1. NB 201/31739-01/Swedish Government/96/Lon 1 Contents of presentation report 1Background 2Scope of Refinery Work 3Methodology for Refining Costs 4Summary of Results and Comparisons with Earlier Work 5Diesel Sulphur Reductions 6Gasoline Sulphur Reductions 7Sensitivities 8Appendices

2. NB 201/31739-01/Swedish Government/96/Lon 2 Following the Auto-Oil programme the EU recently recommended maximum sulphur contents for gasoline and diesel to apply from 2000 Background1 ProductProduct Maximum sulphur contents of proposed EU fuel package Swedish maxima GasolineGasoline 200 ppm 100 ppm DieselDiesel 350 ppm MK I 10 ppm MK II 50 ppm MK I 10 ppm MK II 50 ppm The recommended sulphur levels were above those which are currently in force in Sweden and Finland Finnish maxima (Reformulated) 100ppm 50ppm

3. NB 201/31739-01/Swedish Government/96/Lon 3 The costs to refiners for sulphur removal developed by Arthur D. Little for Auto-Oil were based on previous studies adjusted to a 1995/6 cost basis Background1 TitleTitle Integrated approach for sulphur and sulphur dioxide limits in the European refining industry Modifying European gasoline composition to meet enhanced environmental standards and its impact on EC refineries DateDate 1992 1993 Client(s)Client(s) Governments of Holland, France, Spain, Italy and Germany European Commission Government of Germany Key Previous Studies The cost curves developed relied on extensive interpolation and extrapolation of previous work. No new detailed refinery analysis was undertaken

4. NB 201/31739-01/Swedish Government/96/Lon 4 The costs for sulphur removal for EU12 developed by Arthur D. Little for the Auto-Oil program were as follows in 1995/6 costs Background1 Gasoline Sulphur Removal Sulphur (1) Reduction Step Capital Investment Million ECU Net Present (3) Cost Million ECU 200ppm to 150ppm 8751320 200ppm to 100ppm 17502630 200ppm to 30ppm 33405240 Diesel Sulphur Removal Sulphur (1) Reduction Step Capital Investment Million ECU Net Present (3) Cost Million ECU 350 to 20045606980 350 to 100923015380 350 to 501157019580 (1) Cost curves were originally developed from a base gasoline sulphur level of 300ppm. The results shown have been interpolated from the original analysis (2) Cost curves were originally developed from a base diesel sulphur level of 450ppm. The results shown have been interpolated from the original analysis (3) All future cash costs (investment and operating costs) were discounted back to 1996 at 7% per annum

5. NB 201/31739-01/Swedish Government/96/Lon 5 The Swedish and Finnish Governments wish to know how recent developments might influence the costs of sulphur removal... What developments have occurred in process plant and catalysts? Background1 Technology for Desulphurisation Three Factors Could Effect Costs Crude Oil Diet for EU Refineries General Oil Industry Trends What impact would be made by recent North Sea production developments? Would refiners have to invest in associated technologies for other reasons?... and commissioned Arthur D. Little to undertake a detailed refinery analysis of EU15

6. NB 201/31739-01/Swedish Government/96/Lon 6 Contents of presentation report 1Background 2Scope of Refinery Work 3Methodology for Refining Costs 4Summary of Results and Comparisons with Earlier Work 5Diesel Sulphur Reductions 6Gasoline Sulphur Reductions 7Sensitivities 8Appendices

7. NB 201/31739-01/Swedish Government/96/Lon 7 Perform refinery analysis Crude oil diet changes The scope of our refinery work was to update our cost curves for sulphur removal Scope of Refinery Work2 Scope of Analysis Examine costs of removing sulphur from gasoline and diesel in stepwise approach from Auto-Oil recommended levels Revisit previous analysis (which was EU 12) for EU 15 Compare new cost curves for EU 15 with old cost curves for EU 12 Gasoline from 200 ppm Diesel from 350 ppm Assess significance of updated analysis Changes in industry demand trends Technology improvements Comment on key sensitivities

8. NB 201/31739-01/Swedish Government/96/Lon 8 Contents of presentation report 1Background 2Scope of Refinery Work 3Methodology for Refining Costs 4Summary of Results and Comparisons with Earlier Work 5Diesel Sulphur Reductions 6Gasoline Sulphur Reductions 7Sensitivities 8Appendices

9. NB 201/31739-01/Swedish Government/96/Lon 9 Simulation of complete industry systems requires a compromise approach Study of each individual EU refinery for a variety of scenarios would involve a massive work effort and take much longer elapsed time to complete Study of the EC refining industry as a single system would result in over- optimisation and under-assessment of financial and other implications A compromise was adopted for our previous studies which was generally considered acceptable –Three regions simulated –Typical refinerines simulated We have adopted the same methodology, to enable meaningful comparisons to be made Methodology for Refining Costs3 Results aggregated to represent EU system

