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1
IMO Regulations 2020- the Future of
Energy, Resources and Materials.
Practical Implications for the CIS
Junichi MitsuyaSenior Manager
JX Nippon Research Institute
Stefano ZehnderVice President
ICIS
2
Introduction
Introduction
1. Outline and Outcome of IMO Sulfur Regulation
2. Supply and Demand of Fuel Oil
3. Assumption of CIS Study
4. Method of CIS Study
5. Result of CIS Study
6. Issue in Future
7. Summary
3
Introduction
This paper is a Joint Effort between:
• JX Nippon Research Institute (JX Group)
• ICIS
High Value of Combining Global Knowledge: LP Modelling and Markets
4
1. Outline and Outcomes of IMO Sulfur Regulation
MARPOL Annex XI Regulate NOx, SOx Emission
and Sulfur Content of Marine Fuel Oil
IMO (MARPOL Annex XI) EU(2012/33/EU)
Year 2010 2015 2020 2010 2015 2020
Global 4.5 3.5 0.5 - 3.5 0.5
ECA 1.0 0.1 0.1 1.0 0.1 0.1
Sulfur Content of Maritime Fuel Regulation
The announced 2020 implementation:
A major challenge for the Global Refining Industry,
but a major opportunity for higher margins from conversion units
(wt%)
5
2. Supply and Demand of Fuel Oil
The global refining industry could suddenly move from a surplus
of conversion capacity, to a surplus of Fuel Oil
Source: ICIS Supply and Demand Database
6
2. Supply and Demand of Fuel Oil
The CIS Exposure to Fuel Oil Exports will require
investment in additional Conversion Capacity
Source: ICIS Supply and Demand Database
7
3. Assumption of CIS Study
5 Type Crude and Natural gas are processed
Product demand and process capacity are
estimated based on ICIS Data Base in 2020
Process Max
CDU 8198
VDU 3453
Naphtha HDS 2160
Middle distillate HDS 2726
VGO HDS 757
AR HDS 0
Reformer 1069
FCC 716
Alkylation/Isomer 477
Hydrocracker 519
Coker 496
Visbreaker 409
thousand barrels per day
Crude Min Max
ESPO(ESP) 889 1270
Russian(RUS) 4032 5762
Russian
Heavy(RH)
385 550
Azeri Light(AL) 71 284
Condensate(CN) 172 246
Natural Gas - -
Product Min Max
Naphtha - -
BTX 84 88
Gasoline 1361 1635
Jet 387 518
Diesel gas oil 2138 2852
Banker gas oil 54 54
Lubricant base oil 45 58
Fuel on land 223 225
Banker fuel 549 1097
Asphalt 102 127
Cokes - -
Production and Process Capacity of CIS Refinery(2020)
Source: ICIS Supply and Demand Database
8
4. Method of CIS Study
BASE: Fuel Oil S < 3.5wt%
CASE-1,2: Fuel Oil S <0.5% Increase Process Cap.
