1. Challenges and Opportunities
Presented by: Mr. Ali Asghar Arshi
Advisor to NITC Managing Director
22nd WORLD PETROLEUM CONGRESS
9th- 13th July-2017
ISTANBUL

2. EFFICENT NITC at a Glance
More than Sixty Years of Honorable Presence in Global Energy Transportation
Pioneer, Efficient and Outstanding in International Arena
VLCC
SUEZMAX
AFRAMAX MR
LPG CARRIERS
CHEMICAL PRODUCT
The World Largest Oil Tanker Company
Total Fleet 69 tankers with more than 15.5 MDWT capacity. 1
National Iranian Tanker Company
EFFICENT

3. INTRODUCTION
The International Maritime Organization on October 27,2016announced it was going ahead with a global sulfur cap of 0.5%on marine fuels starting from January 1, 2020,. Under the terms of the IMO’s MARPOL Annex VI regulation, the2020 date was “subject to a review, to be completed by 2018, as to the availability of the required fuel oil. Depending on the outcome of the review, this date could be deferred to 1 January 2025.” Now that the 2020 date has been confirmed by the IMO, a sharply more regulated shipping emissions sector looms into view in the near term. The current global sulfur cap on bunker fuel is at 3.5%. The sharp, step change down to tighter sulfur specifications at sea will have knock-on effects throughout the global energy system. The cost of the IMO’s regulatory change on the shipping industry is unknown, but every analyst expects it to be large. As well as shipping lines, particularly NITC as major tanker company in the world, the IMO’s decision will also impact refiners , crude oil producers, bunker suppliers, and emissions and air quality. 2
National Iranian Tanker Company

4. SHIP-OWNERS’ CHALLENGES
The International Maritime Organization has left ship-owners with just less than three years to choose one of the following options:
Sharp rise in fuel bills with no guarantee of consistent quality,
Huge up-front capital cost for scrubber ,
Ordering new ship by Scrapping the old ones ,
Or the legal risk of ignoring the sulfur cap and hoping the law doesn’t catch up with them.
Ship-owners will first need to have a clear view of their finances, to see if they can access the credit for a scrubber, or whether they’ll be in a position to take a cut in profits from higher fuel bills in 2020 – or pass the cost on to their customers.
Ship-owners need to find the least painful method of coping with the sulfur cap in order to be able to offer the lowest freight rates .
For many ship-owners the process of making this choice will be a painful experience, coming as it does at a time of prolonged stress on the finances of much of the industry.
The process of weaning the shipping industry off a cheap fuel 3,500 times more sulfurous than road diesel was always going to be problematic, but it was an inevitable change that would be welcomed by many. 3
National Iranian Tanker Company

5. PETROLEUM INDUSTRY’S CHALLENGES
According to the UK Petroleum Industry Association (UKPIA), a change to 0.50% mass sulfur marine fuels “would have a massive impact on refinery configuration and operations,” and would require some combination of the following four main approaches, each with its own drawbacks.
1- Substantial investment in upgrading fuel oil residues to gasoil grades (i.e. building secondary units such as crackers, visbreakers and cokers). But as many refiners are global companies they will only make such investments in locations with good returns (leaving the prospect of patchy availability).
2-Reduction of residue production through changes to a sweeter crude slate. The downside here is of course that such crude grades trade at higher differential, reducing refining margins, and will be in even more demand, and thus more expensive, in 2020.
3- Residue destruction, stopping the production of fuel oil. This also requires huge investment.
4-Desulfurization of residual fuel oil and blend with low sulfur gasoils. Similarly this requires huge investment. According to the IEA, these units are more expensive than upgrading units, and presently there is little demand for fuel oil desulfurisation units, with global capacity estimated to be less than 0.1 mb/d.” About 40% of 450Mt of HFO is consumed globally each year by marine fleet operator. 4
National Iranian Tanker Company

