IMO Regulations 2020- the Future of Energy, … · 1 IMO Regulations 2020- the Future of Energy, Resources and Materials. Practical Implications for the CIS Junichi Mitsuya Senior

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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

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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

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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

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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%)

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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

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The CIS Exposure to Fuel Oil Exports will require

investment in additional Conversion Capacity


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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)


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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

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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

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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


API = 34.3

Natural Gas149 kbdoe

100%

S<0.5

Input

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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)


API = 34.3

Natural Gas218 kbdoe S<0.5

Input

800 kbd

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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


API = 33.9

Natural Gas146 kbdoe S~3.0

Input

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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


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+316

-197+126

+808

-99


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+316

-197+126

+808

-99 +126

+1097

-1097


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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

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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

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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

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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

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END

Please Contact us

Any Questions?

Junichi Mitsuya [email protected]

Stefano Zehnder [email protected]; www.icis.com

mailto:[email protected]

mailto:[email protected]

http://www.icics.com/

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Appendix: Extra Slides

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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

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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

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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 - -


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5. Result of Study (Case-1: Increase Coker)

ESP, AL, CN is Max

Increase Coker, VGO HDS

Production of Heavy Fuel fall down


Naphtha 593 - -

BTX 88 84 88

Gasoline 1433 1361 1635

Jet 518 387 518






Asphalt 127 102 127

Cokes 165 - -

Process Result Max

CDU 7378 8198

VDU 2642 3453



VGO HDS 1422 -

AR HDS 0 0

Reformer 881 1069

FCC 716 716



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



Natural Gas 149 - -


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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


Naphtha 562 - -

BTX 88 84 88

Gasoline 1438 1361 1635

Jet 518 387 518






Asphalt 127 102 127

Cokes 121 - -

Process Result Max

CDU 7378 8198

VDU 2022 3453



VGO HDS 757 757

AR HDS 808 -

Reformer 881 1069

FCC 716 716



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



Natural Gas 218 - -


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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)

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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)

Documents

IMO Regulations 2020- the Future of Energy, … · 1 IMO Regulations 2020- the Future of Energy, Resources and Materials. Practical Implications for the CIS Junichi Mitsuya Senior