CASE-3: Export AR (<3.0%)
BASE
Fuel Oil S < 3.5
CASE-1
Fuel Oil S < 0.5
Increase Coker
CASE-2
Fuel Oil S <0.5
Increase AR HDS
CASE-3
Fuel Oil S <3.0
Export AR
Not Increase Process CapacityIncrease Process Capacity
How much do CIS need to Increase Process Capacity to Produce 0.5% S Fuel Oil
How do Crude and Products Change
9
5. Result of Study (Base: Fuel oil S<3.5 )
Crude Oil selection privileges Light and Sweet
VGO HDS, FCC, Hydrocracker is Max operation
Middle distillate and Heavy oil is Max production
FO S quality allowance prevents full Coking
Crude Oil7.4 Million bd
API =33.9
Natural Gas154 kbdoe
Input
S=2.7
10
5. Result of Study (Case-1: Higher Coking Capacity)
Crude Oil intake is further lightened
Coking increased, more VGO HDS is required
Destroying Fuel Oil, liquids yields are lost, Bunker output
declines by 200 mbd (vs Base Case) on tight quality
Crude Oil7.4 Million bd
API = 34.3
Natural Gas149 kbdoe
100%
S<0.5
Input
11
5. Result of Study (Case-2: Introduction of AR HDS)
Introduce AR HDS, Existing Coker to Max Operation, a lighter
Crude slate is kept, no need for additional VGO HDS Capacity
Access to low cost Natural Gas allows H2 introduction and
higher liquids’ yields (recovers by 100 kbd over Case 1)
Crude Oil7.4 Million bd
API = 34.3
Natural Gas218 kbdoe S<0.5
Input
800 kbd
12
5. Result of Study (Case-3: Export AR)
Export of higher S AR substitutes same amount of Bunker
Coking & VGO HDS at Max Operation, no need of further investment
Crude Slate returns Heavier, but FO Value declines against higher
output
Crude Oil7.4 Million bd
API = 33.9
Natural Gas146 kbdoe S~3.0
Input
13
5. Result of Study (Summary versus BASE Case)
Case-1 A “simple” correction. Despite investment in Coking and VGO HDS,
the CIS refining system will lose 200 mbd of valuable liquid product
Case-2 The ability to hydro-process resid streams is combined with access
to competitively priced Natural Gas, restoring 100 mbd of lower sulfur, higher
quality and higher value resid output for the international Bunker markets
Case-3 The no-investment case will be detrimental to the CIS refining
industry. Export of higher sulfur resid, at the lowest value, will “donate” to
more sophisticated “oversea refiners” the higher upgrading conversion value
+316
-197
thousand barrels per day
14
5. Result of Study (Summary versus BASE Case)
Case-1 A “simple” correction. Despite investment in Coking and VGO HDS,
the CIS refining system will lose 200 mbd of valuable liquid product
Case-2 The ability to hydro-process resid streams is combined with access
to competitively priced Natural Gas, restoring 100 mbd of lower sulfur, higher
quality and higher value resid output for the international Bunker markets
Case-3 The no-investment case will be detrimental to the CIS refining
industry. Export of higher sulfur resid, at the lowest value, will “donate” to
more sophisticated “oversea refiners” the higher upgrading conversion value
+316
-197+126
+808
-99
thousand barrels per day
15
6. Result of Study (Summary versus BASE Case)
Case-1 A “simple” correction. Despite investment in Coking and VGO HDS,
the CIS refining system will lose 200 mbd of valuable liquid product
Case-2 The ability to hydro-process resid streams is combined with access
to competitively priced Natural Gas, restoring 100 mbd of lower sulfur, higher
quality and higher value resid output for the international Bunker markets
Case-3 The no-investment case will be detrimental to the CIS refining
industry. Export of higher sulfur resid, at the lowest value, will “donate” to
more sophisticated “oversea refiners” the higher upgrading conversion value
+316
-197+126
+808
-99 +126
+1097
-1097
thousand barrels per day
16
5. Result of Study (Investment)
Indicative Investment for Increasing process Capacity
The potential benefit of higher investment in Resid Hydro-Processing will
depend on the projected differentials between LS and HS Fuel Oil, and their
values versus Crude Oil. ICIS and JX price scenarios point to a strong and
structural increase in margins for refiners with high upgrading capability.
Access to cheap natural gas will be a key enabler.
Case-1: USD 15bn Case-2: USD 22bn
17
6. Issues in Future
A new “Crude & Resid Processing Center”
Potentially Located in the Russian Far East
Advantaged Access to : Surplus Resid Streams in the Region (up to 50% of CIS alone)
Domestic Crude Streams and Natural Gas
Fast Growing Export Markets (East Asia, South East Asia, Australia)
Crude Oil475 kbd
Natural Gas57 kbdoe
S<0.5
Input
Resid500 kbd
18
7. Summary
• IMO Regulations introduced from 2020 will challenge the global Refining Industry:
A renewed Opportunity for Upgrading Margins
• The CIS is region most exposed to International Fuel oil calling for additional
investment in Bottom of the barrel Capacity: Despite initial higher investment
Costs, Resid Hydro-Processing could optimize the value and volume of
Domestic Hydrocarbon Resources, preventing value addition is captured
from “abroad upgrading capacity”
• An alternative case may include a new “Far East Refining Complex”, capable to
upgrade incremental Resid via Hydro-Processing: Well positioned to upgrade
lower value domestic streams, and access the fast growing Asian Markets
19
Pricing and Supply Demand Scenarios will be key
in defining future investment opportunities
Practical Implications for the CIS
ICIS and JXNRI are well positioned to offer the
industry alternative scenarios, by leveraging on
excellences in Global Market Data and LP
Modelling Expertise
20
END
Please Contact us
Any Questions?
