Fuel Quality & It’s Impact on Tailpipe Emission Vehicle Fuel Quality Workshop 22nd August 2006 Manila, Philippines Lee Chook Khean Communications Director http://www.acfa.org.sg

Presentation Outline Air Pollution from Motor Vehicles Importance of Fuel Quality Future Fuel Quality Conclusions The key topics we will address include: Refined Petroleum Product Markets: Here we will examine the relative contribution of individual countries to the region’s total petroleum product demand and review the breakdown among different products to better understands gasoline’s role in the mix. We will look at the growth potential for the region in terms of per-capita consumption and look at the gasoline demand forecast through 2020. As part of this segment we will also examine the Chinese market in a little more detail as it represents such a large percentage of the region’s demand. Vehicle Emissions, Air Quality Impacts & Challenges We will then switch tracks to discuss the major pollutants emitted by man-made activities that impacting air quality in Asia today. We will briefly review the current status of air quality conditions in 8 major urban centers – “megacities” – in Asia to show that, while progress is being made to improve air quality, substantial work is still needed to attain healthy air quality goals. We will next highlight the contribution of mobile source to air pollution and present a summary of the directional impact that changes in gasoline properties can have on emissions. In this regard, we will expand our analysis beyond the traditional range of pollutants (HC’s, Toxics, CO, NOx, to look at fine particulate emissions as well as the relative reactivity of gasoline components. Our objective is to convey an accurate and comprehensive depiction of the challenges that Asian refiners are facing and will face o an even greater degree in he future. Emergence of Cleaner Burning Fuels Here, we will discuss the evolution of major clean gasoline programs in Asia and compare to the status of such programs in Europe and North America, with some of the differences highlighted and explained. E will review the drivers underlying gasoline reformulation initiatives, and look at the delicate balance between social and environmental benefits versus costs. Contributions of Oxygenates The impacts of petrol properties on emissions and air pollution will be examined and the impacts of oxygenates to fuel properties and emissions profiles will be presented. Further, such factors as energy content and supply volume for various gasoline formulations will be noted. Conclusions & Highlights Overall highlights and conclusions will be summarized.

Motor Vehicles & Air Pollution The answer to ““what happens when Asia’s demand on average moves up to even half of the U.S.’ can be partially seen in this figure which shows Asia’s gasoline demand increasing from 4 million barrels per day to 6.5 million barrels per day by 2020, or by over 60 percent. While refiners in the region are expected to expand capacity and make the necessary investment to basically cover gasoline demand with a near-negligible impact on imports, this will not come cheaply.

Air Pollution in Asian Cities Source : CAI-Asia

Air Quality in Selected Mega Cities City SO2 PM Lead CO NO2 Ozone Beijing New Delhi Jakarta Manila Seoul Shanghai Tokyo Bangkok Low Moderate Heavy Serious Source: World Health Organization

Contribution of Mobile Source Emissions Source: Roger Gorham, Global Initiative on Transport Emissions, UN Department of Economic and Social Affairs, 2002.

Contribution of Air Pollution from Motor Vehicles Current world’s vehicle population is estimated at 800 million and expected to rise to 1 billion by 2020 Increase in vehicle population has resulted in worsening air quality in major cities in the world. Improvement in fuel quality have to work together with vehicle technology.

Three Key Technologies for Reducing Emission Experiment Diagnostics Simulation Combustion Technology After treatment Fuel Combustion Kinetics 　 Reformulation 　Additives Variable Mechanisms Electronic Control Materials Reformulation Catalytic Chemistry

Importance of Fuel Quality The answer to ““what happens when Asia’s demand on average moves up to even half of the U.S.’ can be partially seen in this figure which shows Asia’s gasoline demand increasing from 4 million barrels per day to 6.5 million barrels per day by 2020, or by over 60 percent. While refiners in the region are expected to expand capacity and make the necessary investment to basically cover gasoline demand with a near-negligible impact on imports, this will not come cheaply.

Air Pollution Management Emission Regulations Alternative Fuels In-use Vehicles Fuel Quality Traffic Management Government Departments Vehicle Manufacturers Oil Companies Legislators Users NGOs Research Institutions

Drivers for Improved Fuel Qualities Source: Arthur D. Little

Gasoline Fuel Quality Improvement Source: Arthur D. Little

Diesel Fuel Quality Improvement Source: Arthur D. Little

Benefits of Improved Fuel Quality Source: Arthur D. Little

Effect of Gasoline Quality on Emission

Why is Fuel Quality Important ? Fuel constituents directly affect emissions Fuel changes can immediately impact emissions & air quality Fuel composition can enable/disable pollution control technology Elimination of Lead enable usage of catalytic converter Low sulphur enhances the usage of catalytic converter Other fuel properties are also important

Effect on Health The effects on health of transport-related air pollution are among the leading concerns about transport. Research in recent decades consistently indicates the adverse effects of outdoor air pollution on human health, and the evidence points to air pollution stemming from transport as an important contributor to these effects. World Health Organisation

Fuel Quality Properties Classification Fuel qualities are classified as : Enhancing properties - change emissions by a small degree compared with the changes brought about by engine technology. Enabling properties - the changes they bring about enable the use of new engine technologies that can greatly reduce pollutant emissions

Unleaded and Low Sulphur Gasoline Lead and Sulphur poisons the catalyst in modern three way catalytic converter Impact is irreversible Future low emission technologies even more sensitive CO, HC & NOX emissions all improve with low sulphur gasoline Catalytic Converter reduces 90% of CO, HC & NOx Tailpipe emissions

