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Copyright © 2016 World Fuel Services Corporation. Proprietary & Confidential. All Rights Reserved.

2020 global regulations complexity, choices & cost

Bob Thornton - World Fuel Services (Singapore) Pte Ltd

Bunkering & Storage

Asia Conference


WFS : Global strength. Local presence.

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WFS Marine

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• 31 Million MT sold

• 54,000+ transactions

• 1,200+ ports

Data as of December 31, 2016

• Claims management

• Contract & spot options

• Fuel management

• Market reports & analysis

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• Technical quality control

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Secure supply, quality lubricants, and complete Marine solutions

Copyright © 2016 World Fuel Services Corporation. Proprietary & Confidential. All Rights Reserved. 4

IMO

IMO Decides on 2020

MARPOL 73/78 - Annex VI


MARPOL Annex VI : How long have we known?


MEPC 58 : October 2008, London

Step Change to 0.50%

Shenise

Wong

Miss Singapore

Universe 2008


IMO Decides on 2020

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The debate at IMO was extensive with developed nations

aligned behind 2020 and developing countries preferring 2025.

Several delegations voiced concerns relating to fuel blending,

stability and safety (notably flash point / SOLAS compliance)

and the challenges presented by an unprecedented transition

from max 3,50 % to max 0.50%

The IMO Chairman then referred to a working group on

managing implementation which reported back to MEPC71 in

May 2017.

On October 27, 2016 the International Maritime

Organization (IMO) decided to implement the

MARPOL Annex VI global sulphur cap on January

1st, 2020.


Where does that leave refiners

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The IMO studies by Navigistics and CE Delft projected scrubber

penetration by 2020 to be 20% at best leaving 80% of the

conversion burden on refiners.

CE Delft effectively declared that the refining industry simply will

invest and so the problem is waved away. In contrast, EnSys

raised the potential capacity deficit as a serious concern.

EnSys sees refinery investment being limited because wide

light-heavy price differentials will induce a rapid take-up of

scrubbers with the likely effect that by 2023/2024 there could a

reversion of demand away from 0.5% fuel and back toward

more 3.5%.


Where does that leave refiners (2)

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EnSys believe the expected short term nature of this

phenomenon is likely to deter many refiners from making major

investments.

On economic impacts, EnSys/Navigistics highlighted the

potential for a painful and uneven transition in the form of

significant market strain impacting essentially all products in all

regions.

Extremely wide 0.5% marine distillate / 3.5% IFO differentials

would spill over into the inland products that are the bulk of the

market because of the refining industry’s co-product nature.


Which solution best to comply with legislation?

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Choice depends on various factors: • Age of ship

• Trading pattern

• Time spent in ECA

• Price differential

Some challenges expected/experienced • Training needs vary !

No single solution fits all ships

!


The Choices are hard & the questions are many

Low Sulphur: – ULSFO - (RM/DM),

– Blends of HSFO & ULSGO/LSGO - (DMB/DMC)

– ULSGO/LSGO - (DMA/DMZ)

Product quality concerns – Operational & Compatibility issues

– Product availability

Alternative compliance : Exhaust Gas Cleaning

HSHFO – In combination with Scrubbers

– Product availability past 2020/2025?

– Price?

LNG as a Marine Fuel – Short sea?

– Deep sea??

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For a selected few: Methanol, ethanol, biofuel, nuclear...


Are you ready??

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Innovator?

First mover?

Follower?

Started?

Last Friday?

Tomorrow?


New types of 0.10% S fuel appearing

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• The traditional, major driven ULSFO’s (RM) growing in volume – Compatibility addressed with regard to gas oil and same product – Separator manufacturers onboard re initial challenges

• New fuel types still appearing – Different products in different regions – Based on high TAN / High Calcium Crudes – Napthenic crudes are waxy and have high pour

points requiring heating

• RMD80 or RMG180? Crew competence Systems set up and ready? Continuous learning process......

• Historic DMB/DMC (Discontinued in 2005) will likely return

• They are not clear and bright


Generally....what are the consequences?

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• Higher viscosity

• Changeover “easier” as Temperature difference less

• High pour point needs continuous heating

• Long term stability? • Compatibility with other

products

• ROB! • Compatibility with different

batches?

Need to Consider • Settling/service tanks • Classification rules • System cleanliness? • Double settling and service? • Separate lube systems? • Return lines to service tank? • Purifiers? • Compatibility with

other grades?

On board consequences : If using ULSFO (RM) type:


Generally....what are the consequences?

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• “same” change-over challenges as DMA

• Max 2 degrees per minute to avoid fuel pump seizure?

• Compatibility?

• Sediment?

• Good if minimal heating capability

• “distillate systems”

• Turn off Heating coils?

• Good idea?

