Meech

Mid-Atlantic and Northeast Collaboratives
The Impact of Marine Emission Legislation

on the Bunker Industry
A European Perspective
Robin Meech
Marine and Energy Consulting Limited
Conference Call
18 April 2007
18 April 2007
RMeech@RobinMeech.com 1
Introduction
• The regulations are upon us and doing nothing is no longer an option
• Future regulations are becoming even more uncertain
• More countries will legislate and with increasing stringency
• Demand for LSBF is increasing as is the sulphur price premium
• Buyers and suppliers operations will become more complex and costly
• The ship owner pays hoping to pass on the costs to his customers
18 April 2007
Impact
• The Bunker Consumer will seek the lowest cost solution

- That usually complies with the regulations
- While improving our environment
• The Supplier will react to market forces to maximise profits while

- Minimising the impact on the environment
• The Legislators will attempt to implement regulations that

improve the environment and hopefully
- Are cost effective
- Are based on scientific analysis
- Consider all aspects of the environment
- Provide a basis for planning
18 April 2007
Contents
1 Legislation
2 Demand
3 Pricing
4 Ship Owners’ Perspective
18 April 2007
Future legislation will be subject to conflicting pressures
IMO
Annex VI Shipping Industry
Politicians
EU
1999/32 CLEANER ENVIRONMENT
2005/33 With legislation that is
CLEANER ENVIRONMENT - Practical
- Cost effective
- Scientifically based
EPA
- Equitably enforceable
NGO’s National/Port
Legislation Oil Industry
No doubt legislation will be constantly changing 18 April 2007

Amking it increasingly difficult to plan
Expected implementation scenario for marine SOx emission reduction legislation
in Europe FUTURE
• New SECA
Ratification Global Cap Baltic Sea North Sea IMO permits • More stringent
Of Annex VI and BDN SECA SECA scrubbing regulations
19 May 19 May 19 May 21 Nov globally • More ratifications
• More enforcement
• Lower Global Cap
2004 2005 2006 2007 2008 2009 2010
Continued 0.2%S limit Baltic North

on all marine distillate
11 Aug 11 Aug Review of
(DMX, DMA, DMB and more stringent
DMC) use in all EU 99-32/05-33 enforces regulations
territorial 1.5%S in Baltic
waters, ports and and North Seas
inland waterways
Use of 0.1%S fuels in all EU
ports at berth and inland
All regular passenger ferries to or waterway vessels but not in
from EU ports use max 1.5%S fuels
EU territorial waters
Max permitted S level for MDO
(DMB and DMC) set at 1.5% in SECA, permits Ban on sale of MGO
territorial waters and scrubbing above 0.1%S
Inland waterways. MGO (DMX and
DMA) remain at max 0.2%S in MGO (DMX and DMA) max
territorial waters and Inland
waterways
reduced to 0.1% in
territorial waters, ports
18 April 2007
Ban on sale of MDO above 1.5%S and inland
Current implementation scenario for marine SOx emission reduction
legislation
BY END 2007
All vessels in the Baltic and North Seas to use LSBFO (1.5%) or scrub
All ferries operating between EU ports to use LSBFO or scrub?
Global Cap of 4.5%
Use of Bunker Delivery Notes
BEGINNING OF 2010
All vessels to use 0.1% S fuels while alongside
MID 2007
MDO to have max S% of 0.5% up to 24 miles off California
Down to 0.1% by 2010
18 April 2007
The EU Parliament has adopted a forceful approach
Establish NOx emission Discount port/fairway charges for

standards low emissions vessel
Use of shore-side
Designate the
electricity by ships
Mediterranean as a
when in ports
SECA
EU directive on the
quality of marine fuels
Reduce S level for
passenger ships from Insist on action within
1.5% to 0.5% in SECA the IMO
Coordinated action to ensure a level

