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2010 Energy Buyers Conference Miami, October 26 th MARPOL and ISO 8217:2010 “Changes in our industry”

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Presentation on theme: "2010 Energy Buyers Conference Miami, October 26 th MARPOL and ISO 8217:2010 “Changes in our industry”"— Presentation transcript:

1 2010 Energy Buyers Conference Miami, October 26 th MARPOL and ISO 8217:2010 “Changes in our industry”

2 2 Marpol Sulfur Changes IMO APPROVED MARPOL ANNEX VI GLOBAL SULFUR CAP January 2012-max 3.50% Sulfur (current 4.5%) 2020-max 0.50% Sulfur (2018 review, may be pushed back to 2025) SECA now ECA March, 2010-max 1.00% Sulfur January, 2015-max 0.1% Sulfur CALIFORNIA July 1, 2009-MGO DMA max 1.5% Sulfur OR MDO DMB max 0.5% Sulfur January 1, 2012-MGO DMA OR MDO DMB max 0.1% Sulfur Shipping industry is 90% of global trade and accounts for 3% global Carbon Dioxide emissions

3 Dealing with the change GOALS Reducing Harmful Air Pollutants - Carbon Dioxide (CO2) - Sulfur (SOx) - Nitrogen Oxides (NOx) ISSUES o HFO primary source of shipping fuel Lack of low sulfur fuels and distillates to match global demand o Significant increase in fuel cost! ---$ /mt--- premium for distillate over fuel oil o Perceived environmental benefit and political pressure over hard facts o IMO wants ISO to develop specification dealing with Air Quality, ship safety, engine performance and crew health o IMO does not govern the refining industry POSSIBLE ALTERNATIVES o Scrubbers – installed on vessels to reduce emissions o Bio-fuels – expensive and have quality issues = engine problems (FAME) o LNG – safety and storage capacity issues o Changes in future ship design

4 4 ISO 8217: 2010 APPROVED INTERNATIONAL STANDARD – ISO 8217:2010 (approved as of June 15, 2010) IMO regulations vs. ISO regulations. ISO working group comprised of various stakeholders: o Ship Owners/Operators o Engine Manufacturers o Testing Agencies o Major Oil Companies o Bunker Suppliers Each ISO country creates & manages its own Technical Group, which contributes to the international discussion (and voting) that takes place at the ISO Working Group level.

5 5 Some are participants and some are observing countries (s) Secretariat Countries ArgentinaGermanyPakistan AustraliaGreecePoland Austria (no coastline)IndiaPortugal BelgiumIndonesiaRussian Federation BrazilIranSingapore (abstained) China (voted NO)IsraelSlovakia (no coastline) CroatiaItalySpain CyprusJapanSweden DenmarkKoreaSwitzerland (no coastline) EgyptNetherlandsTurkey FinlandNigeriaUnited Kingdom France (s)NorwayUSA

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8 FUEL OIL Sulfur limits removed (IMO governs) Acid Number (2.5mg KOH/g picked as limit) CCAI (calculated specification) Total Sediment Potential (reference) or Total Sediment Accelerated (acceptable) Ash content lowered and vanadium max allowable raised Aluminum and Silicon lowered Sodium added MCR for RMK lowered Calcium + Zinc OR Calcium + Phosphorus must exceed limits to be deemed as containing ULO Hydrogen Sulfide (2012- precision being set by Energy Institute of London) ISO 8217:2005 vs. ISO 8217:2010

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11 11 ISO 8217:2005 vs. ISO 8217:2010 DISTILLATES Acid Number (guiding limit of 0.5mg KOH/g) Stability Lubricity (applicable if sulfur content is below 500mg/kg or 0.05% mass) Appearance clause amended (TSE for DMB) Hydrogen Sulfide (2012-precision being set by Energy Institute of London)

