined with Dr. Corbett's speed parameters to determine the
length of a voyage in days.
As discussed above, voyage times for container trade in Table 3-8 are based on information
from Containerization International (Degerlund, 2005), and calculations by Navigistics Consulting.
This resource provides voyage information for all major container services. Based on the frequency
of the service, number of vessels assigned to that service, and the number of days in operation per
year, the average length of voyages for the particular bilateral trade routes in the Global Insights
trade forecasts are estimated.
' Some ports do not run as efficiently because of a lack of good shoreside facilities, labor problems, or other
inadequacies. The maximum number of days in port for a non-container trade is 8 days.
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Table 3-7. Length of Voyages for Non-Container Cargo Ships (approx. average)
Days per Voyage
US South US North
Global Insights Trade Regions Pacific Pacific
Africa East-South 68 75
Africa North-Mediterranean 49 56
Africa West 56 63
Australia-New Zealand 48 47
Canada East 37 46
Canada West 11 5
Caspian Region 95 89
China 41 36
Europe Eastern 61 68
Europe Western-North 53 60
Europe Western-South 54 61
Greater Caribbean 26 33
Japan 35 31
Middle East Gulf 77 72
Pacific High Growth 52 48
Rest of Asia 68 64
Russia-FSU 64 71
Rest of South America 51 30
Table 3-8. Length of Voyages for Container-Ship
Origin ~ Destination Regions
Asia ~ North America (Pacific)
Europe ~ North America (Atlantic)
Mediterranean ~ North America
Australia/New Zealand ~ North America
South America ~ North America
Africa South ~ North America (Atlantic)
Africa West ~ North America (Atlantic)
Asia ~ North America (Atlantic)
Europe ~ North America (Pacific)
Africa South ~ North America (Pacific)
Africa West ~ North America (Pacific)
Caspian Region ~ North America (Atlantic)
Caspian Region ~ North America (Pacific)
Middle East/Gulf Region ~ North America (Atlantic)
Middle East/Gulf Region ~ North America (Pacific)
US East
Coast
57
37
36
65
7
40
41
73
38
24
30
16
65
56
67
66
38
41
US Great
Lakes
62
43
46
81
18
58
46
87
45
32
37
29
81
65
76
64
46
46
US Gulf
54
47
43
63
19
39
48
69
46
34
37
17
62
83
88
73
48
44
Trade Routes
Days per Voyage
37
37
41
61
48
54
43
68
64
68
38
42
38
63
80
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Number of Voyages
The number of voyages along each route for each trade is computed by dividing, for each
vessel type v and size category s serving a given route, the tons of cargo moved by the estimated
amount of cargo per voyage:
(3.3)
,T . .,,, tons cargo to move
Number or Voyagesv s trade =
Fleet Avg. DWTv s x (utilization rate)
The cargo per voyage is based on the fleet average ship size (in deadweight tons) calculated in
the vessel profile analysis. For most cargo trades, a utilization factor of 0.9 is assumed to
account for the fact that ships do not always run at full capacity. This factor is assumed to be
constant throughout the forecast period. Lowering this utilization factor would increase the
estimated number of voyages required to move the forecasted cargo volumes, which would in
turn increase our estimated fuel demand.
Exceptions: General Cargo and Container Trades
The exceptions to the above approach for calculating voyage parameters are the general
cargo and container trades. These routes tend to have multiple stops, with cargo loaded and
discharged at each stop. Unlike the other types of vessels, these carriers rarely travel empty.
Thus, for each trade route, the focus only on the "heavy" leg of the journey, the direction with
the highest trade volume.
For general cargo, port-to-port round-trip distances and the average vessel speeds are
used to calculate days at sea. Days in port are estimated at 4 days per voyage. The difference is
that the number of voyages is based only on the tons of cargo projected to be moved on the
heavy leg of the journey. The assumption is that the projected trade volume associated with the
"light" leg will be carried on the return trip of these round-trip voyages.
For the container trades, the voyage parameters are determined based on actual ship
routings. Navigistics Consulting first identified major container trade lanes, to which the
individual region pairs were assigned. For example, trade volumes from the Pacific High
Growth region to the U.S. South Pacific and from China to the U.S. North Pacific are both
included on a Transpacific trade route. Major shipping lines active on these trade routes are
identified and their individual container services are analyzed, as recorded in the
Containerization International (CI) Yearbook 2005 and other sources. The CI Yearbook
provides detailed information about each container service, including the ports visited, the
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frequency and length of the voyage, and the vessels deployed. It is assumed there is one day in
port for each port visited, and then the days at sea are calculated by subtracting total days in port
from the total length of the voyage.
The number of voyages for the container trade is again calculated by dividing the
projected volume on the heavy leg by the estimated average cargo per voyage (i.e. average ship
size times a utilization factor). We use the information from the CI Yearbook_about the vessels
deployed to determine the average ship size on each major trade route. These sizes are reported
in terms of Twenty-Foot Equivalent Units (TEU), a volume measure which we convert using a
baseline capacity factor of 14 deadweight tons per TEU. The utilization factor is calibrated so
that the number of voyages implied by 2005 historical Gil trade volume data matches the actual
number of voyages recorded in the CI Yearbook. Table 3-9 reports these estimated factors for
some of the major trade routes in Table 3-9. These rates, which average 0.51 across all trade
routes, are generally lower than the utilization factor of 0.9 used on all other commodity trades.
However, these estimates are consistent with what industry experts predict for capacity
utilization.6 The main reason for the lower utilization rate is that container ships usually reach a
maximum volume capacity well before they reach a maximum weight capacity. A vessel may be
only 50% "full" in terms of deadweight, but still be unable to fit more containers on board.
Table 3-8. Estimated Utilization Rates for Top 10 Container-Ship Trade Routes
Top 10 Container-Ship Trade Routes by Volume" Utilization Rate
Asia ~ North America (Transpacific) 47%
Northern Europe - Asia 52%
Mediterranean-Asia 40%
North America - Northern Europe (Transatlantic) 66%
South America - North America 85%
South America - Europe 50%
Mediterranean - North America 27%
Australia - Asia 33%
South America - Asia 46%
West Africa--Europe 28%
Average for All Trades 51%
6 The utilization factors estimated correspond to approximately 7-9 deadweight tons per Twenty-Foot Equivalent
Unit (TEU), which is the volume measure most often used to describe a container ship's size. This is consistent
with industry reports. Discussions with experts in the container trade stated that containers coming out of Asia to
the U.S. and Europe weigh around 6.75 - 7 tons per TEU. Cargoes out of the U.S. weigh on the order of 9 - 9.5
tons per TEU. The combination of weight utilization (based on 14 tons per TEU) and a maximum workable slot
utilization of 90 - 95 percent gives credence to our 51 percent overall utilization value.
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"Based on Gil trade data for 2005.
3.2.4 Calculating Total Estimated Fuel Demand for Cargo Vessels
As described in Figure 3-1, estimates from the vessel analysis and trade analysis are used
to obtain an estimate of total fuel demand related to international cargo trade flows.
Total Fuel Demand in Yeary,fory = 2005, 2012, 2020
For each year, total marine fuel consumed is computed as the sum of fuel consumed on
each route of each trade (commodity). Fuel consumed in each route of each trade is in turn
computed by summing the fuel consumed for each route and trade for that year by propulsion
engines and auxiliary engines, both at sea and in port.
T7/"1 X"1 X"1 T7/"1
y trade, route, year
trade route
= Z Z ~AFC , t t xDaysatSeat , t +AFC , t t rt x Days at Port t , t
_ trade, route, y at sea J trade,route, y trade, route, y at port J trade,route, >
where
trade route
de.route.yatsea =^ (Percent of trade along route)v_, [Fleet AFC¥>, x (MELF + AE at sea LF)]
de route yatport = ^ (Percent of trade along route)v, [Fleet AFCV, x AE import LF]
v,s,t,r ' L ' J
Days at Seatad t = I (Percent of trade along route) Days at sea per voyage x Number of voyages 1
v,s,t,r ' - ' ' J
Days at Port^^ route y = I (Percent of trade along route)v s [Days at port per voyage x Number of voyages ]
MELF: Main Engine Load Factor
AE at sea LF: Auxiliary Engine at-sea Load Factor
AE in port LF: Auxiliary Engine in-port Load Factor
The parameters used in these last four equations are all derived from the vessel and trade
analyses discussed above. The (Percent of trade along route)v,s indicates the fraction of trade
volume carried by each vessel size category, as discussed in Section 3.2. Fleet AFCv,sis the fleet
average daily fuel consumption calculated using Equation 3.1. The main propulsion and
auxiliary engine load factors are discussed in Section 3.2.2, and the specific values used are
reported in Table 3-5. Days at sea per voyage and number of voyages are calculated using
Equations 3.2 and 3.3, respectively.
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3.2.5 V. S. Domestic Navigation
The Gil forecasts are primarily designed to analyze international trade flows, so they do
not include projected trade volumes for shipments within the U.S. In addition, these domestic
shipments are primarily transported by carriers that are governed by the restrictions of the Jones
Act. For these reasons, the methodology for estimating fuel demand by vessels transporting
cargo domestically differs slightly from the methodology for international cargo vessels
presented in Sections 3.2.2 through 3.2.4.
Ship Analysis by Vessel Type and Size
This analysis begins with a vessel profile. Navigistics Consulting helped compile a
database listing vessels in the "Jones Act fleet." Four types of trade constitute a vast majority of
the domestic cargo trade flows that are transported by ships through waterways: dry bulk trade on
Great Lakes, crude oil trade (primarily from Alaska), petroleum product trade, and container trade.
Accordingly, the four types of vessels that are utilized in these trades are considered: crude oil
tankers, dry bulk carriers, container ships, and product tankers (which also carry chemicals).
As with international vessel fleet, vessel types of the domestic fleet were further
classified by size in deadweight tons (DWT). Table 3-9 illustrates these breaks, along with
summaries of deadweight and horsepower for each vessel type and size. As seen below, the
Jones Act fleet composes only a small fraction of the international fleet. The Great Lakes bulk
category makes up the largest share by the number of vessels, while the container category is the
largest in terms of horsepower, and the crude oil tanker category is the largest in terms of
deadweight. These four categories have a total of 151 vessels, with a combined deadweight of
7.9 million tons and a combined horsepower of 2.6 million.
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Table 3-9. Jones Act Fleet
Vessel Type
Container*
Great Lakes
Bulk**
Crude Oil
Tanker***
Petroleum Product
Tanker***
Total
Size by DWT
Panamax
Intermediate
Feeder
Panamax
Handymax
Handy
VLCC
Suezmax
AFRAmax
Panamax
Panamax
Handy
Coastal
Minimum
Size
(DWT)
42,100
14,000
0
54,000
40,000
0
180,000
120,000
75,000
43,000
40,000
27,000
0
Maximum
Size
(DWT)
56,500
42,100
14,000
79,000
54,000
40,000
0
180,000
120,000
75,000
68,000
40,000
27,000
Number
of Ships
2
35
1
12
3
33
8
10
4
1
24
17
1
151
Total DWT
(thousands)
92.0
924.0
13.9
729.2
367.9
800.1
1,508.0
1,289.4
367.9
57.7
1,112.4
609.8
19.2
7,891.5
Total Horse
Power
(thousands)
47.0
890.4
22.9
187.8
40.2
218.8
219.3
299.1
98.0
17.0
300.4
204.9
7.2
2,553.0
Source: Authors' calculations based on data from Colton and Company (*), Greenwood's Directory (**), U.S.
Maritime Administration (***)
Fleet Average Daily Fuel Consumption
Average fuel consumption for each vessel type and size category was estimated using the
same basic approach that was used to estimate fuel consumption for international vessel fleet.
The main difference lies in how fleet characteristics change over time through retirement and
replacements.
U.S. Jones Act vessels are more costly to build, and therefore are kept in service longer than
international fleet vessels, making their replacement age above the international fleet average.
Replacement ages for Jones Act vessel categories are listed below:
• Containers- 35 years
• Great Lakes Bulk - 60 years (these ships are not a subject to salt water and thus last longer)
• Crude Oil Tanker- 35 years or OPA-907 requirement
• Petroleum Product Tanker - 35 years or OPA-90 requirement
The replacement ships are assumed to have a new engine (rated at the current SFOC) and are
assumed to weigh as much as the average ship of a similar category and deadweight class (for
example, a Panamax Size Container Vessel) built in 2005, based on the statistics from the
international fleet database.
1 Oil Pollution Act of 1990 (OPA-90) was introduced after the Exxon Valdez incident. OPA-90 requires all single-
hull ships to be replaced by double-hull ships by certain date, based on deadweight and horsepower.
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Voyage Parameters
Calculation of the voyage parameters was also slightly different. The average number of
days required for a trip, as well as average number of days spent in port were estimated based on
actual ship routings and calculated distances between Alaska, Hawaii, Puerto Rico and the
continental U.S.
The number of days the ships will be engaged in trade (activity level) are then estimated
for each ship category. For container, crude oil tanker, and petroleum product tanker categories
activity levels are estimated at 350 days. The estimate of Great Lakes bulk vessels activity level
was set at 290 days to account for winter weather conditions, when the lakes are frozen over.
Given the activity level and the average number of days required for a trip at sea and in port, the
total number of days at sea and in per port per ship per year are calculated as:
Voyages per Year Per Ship = Activity Level
Average Number of Trip Days
Total Number of Days at Sea per Ship = Average Number of Days at Sea x Voyages Per Year Per Ship
Average Number of Trip Days
Total Number of Days in Port per Ship = Average Number of Days in Port x Voyages Per Year Per Ship
Average Number of Trip Days
Total number of days in port and at sea per year per ship is then multiplied by the number
of vessels in each category, to get the total number of days ships spend at sea and the total
number of days ships spend in port each year. Given the average fuel consumption, the days at
sea per voyage, and days in port per voyage for an average ship within each vessel category, the
total estimated fuel demand is then calculated in the same way as for international vessel fleet.
3.2.6 Ship Analysis for Non-Cargo Vessels
As with domestic U.S. navigation, because the Gil forecasts focus on international trade
flows, they do not cover activities of several remaining types of vessels: passenger ships, fishing
vessels, military vessels, and other support ships such as tugboats or supply ships. Data on fuel
consumption by the ship categories have been based on available literature and information in
the Clarksons database.
Historical fuel consumption by passenger ships, fishing vessels, and military vessels have
been based on data from Corbett and Koehler (2003). Trends in passenger ships are based on a
study by Ocean Shipping Consultants that projects increases in cruise-ship demands through
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2020. Trends in fishing are based on data from the United Nation's Food and Agriculture
Organization (FAO) on world-wide fish capture trends between 1997 and 2002. Trends in
military vessel energy use are based on forecasts from the U.S. Energy Information
Administration's Annual Energy Outlook 2006, which provides estimates of trends in future U.S.
military distillate and residual consumption. Historical fuel consumption by other types of ships
are based on data in the Clarksons database (the "Other" category shown in Table 3-4). These
data on vessel characteristics are combined with engine load assumptions from Corbett and
Wang (2005) and activity levels from Corbett and Koehler (2004) to determine fuel use. Trends
in this fuel use are then assumed to follow patterns of economic activity as reflected in Gross
Domestic Product (GDP) forecasts from EIA.
3.2.7 Bunker Fuel Grades
Fuel consumption by specific grades is evaluated as follows: information from Koehler
(2003) on consumption of heavy fuel oil and marine distillate oil (MDO) and marine gas oil
(MGO) by vessel type is used to assign overall fuel grades, this information is then combined
with the main and auxiliary engine factors discussed in Section 3.2.4 - where main engines are
assumed to use mostly Intermediate Fuel Oil (IFO) 380 and auxiliary engines use IFO180.
3.3 Results of Bunker Fuel Forecasts
This section presents estimates of bunker fuel consumption based on the methodology
outlined above. The focus of the discussion and associated graphs is on: first, world-wide bunker
fuel consumption estimates that can be compared to those by IEA and in other published works;
second, U.S. regional fuel consumption estimates related to the cargo fleet engaged in
international trade; and, finally, on growth rates in bunker fuel demand and the underlying factors.
Figure 3-3 shows estimated world-wide bunker fuel consumption by vessel type. Fuel
consumption in year 2001 is equal to 278 million tons, which can be compared to the estimate in
Corbett and Koehler (2004) of 289 million tons. By 2020, bunker fuel demand reaches 500
million tons per year. Note: 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 to others in the literature are discussed in more detail in Section 4.2, given their
importance to modeling of the petroleum-refining industry in the WORLD model.)
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Figure 3-3. World-Wide Bunker Fuel Use
600
500
H Container BH General Cargo ElDry Bulk S Crude Oil
D Chemicals D Petroleum • Natural Gas • Other
• Fishing Vessels D Passenger Ships D Military Vessels
Figure 3-4 shows the annual growth rates by vessel-type/cargo that underlie the
projections in Figure 3-3. Total annual growth is generally between 2.5 percent and 3.5 percent
over the time period between 2006 and 2020 and generally declines over time, resulting in an
average annual growth of around 2.6 percent. As shown in the "container" categories in Figures
3-3 and Figure 3-4, fuel consumption by container ships is the fastest growing component of
world-wide bunker fuel demand - in 2004, consumption by container ships is around 75 million
tons, growing to 87 million tons by 2006 and close to 180 million tons by 2020 (the historical
estimates can be compared to Gregory (2006), which places container ship consumption in 2004
at 85 million tons, based on installed power). While overall growth is less than three percent a
year, growth in container-ship demand remains above five percent a year on an average annual
basis for the next 15 years. Across all vessel types, growth in bunker fuel consumption is
somewhat lower than world-wide Gross Domestic Product (GDP) growth forecasts from EIA
(InternationalEnergy Outlook 2005) of around 3.9 percent a year, but higher than IEA estimates
of overall fuel consumption growth (around 1.6 percent in the World Energy Outlook 2005). The
estimate of growth in marine bunkers over the next 15 years, however, is consistent with
historical growth of 2.7 percent per year shown in LEA data from 1983 to 2003.