Taxes on SO2 and NOx playing field and balance between
emissions costs of reducing marine and land
based emissions
18 April 2007
By 2020 the Mediterranean SOx emissions will be over three times greater
than the Baltic and North Seas combined
1,000 tons
2,000
1,800
1,600
1,400
1,200
2000
1,000
2020
800
600
400
200
0
ic
a
a
a
Se
Se
ea
Se
nt
an
tla
tic
th
ck
rr
A
or
la
al
ite
N
B
ed
M
But are reported to have less impact than emissions in the North18Sea and Baltic
April 2007
The EPA will determine North American marine emission regulations
• Come to realise significance of emissions from Ocean Going Vessels
• Prediction that in 20 years ships will account for high percentage of

emissions from mobile sources
- Sulphur 80%
- PM 20%
- NOx 30%
• Initial proposals with respect to Sulphur and Particulate Matter

- USA, Canada and Mexico
- SECA out 200 miles
- Use of 0.1% distillates in SECA
- OR Scrubber to 0.4g gm/kW-Hr – equivalent to scrubbing 2.0%S fuels
- By 2011
• Implementation complicated by
- Multiple agencies
- Federal v Sate legislation
- Tri-nation cooperation
- Regulating foreign flag ships
18 April 2007
• But US is about to ratify Annex VI with enabling legislation
INTERTANKO – Have proposed an all distillate option
• INTERTANKO’s view is that any revisions to Annex VI should be based

upon the following:
- Ensuring a solid platform of requirements
- Are realistic andfeasible
realistic and feasible
- Produce a long term and positive reduction of air emissions from ships, and
- Contribute to a long term and a predictable regulatory regime
• INTERTANKO’s proposal
- Global use of distillate fuels
- From [2010], a maximum of 1.00% Sulphur content and
- For ships’ engines installed on and after [2015], a maximum [0.50]% Sulphur
• If the above two issues were considered feasible, then the provisions for checking
and monitoring compliance with Regulation 14 and 18 to be revised accordingly
• There is much debate and analysis required before realistic and

realistic and feasible
feasible
regulations can be introduced
18 April 2007
Bunker legislation can only become more stringent – a possible
scenario
Baltic
Baltic Sea
Sea in
in 2006
2006
North
North Sea
Sea by
by 2007
2007
EU
EU Ferries
Ferries 2006
2006 Japan
Japan
US,
US, Canada
Canada Mediterranean Tokyo
Tokyo Bay
Bay -- 2007
2007
Mediterranean by by 2015
2015
and
and Mexico
Mexico SECA
SECA by
by 2015
2015
N.E.
N.E. Atlantic
Atlantic by
by 2015
2015
SECA
SECA by
by 2013
2013
0.5%
0.5% by
by 2015
2015
Hong
Hong Kong
Kong
2015
2015
Korea
Korea SECA
SECA
by
by 2010
2010
Individual
Individual State
State
and
and Port
Port
legislation
legislation
starting
starting 2007
2007 Global Cap
2005 4.5% Singapore
Singapore toto
2008 NOx follow
follow world
world
Unlikely
Unlikely new
new
legislation
legislation before
before
2010 PM trends
trends -- SECA
SECA
2015
2015
2010 1.0% by
by 2010
2010
2015+ Distillates 18 April 2007
Cleaning up marine emissions
Retardants It will be
• Increasing costs • More costly
• Operational difficulties • More complex
• Investment environment deteriorating
• Non dissuasive penalties
• Poor enforcement
Accelerants
• Increasing public awareness
• Increasing avails of LSBFO outside SECA
• Future abatement cost reductions
• EU mandate to reduce marine emissions
• US enforcement
• Emission trading
New Directions
• Increased focus on NOx, PM’s, CO2 & VOC
BUT • Shipper pressure
• Slow steaming
CLEANER • Increasing inconsistency
18 April 2007
Contents
1 Legislation
2 Demand
3 Pricing
18 April 2007
Demand growth will average 4% pa over the next 10 years
Million
Tons
350
300
250
200
150
100
50
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
North America Central America South America Northern Europe

