1. The future of (liquid) fuel August 2019

2. About SAPIA
The South African Petroleum Industry Association (SAPIA) represents the collective interests of the South African petroleum industry. The Association plays a strategic role in addressing a range of common issues relating to the refining, distribution and marketing of petroleum products, as well as promoting the industry’s environmental and socio-economic progress. SAPIA fulfils this role by contributing to the development of regulation in certain areas of South African policy; proactively engaging with key stakeholders; sharing research information; providing expert advice; and communicating the industry’s views to government, members of the public and the media.

3. Presentation outline Some Background Role of EVs Future Fuel Pool
Where are we now?
Headwinds
Summary

4. The Societal Challenge
Current
Future
570 Exajoules
1000 Exajoules
Energy Demand
6.2 billion people
(1.2 billion no access)
10 billion people
(all with access)
Population
CO2e
32 Gt CO 2e
Net Zero
CO 2e Emissions
Increasing global temperatures
Keep temperature to well below 2 C pre-industrial levels
Source : IPIECA ; Shell Energy Transition Report

5. A long term reliance on fossil fuels
South Africa (2040)
Coal 47%
Oil 21%
Gas 5%
Other 27%
Demand
13 708
Mtoe
Demand
17 715
Mtoe
Change in Primary Energy Demand – NPS
Source : IEA World Energy Outlook 2018

6. But with a shift in type of demand
Scenarios for GHG emissions in 2040;
Current emissions (2017) - ~32.5 Gt
Current policies – ~42 Gt
New Policies – ~ 36 Gt
Sustainable Development – ~17.5 Gt
New Policies – vehicle oil demand static
Vehicle increase offset by efficiencies
Impact of electric and biofuels - small
Sustainable development the impact is expected to be large – but this scenario relies on CCUS
Source : IEA World Energy Outlook 2018

7. Presentation outline Some Background Role of EVs Future Fuel Pool
Where are we now?
Headwinds
Summary

8. EV role in these scenarios
Current total world car population estimated 1.2 billion units
South African vehicle population ~12 million (January 2017)
95% are passenger cars or light commercial vehicles
Annual sales of passenger cars ~ , 99% of which are ICE
Increasing concern about GHGs and local pollution suggests heightened interest in EVs
SDS scenario suggests world wide fleet a little under a billion vehicles EVs
South Africa expected uptake slow
Worldwide 2017 new registrations (estimate): BEV – 1.9 million and PHEV – 1.2 million
With total new registrations of BEV that amounts to 0.15% of the car parc and for PHEVs that is %
For the global fleet in 2040, assuming a static car parc the EV penetration would be 25% and 80% for NPS and SDS respectively
Source : IEA World Energy Outlook 2018; SAPIA; NAAMSA

9. But an altruistic demand ?
EV demand presently not driven by cost but primarily environmental concerns – local pollution and GHG emissions
Euro 0 and Euro I vehicles the main contributors to vehicular PM and NOx emissions
In South Africa these vehicles comprise about 26% of the parc
Older vehicles fitted with outdated and inefficient powertrain technologies has a negative impact on both emissions and consumption
Fuel quality critical to achieve acceptable environmental performance of ICE
Source : ICCT; SAPIA;

10. Presentation outline Some Background Role of EVs Future Fuel Pool
Where are we now?
Headwinds
Summary

11. What does the future pool look like?
The green transport strategy provides the following wrt liquid fuels;
Reduce their use
Promote biogas and use of CNG, LNG
Primarily for use in captive fleets
EVs from solar power
From IEP ~10bl incremental liquid fuels needs ~ 5 GW electricity
Produce cleaner fossil fuels (Clean Fuels 2 program)
Paradoxically will produce more GHGs
Facilitates introduction of advanced vehicle technology – Euro VI, hybrids etc.
Future fuel pool will be mix of offerings
As far as transport is concerned and given the reliance on fossil fuels, oil will be the dominant energy carrier with biofuels and gas. EVs probably less <20%
World Energy Council – Scenarios of 2016 suggests a maximum of 32% EV penetration world wide in 2060
10 bl incremental liquid fuel required which equates to 72 PJ using 20% ICE efficiency and then 120 PJ at 60% for electricity