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Figure 3-4. Annual Growth Rate in World-Wide Bunker Fuel Use
10%
-2% J
o
8
X
o
a
a
8
a
a
00
i-H
a
o
n
a
-O—Total -•— Container —•—General Cargo -•-Dry Bulk
-*-Crude Oil *~Chemicals ~*~Petroleum ~*~Natural Gas
•"Other Fishing Vessels Passenger Ships Military Vessels
Growth in fuel use by container ships and the overall contribution by these vessels to
world-wide demand is driven by several factors. The first is overall growth in world-wide GDP
mentioned above. This growth leads to increases in international trade flows over time (shown in
Figures 3-5 and 3-6 below). 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 tons of goods, as shown in Figure 3-5, 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. As mentioned in Section 3.2.3, it is estimated that
utilization rates for container ships (comparing dead weight tons of capacity to actual cargo
transported) are around 50 percent. Thus, it takes approximately twice as many ships to transport
the same amount of container tons compared to liquid/dry bulk tons. This relationship tends to
influence total bunker fuel use and weight it towards container trade. In addition, growth rates in
particular trade flows such as Asia to the U.S. will also influence overall fuel consumption,
especially as related to container ships as discussed in relation to U.S. regional trade flows below.
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Figure 3-5. World-Wide Trade Flows (Global Insights)
9,000
B Container ffll General Cargo D Dry Bulk B Crude Oil D Chemicals D Petroleum DNatural Gas
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Figure 3-6. Annual Growth Rate in World-Wide Trade Flows
10% T
-O-Total
-A-Crude Oil
• Container
X Chemicals
• General Cargo
~*~ Petroleum
•Dry Bulk
•Natural Gas
Figures 3-7 to 3-9 show estimated consumption of specific grades of bunker fuels from
Figure 3-3.
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Figure 3-7. World-Wide IFO380 Use
400
350
H Container
D Chemicals
• Fishing Vessels
H General Cargo D Dry Bulk H Crude Oil
D Petroleum • Natural Gas D Other
n Passenger Ships D Military Vessels
Figure 3-8. World-Wide IFO180 Use
H Container 01 General Cargo D Dry Bulk H Crude Oil
d Chemicals d Petroleum • Natural Gas d Other
• Fishing Vessels • Passenger Ships D Military Vessels
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Figure 3-9. World-Wide MDO-MGO Use
120
100
13
fa
B
o
H
§
=
H Container ffl General Cargo D Dry Bulk H Crude OU
D Chemicals D Petroleum • Natural Gas D Other
B Fishing Vessels U Passenger Ships D Military Vessels
Figures 3-10 to 3-13 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 world-wide bunker fuel use shown in Figure 3-3 and do not include fuel
used for domestic navigation. The results in Figure 3-10 show estimated historical bunker fuel use
in year 2001 of around 47 million tons (note: while this fuel is used to carry trade goods to and
from the U.S., it is not necessarily all purchased in the U.S. and is not all burned in U.S. waters).
This amount grows to over 90 million tons by 2020 with the most growth occurring on trade routes
from the East Coast and the "South Pacific" region of the West Coast.
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Figure 3-10. Bunker Fuel Used by the International Cargo Fleet Importing To and
Exporting From the United States (by Region)
100
North Pacific 01 US Great Lakes DUS Gulf SUS East Coast ^US South Pacific
Figure 3-11 shows the annual growth rate projections for the fuel consumption estimates
in Figure 3-10. 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 3-12 and 3-13). Overall, the
average annual growth rate in marine bunkers associated with future U.S. trade flows is 3.4
percent between 2005 and 2020. This growth rate is somewhat higher than world-wide totals,
but is similar to estimated GDP growth in the U.S. of3.1 percent between 2005 and 2020 (EIA,
2006) and is influenced by particular components of U.S. trade flows.
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Figure 3-11. Annual Growth Rate in Bunker Fuel Used by the International Cargo Fleet
Importing To and Exporting From the United States (by Region)
10%
-2%
X
o
-o-United States
-•-US Great Lakes
•US South Pacific
•US Gulf
•US North Pacific
•US East Coast
The growth rate in bunker fuel consumption related to U.S. imports and exports is driven
by container ship trade (see Figure 3-15), which grows by more than four percent a year. U.S.
trade volumes are also influenced by high world-wide growth in GDP and resulting demands for
U.S. goods. Along with the fact that container ships use a disproportionately large amount of
fuel to move a given number of tons of cargo (as discussed in Section 3.2.3), 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 to dominated by the increase in voyage distance, leading to higher
bunker fuel growth.
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Figure 3-12. Bunker Fuel Used by the International Cargo Fleet Importing To and
Exporting From the United States (by Vessel/Cargo Type)
100
B Container H General Cargo D Dry Bulk S Crude Oil D Chemicals D Petroleum • Natural Gas
Figure 3-13. Annual Growth Rate in Bunker Fuel Used by the International Cargo Fleet
Importing To and Exporting From the United States (by Vessel/Cargo Type)
10%
-O-Total
-*-Crude Oil
•Container
Chemicals
~*~ General Cargo
—*— Petroleum
•Dry Bulk
'Natural Gas
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Figure 3-14. U.S. Trade Flows - Imports plus Exports (Global Insights)
2,000
1,800
BContainer M General Cargo D Dry Bulk GCrude Oil D Chemicals D Petroleum •Natural Gas
Figure 3-15. Annual Growth in U.S. Trade Flows - Imports plus Exports (Global Insights)
10%
-O-Total
-*- Grade Oil
-•—Container
Chemicals
—*—General Cargo
-*— Petroleum
-Dry Bulk
"Natural Gas
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SECTION 4
ESTIMATING BUSINESS-AS-USUAL PROJECTIONS USING THE WORLD MODEL
A key component of Task #1 was to develop business-as-usual projections for bunker fuels.
This required enhancing an analytical tool focused on the petroleum-refining industry, i.e., the
EnSys WORLD model, to the point where it would provide a sound basis and starting point for
future analyses of the effects of potential SOX Emissions Control Areas in North America and
elsewhere, along with other possible global tightening of marine fuels qualities. These abilities
were required for a time horizon covering the years 2012 and 2020.
4.1 Overview of Enhancements to the WORLD Model
WORLD is a comprehensive, bottom-up model of the global oil downstream that includes
crude and non-crude supplies, refining operations and investments, crude, products and
intermediates trading and transport, product blending/quality and demands. Its detailed simulations
are capable of estimating how this global system can be expected to operate under a wide range of
different circumstances, and then generating model outputs including price effects and proj ections
of refinery operations and investments. As part of the overall model enhancements, the refinery
data, capacity additions, technology assumptions, and costs were reviewed (see Section 4.3).
Beyond these enhancements, the relevant regulations were thoroughly reviewed to ensure
that the WORLD model was correctly positioned to undertake future analyses of marine-fuels
SECAs. Issues brought to light in this review (discussed below) raise uncertainty over how
compliance with SECAs and other potential regulations may be achieved within the petroleum-
refining and shipping industries. The issues also tend to create an analytical situation that is less
clear and more complex than, for example, a mandate to move all U.S. gasoline to 30 ppm sulfur.
Among the issues and uncertainties considered are:
• the prospective timetable for reducing SEC A marine-fuel requirements from 1.5 to 1.0 to
0.5 wt% sulfur,
• the possible scenario of part or all bunker fuel demand shifting to marine diesel,
• costs and effects of vessel-based emission reduction strategies,
• how fast and how effectively abatement technology may mature,
• costs of refining including the capital expenditures required to reduce bunker-fuel sulfur
content and the potential for process technology improvements,
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• likely market reactions to increased bunker fuel costs - i.e., availability, impacts on the
overall transportation fuels balance and competition with land-based diesel and residual
fuels plus as feedstock for upgrading
• the effects of emissions trading, and
• the potential for bunkers sources and hence consumption - of both low and high sulfur
grades - to partially shift location depending on volume supply potential and economics.
The analytical system thus had to be set up to allow for alternative compliance scenarios,
particularly with regard to (a) adequately differentiating bunker fuel grades, (b) allowing for differing
degrees to which the SECA or other standards in a region were presumed to be met by bunker-fuel
sulfur reductions, rather than by other means such as scrubbing or emissions trading and (c) allowing
for all residual fuel bunkers demand to be re-allocated to marine diesel. Beyond any international
specifications, the analytical system needed to be able to accommodate future consideration of
regional, national, and local specifications (e.g., those being promulgated in California).
The primary approach taken to manage these issues was to (a) expand the number of
bunkers grades in the model to three distillates and four residual grades1, to (b) allow for variation
where necessary in (regional) sulfur standards on specific bunkers grades, and to (c) enable residual
bunker demand to be switched to marine diesel. The approach, nonetheless, necessitates estimating
- external to the main WORLD model - the details of compliance in any particular region. For
example, in the existing EU SEC As, what percentage of the bunkers consumption applicable to the
region will be met by low sulfur fuels versus using high sulfur fuels plus alternative methods such
as scrubbing or emissions trading (Appendix A provides a more detailed background on the options
for SECA compliance and how they are currently viewed in the model).
A main focus to date of debates about SECA regulations has been on the degree to which
the regulations will require refinery production of lower sulfur residual fuels. However, the SOX
scrubbing option raises the possibility that higher sulfur bunkers fuels could be supplied. The
MARPOL SECA standard states a scrubber SOx emission level of 6 gm/kWh, which is equivalent
to 1.5% sulfur content bunker fuel. Thus, a scrubber operating at 67% efficiency could enable a
ship to burn 4.5% sulfur fuel and still meet the 6 mg/kWh standard. Given that pre-commercial
scrubber tests on European ferries have been reporting efficiencies in the range of 65 to 95+%, the
technology could enable a supply option whereby refiners continue to supply high-sulfur IFO
1 Specifically, the following seven grades were implemented: Marine Gasoil (MGO), plus distinct high and low sulfur
blends for Marine Diesel Oil (MDO) and the main residual bunkers grades IFO 180 and IFO 380. The latest
international specifications applying to these fuels were used, as were tighter sulfur standards for the low sulfur
grades applicable in SECA's.
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bunker fuels at up to 4.5% sulfur- in other words, maintain or increase sulfur levels versus the
current world-wide average of 2.7%. With a scrubber operating at 95% SOX efficiency, a shipper
can easily surpass the possible EU 2008 standard of 2 gm/kWh using 4.5% sulfur fuel (versus
otherwise using 0.5% sulfur fuel). Even the standard of 0.4 gm/kWh (which corresponds to 0.1%
sulfur fuel for in port use) can be met using scrubbing and 2% sulfur fuel. This method of
compliance enables refiners to avoid the costs of desulfurization and shippers to buy lower priced
fuels. The route also potentially plays into emissions-trading schemes since, provided emissions
levels can be verified, a ship with a scrubber can reduce its emissions below the 6 or 2 gm/kWh
standards and realize credits and any associated economic value. On-board scrubbing also helps
reduce emissions of parti culates but has limited impact on NOx, hence- in part - the interest that
has been generated in using marine diesel in place of residual grades.
The analytical process therefore needed to be able to capture potential economic tradeoffs of
scrubber use in terms of how its impacts might feed back on refinery bunkers quality, supplies, and
economics. A scrubber "unit" could be built into the WORLD model in the future, but additional
information will need to be developed to allow accurate estimates of their costs and utilization
potential. More operational experience is required to fully gauge scrubber costs, including such
elements as onshore sludge disposal. Estimates to date, however, put the cost per ton of SOX
removal via scrubbing at around one third or less of the cost via residual fuel desulfurization
(Meech, 2006). Therefore, given this simple degree of cost difference, the WORLD model would
always opt for the scrubber route to the extent it was allowed. The net effect is that a key scenario
variable, developed external to the model (or in conjunction with cost functions developed for the
model), is the proportion of SECA-compliant regional bunker fuel that needs to be supplied in the
form of low sulfur product versus high sulfur product being scrubbed. The WORLD model is
readily capable of studying parametric effects associated with varying this proportion. The
development of specific premises for the base case SEC As is set out in Sections 4-2 and 4-3.
4.2 Bunker Fuel Forecasts Used in the WORLD Model Ball Analysis
The WORLD model has also modified to accommodate the bunkers demand forecasts
estimated in Section 3. These projections required appreciable re-thinking and re-working of the
model since the estimates of recent historical bunkers demand are twice the levels used by TEA and
EIA. This has far-reaching implications, leading to reduced current and future demands for inland
residual fuels and increased future total residual demands as bunkers demand growth is projected to
be significant, while that of inland residual is declining. The net implication of the findings in
Section 3 is that other forecasters, including IEA, EIA, OPEC, etc. are currently underestimating
future global residual and total oil demands. In order to accommodate these differing demand
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projections, and to enable their implications to be understood, the WORLD model was modified so
that it could be run for each time horizon on either an IEA bunkers or an "RTF bunkers basis.
Although the bunker fuel estimates in Section 3 (equal to 278 million tons in 2001) are
higher than LEA estimates of around 140 million tons, these findings are comparable to estimates
from other works - e.g., Koehler (2003) at 281 million tons or Corbett and Koehler (2003, 2004) at
289 million tons. Industry sources contacted by Navigistics Consulting indicated that there is no
agreement on world-wide bunker demands. Meech (2006) estimates world bunkers at 255 million
tons in 2004, and Madden (2006) places marine residual fuel use at roughly 185 million tons in
2004, based on data from Meech (2006).
Given the differences between the bunker fuel projections estimated in Section 3 and LEA
statistics or data from EIA:'s International Energy Annual 20032, it was necessary to incorporate
the "RTF' bunker estimates carefully into the WORLD model since, as discussed below, the
implications of the difference between these estimates and the IEA/EIA bases are far reaching.
During this process, when establishing an historical base within WORLD (for the 2000 base year),
the view was taken that total reported global oil demand - and with that total distillates and residual
fuels demands- are correct; therefore, that there is no issue of under-reporting of total historical
demand, ratherthe issues across bunker estimates represent a misallocation of residual fuels, i.e.,
fuel which is reported as (inland) residual fuel is in fact used as marine bunker fuel. The potential
for such misreporting is evident. For instance, statistical sources tend to show total bunkers demand
for the Middle East that is less than that for the port of Fujairah alone and show essentially nil
bunkers demand in the FSU. In the industry press, references can be found to the lack of
transparent reporting of bunkers sales/demands - see the illustrative text below:
' Table 3.1 in the International Energy Annual 2003 states that global bunkers demand was 3,443 mmbpd in 2002,
equating to 191 mmtpa.
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Excerpt from the BunkerWorld Library on Bunkers Ports
So how big is the Fujairah bunker market? There are no official data available regarding the size
of the Fujairah market, but according to Harbour .Master, Captain Tamer Masoud, from the Port
of Fujairah. the annual volume of bunkers in the area is approximately 12 million metric tonnes.
The average monthly supply volume of bunkers is around 1 million metric tonnes.
It is unclear whether this volume includes export figures. Some players appear to survive mainly
by exporting fuel cargoes, for example to nearby countries such as Pakistan for power stations.
In Fujairah, approximately 60-80 percent of the supplied bunkers is IFO380, and the rest is
divided between IFO180 and MGO, though it is difficult to estimate exact figures.
In the Arab Gulf, if we include sales from ports in Saudi Arabia, Iran, Kuwait, as well as other
UAE ports, the total volume of bunkers is well over 1 million mt per month. The Fujairah
market is definitely the largest single bunker market in this area.
Exactly how much the Fujairah bunker market accounts for is. it transpires, a subject of much
dispute - with established players worried that newcomers and relative 'outsiders' have an
unrealistic view of the market size and its potential profit margins.
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In terms of simulating the global oil downstream today, a potential misallocation between
bunkers and inland fuel is not significant since the ultimate fuel volumes and qualities are not
affected. However, this changes when future years are considered. This is because the growth rate
for inland residual fuel is essentially 0% globally, whereas for marine bunkers it is around 3% p.a.
in the RTI and other projections. (The RTI bunkers growth rate is consistent with an historical
growth rate of 2.7% p.a. in EA data from 1983 to 2003).
Petroleum product demand projections are built up sector by sector. What appears to be
happening in current forecasts, on the basis of the bunker estimates from Section 3 and the related
works, is that total inland residual fuel demand is being overestimated - but its demand growth is
flat- and total bunkers demand - with its attendant appreciable growth rate - is being
underestimated. The net effect/implication is that today's oil demand projections by EIA, IEA, and
others underestimate total future bunkers demand, residual demand and global oil demand.
Table 4-1 and Figure 4-1 show the impacts on 2003, 2012 and 2020 oil demand projections,
based on AEO 2006 Reference case, of applying LEA and alternatively the "RTI" estimates of
bunkers. Both bases have the same growth rates for each product type as listed in Table 4-2.