Baltic Mediterranean Africa Middle East
North Asia Singapore Rest of Asia
18 April 2007
European demand for LSBF will approach 25 million tons within five years
1,000
Tons
30,000
25,000
20,000
15,000
10,000
5,000
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Demand from
Baltic Sea SECA - non Ferries North Sea SECA - Non Ferries
Baltic Passenger Ferries between European Ports Northern Passenger Ferries between European Ports
Southern Passenger Ferries between European Ports 18 April 2007
Global demand for LSBF will increase by 75% when SECA are implemented
in North America
1,000
Tons
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Location where bunkers will be lifted
North America Central America South America North West Europe
Baltic Mediterranean Africa Middle East
North Asia Singapore Rest of Asia
18 April 2007
Global fuel oil markets will be transformed over the coming decade
700
600
500
400 Low S ma rine

Low S Inla nd
High S Ma rine
300 High S Inla nd
200
100
0
2005 2010 2015
• Over the next decade global fuel oil demand remains practically constant
• By 2015 - 40% of fuel oil demand will be low sulphur
- 20% of bunker demand will be low sulphur

18 April 2007
Proportionally the avails of lower sulphur crude oils is diminishing further
reducing the avails of LSFO
Million
tons
6,000
5,000
4,000
3,000
2,000
1,000
0
2005 2006 2007 2008 2009 2010 ------ 2015
18 April 2007
Sweet (<0.7% S) Sour (=>0.7%S) RMeech@RobinMeech.com 19
Over 60% of global LSFO production is in Europe and Asia
East Med + Middle

East
Russia
South America
North America
Africa
Asia
Europe
0 10 20 30 40 50 60
18 April 2007
Million Tons RMeech@RobinMeech.com 20
By 2015 the deficit of LSFO will be 60% of production
Million and 75% greater than the HSFO surplus
tons
300
250
200
150
100
50
0
2006 2010 2015
Demand LSFO Production LSFO Deficit LSFO Surplus18HSFO

April 2007
And 75% greater than the HSFO surplus
The required fuel oil yield will result in increases in cracking capacity -
million tons
Fuel Oil
Demand %
4500
4000 20
3500 19
3000 18
2500 17
2000 16
1500 15
1000 14
500 13
0
12
1990 1995 2000 2001 2002 2005 2010
18 April 2007
Crude Oil Fuel Oil
Potential additional demand for distillate fuels as blend stocks
- million tons
Global 1.0%S
distillate
400
350
300 European N. American Med.

SECA SECA SECA
250
at 1.0%S at 1.0%S at 1.0%S
200
150
100
50
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
• An additional 70 million tons (1.4 mmbpd) of distillates by 2024 is probably feasible
• BUT 380 million tons ( 7.8 mmbpd) is not
• By 2024 additional marine distillate demand for smaller craft and 18auxiliaries
April 2007
will be
approach 90 million tons (1.8 mmbpd) RMeech@RobinMeech.com 23
Contents
1 Legislation
2 Demand
3 Pricing
18 April 2007
Since 2003 the European sulphur premium (1.0% to 3.5%) has averaged $32/ton
18 April 2007
There are adequate avails of lower sulphur residual material but at
increasing prices
Diff 1.5%S
and HSFO Sweeter Increased
crude oil blending of
slate and distillates
50 increased
distillate
blending
Additional
40 blending and
importing of
US$/MT
lower sulphur
fuel oils
30
De-blending
Existing fuel oil
streams
20
10
5 10 Avails 15 20 18 April 2007

25
Million Tons
Basic blending economics for low sulphur fuels
• Viscosity very low
Residual MGO • Cost premium $130 at 1.5%