• Return lines to service tank?

• Piping changes necessary?

On board consequences : If using type ULSFO (DM):

• Class approval?

• Purifiers?

• HFO/Distillate?

• Service tanks?

• Cross contamination?


Compatibility MUST be checked...every time!

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Summary of all 0.10% S results

All 25 different qualities : Compatibility matrix

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Copy of ULSFO typicals for various suppliers (4).xlsx

WFC BLEND (2).pdf


Where are we now ?……


VLSFO – 0.50% fuels

Concerns from MEPC

Stability – Blend stocks

Flash point – Availability

Light distillate? – Land quality

Marginal sulphur

Reproducibility

The laws of physics

More acurate test method? – No, accept the rules

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Trust ISO/CIMAC!


Distillates are all very different… & all on spec - C&B

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Courtesy of DNV Petroleum Services


Traditional focus….

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Viscosity • Minimum in ISO 8217 for DMX/A/(Z)/(B) Visual appearance • Water • EN 590 • Bacteria • What is a challenge? Flash point • IMO initiative by US Oxidation Stability • Added test in 2010 ISO Lubricity • NOT to be confused with low viscosity!

Change-over from HFO • Continuous coverage in the media • But what has changed?


Blending – distillate?

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Do distillates have to be clear and bright?

ISO 8217 DMB/DMC

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Good, old fashioned blends!

Cheaper than gas oil

Generally higher viscosity than gas oil Higher temperatures in the system

Remember the sediment! TSE

Compatibility Unlike gas oils Asphaltenic sludge can fall out


Blending to meet VLSFO 0.50% Sulphur – fuel?

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Abatement - Scrubbers

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Abatement - Scrubbers

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http://www.bunkerworld.com/news/Wartsila-Singapore-approval-boosts-Asia-scrubber-demand-hopes-

143546

http://www.bunkerworld.com/news/Wartsila-Singapore-approval-boosts-Asia-scrubber-demand-hopes-143546


















LNG

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Courtesy of Wartsila


LNG : CE Delft report

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ULSFO RM

0.10%

VLSFO DM

0.50%

VLSFO RM

0.50%

Geographical solutions – capacities and segregation

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Distillates

DMB/DMC

DMA - 7%

FAME

Segregation & Contamination?...a challenge!

Distillates

DMB/DMC

7% FAME

FAME FREE

DMA

Others

HSHFO

3.5%

ULSFO DM

0.10%

LNG


The consequences...... and challenges of 2020

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• Strong get stronger, weak get weaker – we WILL lose companies

• Bunkers are relatively «unimportant», in refining.

• Refinery readiness and upgrade to plan?

– Will refiners, terminals, blenders, traders be able to react quickly enough to make the necessary additional investments?

– all currently proposed refinery upgrading for the next five years to be implemented?....no delays….no cancellations.

• What to do with all that HSHFO?

• HSHFO prices will likely decrease sharply relative to crude, as the majority refineries will not have adjusted production to alternative fuels by then?

– This may be region/location specific but this can be predetermined fairly easily.

• How many scrubber can be ready?

– 250+ scrubbers delivered or on order?

• LNG uptake?

– 250+ ships now with dual fuel capability?


The consequences...... and challenges of 2020

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• Economic climate conducive to change?

• Complex Lube picture?

• There ARE Opportunities:

• There will be a window of time in which HSFO prices could be very low & investment in scrubbers would produce a good return

• ULSFO (DM/RM) availability will increase as blenders take advantage of 0.5% product

– New 0.50% S fuels will suddenly appear

– Complex picture where many «new» products will appear.

• New fuels; learn from the 0.10% experience! (get some)

Once you choose, difficult to change!


Compliance – consequences

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SO2 and NOx done? – GHG the next challenge?

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What may happen post 2020

• HSFO prices will likely decrease sharply relative to crude,

as the majority refineries will not have adjusted production to

alternative fuels by then.

• This may be region/location specific but this can be

predetermined fairly easily.

Opportunities:

• There will be a window of time in which HSFO prices could be

very low & investment in scrubbers would produce a good return

• Availability will increase as blenders take advantage

• MGO prices are likely to increase relative to crude

• ULSFO availability will increase as blenders take advantage

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Final thoughts…..

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Complex fuel decisions!

Availability will become more gepgraphical?

When to start? Now!

Once you choose you option, difficult to change

Invest in your people

Dark distillates (DMB/DMC) are good

it doesnt have to be clear and bright, only compliant!

Trust ISO/CIMAC!

RM... Or DM.....make your choice!

Get some ULSFO experience to help with VLFSO needs

Compatibility is NOT guaranteed

FONAR/Fines/Final (date)

Complex; keep up the pressure on EU/IMO

Get it right!

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