Table 4-1. Global Oil Demand by Product Category - IEA and RTI Bases for Bunkers
Bunkers Basis
DEMAND BY PRODUCT TYPE
ETHANE
LPG
NAPHTHA
GASOLINE
KERO/JET
GASOIL/DIESEL/N02
GASOIL/DIESEL - BKRS - MGO
GASOIL/DIESEL - BKRS - MDO
RESIDUAL - INLAND INCL RFO
RESIDUAL - BKRS - IFO180
RESIDUAL - BKRS - IFO380
OTHER
TRANSPORT LOSSES
TOTAL OIL DEMAND
TOTAL DISTILLATES DEMAND
TOTAL RESIDUAL DEMAND
2003
IEA
1.11
6.71
4.63
21.03
6.33
21.19
0.02
0.43
8.20
0.31
2.01
7.49
0.18
79.64
21.63
10.52
2003
RTI
1.11
6.71
4.63
21.03
6.33
20.25
0.18
1.16
6.67
0.55
3.48
7.49
0.18
79.78
21.60
10.70
2003
impact
of switch
to RTI basis
0.00
0.00
0.00
0.00
0.00
(0.94)
0.16
0.74
(1.53)
0.24
1.47
0.00
0.00
0.15
(0.03)
0.18
2012
IEA
2012
RTI
2012
impact
of switch
2020
IEA
to RTI basis
1.60
7.82
5.83
23.40
7.43
26.59
0.02
0.53
8.28
0.40
2.67
8.57
0.21
93.35
27.14
11.35
1.60
7.82
5.83
23.40
7.43
25.36
0.19
1.47
6.83
0.76
4.77
8.57
0.21
94.23
27.01
12.36
0.00
0.00
0.00
0.00
0.00
[1.23)
D.17
D.94
11.46)
D.36
2.10
0.00
0.00
D.88
10.13)
1.01
1.82
8.56
6.88
25.20
8.07
30.59
0.02
0.61
8.17
0.47
3.23
9.83
0.24
103.70
31.22
11.87
2020
RTI
2020
impact
of switch
to RTI basis
1.82
8.56
6.88
25.20
8.07
29.15
0.19
1.73
6.84
0.95
5.92
9.83
0.24
105.38
31.07
13.71
0.00
0.00
0.00
0.00
0.00
[1.44)
0.17
1.12
11.33)
0.48
2.69
0.00
0.00
1.68
10.15)
1.84
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Impact of RTI Bunkers Projections on Global Oil Demand 2020
DGASOIL/DSL
•BKRS-MGO
• BKRS-MDO
• RESIDUAL-INLAND
• BKRS-IFO180
• BKRS-IFO380
D
DTOTAL OIL
D TOTAL DISTILLATES
• TOTAL RESIDUAL
Figure 4-1. Impact of RTI Bunkers Projections on Global Oil Demand in 2020
Table 4-2. Product Growth Rates
PRODUCT GROWTH RATES
Basis RTI Bkrs Projections
ETHANE
LPG
NAPHTHA
GASOLINE
KERO/JET
GASOIL/DIESEL/N02
GASOIL/DIESEL - BKRS - MGO
GASOIL/DIESEL - BKRS - MDO
RESIDUAL - INLAND INCL RFO
RESI DUAL- BKRS -IF01 80
RESIDUAL - BKRS - IFO380
OTHER
TRANSPORT LOSSES
TOTAL OIL DEMAND
1 . WORLD base demand year is 2000
2000(1) to
2012
2.06%
1 .99%
2.53%
1 .46%
1 .25%
2.51%
0.13%
2.73%
0.09%
3.61%
3.59%
1 .21 %
1 .50%
1 .82%
2020
1 .89%
1 .65%
2.36%
1 .25%
1.17%
2.21%
0.20%
2.46%
0.06%
3.30%
3.25%
1 .42%
1 .50%
1 .66%
It can be seen that total demands for other products such as gasoline and naphtha are not
affected. Total distillate demand is slightly impacted, but there is a significant shift under the "RTF'
basis to distillate bunkers grades with less land based diesel. The main impacts are on product
quality since on-road and off-road diesel specifications are advancing more rapidly towards low and
ultra-low sulfur levels than are marine distillate fuels. Demand for residual fuel is also significantly
modified. Under the "RTF' basis, it is 1.0 mmbpd higher in 2012 (bunkers and inland grades
combined) and for 2020, the figure is 1.84 mmbpd. The implication is that the FEA basis for
bunkers understates future global oil demand; by 0.9 mmbpd in 2012 and 1.7 mmbpd by 2020
versus the AEO Reference demand figures.
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The increase in residual demand will materially impact total refining investments and
economics as well as increase oil supply requirements, most likely the call on OPEC to produce
additional crude. Of further significance is that, with higher volumes of bunker fuels, the impacts
of marine fuels regulations and SEC As will be correspondingly greater, in terms of volumes of
marine fuels that may have to be produced to low sulfur standards and the associated impacts on
refining investments and supply economics.
To deal with these bunkers demand projections, and also to accommodate potential SEC A
scenarios including differing assumptions about the degree to which SOX targets are met by fuel
sulfur reduction versus abatement and trading, the WORLD model was modified so that it could (a)
work with oil demand projections on both IEA and RTI bases for bunker fuels and (b) could
accommodate user-specified proportions of low sulfur distillate and residual marine fuels for any
horizon and region. In addition, the model user has the ability to set the sulfur level for each
horizon and region for each high and low sulfur fuel, e.g. to capture potential progression under the
EU SEC As from 1.5% to 0.5% sulfur.
Another facet of marine bunkers demand is that shippers have flexibility in terms of where
they bunker, i.e., unlike other fuels demands, that for bunkers is not necessarily static and can shift
to some degree from region to region. This phenomenon is part and parcel of the daily bunkers
business and buyers shift their buying based on a few dollars a ton price differences. For Task 1,
this situation was recognized but bunkers demands were kept static, i.e. no feature was introduced
to partially shift demand toward regions where supply is cheapest.
4.3 Bunker Fuel Stability
During the early stages of the study, concerns were raised about the potential impact of
quality and compositional changes on the stability of the residual bunker fuel grades. To quote the
refining technology author, Robert Maples, "ENTER QUOTE HERE". Literature research was
undertaken and knowledgeable individuals contacted in industry to ensure a sound understanding of
fuel stability issues as a basis for ensuring the WORLD model processing and blending options
were consistent with stable IFO blends.
Fuel instability is a serious and not uncommon issue in bunkering. It centers on the
asphaltenes contained in the blend precipitating out. This renders the fuel unusable and - if already
on-board - the only remedy is to de-bunker the ship. The presence in the blend of different classes
of blendstocks act to either prevent or cause precipitation of asphaltenes:
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• The primary "bad actor" with regard to causing instability is the presence and
concentration of visbroken vacuum residuum fractions. These have high asphaltenes
content and are generally limited in IFO blends.
• Similarly, asphaltic heavy residuum fractions are potentially problematic
• The tendency for asphaltenes to precipitate out is exacerbated by the presence in the
blend of paraffin!c streams, such as paraffin!c distillate or vacuum gasoil cutter
stocks. These act to strip the ???? coating from the asphaltenic compounds, causing
them to precipitate.
• Conversely, the presence of aromatic stocks, notably FCC cycle and decant/slurry
oils, has the reverse effect. These are beneficial and regarded as important
components on bunkers blends as they create a "reserve of stability" which acts to
reduce the risk of asphaltene precipitation.
Contacts with knowledgeable industry experts on bunkers confirmed that there is a degree of "black
art" in bunkers blending in that refiners and blenders learn what blends work and stick to these.
Further, the blending "art" is highly refinery-specific. While it was not possible within the
WORLD model to capture differences between individual refineries, steps were taken to prevent the
model from producing IFO blends that could tend to be unstable. The main factors reviewed and
steps taken were as follows:
• The visbreaker yields in the model were reviewed and adjusted. Data from Maples states
that the propensity for visbreaker vacuum residuum product streams to be unstable is highly
dependent on the feed asphaltene content, hence that - to maintain stability - the heavier,
more asphaltic feeds need to be processed at reduced severity relative to less asphaltic
feeds. This view was reinforced by bunkers experts. Again, according to Maples, who
undertook a specific study of visbreaking and fuel stability, the typical range of conversion
is 8-12% where the objective is to maximize distillate production and 6-10% where it is to
reduce resid viscosity, with an overall observed conversion range of 4-16%. To reflect
these ranges and to establish a conservative set of visbreaker yields across vacuum resids
from low to high sulfur/asphaltene contents, a graduated set of yields was applied.
Conversion was inversely related to residuum quality such that it was limited to 6% for the
poorest quality resid, rising to 10% for the highest quality feed. In addition, visbreaker
utilities consumptions and capital cost were checked.
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• The vacuum and atmospheric residuum hydro-desulfurizer yields, utilities and costs
were reviewed. With the prospect of lower IFO sulfur limits, the VRDS and ARDS units
gain additional importance. Feedback from industry contacts and literature research was
that - for purposes of maintaining stability in residual fuel blends- VRDS/ARDS operating
severities should not be so severe as to cause significant hydro-cracking. Information from
Meyers and others sources indicated a typical percent desulfurization range from the high
80s to 95-97%. Yields and desulfurization levels in the model were adjusted to close to
90% in order to stay in the conservative range.
• The physical properties of the potential main IFO blend components were reviewed with
particular attention paid to gravity, sulfur, carbon residue and viscosity. Adjustments were
made to the viscosities of several vacuum and atmospheric residuum streams. These had
been previously over-stated, leading to excessive levels of distillates and cracked-stocks in
early case run blends.
• Carbon residue specification was added as a control against unstable blends
• The blendstocks allowed into the IFO blends were also reviewed. All kerosene type
blendstocks were checked as blocked from residual fuel blends (inland as well as bunkers).
Similarly all paraffmic middle distillate and vacuum gasoil stocks were blocked from
residual blending. Cracked stocks, notably FCC cycle and clarified oils were allowed into
all residual blends but concentrations limited to a maximum of 25% based on literature
research and industry feedback. Visbroken vacuum residuum streams were limited to
maximum 10% regional average3, again based on feedback. The overall intent here was to
prevent the model from producing blends that could be readily unstable.
• Fuel stability additives were considered but were not included in the modeling analysis.
Reputable suppliers do make available additive packages designed to improve fuel stability.
However, they are not universally used for marine bunker fuels. Major oil company
suppliers are known to not use additives. Also, feedback from industry experts was
skeptical in terms of the degree of reliance that could be placed on such additives to prevent
fuel stability issues. Thus they were excluded from the analysis. At worst, this may mean
the analysis slightly understates the costs of future bunker fuels by omitting the cost of the
additive package.
3 The limits on visbroken resids and also on cracked stocks are regional averages. Therefore, they allow that, in the real
world individual blends/suppliers would have levels either higher or lower.
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4.4 Model Reporting
Given the importance attached to fuel stability and the focus of the study on bunker fuels,
the WORLD model reports were extended to directly summarize the regional blend compositions of
each residual grade (inland and bunkers). Thus, any anomalous blends could be more easily
identified.
In addition, since GHG emissions are becoming part of the debate on bunker fuels, a
recently added feature to post-optimally report the CO2 emissions from each world refining region
was activated. This enabled quantitative comparison of the effects of moving to more intense
processing of bunker (or other) fuels to achieve lower sulfur and/or shift to distillate grades.
4.5 WORLD Model Assumptions and Structural Changes
The following table summarizes these, and other, changes made to WORLD model structure
and features for this analysis, followed by additional discussions of the specific premises used as
the basis for the 2012 and 2020 BaU cases.
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Table 4-3. Summary of Structural Changes to the WORLD Model
Product Grades
The distillate and residual fuel specifications in the model were expanded to
fully differentiate international marine bunkers from inland fuels and to
enable clear distinctions between "traditional" and low sulfur bunkers
grades. The resulting model bunkers grades were:
• MGO - marine gas oil
• MDO - marine diesel, high sulfur
• MDO - marine diesel, low sulfur
• IFO 180-high sulfur
• IFO 180-low sulfur
• IFO 380-high sulfur
• IFO 380-low sulfur
Notes:
1. Only one grade of MGO was represented per region on the basis that
demands for MGO are small and mainly restricted to local ship
movements, hence any change in specification would apply to the whole
MGO volume for the region
2. separate low and high sulfur grades were implemented for the main
bunkers grades precisely to correctly capture the processing, blending and
economic effects of regions moving partly or fully to low sulfur
specifications
3. In reality, there is a trend in the market for "IFO 380" grade to be
displaced by IFO 500 and even 700. The approach was taken to simply
tighten the "IFO 380" viscosity specification where appropriate to
represent this. This approach is adequate since the reduction in distillate
cutter stock needed in the blend when gong from 380 to 500 or 500 to 700
centistokes is small as is the associated cost impact
4. the above grades were used to represent international or "blue water"
consumption of bunker fuels. Domestic uses of marine bunkers (primarily
distillates) were accounted for under the corresponding inland diesel or
residual fuel categories. See also below for discussion of bunker demand.
Product Specifications
The following specifications were already active in the model:
• MDO:
• IFO:
To these the following were added:
• Carbon residue - in order to prevent any inappropriate blends for
MDO or IFO grades
• Nitrogen - to cover the possible need to study nitrogen as a
component of NOx regulation. Not activated in BAU cases.
The following were considered but not added:
• Vanadium was not added as (a) it appears to be a rarely limiting
specification and (b) because to add it in would have entailed
significant model modifications
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Product Transportation
Product transportation matrices covering tanker, inter-regional pipeline and
minor modes were expanded to embody the additional distillate and residual
bunkers grades
Bunker Fuel Demand
A new model sub-system was built to import the RTI bunker fuel demand
projections. Given the differences between the RTI and TEA levels of
demand, the model was set up so that it could be run on both bases. Under
the RTI basis, global residual fuel demand is the same as that based on IEA
for the 2000 base year, but for forward years leads to an increase in total
global demand oil demand, i.e. upward adjustments versus the AEO 2006
Reference Case projections for 2012 and 2020
Fuel Stability
As detailed above, yield patterns on the residuum desulfurization and
visbreaker units were adjusted and paraffmic streams were locked out of
residual fuel blends.
Model Reports
Reports were added for blend composition of residual fuels and also for
reporting of refinery CO2 emissions.
4.5.1 AEO 2006 Outlook - Supply/Demand/Price Basis
Overall, oil supply, demand, and price parameters were set in the model based on the AEO
2006 Reference Case as summarized in Tables 4-4 and 4-5. Detailed supply premises, including
production by crude type by country/region, were based on internal WORLD model data and
projections. Non-crudes supply in the model is detailed by major fuel type and region. Projections
were set based on in-house data and also with reference to detailed EIA data.
Product demands for 2012 and 2020 were set using a year 2000 basis of historical data by
product type with growth rates by region and product. These growth projections are believed to be
broadly in line with those of other current forecasts, e.g., strongest growth for distillates among the
major fuel categories including continuing dieselization in Europe, emphasis on distillates in
Asia/China, no major shifts in USA transport fuels patterns (i.e., to diesel from gasoline),
essentially flat growth for inland residual fuel consumption, and significant growth for naphtha and
LPG.
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Table 4-4. AEO 2006 Petroleum Supply Forecast
Table 20. International Petroleum Supply and Disposition Summary
(million barrels per day, unless otherwise noted)
Crude Oil Prices (2004 dollars per barrel)
Imported Low Sulfur Light Crude Oil Price 1
Imported Crude Oil Price 1/
Production (Conventional) 21
Mature Market Economies
United States (50 states)
Canada
Mexico
Western Europe 3/
Japan
Australia and New Zealand
Total Mature Market Economies
Transitional Economies
Former Soviet Union
Russia
Caspian Area 4/
Eastern Europe 5/
Total Transitional Economies
Emerging Economies
OPEC Ql
Asia
Middle East
North Africa
West Africa
South America
Non-OPEC
China
Other Asia
Middle East 71
Africa
South and Central America
Total Emerging Economies
Total Production (Conventional)
Production (Nonconventional) 8/
United States (50 states)
Other North America
Western Europe
Asia
Middle East
Africa
South and Central America
Total Production (Nonconventional)
Total Production
2005
55.93
49.70
8.33
2.45
4.13
6.68
0.14
0.64
22.37
9.61
2.36
0.26
12.23
1.44
22.25
3.07
2.01
2.88
3.17
2.59
1.71
3.67
4.36
47.15
81.74
0.25
0.96
0.04
0.31
0.02
0.13
0.73
2.44
84.18
2012
47.65
43.59
9.51
1.56
4.06
5.64
0.08
0.86
21.71
9.65
3.47
0.32
13.44
1.45
25.09
3.50
2.44
3.48
3.30
2.50
2.15
3.97
4.62
52.49
87.65
0.63
1.98
0.10
0.83
0.57
0.28
1.32
5.71
93.36
2020
50.70
44.99
9.51
1.45
4.48
5.22
0.07
0.84
21.58
10.66
5.16
0.39
16.21
1.26
26.99
3.70
2.61
3.70
3.33
2.61
2.45
5.41
5.83
57.89
95.68
0.94
2.67
0.12
1.25
0.73
0.53
1.78
8.02
103.70
2004-
2030
1.3%
1.3%
0.2%
-2.0%
0.8%
-1.7%
-2.8%
0.7%
-0.3%
0.7%
4.6%
2.5%
1.9%
-0.9%
1.5%
0.6%
1.7%
1.5%
0.0%
-0.5%
1.9%
3.2%
2.0%
1.4%
1.1%
7.6%
5.4%
6.4%
9.4%
18.3%
9.4%
6.1%
7.1%
1.4%
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Table 4-5. AEO 2006 Petroleum Supply Forecast - continued
Table 20. International Petroleum Supply and Disposition Summary
(million barrels per day, unless otherwise noted)
Consumption 97
Mature Market Economies
United States (50 states)
United States Territories
Canada
Mexico
Western Europe 37
Japan
Australia and New Zealand
Total Mature Market Economies
Transitional Economies
Former Soviet Union
Eastern Europe 57
Total Transitional Economies
Emerging Economies
China
India
South Korea
Other Asia
Middle East 11
Africa
South and Central America
Total Emerging Economies
Total Consumption
OPEC Production 107
Non-OPEC Production 107
Net Eurasia Exports
OPEC Market Share
20.82
0.34
2.17
2.01
13.55
5.17
1.10
45.17
4.16
1.42
5.59
7.35
2.53
2.26
6.37
6.32
3.12
5.49
33.43
84.18
32.15
52.03
6.64
0.38
22.82
0.34
2.14
2.15
13.38
4.72
1.18
46.74
4.58
1.64
6.22
9.09
3.08
2.44
8.06
7.39
3.78
6.56
40.40
93.36
37.34
56.02
7.22
0.40
24.81
0.38
2.25
2.24
13.52
4.40
1.28
48.89
4.93
1.87
6.81
11.38
3.81
2.57
9.85
8.34
4.31
7.75
48.01
103.70
40.27
63.43
9.40
0.39
1.1%
1 .2%
0.3%
0.5%
0.2%
-0.9%
1 .2%
0.6%
1.0%
1 .6%
1 .2%
3.2%
2.7%
0.7%
2.6%
1.7%
1.9%
2.1%
2.3%
1 .4%
1.5%
1.3%
2.4%
0.2%
4.5.2 Product Quality
The 2012 and 2020 Ball cases were on the basis of a "best estimate" of fuels quality, given
implementation of already active regulations and continuation of current product-quality trends.
Specific premises built in to the cases were as follows:
Industrialized World
USA / Canada / Europe / Japan / Australasia
• Gasoline, on-road and off-road diesel ultra-low sulfur regulations are fully in place by the
2010/2011 timeframe, i.e., before 2012 with an essentially total phase-out of non ultra low
sulfur gasolines and diesel fuels.
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• Gasoline clear pool octanes remain flat.
• MTBE phase-out is completed in the US in 2006, and the RFS is in place.
• MTBE assumed not phased out in other world regions.
• Regulations that impact other fuels qualities, such as EPA toxics "anti-backsliding", Euro V,
CARBIII are in place.
• Consumption of high sulfur inland residual fuel entirely replaced by low sulfur (1% or less).