Sulphur % 3.0 0.2 and $170 at 1.0%
cSt 430 4
Density 991 852 • Judicious blending
CCAI 843 - can reduce the premium to
Cost $/ton 250 500 $70 to $80/ton at 1.5% and
Blend to 380 cSt $90 to $100/ton at 1.0%
98% 2%
Sulphur % 3.0 BUT
cSt 380
Density 990 • Compatibility problems
CCAI 843
Cost $/ton 255 • Ignition problems
Blend to 1.5% S
46% 54% • Premium will increase
Sulphur % 1.5 as gas oil - fuel oil
cSt 15 differential grows
Density 934
CCAI 856 • Reflects refiners
Cost $/ton 385 propensity to invest in
fuel oil conversion /
Blend to 1.0% S coking
30% 70%
Sulphur % 1.0 • Three times more costly to
cSt 12 remove a ton of SOx than
Density 889 scrubbing
CCAI 850 18 April 2007
Cost $/ton 425 RMeech@RobinMeech.com 27
18 April 2007
Economics of Residual Desulphurisation
Max S Premium
% $/ton
1.5 70
1.0 95
Capacity million tons p.a. 1.5 0.5 118
Capital cost US$ million 475
Required capital return % 22
Operating costs $/ton 9
Fuel costs $/ton 33 Refiners and bunker suppliers
will find always find ways to minimise
Annual costs US$Mill these costs
Capital charge 105
Operating costs 64
Generates significantly more GHG than
Total 169 scrubbing or blending
Production yield % 93
Desulphurisation efficiency % 90
Feedstock sulphur content % 4.5 Potential compatibility problems
Costs per ton of 0.45% S Fuel $/ton 120
Sulphur price premium for 1.5% S Almost twice as costly to remove
fuel when blending with 3.0%S $/ton 70 a ton of SOx than scrubbing
Cost of SOx removed $/ton 1,500 BUT
Could be an option in the future

18 April 2007
Residual desulphurisation appears less costly than distillate blending –
160
140
120
100
80
60
40
20
0
1.5 1.0 0.5
Residual Desulphurisation Distillate Blending
But refiners are far less likely to build desulphurisation units

18 April 2007
Economics of cracking – demonstrative only
• Typical worldscale cracker is 50mbpd capacity equivalent to 2.5 million tons pa
• Yield of low sulphur distillate is 2.2 million tons
• To convert all current BFO to distillate would require 115 crackers by 2010
• Unit cost of a worldscale cracker within an existing refinery is $750 million
• Total capital investment would be over is $85 billion
• Typical Major’s total annual refinery capital budget is of the order of $3 billion
• If refiners go down this route it will take at least 10 years to be able to switch
all vessel to 1% diesel fuels
• The premium on LSBFO would average $250/ton
• Cost of reducing a ton of SOx by this approach would be $6,700

18 April 2007
Comparative costs of producing LSFO
Cost of SOx removal $/ton of SOx
3,000
Residual Desulphurisation
2,500
• Is a less attractive investment
• Significant GHG generation
2,000
1,500
Blending
1,000
• No capital investment
500
• Cost / price risk
0
Residual Blending Exhaust Scrubbing
Sesulphurisation Capital Investment ($) per ton of SOx removed
4,500
4,000
Marine Exhaust Gas Scrubbing 3,500

• Removes 80% of PM’s 3,000
• Little extra GHG generation 2,500
• BUT multiple decisions 2,000
1,500
1,000
500
0
Residual Blending
18 April 2007 Exhaust Scrubbing
Sesulphurisation RMeech@RobinMeech.com 32
There is little doubt that a large proportion of ships emissions have
an impact on land
85 per cent in Northern hemisphere

70 per cent within 400 km of land
18 April 2007
Relative benefits of switching to 1% S diesel globally in 2010 would appear
economically unattractive
Pollutant Reduction in Value of reducing Total Benefit/

deposition on deposition by 1.0 ton Costs
land assuming $/ton $billion
70% falls on land
SOx 6,700 4,300 29

PM 1,000 29,000 29
Total 58
Cost increase in global fuel purchases/manufacture 65