10. NB 201/31739-01/Swedish Government/96/Lon 10 EU refining industry has been dividied into three regional groupings Methodology for Refining Costs3 Belgium, Netherlands, Luxembourg, Germany and Denmark Northwest Europe (Old) 34 Northwest Europe (New) 42 United Kingdom, Ireland, France (Atlantic), Portugal and Spain (Atlantic) Atlantic Zone 30 Additionally includes Sweden, Finland and Austria Italy, Greece, France (Mediterranean) and Spain (Mediterranean) Mediterranean Zone 32 Refineries Refineries Refineries Refineries

11. NB 201/31739-01/Swedish Government/96/Lon 11 Six typical European refining configurations have been evaluated to emphasise the differences faced by individual refineries Methodology for Refining Costs3 Hydroskimming Fluid catalytic cracking Hydrocracking Fluid catalytic cracking and hydrocracking Hydroskimming Fluid catalytic cracking Hydrocracking Fluid catalytic cracking and hydrocracking Hydroskimming Fluid catalytic cracking Hydroskimming Fluid catalytic cracking Predominantly Sour Crude Oil Refineries Predominantly Sweet Crude Oil Refineries North Sea Crude Oil feedstocks have been adjusted to reflect recent shifts in typical qualities in both regional and individual refinery analysis

12. NB 201/31739-01/Swedish Government/96/Lon 12 Refinery industry simulation has followed two parallel paths Methodology Revisited3 Regional Group Evaluation Typical Refinery Evaluation Demand on refineries developed for each group Refinery capacity data reviewed with industry – still discussing minor points Reflects industry changes in demand barrel Results aggregated Solutions will be over optimised Six typical EU refinery configurations used for similar analysis reflecting wide range of feedstock sulphur content Actual refinery population assigned to typical refinery types and feedstock sulphur content. (Details of refinery assessments are given in the appendix) Results aggregated Solutions will be under optimised Final results based on a blend of the two approaches

13. NB 201/31739-01/Swedish Government/96/Lon 13 Contents of presentation report 1Background 2Scope of Refinery Work 3Methodology for Refining Costs 4Summary of Results and Comparisons with Earlier Work 5Diesel Sulphur Reductions 6Gasoline Sulphur Reductions 7Sensitivities 8Appendices

14. NB 201/31739-01/Swedish Government/96/Lon 14 The new cost curves indicate lower costs for sulphur removal than the previous studies Summary of the Results and Comparisons with Earlier Work4 Capital Investment Million Ecu Old New 3340 2940 1750 1310 875 615 Diesel Net Present Cost Million Ecu Sulphur ppm Old New 11570 5990 9230 3520 4560 820 Gasoline Net Present Cost Million Ecu Sulphur ppm 30 Old and New Costs on a 1996 Cost Basis 3010015050100200 Sulphur ppm Both the old and new cost curves have been developed on the same basis as used in auto-oil –Assumes costs incurred from 1996 onwards –All capital and operating costs are included and a fifteen year cashflow is discounted back to 1996 at 7% per annum

15. NB 201/31739-01/Swedish Government/96/Lon 15 We have compared the current estimates of the unit costs to remove sulphur with those used in Auto/Oil Summary of the Results and Comparisons with Earlier Work4

16. NB 201/31739-01/Swedish Government/96/Lon 16 There are three major reasons why our assessments of costs to remove sulphur are lower Summary of the Results and Comparisons with Earlier Work4 Technology Improvements Crude Oil Diet Industry Trends We have reduced our estimates of capital costs for the construction of middle distillate desulphurisation units. This reduces the capital costs required for removing sulphur from diesel Availabilities of sweet (low sulphur) crude oils are now higher than previous expectations because north sea production (predominantly low sulphur crude oil) is higher. This reduces the amount of sulphur to be removed particularly for diesel components Industry demand trends indicate a greater proportion of Jet fuel and diesel and a lesser proportion of gasoline than previous expectations. This implies that the industry would need to invest in significant new hydrocracking capacity. This increases the availability of sulphur free diesel components and reduces the cost of lowering diesel sulphur levels