Non-OECD Regions
• Completion of lead phase-out in gasoline.
• An overall gradual upward trend in regional pool octanes such that, by 2020, all non-OECD
regions are within 1 octane or less of US 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, even slightly declining, octane levels.
• Progressive adoption of advanced (generally Euro II/III/IV) fuels standards for transport
fuels such that a moderate proportion of transport fuel demand has reached advanced
standards by 2012 and the majority by 2020.
• A gradual/partial trend toward mandates for low sulfur residual fuel for inland use.
4.5.3 Residual Fuel for Industrial/Inland Use
As the result of trends across both OECD and non-OECD regions, the global percentage of
low-sulfur industrial/inland residual fuel (less than 1% sulfur content) rises from an estimated 41%
in 2000, to 52% in 2012, and 63% in 2020. Thus, the basis is that these progressive shifts toward
low residual sulfur will be occurring in addition to parallel shifts toward lower sulfur residual
bunkers fuels (to the extent SECA regulations are met by sulfur reduction). The same is true for
distillates, where the continuing global trend toward low and ultra-low sulfur standards for on- and
off-road diesels will be occurring over the same time frame as the shift to tighter sulfur standards
for marine distillate bunkers.
4.5.4 Biofuels
The AEO 2006 Reference Case contains large increases in U.S. and global biofuels
production. Initial WORLD case projections were set at total global supply/demand of 1.5 mmbpd
of biofuels by 2012 and 1.8 mmbpd by 2020. These were later refined based on more detailed
analysis and projections contained in the TEA World Energy Outlook, 2006, released in November
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2006 as summarized in Table 4.6. At 1.4 mmbpd for 2012 and 1.94 mmbpd for 2020, these
projections are similar to the original AEO numbers.
Table 4.6 Projected Biofuels Consumption
Projected Biofuels Consumption
Source: IEA World Energy
Outlook 2006, Chapter 14 &
ethanol consumption
OECD
North America
United States
Canada
Europe
Pacific
Transition economies
Russia
Developing countries
Developing Asia
China
India
Indonesia
Rest of Dev Asia
Middle East
Africa
North Africa
Rest of Africa
Latin America
Brazil
World
2005
274
258
254
4
16
17
5
277
579
2012
785
482
465
17
298
5
2
2
0
0
9
2
3
11
1
8
0
7
0
275
1094
kbpd
2020
1060
608
585
23
444
8
2
2
0
0
26
5
6
22
2
16
2
14
0
382
1523
Tables 14.1, 14.2, 14.4
biodiesel consumption
2005 2012
61 231
5 68
5 66
0 2
56 160
3
1
1
0
0
14
3
5
17
2
12
0
11
0
1 22
62 306
kbpd
2020
253
83
78
5
164
6
1
1
0
0
40
8
9
34
3
25
3
22
0
39
413
Recent oil price rises and energy security concerns have spurred numerous biofuels projects
and legislative incentives in the USA, Europe and elsewhere. The IEA projection used was taken
from their Reference Scenario, not the Alternative Scenario which had more aggressive biofuels
growth projections. According to the IEA Reference Scenario, the United States, Brazil and Europe
will continue to dominate biofuels supply and consumption. In both the USA and Brazil, the IEA
projects that the proportion of biodiesel will slowly rise. Conversely, the LEA estimates that, in
Europe, where biodiesel currents comprises 84% of total biofuels supply, the proportion will drop
steadily as the main growth is expected to lie in ethanol production. Based on LEA and other data,
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current biofuels supply and consumption is assessed at approximately 75% Northern Europe
(dominated by Germany and secondarily France), 20% Southern Europe (mainly Italy and Spain),
5% Eastern Europe. These proportions were assumed to remain constant throughout the period to
2020. According to the TEA, Europe's growth in biofuels supply will result in these fuels
constituting around 4.9% of total transport fuel demand by 2010, versus a declared EU target of
5.75%. The 2020 biofuel volumes correspond to around 7.5% of European transport fuel demand
as projected in the WORLD BAU case. Relatively small volumes of biofuels are projected by TEA
to be forthcoming in Asia (led by China) and Africa. In the WORLD cases, the majority of these
biofuels were projected to be biodiesel.
Total U.S. plus Canada biofuels production was projected to reach 0.69 mmbpd by 2020,
dominated by ethanol. Ethanol was allowed to be used in RFG by adding to RBOB's at either 0%,
5.7% or 10% ethanol by volume (maximum 5.7% for CARB RFG). Additional ethanol was allowed
to be absorbed in CG at concentrations up to 3.7 wt% maximum oxygen content. In reality, a small
but increasing volume of ethanol looks likely to be sold as "E85" type gasoline. Consideration was
initially given to modeling E85 as a distinct grade but the decision was made to not model it
explicitly.
4.5.5 Regional Bunker Demands
As discussed above, the WORLD model was set up so that it could be run under both IEA
and "RTF (see Section 3) premises for bunker fuel base demand and growth. A two step procedure
was adopted. Firstly, the bunkers basis was set to "LEA" and overall and regional oil supply and
demand projections were matched to the AEO 2006 Reference Case for either 2012 or 2020,
respectively 93.4 and 103.7 mmbpd. Then, the bunkers basis was reset to "RTF'. This led to an
increase in total residual and total oil demand, which was met by rebalancing supply through raising
OPEC production.
The bunkers demand projections were taken directly from findings discussed in Section 3.
A primary issue here entailed the regional allocation of bunkers consumptions, given that the base
2003 IEA bunkers demand totaled 145 mmtpa and the "RTF' demand is estimated at 305 mmtpa.
Table 4-8 summarizes 2003 bunkers demands per LEA and the findings in Section 3 ("RTF') and
then projections for 2012 and 2020. As can be seen, judgment was applied to allocate the 157
mmtpa delta in demand. All regions were increased versus LEA forecasts, but with the major
increases in non-OECD areas. The regional allocations were driven in large part by the trade flows
built in to the shipping model developed in Section 3. The allocation was also considered logical on
the basis that bunkers fuel demands are less likely to be accurately separated out and reported in the
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national statistics of non-OECD regions. As discussed above, there is open acknowledgement that
bunkers consumption data are incomplete. For instance, IEA data report bunkers demand for Africa
at a total of only 9.5 mmtpa or 6.4% of global bunkers demand. However, BunkerWorld data on
ports and companies active in bunkering list some 93 bunkering ports spread across 38 countries in
Africa and with often several suppliers active in each port. This does not seem consistent with data
indicating only minimal bunkers consumption. Note that the situation regarding these statistics and
estimation reinforces that the regional allocations of bunkers demands used in the BaU cases are
approximate and that further work could be pursued to arrive at more rigorous values.
Table 4-8. World Regional Bunker Sales
World Regional Bunkers Sales mmtpa
Bunkers Sales
WORLD 2003 2003 Comparison RTI vs IEA
region
basis
USEC
USGICE
USWCCW
GrtCAR
SthAm
AfWest
AfN-EM
Af-E-S
EUR-No
EUR-So
EUR-Ea
CaspRg
RusFSU
MEGulf
Paclnd
PacHi
China
RoAsia
World
IEA
6.0
8.9
5.5
4.5
5.4
1.2
4.6
3.7
32.4
14.9
0.5
0.0
0.4
10.3
6.1
37.6
5.4
0.3
147.8
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
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
Percent
124%
130%
152%
260%
312%
186%
265%
194%
131%
182%
293%
0%
1865%
242%
421%
152%
587%
2853%
206%
Bunkers Sales
2012 2020
Growth Rates to
2012 2020
from 2003
RTI
9.5
14.7
10.7
15.9
21.0
2.7
14.5
8.7
52.8
34.8
2.0
0.0
10.3
31.8
29.0
69.4
66.5
12.0
406.2
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
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%
RTI
2.4%
2.4%
2.3%
3.7%
2.1%
1.5%
1.6%
2.0%
2.1%
2.7%
3.7%
2.5%
2.8%
2.3%
1.2%
1.9%
7.1%
2.5%
2.9%
where:
USEC is U.S. East Coast
USGICE is U.S. Gulf Coast and Interior, plus Eastern Canada
USWCCW is U.S. West Coast, plus Western Canada
GrtCAR is the Greater Caribbean
SthAm is South America
AfWest is Africa West
AfN-EM is Africa North and the Mediterranean
Af-E-S is Africa East and South
EUR-No is Europe North
EUR-So is Europe South
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• EUR-Ea is Europe East
• CaspRg is the Caspian Region
• RusFSU is Russia/Former Soviet Union
• MEGulf is the Middle East Gulf
• Paclnd is Pacific Industrialized
• PacHi is Pacific High Growth
• China is China
• RoAsia is Rest of Asia
4.5.6 Regulatory Outlook for Bunker Fuels
Primary Bunker Quality Regulations
For the Ball cases, the bunkers demand and quality basis was that existing regulations
would apply, but that there would be no additional regulations, thus setting the modeling framework
for later subject cases to quantify the impacts of U.S. SEC As, etc. Specifically:
• MARPOL Annex VI (ISO 8217 2005) specifications were applied to all international
distillate and residual bunkers as set out in Figures 4-2 and 4-3. MGO specifications were
taken from those for DMA and the MDO specifications from DMC. Based on industry
advice, buyers almost exclusively opt for the higher grade versions of IFO180 and 380.
These are the ISO8217 2005 grades RME and RMG respectively (rather than RMF and
RMH). RME and RMG have tighter specifications for carbon residue and vanadium. The
carbon residue specifications, at 15 and 18 respectively, were activated in the model to
provide a limit on possible future degradation of IFO quality. Carbon residue was also
activated on the DMC MDO blend, even though this is likely to play less of a role as sulfur
limits on MDO are tightened.
• The EU Baltic and North Sea SECAs take effect in 2006 and therefore were applied. They
were, however, "locked" at the 1.5% sulfur level, even though current EU initiatives make it
clear that the intent is to achieve the equivalent of 0.5% sulfur fuel across a broad swath of
EU waters by 2012. Note, the ISO8217 2005 specification explicitly allows for the 1.5%
sulfur grades in SECAs.
• Regulations currently being finalized were applied to California bunkers consumption.
There are two regulatory tracks under way in the state which will be examined as part of the
future subject cases. Firstly, CARB is considering additional bunker fuel regulation.
Specifically, the CARB rule under which both MGO and MDO in California Regulated
Waters used in auxiliary engines must comply with a 0.5% sulfur maximum was included in
the 2012 and 2020 BAU cases. CARB is evaluating further tightening of PM, NOX, and SOX
limits on auxiliary engine emissions, including a possible 0.1% limit for MGO by January
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2010, with analysis due by July 2008. In addition, the port authorities for Long Beach and
Los Angeles have finalized their own plans which go beyond the CARB regulations. The
San Pedro Bay Ports Clean Air Action Plan contains measures to require ships to use marine
gasoil (MGO) with a sulphur content of less than 0.2% in their main and auxiliary engines
within a 40 nautical mile zone. The regulations will either be implemented fully in
2007/2008 or will be applied more gradually through 2011 as shipping companies' lease
agreements are renegotiated. A report on the legality of the ports' plans by the California
Office of Administrative Law is due by December 5 2006. Note, these regulations replace
use of IFO fuels with the highest quality marine fuel MGO, not MDO.
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Table 4-9. Summary of Bunkers Sulfur Specifications Used for 2012 & 2020 BAU Cases
Annex VI Percent of N WE Percent of SECA Fuel
/ISO8217 EU Bunkers Under Requirement Met by
2005 SECAs SECA LSFO
MGO
MDO
IFO 180/3 80
California
MGO/MDO
1.5%
2.0%
4.5%
0.2% (1)
1.5%
1.5%
CA
Jan
2007
Reg
0.5%(2)
2012 2020
50% 50%
50% 50%
50% 50%
Percent of Model's
USWCCW Region
MGO/MDO Under
CA Jan 2007 Reg
75% 75%
2012
95%
95%
95%
Percent
MGO/MDO
2020
80%
80%
80%
ofCA
Under Jan
2007 Reg Met by LSFO
95%
80%
Notes:
1. EU has proposed tightening MGO to 0.1% from 2008. BaU case is on basis of 0.2%.
2. CARS has proposed tightening the MGO regulation to 0.1% by January 2010. 0.5%
was used in the BaU cases.
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Characteristic
Density at 15 !C
Viscosity at 40 "C
Fiash point
Pour point (upper) c
— winter quality
— summer qually
Ooud oosnt
Sulfur
Cetane index
Carbon residue
on !0%{V/V) distillation
bottoms
Carbon residue
Ash
Appearance1
Tola! sed'Ttent. existent
Water
Vanadium
AluTuniurn plus Silicon
Used luoncatina oil (ULO)
- Zinc
- Phosphorus
- Calcium
Unit
kg.'rr
rnm~/s b
T,
°C
°c
% M'O
—
% f'DI^ii)
% (!n/!i;i
% frn^i!)
—
% (m/mi
% ilW}
mg/kg
mg.'kg
nng/kg
Tig/kg
mg/kg
Limit
max
min
max
mm
nin
nax.
max.
max.
max
riin
nax
max.
max.
-
max.
max.
max.
max.
max
max
max.
Category ISO-F-
DMX
-
1,40
5,50
43
-
-I6d
1.00
45
0.30
0.01
DMA
8900
1.50
6,00
60
- 6
0
—
1,60
vs f jei is suitable tor use -.vtho.it heating at ambier: temperatures dovn to ~ It :C.
* A su '"ur ! mrt of 1 .5 % 0^'w; ^silS apply -r) SO, emission con^o; areas designated ay the ntemstioial Mantle Organization, whei
rts ^eevart protocol enters nto 'orce T^iere may as 'oca variations, for example ^*e EU 'equ-'ss that su?p^ur content of certain distillate
grades be mited to C 2 % ff*,V! in certa-'i app fcations See C 5 ana reference "7\
]' tne sample s c ear a'xJ -.v "ji -x> * sible sed nsent or -.vate', tie totai sedr^enl existent and y*atei tests snail not be required -See
7 4 and 1 5
g A ^ue; sha? be considered to se sr@e of used lLDricatin9 oils (LLOs) f' one or more 0* the elements liix:. phosphorus and calcium
are beic* 01 at (he specrf «*d imits All th'ee etemsrts sholl exceed the same limrts tsefon? a f ,» shall be deemed to ccntai'i ULOs
Figure 4-2. Requirements for marine distillate fuels
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I 0
S o
is
2=»
is
Ho
£ »
Figure 4-3. Requirements for marine residual fuels.
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S
1
Figure 4-3 (continued). Requirements for marine residual fuels.
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EUSECA Compliance
A decision process was followed to set up the 2012 and 2020 premises related to the EU
SEC As (essentially the same process will need to be followed for all other SEC As studied in the
future). The WORLD model contains projections of total bunkers demand broken down into MGO,
MDO, IFO180 and IFO380; thus demand in the North Europe region. The first step in the process
was to assess the proportion/volume of each type of bunker fuel that would fall under the SEC A
standard (Baltic plus North Sea in this instance) within the region. For the two North Europe
SECAs, this was estimated at 50%, equivalent to 26mmtpa total in 2012.4 Secondly, an assessment
was made regarding how much of the affected fuel would be low sulfur, i.e., what part of the SEC A
fuel requirement would be met by this means, rather than through abatement (or emissions trading).
For 2012, the base premise was that 90% of the bunker fuel would be low sulfur; for 2020, 60%.
The underlying rationale was that abatement technology needs time to be proven commercially and
to be taken up by the shipping fleets. This will constrain the proportion of SECA requirements that
can be met by abatement (or emissions trading) in 2012, but by 2020 its potential expands. These
premises can readily be altered and need to be in the future subject cases to examine the
refining/supply impacts of growing SECA areas and tightening emissions standards with alternative
compliance scenarios.
For California, the proportion of the MGO/MDO in the WORLD model region called
USWCCW needing to comply with the California regulation was estimated at 75%, i.e., that
California's economy, trade, and shipping dominates this West Coast region. It was further
estimated that, of this, 90% of compliance would be achieved by LSFO in 2012 and 60% in 2020 in
the BAU cases. Again, these premises can be revised and also sensitivities studied.
4.5.7 IFO Viscosity / Grade Mix
Many marine engines today can handle IFO with a viscosity higher than 380 centistokes.
Raising viscosity to 500 or 700 centistokes slightly reduces the cutter stock content of the bunker
fuel. In today's market, this has led to IFO 380 to IFO500 price differentials of the order of $2-
4/ton. This in turn has created a growing interest in supplies of IFO500 and even IFO700. The
trend has been especially marked in Singapore where IFO500 sales have grown rapidly in the last
two years. To reflect this trend, the maximum viscosity of the "IFO380" bunkers grade in the
model was raised moderately.
4 Robin Meech at the DC MARPOL Consultative Meeting February 2006 estimated 2012 North Europe SECA bunkers
at approximately 21 mmtpa but against a base projection understood to be based primarily on IEA statistics. This
figure was adjusted to arrive at the 2012 base volume to be used.
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The global bunkers market is trending toward higher viscosity fuels containing less
distillate. Since raising the distillate content of an IFO fuel is one way to lower its sulfur content,
the SEC A regulations could have the effect of reversing this trend in the affected regions. The
model was not set up to allow switching from IFO 180/3 80 to MDO as a means to meet sulfur
standards. Such a feature was not considered necessary as the model was set up to allow
IFO 180/380 viscosities to be lowered, thereby allowing more distillate streams into the IFO blend if
found to be economic as the means to reduce sulfur.
4.5.8 Refinery Capacity & 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
have found, however, that extensive cross-checking of and corrections to data presented in sources
such as Oil & Gas Journal (OGJ) are necessary. The Ball cases were run with a capacity database
that was based on January 2005 OGJ data plus extensive review and revision.
For forward cases, WORLD has four ways of modifying the base capacity:
1. known projects are added in to the base.
2. revamping of selected existing units is allowed to take place (principally conventional to
ultra-low distillate desulfurization).
3. debottlenecking of selected major units is allowed, subject to annual limits.
4. investments in major new unit capacity are allowed.