Net loss 8
• It is recognised that converting fuel oil to distillates generates significant

emissions
• These economic losses would only increase as bunker consumption

grows in the future
18 April 2007
Relative benefits of switching to 1% S diesel globally in 2010 would appear
economically unattractive
• Bunker consumption would be reduced by 3 - 5% but fuel consumed in

converting fuel oil to diesel would be of the same order or greater generating
a net global increase in CO2 and NOx
• SOx and PM emissions from refineries, which are generally in populous

areas, would increase but can be removed by existing technology
• PM emissions from diesel are considered, by some, to be more harmful

than from residual fuels
• There would be reductions in sludge disposal from ships
• Lower ship building costs in the future from reduction in fuel processing
and tankage
• Easier to enforce and reduce risks from fuel change overs with a single
bunker fuel worldwide
18 April 2007
Additional Global Expenditure on LSBFO $millions
Additional Expenditure on LSBFO $ mill
4,000
3,500
3,000
2,500
North America
2,000
Europe
1,500
1,000 2010 2015

500
Global expenditure ($billion)
LSBFO 5 14
0
2010 2015
HSBFO 45 61
Total 50 75
2010 2015
Global expenditure adopting
INTERTANKO resolution ($billion) Average Global Cost Increase
$/ton 3.70 11.80
1% Diesel 100 138 % 1.9 5.0
Average Global Cost Increase Reduction in SOx
$/ton 190 206
% 200 185
Million tons 0.68 1.20
Cost/ton $1,410 $3,000
Reduction in SOx
Million tons 9.3 10.9 18 April 2007
Cost/ton 5,960 6,400
Sulphur price differential formulation
Local Gas
S/D Price
Freight
Weather
Rates Bunkers Bunkers
3.5% 1.5% 1.0%

Price Price Price
Power Power
Quality
Generators Generators Politics
Service Inland
Costs Legislation
Lower Sulphur
Cutter Stocks
Refinery Refinery
Avails Freights 18 April 2007
C.O. slates Investment
The 1.5% sulphur premium in the Baltic is averaging at about $23/ton
Other Locations
Murmansk $20
Mongstad $19
Hamburg $18
Rotterdam $/ton
Rotterdam $25
380 cSt 180 cSt
HS 298 318 Lisbon $15
LS 323 343 Singapore $30
Diff 25 25
Primorsk $20
St Petersburg $27
Tallin $11
Klaipeda $21
Kaliningrad $40
Great Belt $20
Gdansk $25
18 April 2007
Source:
4 April 2007
Global average fuel oil prices $/ton
GLOBAL AVERAGE FUEL OIL PRICES $/ton
400
350
300
250
200
150
100
50
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
LSFO HSFO Sulphur Premium
18 April 2007
Source: “Outlook for Bunker Fuel Oil and Heavy Fuel Oil to 2015”
The 1.5%S premium will climb steadily to $80/tons over the coming decade
90
80
70
60
50
40
30
20
10
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
North West Europe Mediterranean US Gulf Singapore Weighted Average

18 April 2007
The 1.5% to 3.0%S price premium will increase until refiners invest in
cracking/coking and abatement technologies start to mature
$/ton
140
120
100
A feasible
80
price premium
range
60
40
20
0
2007 2010 2015 2020
Quality issues will ensure 1.5% S bunkers prices are above
1.0% S inland utility fuels 18 April 2007
Over the next decade the HSFO – Gas Oil differential will average $245/ton
350
300
250
200
150
100
50
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
18 April 2007
Contents
1 Legislation
2 Demand
3 Pricing
18 April 2007
What are the options for the ship owner?
OPTION Days pa spent in SECA
0 183 365
1.5%S at all times
Switch to gas oil on entry
Segregated Bunker Tanks

and switch to LSFO on entry
On board blending
Scrubbing
Emission Trading (Buying)
Non Compliance
18 April 2007
Semi-Automatic fuel blending
• Can be readily installed in most
engine rooms
• Blending immediately prior to