Junichi Mitsuya [email protected]
Stefano Zehnder [email protected]; www.icis.com
21
Appendix: Extra Slides
22
1. Outline and Outcome of IMO Sulfur Regulation
IMO has decided new sulfur regulation
implementation from 2020
MEPC66 Apr 2014
Set up CG (Corresponding Group)
Adopt commissioning item to EG (Engineering Group)
at MEPC68
MPEC67 Oct 2014
CG Interim Report
MPEC68 May 2015
CG Final Report and Set up EG
MPEC69 Apr 2016
EG Interim Report
MPEC70 Oct 2016
Decision on New Regulation Starting Time: 2020
23
2. Supply and Demand of Marine Fuel
CIS (Russia) is the Largest net Exporting Region
China Singapore ME Europe USA Russia
Production 24.5 3.9 91.0 78.6 25.6 78.0
Import 23.5 73.6 7.0 62.4 26.0
Export 11.0 35.1 14.0 41.0 20.0 64.8
Bunker 8.8 41.3 22.3 41.9 14.9 3.8
Domestic 13.1 1.1 58.8 20.5 8.0 9.4
Power - 0.5 50.7 6.1 1.8 2.1
Ship 2.6 - - 1.4 0.7 0.2
Industry & Other 10.5 0.5 8.1 13.0 5.5 7.1
Refinery Feedstock 15.0 - 2.8 37.4 8.7 -
million tonnes per yearSupply and Demand of Heavy Oil in Main Supply region (2013)
Source : JXNRI estimate from IEA “Energy Statistics” & ICIS Supply & Demand Database
24
5. Result of Study (Base: Fuel oil S<3.5 )
ESP is Min. RH, AL and CN is Max
VGO HDS, FCC, Hydrocracker is Max operation
Middle distillate and Heavy oil is Max production
Product Result Min Max
Naphtha 506 - -
BTX 88 84 88
Gasoline 1433 1361 1635
Jet 518 387 518
Diesel gas oil 2852 2138 2852
Banker gas oil 54 54 54
Lubricant base oil 58 45 58
Fuel on land 225 223 225
Banker fuel 1097 549 1097
Asphalt 102 102 127
Cokes 84 - -
Process Result Max
CDU 7378 8198
VDU 2503 3453
Naphtha HDS 1963 2160
Middle distillate HDS 2478 2726
VGO HDS 757 757
AR HDS 0 0
Reformer 881 1069
FCC 716 716
Alkylation/Isomer 477 477
Hydrocracker 519 519
Coker 370 496
Visbreaker 409 409
Crude Result Min Max
ESPO(ESP) 889 889 1270
Russian(RUS) 5408 4032 5762
Russian
Heavy(RH)
550 385 550
Azeri Light(AL) 284 71 284
Condensate(CN) 246 172 246
Natural Gas 154 - -
thousand barrels per day
25
5. Result of Study (Case-1: Increase Coker)
ESP, AL, CN is Max
Increase Coker, VGO HDS
Production of Heavy Fuel fall down
Product Result Min Max
Naphtha 593 - -
BTX 88 84 88
Gasoline 1433 1361 1635
Jet 518 387 518
Diesel gas oil 2852 2138 2852
Banker gas oil 54 54 54
Lubricant base oil 58 45 58
Fuel on land 225 223 225
Banker fuel 900 549 1097
Asphalt 127 102 127
Cokes 165 - -
Process Result Max
CDU 7378 8198
VDU 2642 3453
Naphtha HDS 1984 2160
Middle distillate HDS 2619 2726
VGO HDS 1422 -
AR HDS 0 0
Reformer 881 1069
FCC 716 716
Alkylation/Isomer 477 477
Hydrocracker 519 519
Coker 686 -
Visbreaker 146 409
Crude Resu
lt
Min Max
ESPO(ESP) 1270 889 1270
Russian(RUS) 5192 4032 5762
Russian
Heavy(RH)