The projects database used for the Ball cases was based on detailed review of project
announcements through the end of 2005. 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 11 mmbpd of refinery
crude unit capacity expansion projects are currently listed, with somewhat higher figures according
to more recent project reviews. However, based on experience, factors were applied to curtail and
delay particularly the "planned" and "announcement" projects in order to arrive at a realistic level
of projects likely to go ahead. The net effect was that the 2012 (and also 2020) Ball case contained
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a total of 6.1 mmbpd of new project capacity as summarized in Table 4-10. (This estimate compares
to a figure of around 8 mmbpd by 2015 according to a Wood Mackenzie review.5) The main
regions expected to see expansions are the U.S. and then the Middle East, China, and the rest of
Asia (India). The growing list of project announcements in India was particularly discounted.
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. In the Ball cases, the model added capacity, using first
the low-cost revamp and debottlenecking potential allowed and then balanced on major new unit
additions.
Table 4-10. Major Capacity Additions
Base Major Capacity Additions
included in 2012 & 2020 cases
mmbpcd
USEC 0.0
USGICE 0.8
USWCCW 0.1
GrtCAR 0.4
SthAM 0.2
AfWest 0.1
AfN-EM 0.1
Af-E-S 0.1
EUR-No 0.0
EUR-So 0.1
EUR-Ea 0.0
CaspRg 0.1
RusFSU 0.0
MEGulf 1.4
Paclnd 0.0
PacHi 0.0
China 1.6
RoAsia 1.0
Total 6.1
4.5.9 Refinery Technology & Costs
Based on a review of refinery process technologies centered on desulfurization, adjustments
were made to process unit capital costs in the model. Details of the base data researched as part of
the technology review are set out in Appendix B. Technologies in the WORLD model represent
those which are proven or recently commercialized. In any long term study, this approach is
conservative as it does not allow for the possible effects of more far reaching technology advances.
An example in this study which could prove to be significant in the future is the development of
' "Refiners See Strong Returns Near-Term Despite Looming Capacity Build-up", Oil & Gas Journal, Mar 13 2006,
Aileen Jamieson, Wood Mackenzie.
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ultrasound-based desulfurization processes, as in that of Sulphco. That particular technology is
nearing commercial scale with the installation of seven 30,000 bpd units in Fujairah. Should the
supplier's claims be proven out by sustained operation, the outlook for future desulfurization and
partial upgrading of residual fuels, crudes and other streams could be markedly altered relative to
the projections made in this study. Other similar developments may also occur. Excluding such
processes does have the effect of ensuring that the quantitative modeling results are based on
known, feasible and economic process paths.
The WORLD technology database has been the subject of on-going review. A further
review was made to check the capital and operating costs and yields of units most likely to impact
bunker fuels economics, notably residual hydro-desulfurization and visbreaking, as described in
Section 4.3.
The process unit capital costs in WORLD originally were based on year 2000 (U.S. Gulf
Coast). The impacts of changes that have occurred since to raise costs of construction were
examined. The Nelson Farrar Refinery Construction Inflation Index was found to have risen by a
factor of 1.32 between 2000 and February 2006, driven by well publicized increases in costs for
steel, cement, specialty equipment items and labor. However, applying this multiplier directly to the
2000 basis capital costs in WORLD would have had the effect of stating that the costs of new
construction would remain at this elevated level for all new investments through 2020. The large
increase in the costs of refining and other oil sector facilities is reflected in the IEA World Energy
Outlook 2006. IEA estimates that capital costs will "fall back somewhat after 2010" based on
conditions in the A&E sector gradually easing.
In WORLD, the decision was taken to use a multiplier of 1.30 versus 2000 for capacity
additions in the 2012 case and 1.20 for additions in the period from 2012 to 2020, i.e. in the 2020
case. Similarly, Nelson indices indicate that refinery chemicals "OVC" type costs have risen by
some 60% since 2000. Multipliers of 1.50 and 1.30 were used for 2012 and 2020 cases respectively.
WORLD results are sensitive to the interplay between crude (and fuel) costs, refinery capital
costs and freight rates. Broadly:
• raising crude oil price 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
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• 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 in order to minimize high cost inter-regional movements of crude
and products.
Part of the "dilemma" of the EPA analysis was 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 re-written. In the BAU cases, higher crude oil price
(versus history) was a given, hence also higher refinery fuel and natural gas prices. As
discussed above and below, both refinery capital costs and tanker freight rates were moved
upward relative to history. This resulted in scenarios where all costs - crude, fuel, OVC's,
freight- were elevated versus historical levels.
Nelson Refinery Cost Indices
•Refinery Construction
Inflation Index
•Refinery Fuel Cost Index
Refinery Chemicals cost
Index
1997
2000
2003
2006
4.5.10 Transportation
WORLD contains details of inter-regional crude, non-crude, 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 Worldscale flat rate times
percent of Worldscale plus ancillary costs such as canal dues and lightering where applicable; also
duties. Reflecting the factors reviewed above, Worldscale percentage rates were applied (see Table
4-11), that were higher than recent freight rate history. Again these reflect increases in
steel/construction and fuel costs plus the fact that (a) there is current tightness in capacity in
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shipbuilding yards, (b) there is an on-going requirement to turn over world fleets to new vessels, in
part because of double hull regulations and (c) there is a need to expand the world's tanker fleets to
meet growing trade requirements.
In general, high steel prices directly impact the cost of a tanker and, as such, may place a
damper on orders for new ships. High steel prices also indicate a potential "tight" supply of steel
that can also place a constraint on shipyard contracting practices (i.e., higher prices or flexible
pricing requirements). High steel prices also increase the price paid for scrap tankers potentially
inducing tanker owners to hasten scrapping. In general, the supply of tankers looks to be
constrained in the next few years by shipyard construction capacity. Tankers are competing for new
construction space (berths) with LNG, container and dry bulk ships. Usually only one sector is
doing well financially, which increases pressure for newbuilding in the strong sector. At this time
all sectors (LNG, container and dry bulk ships) are doing very well. This has led to difficulty for
tanker owners to secure newbuilding contracts. This all leads to higher prices for newbuildings.
In WORLD, freight rates are arrived at by multiplying percent of WorldScale by
Worldscale 100 flat rate. (Other cost items such as canal tariffs or lightering are also added in
where relevant.) One issue is that the WorldScale Association issues updated flat rates each
January. These reflect cost changes, including for fuel, i.e. the underlying flat rates are not constant
over time. To best assess how to represent future freight rate levels in the model, recent freight rate
history was examined. The three figures below show that - although bunker fuel costs have risen
substantially since 2002/2003 and the other factors described above have been at play, most freight
rates (stated as $/bbl) have increased only slightly. The factors which explain this apparent
discrepancy are Thus, the implication for future freight levels is (WE ARE STILL
WORKING ON THIS TO GET EXPLANATION..)
The resulting multipliers used versus a reference basis of January 2005 (??) for the
WorldScale 100 flat rates were ?? for 2012 and ?? for 2020.
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400
350
300
200
150
100
50
0
Index of Bunker Fuel Price 1989 = 100
^
2.00
1.00
0.00
o
Spot Crude Freight Costs $/bbl
-Gulf/EAST
-Carib./USEC
o
o°
o
0.00
<§>
Spot Clean Product Freight Costs $/bbl
o
o
o°
Gulf/EAST
Carib./USG
Med./NWE
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Table 4-11. Tanker Class - to be replaced
tanker class
MR2
Pana Max
AFRA Max
Suez Max
VLCC
size DWT
40,000
55,000
70,000
135,000
270,000
Percent WS
2012/2020
260
220
180
130
90
In addition, note was taken that - in the planned Phase II SEC A etc. cases - tightening of
bunker fuel regulations and/or shifts from IFO to marine diesel will inevitably increase bunker fuel
costs and consequently freight rates, i.e. in those cases, freight rates will need to be adjusted
upward, potentially regionally. EnSys intends to employ an in-house tanker cost model to assess
the appropriate increases for those cases.
As a component of recent assignments, care has been taken in WORLD to build in accurate
representations of major new and expanded as well as existing pipelines. Particular emphasis has
been put on ensuring an accurate profile of pipelines and expansions for export routes for crudes
(including syncrudes) ex Canada and export routes both east and west ex Russia and the Caspian.
For Canada, the Ball premise was that one, but not both, of the export lines to the West Coast /
PADDV / Pacific would go ahead. This impacts the amount of syncrude and conventional crudes
routed into the US PADDs II, IV and potentially III versus west to PADDV and Asian regions. For
Russia, based on recent developments, the Ball case assumed the pipeline to the Pacific would go
ahead and would have a spur into China. In reality, this latter will most likely partially displace
growing rail movements of crude into China from Russia that were already in the model.
4.6 Input Prices for the WORLD Model
4.6.1 Marker Crude Price
WORLD operates with a single marker crude price and all other crudes and nearly all non-
crudes supplies and product demands fixed. Crude and product prices are thus generally produced
as model outputs. For the Ball cases, the model was run with Saudi Light as the marker crude.
This crude price was taken from the AEO 2006, but since EIA uses a U.S. average acquisition price
as its "world oil price", the EIA price was adjusted to obtain a corresponding Saudi Light price
using recent historical crude price data.
4-33
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Draft Report - Do Not Cite or Quote
4.6.2 Natural Gas Price
Certain other prices are also inputs to the model. The most important among these is natural
gas price since natural gas is the balancing refinery fuel supply in most regions, as well as a primary
feedstock for hydrogen production. Regional natural gas prices (major industrial user) were set in
the range of $4 to $6 per MMBtu - in line with AEO 2006 and third-party long-term projections.
4.6.3 Miscellaneous Prices
Input prices for the byproducts, coke low sulfur, coke high sulfur and elemental sulfur were
set respectively at $25, $5 and $10 per ton. Purchased electricity prices were taken - for the U.S.
regions - from AEO 2006 and were generally in the range of 6 cents per kWh.
4.7 Reporting
The WORLD model's standard reports were modified to accommodate the revised distillate
and residual fuels products structure. Standard reports provide global and regional information on:
• refinery throughputs, capacity additions, investments
• inter-regional crude, intermediate and product movements
• supply/demand balance
• crude FOB and GIF prices
• regional product prices.
As discussed in Section 4.4, blend reports were added for the residual grades, in part as a
check to ensure avoidance of potentially unstable blends.
4-34
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Draft Report - Do Not Cite or Quote
SECTION 5
THE WORLD MODEL'S PROJECTIONS FOR 2012 AND 2020
SECTION TO BE UPDATED ONCE WE HAVE AGREED THE BASIS FOR THE
FINAL CASES.
This section sets out the specific results obtained for the 2012 and 2020 WORLD Model
cases, based on the projections and premises reviewed in Section 4. Business-as-usual
projections were estimated for these two years using both the IEA and "RTF' bunker demand
assumptions discussed in previous sections. Full results are presented in this section in detail.
In summary, the findings indicate that the important drivers affect any SECA analyses
center on product-demand outlooks. Adopting the bunker forecasts developed in Section 3 leads
to a 2020 global demand for residual bunkers by 2020 of 6.87 mmbpd - versus 1.92 mmbpd
based on LEA premises (this is partially offset by a reduction in inland residual fuel from 6.5 to
5.2 mmbpd). The 2020 levels for MGO plus MDO in Section 3 are equivalent to 1.9 mmbpd
versus 0.6 mmbpd based on IEA premises. Consequently, these forecasts imply that estimated
impacts of SEC As or other marine fuels regulations will be similarly greater. The second major
driver in the WORLD analyses discussed in this section is the on-going shift toward distillates,
especially in Europe and non-OECD regions, which is expected to materially alter gasoline and
distillate trade patterns, their product pricing and refining investments and economics. These
developments will also affect impacts of SEC As/global marine fuels regulations.
5.1 Supply-Demand Balance
Tables 5-1 and 5-2 summarize the supply-demand inputs and results from the 2012 and
2020 WORLD BAU cases. Results for both LEA basis and RTI basis projections of bunkers
demand are shown. As discussed in Section 4, the IEA basis case was matched to the AEO 2006
(since it is on an IEA/EIA basis in terms of bunkers demand) and the case run. Than a second
case was run with the bunkers basis adjusted to RTI which increases bunkers and total residual
demand globally. The needed incremental supply was taken to be OPEC crude. WORLD results
generally do not exactly match the underlying forecast (AEO) 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 not fixed.
The 2012 and 2020 cases reflect the overall global trend for (a) demand increase to be
predominantly light, clean products and (b) for the main growth globally to be in distillates. This
5-1
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Draft Report - Do Not Cite or Quote
latter is combined with an assumed continuing process of dieselization in Europe which reduces
gasoline demand growth there.
The main effect of applying the RTI bunkers projections, versus an IEA basis, is to raise
total residual demand by 1 mmbpd by 2012 and over 1.8 mmbpd by 2020. This also entails a
switching between inland and bunkers residual fuel grades. In the IEA Basis BAU cases, global
inland residual fuel quality was projected to progress partially toward a 1% standard by 2020.
Therefore, the BAU cases with RTI bunkers basis, increase total residual fuel demand but,
because the only active SECA's are in Northern Europe in the cases, they shift global residual
fuel toward a higher average sulfur.
The change in overall global demand between the LEA and RTI basis cases is 0.6 mmbpd
for 2012 and 1.3 mmbpd for 2020. The increase in residual demand is met by an increase in
(OPEC) crude runs. The incremental crude supply contains both light and heavy cuts. As
discussed further below, the net effect of higher residual demand under RTI projections is thus
an easing in light-heavy supply-demand tightness.
5-2
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Draft Report - Do Not Cite or Quote
Table 5-1. WORLD Model Case Results - Supplies
WORLD MODEL CASE RESULTS
Bunkers Basis
2012
IEA
2012
RTI
2020
IEA
2020
RTI
SUPPLY
SUPPLY - CRUDES (INCLUDES SYNCRUDES & CONDENSATES)
Crude gross production
of which
Crude Direct Use
Crude Direct Loss Total
Crude net to refs before TRLOS
Crudes net to refineries
GSY- SYN CRUDE (fully upgraded)
GCO-CONDENSATE
GSW - SWEET <0.5S
GLR - LT SR >36 API >0.5%S
GMR - MD SR 36-29 API >.5S
GHR-HVYSR 20-29 API >.5S
GXR - XHVY SR <20 API >.5 S
CRUDE SUPPLY TO REFINERIES
Crude Direct Loss in Refineries
Crude TRLOS
Crude net to refs before TRLOS
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
PROCESS GAIN
MMBPD
79.637
0.832
0.638
78.167
after
TRLOS
1.164
1.922
26.257
11.022
25.813
9.067
2.149
77.395
0.638
0.135
78.167
1.597
5.587
0.709
1.527
0.130
0.796
0.488
0.981
11.815
2.223
MMBPD
80.352
0.832
0.638
78.882
after
TRLOS
1.164
1.922
26.473
11.214
26.055
9.131
2.149
78.108
0.638
0.136
78.882
1.597
5.587
0.709
1.527
0.128
0.796
0.488
0.940
11.771
2.151
MMBPD
86.667
0.832
0.638
85.197
after
TRLOS
1.555
2.062
29.432
10.806
28.140
9.529
2.882
84.405
0.638
0.154
85.197
1.797
6.387
0.789
1.866
0.146
1.248
0.891
1.307
14.431
2.602
MMBPD
88.160
0.832
0.638
86.690
after
TRLOS
1.555
2.062
29.771
11.122
28.871
9.633
2.882
85.896
0.638
0.156
86.690
1.797
6.387
0.789
1.866
0.146
1.248
0.891
1.205
14.328
2.509
5-3
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Draft Report - Do Not Cite or Quote
Table 5-2. WORLD Model Case Results - Demands
WORLD MODEL CASE RESULTS
Bunkers Basis
2012
IEA
2012
RTI
2020
IEA
2020
RTI
DEMAND
EXTERNAL DEMANDS - FINISHED PRODUCTS NON SOLID
ETHANE
LPG
NAPHTHA
GASOLINE
JET/KERO
DISTILLATE
RESIDUAL FUEL
OTHER PRODUCTS (excl coke.sulphur)
CRUDE DIRECT USE
PETR COKE LOW SULPHUR MMBPD
PETR COKE HIGH SULPHUR MMBPD
PETR COKE LS AS % OF TOTAL
PETR COKE TOTAL MMBPD
ELEMENTAL SULPHUR MMBPD
TOTAL
INTERNAL DEMANDS/CONSUMPTION
REFINERY FUEL - CRUDE BASED STREAMS
PROCESS GAS
FCC CATALYST COKE
MINOR STREAMS
RESIDUAL FUEL
NATURAL GAS TO RFO
TOTAL INCL NATURAL GAS
RFO INCL NGS AS PCT OF CRUDE TO REFS
RFO EXCL NGS AS PCT OF CRUDE TO REFS
MERCH FO - INTERNAL STREAMS
TOTAL INTERNAL CONSUMPTION & LOSS EXCL NAT GAS
TRANSPORT/DISTRIBUTION LOSSES
TRANSPORT LOSS TOTAL
- ALLOCATION TO CRUDE
- ALLOCATION TO PRODUCTS & INTERMEDIATES
1.597
7.856
5.850
23.535
7.459
27.255
10.082
3.532
0.832
0.416
0.527
44%
0.943
0.215
1.158
2.458
0.377
0.000
1.291
1.641
5.766
7.5%
5.3%
0.005
4.130
0.189
0.135
0.054
1.597
7.856
5.850
23.535
7.459
27.128
11.088
3.532
0.832
0.442
0.240
65%
0.681
0.193
D.874
2.415
0.388
0.000
1.291
1.614
5.708
7.3%
5.2%
0.005
4.099
D.190
0.136
0.054
1.797
8.632
6.930
25.426
8.139
31.459
10.235
3.808
0.832
0.352
0.906
28%
1.259
0.261
1.520
2.574
0.379
0.000
1.682
1.813
6.448
7.6%
5.5%
0.007
4.641
0.215
0.154
0.061
1.797
8.632
6.930
25.426
8.139
31 .298
12.060
3.808
0.832
0.405
0.510
44%
0.914
0.229
1.143
2.477
0.383
0.000
1.682
1.849
6.391
7.4%
5.3%
0.007
4.548
D.219
0.156
0.063
SUPPLY DEMAND SUMMARY
SUPPLY - TOTAL
Crude - gross production incl condensates & syn crudes
Non Crudes incl H2 ex NGS
Process Gain
TOTAL SUPPLY
Crude as percent of total supply
DEMAND - TOTAL
External - gases & liquid products (incl crude direct use but not loss)
External - solid products
Internal - fuel excl natural gas incl FCC cat coke
Internal - process & crude losses
Internal -transport/distribution losses
TOTAL DEMAND
TOTAL DEMAND -TOTAL SUPPLY
TOTAL DEMAND -TOTAL SUPPLY
WORLD
79.637
11.815
2.223
93.675
85%
87.998
1.158
4.130
0.000
0.189
93.475
-0.21%
(0.200)
WORLD
80.352
11.771
2.151
94.275
85%
88.877
0.874
4.099
0.000
0.190
94.040
-0.25%
(0.234)
WORLD
86.667
14.431
2.602
103.699
84%
97.258
1.520
4.641
0.000
0.215
103.634
-0.06%
(0.065)
WORLD
88.160
14.328
2.509
104.998
84%
98.922
1.143
4.548
0.000
0.219
104.832
-0.16%
(0.166)
5-4
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Draft Report - Do Not Cite or Quote
Table 5-3. Refining Capacity Additions
Table 5-3 and Figure 5-1 summarize the refinery capacity additions, investments and
utilizations in each case. Again, a major effect of the RTI bunkers basis is to ease the
requirement (versus the TEA basis) for resid upgrading and desulfurization. As a consequence
less refining investment is needed, by 2020 $107.7 bn under RTI basis versus $117.6bn under
TEA basis1. Particularly by 2020, the effect is to reduce the required capacity additions for
coking/visbreaking, cat cracking and especially hydro-cracking. Vacuum gas oil / resid
desulfurization requirements drop in shifting to the RTI basis because demand for low sulfur
inland residual fuel is lowered. Similarly, the increase in proportion of the total distillate pool
occupied by bunkers products moderately lowers the proportions of ultra low sulfur diesel in the
distillate pool and, hence, slightly reduces the total requirement for distillate desulfurization.