consumption will reduce instability
problems
• Careful operation required but

automation reduces risks
The cost to retrofit an inline blender

is between $40,000 and $80,000
Justified after 15 days steaming in a SECA
18 April 2007
Retrofitting segregated bunker tanks is attractive to most owners trading
into a SECA
$1,000
200
15,000 DWT Any vessel making more than five
180
30,000 DWT visits a year will benefit from
160
100,000 DWT increasing bunker segregation
140
200,000 DWT compared with consuming distillate
120
300,000 DWT material
100
80
60
40 Days
Days in SECA pa to justify tank segregation
20 30
15 MDWT
0 30 MDWT
Tankers Bulkers Container Cargo 25
100 MDWT
20 200 MDWT
300 MDWT
15
Greater flexibility can be achieved
by duplicating settling and day tanks 10
Multiple bunker tanks should be 0

Tankers Bulkers Container Cargo
included in all new builds
18 April 2007
The cost of retrofitting scrubbers on a VLCC will approach $4.0 million
Investment costs of scrubber $ 1,000

4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
15 30 100 200 300 1,000 DWT
Retrofit New Build
Costs will subsequently become lower for

new builds and as the technology develops 18 April 2007
In the short term in order to achieve an IRR of 15% on retrofitting
scrubbers the vessels will have to operate full time in the SECA
Days steaming
in the SECA pa
to achieve 15% IRR
400
350
300
250
200
150
100
50
0
30 40 50 60 70 80 90 100
Differential HSBFO and LSBFO $/ton 18 April 2007
Longer term the economics will become more favourable RMeech@RobinMeech.com 48
The basic concept
18 April 2007
Complex electrical connections for in-port power supply
18 April 2007
Switching to on-shore power in port (Cold Ironing) is being introduced
• The procedure of shutting down all on board power and

connecting to a shore electrical source while alongside is again
being promoted in Europe and the US.
Facilities exist in
– Gothenburg
– Major US West Coast ports
• Conversion costs for owners are reported to be as high as

$2 million for large box ships
• Technical difficulties associated with tankers needing power for

pumping are as yet unsolved
• There is an urgent need for standardization if the approach is to

expand
• There is also a need for financial incentives that encourage

18 April 2007
participate RMeech@RobinMeech.com 51
SOx abatement technology possibly applicable to the marine sector
EcoSilencer® Sea Water Scrubbing New project – Expanding

MES
Krystallon Sea Water Scrubbing Starting commercial operations

(BP/Kittewake)
Neste Sea Water Scrubbing Recent announcement

(Kvaerner Power) Land based technology
JIME Nishida Three phase electrolytic One of a number of new Japanese
developments
Aquafuel Additives - particle extraction Test bed stage -18 month program
replicates on shore technology to trials in summer 2007
Green Plus Additive Tested on MDO and now on VLCC’s

Biofriendly Corporation
Sonocracking ™ Ultrasonics Claim up to 30% sulphur reduction

SulphCo in crude/fuel oils with new facility
commissioning in Fujairah in 2007
Japanese shipyards Advanced carbon fibers Early developments
Residual Hydrogen/sulphur extraction Over 30 units operating in

desulphurization high energy/costly refineries worldwide
18 April 2007
Comparative economics 30,000 DWT tanker steaming into the SECA to
either the ARA or St. Petersburg
Scrubbbing 5%
Switching to 1.5%S 20%
Blending 50/50 BFO & 40%

MDO
8,400 kw
40 tpd at sea
80%
14 knots MDO only
380 cSt - $250/t
MDO - $475/t
Total costs 0 20 40 60 80 100
St P. $110,000
Incremental costs per round trip $1,000
ARA $30,000 18 April 2007
Rotterdam St Petersburg
Other related costs of compliance must be addressed
1. Investment in bunker tank segregation/abatement