17. NB 201/31739-01/Swedish Government/96/Lon 17 Major improvements have been made in distillate desulphurisation technology Summary of the Results and Comparisons with Earlier Work4 Capital Cost Assumptions (1) (1997 $) Capital Cost Assumptions (1) (1997 $) Distillate Desulphurisation (HDS) 30,000 Barrels/day 10,000 Barrels/day Distillate Desulphurisation and Dearomatisation (HDS-HDA) 30,000 Barrels/day 10,000 Barrels/day 82 40 177 87 Old Basis $ Million 53 26 102 50 New Basis $ Million Sulphur removal 97% Aromatics reduction10% Sulphur removal 99.9% Aromatics reduction66% This technology improvement reduces the capital costs required to meet lower diesel sulphur levels (1) Include ISBL and all supporting offsites and utilities. Excludes financing charges Capital costs for all other refinery processes have been maintained at levels used in previous studies (Adjusted to 1997 basis)

18. NB 201/31739-01/Swedish Government/96/Lon 18 North Sea crude oil production has exceeded previous expectations Summary of the Results and Comparisons with Earlier Work4 Average Sulphur Content of Crude Oil Processed wt% North Sea Crude Oil Production – Million Barrels/Day Reduces base sulphur levels particularly in diesel “If recent North Sea production performances are repeated we may not see a decline in North Sea availabilities until post 2005”

19. NB 201/31739-01/Swedish Government/96/Lon 19 New capital investments required in hydrocracking to meet jet and diesel demand will also provide additional sulphur free diesel components Previous studies built on EU 12 demand expectations for 2000 This study built on EU 15 demand expectations for 2005 to be consistent with any Auto-Oil 2 proposals Summary of the Results and Comparisons with Earlier Work4 Previous EU 12 Demand For Year 2000 Current EU 15 Demand For Year 2005 Million Tonnes % % 120.6 21.0 125.7 20.0Gasoline 143.3 25.0184.5 29.4 Jet/Kerosene/ Diesel 574.3 100.0 628.1 100.0Total Demand Implications The reduction in the proportion of gasoline and the significant increase in jet/kerosene/diesel indicate that the industry requires significantly more hydrocracking and a little less catalytic cracking. This industry basis shift helps to reduce the cost of lowering sulphur levels particularly in diesel. The base case has more sulphur free distillates produced from new hydrocracking capacity

20. NB 201/31739-01/Swedish Government/96/Lon 20 Contents of presentation report 1Background 2Scope of Refinery Work 3Methodology for Refining Costs 4Summary of Results and Comparisons with Earlier Work 5Diesel Sulphur Reductions 6Gasoline Sulphur Reductions 7Sensitivities 8Appendices

21. NB 201/31739-01/Swedish Government/96/Lon 21 The base case for 2005 will have made significant contributions to aid diesel sulphur reduction Diesel Sulphur Reductions5 Key Base Case Parameters Product demand barrel – requires more hydrocracking Low sulphur crude oil slate from high levels of N. Sea production Auto-Oil 2000 product quality requirements already built-in Product demand barrel – requires more hydrocracking Low sulphur crude oil slate from high levels of N. Sea production Auto-Oil 2000 product quality requirements already built-in Region N.W. Europe Atlantic Mediterranean Yes No Process Types Hydrocracking Distillate Desulphurisation Benzene Reduction Major New Refining Investments in Base Case 2005

22. NB 201/31739-01/Swedish Government/96/Lon 22 Base case advantages and regional optimisation allow low cost initial reductions of sulphur levels Diesel Sulphur Reductions Regional Results5 New Capital Investment $/Million (1997) 0.2 0.3 0.1 2.2 3.0 1.0 6.9 8.1 4.2 Sulphur Level p.p.m Base CaseMainly Desulphurisation More Desulphurisation Plus Radical Shift in Conversion Mode 3 5 2 Average Costs Regional Range in Costs Close Catalytic Crackers Build New Hydrocrackers Unit Costs $/Tonne Diesel

23. NB 201/31739-01/Swedish Government/96/Lon 23 Individual refinery constraints result in much higher cost solutions Diesel Sulphur Reductions Typical Refinery Results5 New Capital Investment $/Million (1997) 5.0 10.2 0.0 20.5 3.2 48.3 26.2 55.0 5.1 Sulphur Level p.p.m. Base CaseMainly Desulphurisation More Desulphurisation Plus Radical Shift in Conversion Mode In general we found it very difficult to meet 50ppm in the sour refineries without reprocessing of components. Levels close to 70ppm were the best achieved. The results shown for 50ppm are based on 50ppm for sweet refineries and 70ppm for sour. Sour refiners account for between 30% and 40% of the population 3 2 Average Costs Range of Typical Refinery Costs Unit Costs $/Tonne Diesel 5