Refinery utilizations are projected to continue to rise globally by 2020. This stems in part
from an assumption that levels in current low-utilization regions (notably Russia/FSU, Caspian,
Africa) will gradually improve. Appreciable capacity growth is projected for North and South
America (although not enough in the USA to keep up with demand growth), for Africa and for
Russia as driven by AEO projections of regional demand growth. The major refinery capacity
growth areas are projected to be the Middle East and Asia, led by China which is projected to
double its capacity by 2020. Conversely, essentially no crude capacity growth is projected for
Western Europe and only a modest increase for Eastern Europe.
1 The capital investments detailed in current WORLD reports are generally lower than those projected by say the
IEA for the same time frame. There are three reasons for this. Firstly, the WORLD costs are currently reported
in 2001 dollars. This will be changed in the future. Secondly, the stated WORLD investments generally need to
be increased to allow for extra capacity to cover seasonal variations (e.g. Summer gasoline peak). Thirdly, the
WORLD reports do not include an allowance for on-going capital replacement. This is typical estimated at 1.5-
3% per annum of the total installed capital base (which of course grows over time). It is EnSys' intent to expand
the WORLD reports in the future to make the basis consistent with IEA and others.
5-5
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Draft Report - Do Not Cite or Quote
Table 5-3. Capacity Additions and Investment
WORLD MODEL CASE RESULTS
Bunkers Basis
2012
IEA
2012
RTI
2020
IEA
2020
RTI
CAPACITY ADDITIONS & INVESTMENTS - OVER & ABOVE 2005 BASE + KNOWN CONSTRUCTION
REFINERY
REVAMP
DEBOTTLENECKING
MAJOR NEW UN ITS
TOTAL REFINING
MERCHANT
MAJOR NEW UN ITS
TOTAL REFINING + MERCHANT
$bn($2001)
$ 5.4 $
$ 0.5 $
$ 58.2 5
$ 64.1 5
$ 0.3 $
$ 64.4 $
5.3
0.5
54.9
60.7
0.3
61.1
B 6.4
B 1.4
i 109.8
i 117.6
B 0.9
B 118.5
$ 6.1
$ 1.2
& 100.4
& 107.7
$ 0.9
$ 108.6
CRUDE DISTILLATION BASE CAPACITY & ADDITIONS mmbpcd
BASE CAPACITY
FIRM CONSTRUCTION
DEBOTTLENECKING ADDITIONS
MAJOR NEW UNIT ADDITIONS
TOTAL ADDITIONS OVER BASE
TOTAL CRUDE UNIT CAPACITY USED
SECONDARY PROCESSING CAPACITY ADDITIONS
COKING + VISBREAKING
CATALYTIC CRACKING
HYDRO-CRACKING
CATALYTIC REFORMING - INCL REVAMP
CATALYTIC REFORMING
DESULPHURIZATION (TOTAL)
- GASOLINE -ULS
- DISTILLATE ULS - INCL REVAMP
- DISTILLATE ULS - REVAMP ONLY
- DISTILLATE CONV/LS
-VGO/RESID
HYDROGEN (MMBFOED)
SULPHUR PLANT (TPD)
MTBE TO ISO-OCTANE (REVAMPING USA)
83.74
5.82
0.92
2.07
8.80
83.6%
77.39
83.74
5.82
1.01
2.66
9.49
83.8%
78.11
83.74
6.08
1.80
7.87
15.74
84.9%
84.41
83.74
6.08
1.90
9.04
17.01
85.3%
85.90
- DEBOTTLENECKING + MAJOR UNITS
0.10
0.10
0.70
1.16
0.54
7.16
1.81
4.93
4.25
0.16
0.26
0.52
6350
0.08
0.13
0.16
0.48
1.10
0.53
6.91
1.72
4.79
4.22
0.17
0.23
0.48
5400
0.08
0.25
0.39
3.48
2.02
0.92
11.18
2.70
7.02
6.25
0.44
1.01
0.87
14400
0.08
0.15
0.25
2.85
2.03
1.01
10.12
2.62
6.68
6.02
0.41
0.41
0.75
9230
0.08
5-6
-------
Draft Report - Do Not Cite or Quote
i88
Figure 5-1. Refinery Capacity Additions
5-7
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Draft Report - Do Not Cite or Quote
5.3 Refining Economics and Prices
Tables 5-4 to 5-6 summarize key price results from the 2012 and 2020 cases. In
reviewing these results, it must be borne in mind that WORLD was run for 2012 and 2020 in
"long run" mode, i.e. with investment open and therefore that the price results equate to long run
equilibrium prices - not short run. Long run equilibrium prices are more stable than short run
prices as they incorporate an assumed long run return on capital. Shot run prices can be
relatively higher or lower depending on whether refining capacity is tight (as today) 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, leads to a situation where future
distillate prices are projected to exceed those for gasoline. Projected ULS diesel to ULS gasoline
premiums lie in the range of $3/bbl USGC by 2012 and 2020, and up to $7 - 9/bbl in Asia and
especially Europe.
Table 5-6 summarizes (long run) price differentials as output from the WORLD cases.
For ULSD versus high sulfur IFO 380 (as the lowest quality fuel) these average of the order of
$14/bbl. For ULS gasoline they are lower again especially in Europe.
The results show the effect of the switch from an IEA to the RTI bunkers basis as
discussed under Supply Demand. Light-heavy product differentials (gasoline and diesel to
IFO380) narrow by around $l/bbl USGC and $2/bbl Europe and Asia for 2020. The effect is
less marked in 2012 as the impact on residual fuel demand volumes is smaller.
In the BAU cases, only the Northern European SECA's were included. Therefore it is
the Northwest Europe prices that provide the best insight into and cross-check on pricing of high
versus low sulfur marine fuels. For IFO 180 and 380, (nominal sulfur limits of 4.5% for high
sulfur and 1.5% for low sulfur), the indicated price differential is around $l/bbl. For low versus
high sulfur MDO, it is lower. These differentials appear reasonable as a starting point for
examining the effects of wider SEC A introduction and/or further tightening of marine fuels
standards regionally or globally. Such developments, which would be the subject of follow-up
WORLD cases, will raise price differentials versus those seen here with the degree of change
dependent of specific scenarios for sulfur specifications and for the compliance methods used by
shippers.
-------
Draft Report - Do Not Cite or Quote
Table 5-4. Product Prices
WORLD MODEL CASE RESULTS
Bunkers Basis
2012
IEA
2012
RTI
2020
IEA
2020
RTI
CRUDE PRICES SELECTED MAJOR CRUDES (FOB)
SAUDI ARABIAN LIGHT (33.4 , 1 .8)
input - marker crude price
WORLD output prices
TEXAS WEST INTERMEDIATE (40.1 , 0.4)
TEXAS WEST SOUR (34 ,1.9)
COM DEEP SOUR (35 , 1.3)
UK NORTH SEA BRENT (36.9 , 0.3)
NIGERIAN BONNY/LIGHT (38.3,0.14)
NIGERIAN MEDIUM (25 , 0.28)
RUSSIA URALS (32.5 , 1.56)
UAE DUBAI (32.6 , 1 .96)
IRAQ BASRAH (33.9 , 2.08)
SAUDI ARABIAN HEAVY (28.2 , 2.84)
ALASKAN NORTH SLOPE (30 , 1 .05)
CALIFORNIA SJV HEAVY (14.1 , 1.06)
MEXICAN ISTHMUS (32.8 , 1 .51)
MEXICAN MAYA (22 , 3.3)
VENEZ HEAVY(BACH LIGHT) (17.4,2.8)
CANADIAN LIGHT (42.5 , 0.3)
CANADIAN HEAVY (25 ,2.8)
CANADIAN SYNCRUDE (33.5 , 0.05)
PRODUCT PRICES
WORLD output prices
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 NO2 ULSD (50-10 PPM)
MGO NO2 HSD (5000-1 5000PPM)
MDO N04 HSD (5000-20000PPM)
RESID < .3%
RESID. 3-1.0%
IF0180HS
IF0380 HS
PETCHEM GAS OIL
AROMATICS
LUBES & WAXES
ASPHALT
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
44
47
46
46
45
46
46
44
43
42
41
43
42
45
40
41
46
38
47
45
40
54
51
52
48
52
55
10
68
67
90
54
32
16
49
50
04
51
72
54
94
71
42
13
65
44
20
31
81
10
33
36
78
08
#N/A
$
$
$
$
$
$
$
$
$
47
49
44
42
41
51
55
66
34
28
61
60
49
56
00
73
97
99
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
44.10
47.61
46.71
46.92
45.46
46.17
45.90
44.63
43.58
42.35
41.94
43.73
42.75
45.94
40.79
41.45
46.03
38.74
47.36
45.08
40.45
54.96
51.18
52.40
48.33
52.59
54.73
50.33
48.08
49.34
44.51
42.38
41.49
51.12
55.84
67.15
35.13
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
45.50
49.30
47.92
48.34
47.07
48.06
47.40
45.95
44.74
43.25
42.53
45.29
44.05
47.22
41.52
42.42
46.88
39.33
49.25
46.46
41.51
56.16
52.77
53.38
49.71
54.75
56.96
#N/A
48.65
50.18
44.48
43.37
42.31
52.69
57.39
71.22
35.00
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
45.50
49.07
48.07
48.31
46.84
47.66
47.27
45.97
44.85
43.66
43.12
45.60
44.99
47.34
41.99
42.78
46.64
39.85
48.94
46.63
41.31
55.90
52.45
53.10
49.35
54.49
56.67
51.91
49.78
50.63
45.52
44.01
43.01
52.74
56.77
71.09
36.13
5-9
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Draft Report - Do Not Cite or Quote
Table 5-4. Product Prices - continued
WORLD MODEL CASE RESULTS
Bunkers Basis
NORTH WEST EUROPE
LPG
PETCHEM NAPHTHA
RFC - PREMIUM (EURO III/IV/V)
RFC - REGULAR (EURO III/IV/V)
KERO/JET JTA/A1
DSL N02 RFD
MGO N02
MDO N04 HSD (5000-20000PPM)
MDO N04 LSD (10-1500PPM)
RESID < .3%
RESID. 3-1.0%
IF0180LS
IF0180HS
IF0380 LS
IF0380 HS
AROMATICS
LUBES & WAXES
ASPHALT
PACIFIC (SINGAPORE)
LPG
PETCHEM NAPHTHA
RFC - PREMIUM (EURO III/IV/V)
RFC - REGULAR (EURO III/IV/V)
KERO/JET JTA/A1
DSL NO2 RFD
DSL NO2 LSD (500 PPM)
DSL NO2 MSD (1000-5000 PPM)
DSL NO2 HSD (5000-10000 PPM)
MGO NO2 HSD (5000-1 5000PPM)
MDO NO4 HSD (5000-20000PPM)
RESID < .3%
RESID .3-1.0%
RESID 1.0-3.0%
IFO180HS
IFO380 HS
AROMATICS
LUBES & WAXES
ASPHALT
2012
IEA
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
46
40
51
48
54
57
50
46
46
48
43
43
43
42
42
54
70
37
48
41
52
49
54
56
55
54
53
53
45
48
45
43
42
41
51
65
35
52
53
74
31
09
32
50
00
50
34
61
73
43
85
27
16
55
41
80
19
37
53
56
00
10
15
67
13
66
08
35
88
66
34
68
77
56
2012
RTI
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
46.40
40.51
51.82
48.33
53.94
57.02
50.43
46.81
47.44
47.60
43.33
44.52
44.36
43.50
43.30
54.32
70.53
37.88
48.69
41.18
52.44
49.57
53.94
55.27
54.47
53.47
53.05
52.61
46.89
48.37
45.80
44.46
43.67
42.55
51.85
66.28
37.73
2020
IEA
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
47.81
41.96
53.11
49.37
56.24
58.96
52.75
48.05
48.87
49.29
45.24
45.50
43.97
44.55
42.63
55.97
73.33
36.92
50.10
43.13
54.97
51.89
57.19
58.56
57.77
56.78
56.16
55.46
47.19
50.13
46.80
44.50
43.96
42.50
53.48
70.12
34.99
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2020
RTI
47.98
41.62
52.80
49.03
56.02
58.73
52.55
48.95
49.22
49.10
44.98
46.19
44.80
45.15
44.65
55.07
73.21
38.52
50.27
42.69
54.59
51.46
56.49
57.92
57.10
56.01
55.34
54.59
47.91
50.08
47.13
45.28
45.19
43.95
52.59
69.99
38.12
5-10
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Draft Report - Do Not Cite or Quote
Table 5-6. Product Price Differentials
WORLD MODEL CASE RESULTS
Bunkers Basis
PRODUCT PRICE DIFFERENTIALS
WORLD output prices
USGC
CG ULS REG - IFO380 HS
DSL ULSD - IFO380 HS
MDOHS - IFO380HS
RESID1%S - IFO380HS
IFO180HS - IFO380HS
CG ULS REG - DSL ULSD
DSL ULSD - MDOHS
NORTH WEST EUROPE
RFC REG (EURO) - IFO380 HS
DSL ULSD (EURO) - IFO380 HS
MDOHS - IFO380HS
RESID1%S - IF0380HS
RESID1%S - IF0180LS
IF0180LS - IF0380LS
IF0180HS - IF0380HS
RFC REG (EURO) - DSL ULSD (EURO)
DSL ULSD (EURO) - MGO
DSL ULSD (EURO) - MDOHS
MDOLS - MDOHS
PACIFIC (SINGAPORE)
RFC REG (EURO) - IFO380 HS
DSL ULSD (EURO) - IFO380 HS
MDOHS - IF0380HS
RESID1%S - IFO380HS
IFO180HS - IFO380HS
CG ULS REG - DSL ULSD
DSL ULSD - MDOHS
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2012
IEA
9.54
13.53
5.72
3.04
0.93
(3.98)
7.80
6.04
15.05
3.74
1.34
(0.13)
0.89
1.16
(9.01)
6.82
11.32
0.50
8.19
14.66
4.32
4.01
1.32
(6.47)
10.34
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2012
RTI
9.69
13.24
6.59
3.02
0.89
(3.55)
6.65
5.03
13.72
3.51
0.04
(1.18)
1.01
1.06
(8.69)
6.59
10.21
0.63
7.02
12.72
4.34
3.25
1.12
(5.70)
8.38
2020
IEA
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
10.46
14.65
6.34
2.17
1.06
(4.19)
8.30
6.74
16.33
5.42
2.61
(0.26)
0.95
1.34
(9.59)
6.21
10.91
0.82
9.40
16.06
4.69
4.30
1.47
(6.66)
11.37
2020
RTI
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
9.44
13.66
6.77
2.52
1.01
(4.22)
6.89
4.38
14.08
4.30
0.33
(1.21)
1.04
0.15
(9.70)
6.18
9.78
0.26
7.51
13.97
3.96
3.18
1.23
(6.46)
10.01
5-11
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Draft Report - Do Not Cite or Quote
5.4 Crude and Product Trade
Figures 5-2 through 5-7 below summarize inter-regional trade movements from WORLD
for the 2012 and 2020 RTI basis cases.
Major trends and highlights on crude trade include the following:
• growing production from West and North Africa (totaling nearly 12 mmbpd by 2020)
helps offset the decline in North Sea production. Significant volumes move into the US
PADDs 1, 2 and 3 and Eastern Canada.
• West African crudes are widely distributed, including to Caribbean/South America,
Europe, Asia/Pacific and even the US West Coast
• Considerable uncertainty continues to exist over future Russian crude production
volumes and export routes. The 2012 and 2020 cases were run with export options open
with the result that Russian crudes continue to move in substantial volumes into
Western and Eastern Europe but otherwise move predominantly into Asia/Pacific. No
Russian crude is projected as coming in to the US, although this could change if
northerly routes via Murmansk and the Baltic are expanded. Russian crude production
was projected at below 11 mmbpd for 2020 with domestic demand growing to 6.5
mmbpd. This in turn trims the volumes of crude available for export
• Middle Eastern crudes are projected to be refined increasingly within the region, in part
as that region's export refining capacity grows, and to move increasingly to Asia/Pacific
where the majority of demand growth will occur. Continuance of movements into
Europe and the USA depends on the level of competition with other suppliers and on
discounting policy by Saudi ARAMCO and other Middle East Gulf producers
• The 2012 and 2020 cases are exhibiting a new phenomenon which bears further
investigation, relating ultimately to level of Canadian crude production. The AEO 2006
has a high level of Canadian production, 4.5 mmbpd in 2020. Even with western outlets
to the Pacific and the US/Canada West Coast expanded to a projected 0.8 mmbpd, the
high production volume moves predominantly into the US interior (PADDs 2, 4 and
potentially some to PADDS). This has the effect of backing out foreign, especially
Caribbean crude which in turn gets reallocated - in the cases - to Europe where it in
turn backs out Middle Eastern crude which moves to Asia/Pacific, the highest demand
growth area. This phenomenon is plausible but whether it is indeed realistic bears
further assessment, with potential adjustments to be made to finalize the BAU cases.