6. PETROLEUM INDUSTRY’S CHALLENGES:COUNTINUED
According to the UK Petroleum Industry Association (UKPIA), Desulfurize the residue streams depending on economic choices.
Refiners could choose to add heavy oil conversion processes to upgrade residues into higher value products .Gasoil from these upgrading projects would then source the marine requirement.
The processes required are high pressure, high temperature and consume huge volumes of hydrogen which must also be manufactured (releasing further CO2).
The capital cost is massive,
operating costs are much higher and
lead times for construction are in excess of five years.
According to the IEA. “[In 2020] the price of fuel oil is expected to plummet in tandem with demand,”. “This will in turn put pressure on [fuel oil] cracks and simple refiners with high fuel oil yields. Conversely, it could become more attractive to modern, complex refiners who have the secondary units capable of upgrading fuel oil into higher value lighter products. 5
National Iranian Tanker Company

7. PETROLEUM INDUSTRY’S CHALLENGES:COUNTINUED
US shale oil is typically light and sweet, while most of OPEC's key Middle East members largely produce grades that are sourer and heavier, and many refineries worldwide are not technically nimble enough to drastically alter their crude slates.
The world awash in light sweet crude oils , which now serve as the swing barrel in the global market, due to tightness in supplies of the heavier sour grades , following OPEC's production cut agreement and the recent output surge in the US, in addition to Libya, Nigeria and even Kazakhstan .
Major futures benchmarks ICE Brent and NYMEX WTI crude are based on relatively light sweet grades from the North Sea and the US, respectively, but often stand in as the global oil price indices.
OPEC and its 10 non-OPEC partners in the 1.8 million b/d production cut agreement face a dilemma in short term , as those benchmark prices continue to languish, without reflecting the tightness in the heavy and medium sour crude oils market. 6
National Iranian Tanker Company

8. OPP0RTUNITIES
Oil majors are staying tight-lipped on the details of internal research and development into the mass-production of 0.5% blends , while they are the major equity holders of sweet crude oils, it is widely understood in the industry that probably all of them have such programs ongoing.
The following options are available for petroleum industry to produce the 0.5% max sulfur fuel oil which is going to be widely used in shipping industry from 1st of Jan ,2020;
The first option is to blend down sulfurs to 0.5% from 3.5%,
It varies from impossible to very easy - depending on the crude oil slate, Far East ,West and North African and ,North Sea crudes as well as US shale oils have less than 0.1% sulfur in the VGO fraction, that could be blended into the residue, which is also likely to be low sulfur . By exercising this option the benefit from the sulfur cap are as follows:
Increasing the sales revenue, but exposing to the widening heavy/light market imbalance,
Enhancing the flexibility in supply of fuel oil (Bunker ) within the petroleum industry by helping shipping industry as whole to run their operations more efficiently . 7
National Iranian Tanker Company

9. OPP0RTUNITIES:COUNTINUED
The second viable option in short term is to consider the possibility of substituting sweet with sour crude oils as feedstocks for the refineries ( with small modifications ) in the frame of SWAP Agreements among crude oil producers and or considering the possibility of using MSAR (Multiphase Superfine Atomised Residue)as an alternative to HSFO (presented by quadrise UK Listed company in 7 th ANNUAL EUROPEAN BUNKER FUEL CONFERENCE May,2016 in Rotterdam) .By exercising this option the benefits are as follows:
Increasing the sales revenue, but avoiding the widening heavy/light market imbalance,
Reduction the burden costs of bunker fuel to use scrubber (with approximated cost of 3-5 million USD for each vessel) for ship-owners.,
And most importantly protecting the global environment. In that respect , oil majors could also take their responsibility , to cooperate with all crude oil producers and refiners ,reducing drastically the fuel oil emission more effectively. 8
National Iranian Tanker Company

10. END OF PRESENTATION MANY THANKS FOR YOUR KIND ATTENTION
National Iranian Tanker Company