385 385 550
Azeri Light(AL) 284 71 284
Condensate(CN) 246 172 246
Natural Gas 149 - -
thousand barrels per day
26
5. Result of Study (Case-2: Increase AR HDS)
ESP, AL, CN is Max
Increase AR HDS, Coker Max Operation
Increase Production of Jet and Diesel gas oil
Product Result Min Max
Naphtha 562 - -
BTX 88 84 88
Gasoline 1438 1361 1635
Jet 518 387 518
Diesel gas oil 2852 2138 2852
Banker gas oil 54 54 54
Lubricant base oil 58 45 58
Fuel on land 225 223 225
Banker fuel 998 549 1097
Asphalt 127 102 127
Cokes 121 - -
Process Result Max
CDU 7378 8198
VDU 2022 3453
Naphtha HDS 2000 2160
Middle distillate HDS 2619 2726
VGO HDS 757 757
AR HDS 808 -
Reformer 881 1069
FCC 716 716
Alkylation/Isomer 477 477
Hydrocracker 519 519
Coker 496 496
Visbreaker 54 409
Crude Resu
lt
Min Max
ESPO(ESP) 1270 889 1270
Russian(RUS) 5192 4032 5762
Russian
Heavy(RH)
385 385 550
Azeri Light(AL) 284 71 284
Condensate(CN) 246 172 246
Natural Gas 218 - -
thousand barrels per day
27
5. Result of Study (Summary versus BASE Case)
Case-1 A “simple” correction. Despite investment in Coking and VGO HDS,
the CIS refining system will lose 200 mbd of valuable liquid product
Case-2 The ability to hydro-process resid streams is combined with access
to competitively priced Natural Gas, restoring 100 mbd of lower sulfur, higher
quality and higher value resid output for the international Bunker markets
Case-3 The no-investment case will be detrimental to the CIS refining
industry. Export of higher sulfur resid, at the lowest value, will “donate” to
more sophisticated “oversea refiners” the higher upgrading conversion valuethousand barrels per day
Crude and Products BASE CASE-1 CASE-2 CASE-3
Crude 7378 7378 (±0) 7378 (±0) 7378 (±0)
Gasoline 1433 1429 (-4) 1438 (+5) 1408 (-25)
Jet and Diesel gas oil 3370 3370 (±0) 3370 (±0) 3370 (±0)
Bunker 1097 900 (-197) 998 (-99) 0 (-1097)
AR 0 0 (±0) 0 (±0) 1097 (+1097)
Process BASE CASE-1 CASE-2 CASE-3
Coker 370 686 (+316) 496 (+126) 496 (+126)
AR HDS 0 0 (±0) 808 (+808) 0 (±0)
28
Indicative Investment for Increasing process Capacity
The potential benefit of higher investment in Resid Hydro-Processing will
depend on the projected differentials between LS and HS Fuel Oil, and their
values versus Crude Oil. ICIS and JX price scenarios point to a strong and
structural increase in margins for refiners with high upgrading capability.
Access to cheap natural gas will be a key enabler.
CASE-1 Capacity Number Cost (billion USD)
Coker 15KBD 14 5.2
VGO HDS 50KBD 14 7.6
HPU 700Km3/D 14 1.4
SRU 180Ton/D 14 0.6
TOTAL 14.8
CASE-2 Capacity Number Cost (billion USD)
AR HDS 50KBD 17 17.9
HPU 1300Km3/D 17 2.6
SRU 250Ton/D 17 1.4
TOTAL 21.9
5. Result of Study (Investment)