5-12
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Draft Report - Do Not Cite or Quote
The period through 2020 will witness continuing growth in trade of finished and
intermediate products, as illustrated by the WORLD case results. The case projections point to
the following main trends:
• Increases in product volumes being shipped into and between Asia/Pacific regions
• Continued products and intermediates exports from Russia, mainly into Europe but also
into the USA and Far East
• Potentially major exports from Europe of gasoline, on the basis of continuing
dieselization. WORLD cases indicate these growing to over 1.75 mmbpd by 2020.
However, the cases also show the premium for diesel in Europe at $9/bbl above gasoline
which raises questions over whether European authorities and consumers will continue
to opt predominantly for diesel vehicles. This is a premise that can be revisited but the
cases are on the basis if continuing dieselization.
• Should dieselization continue, its impacts on product trade patterns will be far reaching.
2020 exports of European gasoline to the US are projected at close to 1 mmbpd with
other destinations likely to include Africa, Asia and the Caribbean. Offsetting the
gasoline exports are a projected 1.65 mmbpd (2020) of distillates imports from Russia,
Caspian, Caribbean and Africa.
• With US refining capacity projected to not keep up with demand, gasoline imports
continue to rise into the US East Coast (nearly 1.4 mmbpd into PADD1 in 2020 from
Europe, Caribbean, South America, Africa and Russia) but also are indicated into the
US Gulf Coast and Interior (over 0.4 mmbpd net) and the US West Coast (0.3 mmbpd
net).
• Inter-regional movements of residual fuels are projected as limited, except for small
volumes of low sulfur resid moving into the US East Coast and of high sulfur resid and
vacuum gasoil streams ex Russia, mainly into Europe.
• This situation is projected as applying to residual bunker fuels (Figure 5-7), although
shifts is assumed locations of bunkers demand could well lead to changes in trade
patterns.
5.5 Bunker Fuels Quality and Blending
The current WORLD version does not possess standard reports for the details of fuels
blends. For the Task 1 (BAU cases), spot blends were inspected. MGO blends included light
and middle distillate streams characteristic of a lower quality, higher sulfur No2 type fuel.
5-13
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Draft Report - Do Not Cite or Quote
MDO No4 fuel blends included heavier streams, consistent with a minimum API gravity allowed
of 22.3, and tended to limit on sulfur, and carbon residue (maximum 2.5%). Blend components
included vacuum gasoils and small proportions of atmospheric and vacuum residua, subject to
the limits placed by the carbon residue, sulfur, viscosity (14 cks max at 40 degC) and gravity.
The residual IFO blends for 2012 and 2020 comprised predominantly vacuum and
visbroken residua cut back with kerosene cutter stock plus small constrained (max 5%) volumes
of FCC clarified oils. In a departure from historical patterns, the blends contained small
proportions at most of atmospheric residua and no vacuum gasoils. (A traditional IFO blend
would contain either atmospheric resid and cutter stock or a mix of vacuum resid and vacuum
gasoil and cutter stock.) This development in the blend compositions would appear to be logical
given that global demand growth is predominantly for light clean products which can be readily
produced inter alia from vacuum gasoils via catalytic and hydro cracking. In other words, in the
future, vacuum gasoil will be too valuable as potential gasoline and distillate to blend into bunker
fuels. It will be more economical to blend in vacuum and visbroken residua plus a higher than
traditional quantity of kerosene which is the most effective cutter stock by virtue of its low
viscosity. The IFO blends universally limited on maximum viscosity. Sulfur was a limiting
constraint on the low sulfur (1.5% nominal) blends but otherwise rarely constrained (at 4.5%).
The indicated shift in residual bunkers blend compositions does raise questions. Firstly,
in the model cases, expansion of visbreakers was partially constrained since, generally, the recent
trend has been to invest in cokers. Shifting to the RTI bunkers basis from IEA led to a
significant cut back in coker throughputs, because of the rise in residual fuel demand. For 2020,
the global coker throughput was 4.7 mmbpd in the LEA basis case and 3.7 under the RTI basis.
However, the case allowed little additional visbreaker throughput/capacity addition. Yet, an
increase in demand for residual bunker fuels argues for an increase in attractiveness of visbroken
vacuum residua. In short, the BAU cases should arguably be tested with additional visbreaking
allowed. Unlike resid desulfurization, visbreaking is a low cost process and one refiners could
readily engage in.
The second question these blends bring forward is an operational one, namely, are there
any operational issues with residual bunkers blends that comprise "dumbbell" blends of kerosene
with visbroken and vacuum residua? This should be checked as part of further analysis.
5-14
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Draft Report - Do Not Cite or Quote
B
«
-o
_1
3
aS
SNOioaa ONionaoad
Figure 5-2. Total Crude Deliveries
5-15
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Draft Report - Do Not Cite or Quote
s s
SNOioay ONionaoyd
Figure 5-3. Total Crude Exports
5-16
-------
Draft Report - Do Not Cite or Quote
61
SNOI03M ONIOnaOMd
SNOI03M ONIOnaOMd
Figure 5-4. Production in 2012
5-17
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Draft Report - Do Not Cite or Quote
r- S &
S £
Figure 5-5. Production in 2020
5-18
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Draft Report - Do Not Cite or Quote
[T
P
S U X
53 "
- e c
ONionaoyd
Eg "G X
K 3 «
SNOioay ONionaoyd
Figure 5-6. Product Movements
5-19
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Draft Report - Do Not Cite or Quote
SNOioaa ONionaoad
SNOioaa ONionaoad
Figure 5-7. Residual Bunkers
5-20
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Draft Report - Do Not Cite or Quote
SECTION 6
SUMMARY AND IMPLICATIONS FOR FUTURE SECA ANALYSES
The overall objective of the analyses conducted under Task 1 was to develop a detailed
methodology to estimate bunker fuel demands and to modify the WORLD model to
accommodate details of bunkers grades, technology costs, etc. These changes have been
successfully implemented and applied. The 2012 and 2020 Ball cases were developed and
represent sound starting bases for examining the impacts of broader SECA introduction and/or
tighter global marine fuels limits.
As mentioned earlier in the report, the nature of the MARPOL Annex VI regulations and
goals, and the characteristics of the international marine fuels industry mean that there is a much
wider range of potential variability in future scenarios than is the case with most fuels
regulations. Key uncertainties that can be addressed through case study and which will be
important in the follow-up SECA analyses, include the following:
• Further assessment of the regional make-up of bunkers demand. Arguably further
investigation is warranted to gain a clearer understanding of regional bunker
sales/demand patterns and, in doing so, to further corroborate the analysis of total global
bunkers demand.
• Associated with this, further assessment could be conducted on the extent to which
consumption of low-sulfur bunkers for SECA compliance will be met by supplies within
the SECA or elsewhere. Again, the WORLD model contains transport options to route
bunkers (and other products) from region to region when the economics warrant.
• Assessment of how compliance with the MARPOL regulations will be achieved, in
particular what proportion will be met through improved fuel quality versus via on-board
scrubbing and/or emissions trading. Using the WORLD model, plausible "high" and
"low" scenarios can be applied and analyzed (it has already been set up to deal with this).
6-1
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Draft Report - Do Not Cite or Quote
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Reliance Industries LTD. 2005. Refinery and Marketing Learning Center (Company Website).
Obtained on November 29, 2005. Available at:
http://www.ril.com/business/petroleum/refmingmktg/lc/business_petroleum refmingmkt
g_l c_refmetyp e. html
Reuters. January 13 2006. "UPDATE 1-ExxonMobil to shut Singapore refinery in March".
.
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Singapore Maritime Portal (SMP). Bunkering Services.
. As obtained
February 10 2006.
Singapore Ministry on Trade and Industry (SMTI). 2005. Economic Survey of Singapore: 2004.
Spreutels, Paula J. and Monique B. Vermeire. 2001. Everything you need to know about marine
fuels. U.K.: Fuel and Marine Marketing, LLC.
Transport Canada. 2004. Transportation in Canada Annual Report 2004. Especially Tables 3-26
and 8-27. http://www.tc.gc.ca/pol/en/report/anre2004/8F_e.htm.
Trench, Cheryl J. 2005. Oil Market Basics. Washington, D.C.: U.S. Department of Energy,
Energy Information Administration. Obtained on November 29, 2005.Available at:
http://www.eia.doe.gov/basics/petrol eum_basics.html
United Nations Food and Agriculture Organization (FAO). 2005. 2002 Capture Production
with Respect to the Previous Year. http://www.fao.org/fi/Prodn.asp.
U.S. Census Bureau. 2005. "Annual Survey of Manufactures—2003 Statistics for Industry
Groups and Industries."M03(AS)-l (RV). Washington, DC: U.S. Bureau of the Census.
U.S. Census Bureau. 2004. "Petroleum Refineries: 2002 —2002 Economic Census
Manufacturing Industry Series." EC02-311-324110(RV). Washington, DC: U.S. Bureau
of the Census.
U.S. Coast Guard. National Vessel Movement Center (electronic resource)
http://www.nvmc.uscg.gov/.
U.S. Energy Information Administration (EIA) at Department of Energy (DOE). 2006. Annual
Energy Outlook2006. DOE/EIA-0383. .
U.S. Energy Information Administration (EIA) at Department of Energy (DOE). 2005.
International Energy Outlook 2005. DOE/EIA-0484.
.
U.S. Department of Energy, Energy Information Administration (EIA). 2005a. Petroleum Supply
Annual 2004, Volume 1. Washington, DC: U.S. Department of Energy, Energy
Information Administration.
U.S. Department of Energy, Energy Information Administration (EIA). 2005b. "OPEC Brief
Washington DC: DOE/EIA. Obtained on November 29, 2005.Available at:
http://www.eia.doe.gov/emeu/cabs/opec.html
U.S. Department of Energy, Energy Information Administration (EIA). 2005c. "International
Energy Outlook 2005." Washington DC: DOE/EIA. nr DOE/EIA-0484, pp. 25-35.
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U.S. Department of Energy, Energy Information Administration (EIA). 2005d. "International
Energy Annual 2003: Table 3.2" Washington DC: DOE/EIA. Obtained on November 20,
2005. Available at http://www.eia.doe.gov/iea/
U. S. Department of Energy, Energy Information Administration (EIA). June 2005f. Country
Analysis Briefs: Singapore .
U.S. Department of Energy, Energy Information Administration (EIA). 2004. Fuel Oil and
Kerosene Sales 2003. nr DOE/EIA-0535. Washington, DC: U.S. Department of Energy,
Energy Information Administration, .
U.S. Department of Energy, Energy Information Administration (EIA). 2003. Petroleum
Marketing Annual 2004. Washington, DC: U.S. Department of Energy, Energy
Information Administration, .
U.S. Department of Transportation, Maritime Administration. 2004. "Vessel Calls at U.S.
Ports—2003." Washington DC: MARAD.
http://www.marad.dot.gov/MARAD_stati sties/index.html>.
US Embassy at Singapore. October 2000. Singapore's Chemical Industry Report.
.
U.S. Environmental Protection Agency (EPA). September 1995. Profile of the Petroleum
Refining Industry. EPA Industry Sector Notebook Series. Washington, DC: U.S.
Environmental Protection Agency.
U.S. Environmental Protection Agency (EPA). 1999. In-Use Marine Diesel Fuel. EPA420-R-99-
027. Washington, DC: U.S. Environmental Protection Agency.
Worldscale Association. 2002. New Worldwide Tanker Nominal Freight Scale., "Worldscale."
London: Worldscale Association.
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APPENDIX A
STATUS OF TECHNOLOGY AND TRADING OPTIONS FOR COMPLIANCE WITH
ADVANCED BUNKERS REGULATIONS
This section provides an overview of the technology and other options (such as emissions
trading) that currently or potentially exist to achieve compliance with regulations for emissions
control of bunker fuels. Since potential regulations go beyond sulfur/SOx to NOX and PM, all
three are discussed here.
Existing choices for switching to low sulfur marine fuels include: (8, 10)
• Blend MD and LS MFC with HS MFC (limited)
• Switch to lower sulfur Crude Feedstock (limited)
• Segregate LS HFO to the extent possible (limited)
• Upgrade HS HFO to Light Oil
• Desulfurization of Residual Fuel Oil
• Conversion of Residual Fuel Oil distillate and gasoline
Desulfurizing Refinery Fuels and Switching to Low Sulfur Fuels (6,10)
The European Commission and Entec have published a number of reports rich in
information and addressing Marine fuel supply and demand, emission abatement technology and
related subjects. One of these reports relates the cost of production of low sulfur bunker fuel on
a regional basis to the level of the bunker fuel demand. As bunker fuel demand increases,
production costs increase as available refinery flexibility is fully utilized and refinery
investments are required to desulfurize the bunker fuel blending components to meet the higher
demand. The increase in the price differential between low and high sulfur fuel oil is significant
as the system moves from reblending within the current refining system to residue
desulfurization. This in turn affects the comparative economics of refinery processing versus on
board abatement measures. For this reason, an accurate estimate of bunker fuel demand is a key
requirement of the study.
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Using Distillate Fuel (7, 9)
An Entec report discusses the effect of EU sulfur regulations on marine distillate fuel
(MGO and MDO). Under directive 1999/32/EC, shipping vessels using marine distillate must
use a distillate with a sulfur content of no more than 0.2 wt% within the EU. This limit was
applicable from July 1, 2000 and tightens to 0.1% max by January 1, 2008. This is in contrast to
the ISO/8217/2005 MGO/DMA specification of 1.5% max sulfur and MDO/DMC specification
of 2% max sulfur. Reducing the MDO /DMC) maximum sulfur specification to 0.2 %
effectively backs out all currently allowed heavy fuel oil from MDO and increases its value to
the level of heating oil (No. 2). There is also the potential for ULS blend stocks to be included in
the MGO/MDO marine fuels if economically attractive. This 2002 report estimates a price
premium of $10-15/metric ton on low sulfur distillate fuel oil.
This report also considers the feasibility of ships installing separate fuel tanks for high
and low sulfur grades if ships are operating between regions with differing environmental
regulations.
Distillate fuel is used in smaller vessels as well as a secondary fuel on larger vessels for
Canada inland, maximum sulfur dropping from up to 20,000 ppm(current) to 500 ppm (LSD) in
2007 and 15 ppm (ULSD) in 2012. Canada's current typical is 3000 ppm sulfur content.
Reducing SOx Emissions On Board (1, 2)
The technology of water washing has been in use for several decades in oil tankers for
cleaning the exhaust gas of boilers to produce effectively SO2 free inert gas for the cargo tanks.
The effluent from the seawater scrubber is highly acidic, however, on discharge into the sea it
rapidly disperses so as to give no adverse environmental or ecological effects.
Seawater has a natural alkalinity and the hot exhaust gases mix with seawater to remove
SO2 and particulate matter (PM). The SO2 is absorbed into the seawater which is discharged back
to the ocean. The PM including ash is trapped in a settling or sludge tank where it is collected for
disposal. At normal load conditions, the SO2 sulfur removal rates are reported as 70% -90%, and
potentially higher with scrubber optimization. The lowest removal rate is reported as 65% and
the highest - -from an early 2006 trial on a European Ferry is 99%. The PM removal rates have
been estimated at 25% or higher.
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The quality of the discharge water is limited to 25 ppm hydrocarbon by the IMO
OILPOL and trials have indicated that this can be achieved. (The IMO has not yet imposed limits
on Ph, suspended solids and heavy metals). The U.S. EPA however does have regulations
governing these.
The alternative to exhaust gas scrubbing is to limit the sulfur content of the fuel. At
present the typical sulfur level in residual fuel is approximately 3 % m/m, and follows a skewed
distribution.
Estimated sea water costs per tonne of 862 reduced are estimated to average 350 euros
for new ships and 550 for retrofit shops, with some dependence on ship size. By contrast, the
cost of fuel switching from 2.7 % to 1.5% sulfur fuel is estimated to be greater by a factor of 6,
depending on a number of premises.
A rigorous comparison requires considering all the cost elements including disposal,
storage and additional manning requirements to operate the seawater scrubbers properly (the
ship's Chief Engineer requests the required crew manning from the owner/operator to perform
the additional duties associated with seawater scrubbing).
A realistic comparison also requires constraints on the rate of introduction of seawater
scrubbers. It is likely that there will be some BAU uptake, but since seawater scrubbing is at an
early stage of development for commercial application, current estimates will be subject to
significant uncertainty.
NOx Reduction by lowering the nitrogen content of the marine fuel (1, 3)
Nitrogen in the bunker fuel is a significant source of NOx emissions which represent a
potentially controlled parameter. A CEVIAC report estimated the conversion of nitrogen in the
fuel to NOx in the emissions as between zero and 100 percent as the engine efficiency increases
from 30 to 40 percent.
To put this into perspective, for a fuel nitrogen content of 0.5 weight percent, this
translates into approximately 3 g NOx per kwh, as opposed to current IMO legislation which
calls for a maximum of 17g NOx emissions per kwh for marine diesel engines having a revolving
speed of less than 130 rpm. (4)
An EPA Proposed Rulemaking Document (5) states that residual fuels normally vary
from 0.2 to 0.6 wt% nitrogen and proposes a broad spec between zero and 0.6 wt percent (page
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77). Also, that the test fuel for category 3 engines must meet ASTM D 2069-91 specification for
RMH-55 and have a nitrogen content of 0.6 weight percent or less and that NOx emissions are to
be adjusted based on the nitrogen content of the fuel (page 127). An ISO specification remains a
possibility as well.
A NOx removal constraint calls a complex model optimization into play since there is a
relationship between the nitrogen content of the bunker fuel and NOx emissions. Marine vessel
engine design and operation alternatives which reduce NOx emissions are discussed below.
Seawater scrubbers do not effectively reduce NOx emissions as they do SOx and PM.