12 12 FUEL OIL & DISTILLATES Annex A: Bio-derived products and FAMEs DISTILATES: contamination – de minimis levels 0.1% FUEL OIL: no de minimus level (considered supply system contamination) Annex B: controversial Deleterious Materials (industry lacks guidelines for limits) ULO limit changes “Simply condemning a fuel due to the presence of anomalies rather than hard technical evidence or facts, is to impose unnecessary costs upon an industry already struggling to make ends meet” Douglas Raitt - FOBAS ISO 8217:2005 vs. ISO 8217:2010

13 13 Critical Changes to individual fuel oil specifications Aluminum + Silicon from 80ppm to 60ppm. Based on desire for 15ppm after treatment prior to injection. Proper fuel preparation. Is this reduction even necessary? What happens at 70ppm? Limitation on cutter stocks used (target blending spec) – contradictory to LSFO needs Source barrel limitations (fuel oil and slurry typical metals) Vanadium increased for RMG (350ppm) and reduced for RME (150ppm), RMK (450ppm) RME and RMK decreased? Sodium introduced (100ppm) Sodium & Vanadium relationship, why 100PPM? What happens at 110ppm? Ash (RMG max reduced from 0.15 mass % to 0.10 mass %) Follows tightening of metal specifications. CCAI inclusion (max 870) While it is supportable for RMG, RMK ramifications and lack of method ignored. RMK 380 (1010 DENSITY, 380CST is 872 CCAI, MAX 870 CCAI) TAN introduced (2.5 mg KOH/g) Naphthenic based fuel oil exemption? 4 TAN ≠ bad fuel. Weakening of Clause 5 (according to some) – Deleterious Materials (Annex B)?

14 14 General impact of introducing a new different standard Cost increase due to reduction of ISO compliant fuels. o Refinery advantage for spec modification. o Potential market stratification in fuel prices-will or can everyone meet new ISO? o Two tier market. Those who can or cannot and those who will not supply. o Historical premium for “Japanese spec” o Majority of bunker supply coming from blender/traders. Increased contractual disputes because of tighter and broader specifications. o Charter party disputes (charter must buy ISO but it’s not be available). o Forced action taken (de-bunkerings) due to breech of non-critical specifications. o Claim mitigation critical! (to what degree can parties be held liable for non-critical spec claims) INCREASED COSTS to vessel operators…

15 15 Who Benefits? Some Suppliers – in-house refinery streams. Ship “Owners” – Continuing desire to reduce maintenance costs, prolong engine life, shift costs on to Operators. Engine wear free fuels? Owner operators that “can” ignore the new spec and buy old ISO (controlled tonnage). Testing Agencies o Bigger more complicated and expensive slate to confirm quality. o Increased need for technical advice (further testing) due to lack of knowledge and experience with new parameters. o Increased conflicts between involved parties generates more testing. Bunker traders without physical supply o Back to back transactions. o Not concerned with complications of sourcing and blending.

16 16 How did this happen? ISO & industry needs INDUSTRY WIDE CONCENSUS on revisions to existing standards. Previous revisions ISO 8217 were minor changes (i.e. 1% to 0.5% water) ISO 8217:2010 driven mainly on the technical side to the commercial advantage of ship owners. Commercial specifications dictated by non-commercial entities and only one side of the commercial spectrum (ship owners and their testing agencies). Other commercial viewpoints and implications were only voiced at a very late Stage – those who source, blend and delivery marine fuel had little involvement. At the ISO working group level, voting by country with same voting rights. Voting power Singapore = Slovakia. Many of the voting ISO member countries have little knowledge or no involvement in the industry (shipping or marine fuels).

17 17 Now and the Future… ISO 8217:2010 has passed, but is not enforceable unless contractually agreed. - higher overall cost due to the blending components required to make these fuels - premiums hard to quantify due to lack of demand - sporadic 2010 spec availability GET INVOLVED: ASTM COMMITTEE D2, SUBCOMMITTEE E, MARINE FUELS TASKFORCE IMO asking ISO to develop more standards!!!

18 Confidential Thank You!

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