2. Increased lube costs
3. Smaller steams increase delivery costs
4. Increased operating risks
5. More training
6. Increased working capital costs
7. More complicated charter parties
8. More disputes/ legal and technical fees
9. Possible fines/penalties
10. Greater chance of incompatible/unstable fuels
11. More fuel testing
12. More de-bunkerings
13. More samples to hold
14. More administration
15. Reduced fleet flexibility
16. Installation and maintenance of monitoring equipment
17. The costs of uncertainty
18 April 2007
The dynamics of improving the environment
Abatement
technologists
LSBFO
Demand Abatement
costs
Prices
Improvements
Shipowners to the
Refiners &
suppliers Compliance environment
Enforcement
Regulators hold the key to improving regimes
the environment through
- Scientifically based legislation
- Practical regulations Regulators FEEDBACK
- Equitable enforcement
18 April 2007
Mid-Atlantic and Northeast Collaboratives
The Impact of Marine Emission Legislation

on the Bunker Industry
A European Perspective
Robin Meech
Marine and Energy Consulting Limited
RMeech@RobinMeech.com
Conference Call
18 April 2007
18 April 2007

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Mid-Atlantic and Northeast Collaboratives

The Impact of Marine Emission Legislation

• The regulations are upon us and doing nothing is no longer an option

• Future regulations are becoming even more uncertain

• More countries will legislate and with increasing stringency

• Demand for LSBF is increasing as is the sulphur price premium

• The Bunker Consumer will seek the lowest cost solution

• The Supplier will react to market forces to maximise profits while

• The Legislators will attempt to implement regulations that

4 Ship Owners’ Perspective

No doubt legislation will be constantly changing 18 April 2007

2004 2005 2006 2007 2008 2009 2010

Continued 0.2%S limit Baltic North

Establish NOx emission Discount port/fairway charges for

Coordinated action to ensure a level

• Come to realise significance of emissions from Ocean Going Vessels

• Prediction that in 20 years ships will account for high percentage of

• Initial proposals with respect to Sulphur and Particulate Matter

• INTERTANKO’s view is that any revisions to Annex VI should be based

• There is much debate and analysis required before realistic and

4 Ship Owners’ Perspective

North America Central America South America Northern Europe

400 Low S ma rine

• By 2015 - 40% of fuel oil demand will be low sulphur

- 20% of bunker demand will be low sulphur

East Med + Middle

Demand LSFO Production LSFO Deficit LSFO Surplus18HSFO

300 European N. American Med.

• An additional 70 million tons (1.4 mmbpd) of distillates by 2024 is probably feasible

• BUT 380 million tons ( 7.8 mmbpd) is not

4 Ship Owners’ Perspective

5 10 Avails 15 20 18 April 2007

Residual MGO • Cost premium $130 at 1.5%

Cost of SOx removed $/ton 1,500 BUT

Could be an option in the future

Residual Desulphurisation Distillate Blending

But refiners are far less likely to build desulphurisation units

• Typical worldscale cracker is 50mbpd capacity equivalent to 2.5 million tons pa

• Yield of low sulphur distillate is 2.2 million tons

• Unit cost of a worldscale cracker within an existing refinery is $750 million

• Total capital investment would be over is $85 billion

• The premium on LSBFO would average $250/ton

• Cost of reducing a ton of SOx by this approach would be $6,700

Marine Exhaust Gas Scrubbing 3,500

85 per cent in Northern hemisphere

Pollutant Reduction in Value of reducing Total Benefit/

SOx 6,700 4,300 29

Cost increase in global fuel purchases/manufacture 65

• It is recognised that converting fuel oil to distillates generates significant

• These economic losses would only increase as bunker consumption

• Bunker consumption would be reduced by 3 - 5% but fuel consumed in

• SOx and PM emissions from refineries, which are generally in populous

• PM emissions from diesel are considered, by some, to be more harmful

• There would be reductions in sludge disposal from ships

1,000 2010 2015

3.5% 1.5% 1.0%

North West Europe Mediterranean US Gulf Singapore Weighted Average

4 Ship Owners’ Perspective

OPTION Days pa spent in SECA

1.5%S at all times

Switch to gas oil on entry

Segregated Bunker Tanks

Emission Trading (Buying)

• Blending immediately prior to