Typical Emission Reduction System for Gasoline

Typical Emission Reduction System for Diesel Air Flow Sensor E Exhaust Throttle Valve Integrated After Treatment System 　 ・Oxidation Cat. 　 ・DPF 　 ・DeNOx Cat. E Exhaust Gas Fresh Air Reductant Supply System Turbocharger (VGT，Two-staged) E Inter-cooler Temperatures and Pressures EGR Cooler EGR Valve E Intake Throttle Valve E Output for Control ECU High Pressure Injection System (Multiple Injection） E : Electronic Control E

Current & Future Fuel Quality The answer to ““what happens when Asia’s demand on average moves up to even half of the U.S.’ can be partially seen in this figure which shows Asia’s gasoline demand increasing from 4 million barrels per day to 6.5 million barrels per day by 2020, or by over 60 percent. While refiners in the region are expected to expand capacity and make the necessary investment to basically cover gasoline demand with a near-negligible impact on imports, this will not come cheaply.

Global Status – Leaded Gasoline Phase-out (as of 1 June 2006) Source: UNEP – Partnership for Clean Fuels and Vehicles

Global Fuel Quality Status Lead Removal Volatility Controls & Oxygenate Introduction Initial Benzene Sulfur Reduction Olefin & Aromatic Content Limits Elimination Additional Composition of Renewable Fuels (Biofuels) Objective: Control Emissions of Traditional Air Pollutants CO2 Reduction North America WesternEurope Indonesia Cambodia Vietnam Philippines Malaysia Singapore Thailand China Japan South Korea Taiwan We have seen the level of demand growth expected in the region and discussed the impact that this will have on refiners and the magnitude of the investment that refiners will have to make to produce not only higher volumes but also substantially cleaner fuels. It is no secret that Asia has long suffered with unacceptable air pollution levels in many of its large urban centers. Source: International Fuel Quality Center

Global Gasoline Standards Automobile Maker Standards – World Wide Fuel Charter (WWFC) European Union (EURO) Standards US Standards - Boutique Fuels

EU Gasoline Standards The cost associated with this transformation of China’s refining industry will be high. A 2002 supply security study for Asia Pacific Economic Cooperation countries, indicated that between 4 to 6 billion US$ will be spent by Chinese refiners by 2006 and this cost rises to between 12 and 14 billion US$ by 2012 to basically bring China to Euro III and IV fuel standards, depending on the specific fuel reformulation objectives that are implemented, i.e., degree of product desulfurization required, level of oxygenate use, etc. Important: For example, relying on MTBE to facilitate achievement of Euro II and Euro IV specifications is estimated to help reduce the necessary capital investment for Chinese refiners by $600 MM in 2006 and over $1 Billion in 2012.

EU Diesel Standards The cost associated with this transformation of China’s refining industry will be high. A 2002 supply security study for Asia Pacific Economic Cooperation countries, indicated that between 4 to 6 billion US$ will be spent by Chinese refiners by 2006 and this cost rises to between 12 and 14 billion US$ by 2012 to basically bring China to Euro III and IV fuel standards, depending on the specific fuel reformulation objectives that are implemented, i.e., degree of product desulfurization required, level of oxygenate use, etc. Important: For example, relying on MTBE to facilitate achievement of Euro II and Euro IV specifications is estimated to help reduce the necessary capital investment for Chinese refiners by $600 MM in 2006 and over $1 Billion in 2012.

Road Transport Emissions in Europe We have seen the level of demand growth expected in the region and discussed the impact that this will have on refiners and the magnitude of the investment that refiners will have to make to produce not only higher volumes but also substantially cleaner fuels. It is no secret that Asia has long suffered with unacceptable air pollution levels in many of its large urban centers.

Emission from Gasoline Cars in Europe We have seen the level of demand growth expected in the region and discussed the impact that this will have on refiners and the magnitude of the investment that refiners will have to make to produce not only higher volumes but also substantially cleaner fuels. It is no secret that Asia has long suffered with unacceptable air pollution levels in many of its large urban centers.

Cost of Upgrading We have seen the level of demand growth expected in the region and discussed the impact that this will have on refiners and the magnitude of the investment that refiners will have to make to produce not only higher volumes but also substantially cleaner fuels. It is no secret that Asia has long suffered with unacceptable air pollution levels in many of its large urban centers. Source : International Council on Clean Transportation (ICCT) www.theICCT.org

Benefit of Cleaner Fuels We have seen the level of demand growth expected in the region and discussed the impact that this will have on refiners and the magnitude of the investment that refiners will have to make to produce not only higher volumes but also substantially cleaner fuels. It is no secret that Asia has long suffered with unacceptable air pollution levels in many of its large urban centers. Source : International Council on Clean Transportation (ICCT) www.theICCT.org

Conclusions Asia contains countries at widely differing levels of economic development and environmental quality Transport fuel qualities vary widely Fuel reformulation generally follows the EURO model Significant progress have been made in fuel quality improvement but much work still needs to be done We have seen the level of demand growth expected in the region and discussed the impact that this will have on refiners and the magnitude of the investment that refiners will have to make to produce not only higher volumes but also substantially cleaner fuels. It is no secret that Asia has long suffered with unacceptable air pollution levels in many of its large urban centers.