24. NB 201/31739-01/Swedish Government/96/Lon 24 We have weighted the regional and typical results to represent our best judgement for EU 15 refiners Diesel Sulphur Reductions Aggregated Results5 New Capital Investment $/Million 2.1 9.6 14.6 Sulphur Level p.p.m. Results Weighting 60% Regional 40% Typical A wide range of unit costs for individual refiners have been used in assessing the average costs Sour typical refineries could not meet 50ppm without reprocessing of components A wide range of unit costs for individual refiners have been used in assessing the average costs Sour typical refineries could not meet 50ppm without reprocessing of components 3 Average Costs Unit Costs $/Tonne Diesel

25. NB 201/31739-01/Swedish Government/96/Lon 25 Contents of presentation report 1Background 2Scope of Refinery Work 3Methodology for Refining Costs 4Summary of Results and Comparisons with Earlier Work 5Diesel Sulphur Reductions 6Gasoline Sulphur Reductions 7Sensitivities 8Appendices

26. NB 201/31739-01/Swedish Government/96/Lon 26 Sulphur removal to 100ppm can be achieved at low cost Gasoline Sulphur Reductions Regional Results6 New Capital Investment $/Million 0.1 0.2 0.1 0.6 0.1 1.1 3.3 5.4 2.4 Sulphur Level p.p.m. Base Case Sufficient Flexibility in Existing Processes Combination of FCC Feed and FCC Gasoline Desulphurisation plus replacement of lost octane 30 3 5 Average Costs Range of Regional Costs Unit Costs $/Tonne Gasoline ppm 180 Mediterranean 200 Atlantic N.W. Europe 110 Base Case Sulphur Levels

27. NB 201/31739-01/Swedish Government/96/Lon 27 Similarly typical refinery costs are much higher for gasoline Gasoline Sulphur Reductions Typical Refinery Results6 New Capital Investment $/Million 2.4 7.8 0.0 4.6 0.0 9.0 8.7 14.5 0.0 Sulphur Level Base Case Only Refineries with FCC Require Investment but they constitute the majority. Combination of FCC Feed and FCC Gasoline Desulphurisation plus replacement of lost octane 30 Major source of gasoline sulphur originates in FCC gasoline. Typical refineries without FCC are already at sulphur levels below 30ppm Major source of gasoline sulphur originates in FCC gasoline. Typical refineries without FCC are already at sulphur levels below 30ppm 3 5 Average Costs Range of Costs for Typical Refinery Unit Costs $/Tonne Gasoline

28. NB 201/31739-01/Swedish Government/96/Lon 28 Aggregate gasoline costs were estimated for EU 15 refiners in a similar manner to that of diesel costs Gasoline Sulphur Reductions Aggregated Results6 New Capital Investment $/Million 1.2 4.5 6.6 Sulphur Level 30 Results Weighting 60% Regional 40% Typical A wide range of unit costs for individual refiners have been used in assessing average costs Refineries without FCC units are already at levels below 30ppm A wide range of unit costs for individual refiners have been used in assessing average costs Refineries without FCC units are already at levels below 30ppm 3 Average Costs Unit Costs $/Tonne Gasoline

29. NB 201/31739-01/Swedish Government/96/Lon 29 Contents of presentation report 1Background 2Scope of Refinery Work 3Methodology for Refining Costs 4Summary of Results and Comparisons with Earlier Work 5Diesel Sulphur Reductions 6Gasoline Sulphur Reductions 7Sensitivities 8Appendices

30. NB 201/31739-01/Swedish Government/96/Lon 30 Based on additional analyses and interpolation we identified the following sensitivities Sensitivities7 Technical Thresholds Results are fairly insensitive to the level of oil prices. The major portion of the costs are capital investment related Availability of low sulphur crude oils Synergies by reducing both gasoline and diesel sulphur sulphur Range of costs to individual refiners Level of oil prices Although we have assessed aggregated costs for all EU refineries the variation by individual refinery is significant. The worst placed refiner could face costs up to four times the average and the best placed face costs as low as one quarter of the average At the very low sulphur levels there are synergies if the sulphur level of both products are reduced simultaneously which would reduce total costs by around 15% If North Sea crude oil availability declines to previous expectations the costs will increase by around 20%. If North Sea crude oil availability is the same in 2000 and 2005 the costs will be lower by around 15% Gasoline sulphur levels down to 30ppm are achievable Sour refiners may not be able to produce diesel below 70ppm without reprocessing (and therefore additional desulphurisation capacity and capital investment)

31. Sulphur in Transport Fuels Re-Analysis of the Costs to Reduce EU Sulphur Levels in Gasoline and Diesel Final Report February 12, 1997 Swedish and Finnish Governments Arthur D. Little Limited Berkeley Square House Berkeley Square London W1X 6EY Telephone 0171-409 2277 Telefax 0171-491 8983