To accommodate the potential for nitrogen control in bunkers, a nitrogen specification
was added in to the fuel oil blending streams and specification in WORLD. A NOx constraint
will influence the comparative economics regarding the choice of refinery processing versus on-
board vessel engine design and operation measures, a fundamental objective of the study. A
layer of optimization complexity is added when considering the SOx and NOx constraints and
the related fuel quality issues together. A nitrogen limitation may be imposed on bunker fuel in
the future and hydro processing will reduce both nitrogen and sulfur, but to different extents,
linking SOx and NOx emissions. In addition, some (but not all) vessel design and operation
measures for reducing NOx emissions also reduce SOx and PM.
On Board NOx Reduction Measures (3)
The on-board measures to abate NOx emissions are covered in considerable detail in an
Entec Report. The principal measures and their NOx reduction efficiency and CAPEX+OPEX
costs are:
• Basic IEM (20% NOX reduction/9euro/tonne NOx)
• Advanced IEM (30% NOXreduction/19euro/tonne NOx)
• Direct water injection (50% NOX reduction/345euro/tonne NOx)
• Humid air Motors (70% NOX reduction/263 euro/tonne NOx)
• Exhaust air recirculation (3 5% NOX reduction/na euro/tonne NOx)
• Selective Catalyst reduction (90% NOX reduction/3 5Seuro/tonne NOx)
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Exhaust air recirculation and Selective catalyst reduction also reduce SOx emissions by
approximately 90% and PM by approximately 60%, which must be accounted for in any
optimization analysis.
Again NOX on-board abatement technologies, with their potential to also reduce SOX and
PM, play into the assessment of how the industry will comply with future regulations.
Appendix A References
(1) European Commission Directorate General Environment Service Contract on Ship
Emissions: Assignment, Abatement and Market-based Instruments Task 2 - General
Report Final Report August 2005 Entec UK Limited
(2) European Commission Directorate General Environment Service Contract on Ship
Emissions: Assignment, Abatement and Market-based Instruments Task2c - SOX
Abatement Final Report August 2005 Entec UK Limited
(3) European Commission Directorate General Environment Service Contract on Ship
Emissions: Assignment, Abatement and Market-based Instruments Task2b -NOX
Abatement Final Report August 2005 Entec UK Limited
(4) Internal Memo, Osamu Hanashima. Technical Consultant. Shell Marine Products
(5) EPA Notice of Proposed Rulemaking, 40CFR Part 94, Control of Air Pollution from
New Marine Compression Ignition Engines at or Above 30 liters /Cylinder
(6) European Commission Directorate General Environment. Advice on the Costs to Fuel
Producers and Price Premia Likely to Result From a Reduction in the Level of Sulphur
in Marine Fuels Marketed in the UK Study C. 1/012002 Contract
ENV.C1/SER/2001/0063 Final Report April 2002
(7) Market Survey of Marine Distillates with 0.2 wt% Sulphur Content, Final Report, Entec
2002
(8) Bunker Fuel : Marpol Annex VI, Consultation Meeting Proceedings, February 23, 2006,
Hyatt Regency, Crystal City, Arlington, Va. Among the papers presented were the
following:
(9) Rob Cox, IPIECA, Overview and Background for the Workshop
(10) Gerry Ertel, Canadian Petroleum Products Institute, Framing the Issues- Refiners
(11) Andy Madden, Exxon Mobil, Refining to meet Low Sulfur Bunker Fuel
(12) Don Gregory, SEeat, Emissions Abatement and Trading, Emissions Trading, a Potential
Tool for the Shipping Industry
(13) Kathy Metcalf, Chamber of Commerce of Shipping of American Shipowners
Perspective - Present and Future Direction of Regulation of Air Emissions.
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APPENDIX B
REVIEW OF REFINERY PROCESS COSTS1
Task 1 called for an analysis of the potential technical and economic impacts of
designating one or more SOx Emission Control Areas (SECA's) along the North American
Coastline, as provided by the MARPOL treaty, Annex VI, which places limits on both NOx and
SOx emissions. Countries participating in the treaty must use a bunker fuel with a sulfur content
at or below 4.5 percent. Countries participating in the treaty are also permitted to request
designation of SEC As in which ships must treat their exhaust to 6.0 g of SO2 per kwh, or further
reduce the sulfur level of their fuel to 1.5 percent.
The results obtained from this study will be primarily cost-of-production driven with
respect to the different components of bunker fuel and the resulting fuel oil blend. These tie back
directly to the investment and operating costs applied to the various refinery processes involved
in their production as one of the key factors in determining economic impacts.
Not all refinery processes affect the results in equal measure. Obviously, those processes
directed to producing residual fuel blend components are key, along with processes which
produce blend stocks in the diesel fuel boiling range. The following Table illustrates a typical
composition of Bunker Fuel Oil, in this example blended to 380 centistokes for Bunker Grade
RMG35.
1 The mention of certain Licensors and Companies in the text of this appendix and supporting references does not
imply any preference for or endorsement of these processes or endorsement of operating practices as opposed to
alternatives made available or employed by others. This is particularly so since there are several process
alternatives available and several companies involved in any given area of refinery technology and any one may
be more appropriate based on a specific refinery situation. Those processes cited are therefore cited for
illustrative purposes only. The views and opinions of authors expressed herein do not necessarily reflect those of
the United States Government or any agency thereof.
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Table B-l. Bunker Fuel Composition
Stream Quantity Weight Viscosity Density® Sulfur Vanadium AL+SI Water
MT Percent cks@50 deg C 15 deg C Wt Pet Mg/kg Mg/kg Vol Pet
Residual 15000 43 1500 1.006 3 600 12 0.3
VGO 15000 43 100 0.979 1.5 10 5 0
MidDistillate 5000 14 3 0.85 0.2 000
Target 35000 380 0.991 4.5 300 250 0.5
max
Blend 35000 100 380 0.972 1.96 261 7.3 0.13
Source: based on "Bunkers", Fisher and Lux, page 33
Using current and recognized sources, the following section provides base data on
investment costs and operating requirements for a variety of refinery processes, with the stress
on the "bottom of the barrel". These are estimates based on current known refinery technology
and do not include revolutionary technology breakthroughs, although these could occur in an
extended 2010-2030 timeframe. They were used to review and guide any modifications required
to cost and operating data in the WORLD model.
Recent progress in refinery technology development has been reported for several of the
refinery process areas considered below. This progress reflects process unit potential for
investment and operating cost reduction and capacity increase through technology advances and
revamp experience, as well as by process product quality and yield improvement. These are
described, again based on current and recognized sources and extend the timeframe. In general,
these refer to incremental improvements as opposed to revolutionary breakthroughs, with the
exception of using ultrasound to reduce residual fuel sulfur, which is briefly described.
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Atmospheric Resid Desulphurization
Investment and Operating Costs
Basis 2nd Quarter 1995 U.S. Gulf Coast
Similar erected Chevron Units
Feed Rate 70,000 bpd AR 650+
Feed 11.8 API, 4.37% sulfur, 0.4 % 650+ product for RFCC feed
Investment Cost Summary, millions U.S. dollars:
Total On-Plot Cost 234.2
Total Off-plot Cost 70.3 (30% of on-plot)
Catalyst Charge 8.8 per charge
Hydrogen and Utility Requirements:
Hydrogen 71.7 million SCFD
Fuel 272 BPD EFO
Power 27,000 kwh
Net Steam 94 klb/h
Cooling water 8200 gal/min
Net process & BOW -25 kgal/min
Catalyst 8.8 million dollars/year
• Source: Robert A. Meyers Handbook of Petroleum Refining Processes, Third Edition, 2003,
pg. 8.22-8.33
Using the latest technology catalysts and improved operational procedures, a large
Middle East refinery has reported a 30% increase in the amount of feed processed in the first
cycle. (NPRA Annual Meeting, March 13-15, 2005. NPRA Paper AM-05-54).
Vacuum Resid Hydro cracking
Investment cost depending on feedstock properties and product requirements, typical
investment costs range from $2000 to $ 5000 ISBL per BPSD. Basis 2002. This corresponds to
60-95% desulphurization.
• Source: Robert A. Meyers Handbook of Petroleum Refining Processes, Third Edition, 2003,
pg. 8.81-8.83 - LC-Fining
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Ultra Sound Process to Reduce Heavy Sour Crude Sulfur
Patents awarded in 2005 and earlier describe the application of ultrasound to upgrade
sour heavy crude oil into sweeter lighter crude.(U.S. Patent No. 6,897,628, May 24,2005.) A
5,000 bpd commercial demonstration unit is planned with potential scale-up to 25,000 bpd and
joint venture agreements have been entered into. It is anticipated that the technology could have
upstream and down stream applications. A preliminary capital investment estimate of one
million dollars for a 2,000 bpd unit or $500 per bpd signals the potential for a dramatic reduction
in the cost of desulphurization of residual fuel oil blend fractions (Chemical Engineering., March
and June 2005). This process development is cited here because of its potential impact, but it
must be realized that it is very much in the research and development stage ( see
www.Sulphco.com for additional information).Tracking of future progress is warranted.
Delayed Coking Process
Investment and Operating Requirements:
Investment costs may range from $45,000 to $95,000 per short ton of coke produced.
This excludes the VRU unit and support facilities, but includes the coke handling costs. The
basis is 4th quarter 2002 and the Foster Wheeler process.
Operating requirements based on 1000 BPSD of fresh feed are as follows:
Fuel Liberated 5.1 mmbtu/h
Power consumed 150 kw
Steam exported 1700 Ib/h
Boiler feed water consumed 2400 Ib/h
Cooling water 5-25 gal/min
Raw water consumed 20-35 gal/day per short ton/day coke
• Source: Robert A. Meyers Handbook of Petroleum Refining Processes, Third Edition, 2003,
pg. 12.86-12.88
Visbreaker Process
Investment and Operating Requirements:
Battery limits investment costs are 17 million dollars for a 10,000 bpsd unit and 33
million dollars for a 40,000 bpsd unit. This excludes the vacuum flasher and the gas plant. The
basis is 4th quarter 2002 and the Foster Wheeler/UOP process.
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Typical operating requirements per bpsd of fresh feed are as follows:
Fuel consumed 0.1195 million btu
Power consumed .0358 kw
Steam consumed 6.4 Ib
Boiler feed water consumed 2400 Ib/h
Cooling water 71 gal/min
• Source: Robert A. Meyers Handbook of Petroleum Refining Processes, Third Edition, 2003,
pg. 12.104-12.105
Solvent Deasphalting Process (ROSE Process)
Investment and Operating Requirements:
The estimated installed cost for a 30,000 bpsd unit is $1250 per bpsd. The basis is 2nd
quarter 2002, U.S. Gulf Coast, Typical operating requirements per bbl of feed with propane
deasphalting are as follows:
Process heat consumed 12 million btu
Power consumed 1.5-2.1 kwh
Steam consumed 12 Ib
Solvent loss, wt% of feed 0.05-0.10
• Source: Robert A. Meyers Handbook of Petroleum Refining Processes, Third Edition., 2003,
pg. 10.27-10.28
Gas Oil Hydro cracker
Investment and Operating Requirements:
Basis Jan 1, 2002 U.S. Gulf Coast
Similar projects executed for UOP Unicracking Process
VGOfeed 22.2 API, 2.5% sulfur
Product 94% distillate vs.98% naphtha
Investment Cost Summary, millions U.S. dollars
Total Erected Cost $/BPSD
Distillate Mode 2500-3500
Naphtha Mode 2000-3000
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Typical Utility Requirements, per 1000 BPSD fresh feed
Fuel 2-6 million BTU/h
Power 20(MOO kw
Net Steam 0.11 - 0.22 klb/h
Cooling water 40-120 gal/min
Net process & BFW 0.08 klb/h
• Source: Robert A. Meyers Handbook of Petroleum Refining Processes, Third Edition, 2003,
pg. 7.33
Fluid Catalytic Cracking (FCC)
Investment and Operating Requirements:
Basis 1st Quarter 2002 U.S. Gulf Coast
Similar projects executed for KB RFCC Process
50,000 bpd VGO feed
• Source: Robert A. Meyers Handbook of Petroleum Refining Processes, Third Edition, 2003,
pg. 3.32
Total Installed Cost $/BPSD $2250 to $2500 - Includes gas system (without power recovery),
main fractionator,VRU and amine treater.
Typical Utility Requirements, per BPSD fresh feed
Steam 40-200 Ib HP steam
Power 0.7tol.0kwh
Resid cat cracking is significantly different than gas oil cracking with respect to feed
properties and gasoline and distillate yields (conversion). As old FCC units are being replaced
and new capacity is being added, up to 50% of the worldwide FCC capacity will become resid
crackers
Recent advances in RDS catalyst technology and integration with RFCC catalyst design
have resulted in a 40% reduction on light cycle oil sulfur and a 50% reduction in RFCC sulfur
along with allowing the FCC to process heavier feedstocks. Also a new RDS catalyst system
developed allows substantially more 1000 degF + material to be processed. (NPRA Annual
Meeting, March 21-23 ,2004. NPRA Paper AM-04-29).
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Conversions approach 65% with recently tested FCC catalysts.
The heaviest resids contain high levels of contaminant metals such as nickel, vanadium
and iron. New FCC catalysts have been developed which improve the passivation of contaminant
metals over previous resid matrix technologies. A typical feedstock is a mix of reduced crude,
vacuum bottoms, deasphalted oil and bulk distillate, with feed properties typically 20 API (18-
29), 7 wt% Conradson Carbon (0-9), 42 ppm nickel +vanadium(10-50), 2.0 wt% sulfur (0.2-
2.4), and 0.3 wt% nitrogen(0.05-0.35). The values in parent theses are current commercial
ranges. (NPRA Annual Meeting, March 21-23, 2004. NPRA Papers AM-04-16 and AM-04-31).
Robert A. Meyers Handbook of Petroleum Refining Processes, Third Edition, 2003, p 3.81.
FCC Stack Emission Reduction
Total 2002 dollar total annualized (operating plus capital) costs range from $300 to 600
per ton of SCh removed depending on the specific type of SO2 wet scrubbing system used.
• Source: Robert A. Meyers Handbook of Petroleum Refining Processes, Third Edition., 2003,
pg. 11.28
With the advent of consent decrees, SOX and NOX additives are being used increasingly to
achieve ultra-low FCC stack emissions and reduce acid rain formation. With extensive research
on how these additives work in the FCC regenerator, refiners have been able to reduce SOX
emissions to less than 25 ppm. without the high capital cost of installing hardware. NOX emission
reduction poses a more difficult problem and results vary from unit to unit. Commercial
examples demonstrate that NOX reduction can be achieved in excess of 75%. In many units
additives can reduce NOX emissions to 35 ppm and at times below 25ppm of NOx. (NPRA
Annual Meeting, March 13-15, 2005 NPRA Papers AM-05-21).
Low Sulfur and Ultra Low Sulfur Diesel Production
Units are per barrel feed
Stream
Diesel
Hvy. Gas Oil
Electric
(Kwh)
3.
6.
Fuel
(Mmbtu)
0.15
0.2
Steam
(Lb)
8.
10.
Hydrogen
(Scf)
300.
600.
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Investment Requirements for Hydro treating Diesel and Gas Oil Streams:
Basis: 1999 U.S. Gulf Coast, ISBL million of dollars, 30,000 bpsd
Diesel Feed 35.0
Heavy Gas Oil Feed 50.0
• Source: Gary and Handwerk, Petroleum Refining Process Economics, Fourth Edition, 2001,
pg.182-183
Ultra Low Sulfur Diesel Processes
It is highly unlikely that ultraslow diesel production would be blended with residual fuel
oil because of the high cost of production and the fact that its substitution for conventional diesel
fuel does not exert sufficient leverage on the residual fuel blend sulfur content. It is more likely
that it would be blended with the higher sulfur middle distillate components to produce the
marine diesel fuel grades. Representative ultraslow diesel processes are described below:
Operating and Investment Requirements for the Phillips S Zorb Process
Feed rate, BPD 20,000 40,000
Feed sulfur wt ppm 2600 500
Product Sulfur wt ppm 6 6
Power kwh 2511 3698
Steam nil nil
Nitrogen, million scfd 807 332
Cooling water gpm 1835 1870
Fuel gas , million btu/h 46.5 109.6
Total hydrogen, million scfd 1.24 1.44
Sorbent makeup, Ib per month 9970 19085
Erected Equipment, million dollars 20.85 30.60
Basis 2nd Quarter 2002 U.S. Gulf Coast
• Source: Robert A. Meyers Handbook of Petroleum Refining Processes, Third Edition, 2003,
pg. 11.56
Operating and Investment Requirements for the UOP/Eni Oxadative Desulphurization Process
30% LCO, 70% straight run diesel
30,000 bpsd feed @400ppm sulfur and 10 ppm diesel product sulfur
U.S. Gulf Coast, 2nd quarter 2003
Capital cost, MM$ 16.0
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Hydrogen cost $MM/year 13.4
Utilities cost $, MM$/year 1.0
Catalyst cost $MM/year 1.3
Total cost $, MM$/year 15.7
• Source: NPRA Annual Meeting, March 21-23, 2004, Paper AM-04-48.
Syntroleum Gas to Liquids (diesel)
Capital Cost of Plant 25,000 dollars per bpd capacity
Operating Cost $5.00 per barrel excluding cost of natural gas
Product nil sulfur and aromatics, 74 Cetane number
Basis 2001 U.S. Gulf Coast
• Source: Robert A. Meyers Handbook of Petroleum Refining Processes, Third Edition, 2003,
pg. 15.23
Process Unit Revamping For Ultra Low Sulfur Diesel Production
Claims have been made that revamping for ultraslow sulfur diesel production with
countercurrent reactors can save up to 50 percent in Capex and 20 percent in OPEX based on
recent pilot plant tests (NPRA Annual Meeting, March 21-23, 2005 NPRA Papers AM-04-22).
Also, that integration of Isotherming into an existing conventional unit is 60 percent of the total
cost of a conventional revamp. (NPRA Annual Meeting, March 21-23, 2005 NPRA Papers AM-
04^0).
The estimated ISBL Investment Cost for (U.S. Gulf Coast, 1st Quarter 2005) for
upgrading a 20,000 bpsd Unit with Light Cycle Oil (LCO) feed to produce lOppm ULSD at 45
cetane number is estimated at 36.4 million dollars. (NPRA Annual Meeting, March 13-15, 2005
NPRA Paper AM-05-53.)
B-9
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