12. The Cleaner Fuels Program
Clean Fuels 2 is the provision of 10 ppm sulphur petrol and diesel with other specification changes to provide an enabling fuel meeting at least Euro V emission specifications
SAPIA supports the implementation of a cleaner fuels regime
Can lead to the reduction in noxious tail pipe emissions and improve quality of life through reduction of non-communicable chronic diseases
Implementation in the context of sustaining the industry which means providing a reasonable fiscal framework and timeline for investments at refinery level
DEA draft strategy on cleaner fuels focuses on key interventions; fuel quality, emission standards, expanding public transport system and the use of CNG) in buses and taxis.
Estimated benefit ~ R200 bn
DEA Draft Integrated Strategy for the control of motor vehicle emissions 2013

13. Cleaner Fuels Program - hurdles
Refining industry will find it difficult to respond to cleaner fuels challenge without assistance from government (estimated investment ~$3.9bn (2018) with no return)
Nevertheless we are working actively with the DMRE to sort out obstacles to CF 2 implementation
But the story is not only about cleaner fuels but also manufacturing, job sustainability, foreign exchange exposure, the provision of speciality products …..
The liquid fuels industry contributes 8.5% to GDP with the refining sector contributing 65% of this impact
Provides around jobs - direct/indirect/induced
Is an anchor tenant for the specialised engineering & construction industry and supports further downstream manufacturing chemicals, plastics, bitumen

14. Compliance is important
The objective of improved urban air quality and reduced GHG emissions from road transport is dependent on three aspects;
The correct cleaner fuels must be available
The appropriate technology must be used in vehicles
All vehicles need to be maintained in an as designed condition
All are interrelated and the failure of one leg does not support the ultimate objective
Compliant Fuels
Inspection
Vehicle Technology
Urban Air Quality
Components of the three legged stool

15. Presentation outline Some Background Role of EVs Future Fuel Pool
Where are we now?
Headwinds
Summary

16. Main Fuels demand - overview
Mature market - flat to declining sales
Net importer ~ 5 bn l/a
Actual imports ~ 8.3 bn l/a (140 kbpd)
Product quality;
Diesel > 80% sales 50 ppm S
Petrol > 80 % 95 RON
Local refineries competitive within its regional peer group (Africa & Europe) on EBITDA basis
Market shifting to cleaner fuels driven by technology requirements
2025 est ~50% of cars Euro V+ vehicles
Significant investments required to upgrade refineries to meet Clean Fuels 2 specifications
Sources: Department of Energy (sales and import data); SAPIA; Wood Mackenzie

17. Where we sit now Gasoline market
Petrol consumption flat – net imports generally < 5% of market
Traditionally a two tier market – low octane inland (93) / high octane (95) at the coast
High octane (95) demand ~ risen from 35% of total gasoline market to now over ~ 75%
LRP penetration now <3%
Diesel market
Diesel demand linked to GDP growth – growth continuing with imports ~40% of market demand
50 ppm diesel consumption average ~ 70%
Refiners have responded to 50ppm market by switching to manufacture this product
10 ppm production may present a severe challenge

18. Presentation outline Some Background Role of EVs Future Fuel Pool
Where are we now?
Headwinds
Summary

19. Marpol Annex VI
All shipping subject to IMO Regulations
Sulphur limit requirement in emission control areas
Limit enforced by 2020 worldwide
2016 decision to apply a sulphur cap on bunker fuels of 0.5% effective 1 January 2020
Cap aimed at shipping to meet their environmental obligations
Likely see a rise in bunker costs worldwide (some estimates $50bn)
Many refiners could be stressed to meet the residual fuel sulphur limit and the disposal of this product likely to compete with coal
Probably see a switch to distillate fuels to meet the cap - wider implications for the diesel market.

20. Implications of the cap
Refiners will generally respond by increasing distillate production
Crude slate (diet) changes
Increased conversion unit utilization
Will not (at present) invest for HFO desulphurization
Means distillate products meeting the cap will be sold as bunkers
Shippers hoping for a refining response but some are installing scrubbers – but < 30% of world’s fleet
Irrespective major disruptions are anticipated
Rise in distillate prices above present ( some say > %)
Jump in shipping rates which may lead to changing trade flows
Refinery margins for less complex refineries squeezed
Platts call it a $1 trillion cost to the global economy over 5 years

21. Implications of the cap
Major implications for importers / exporters
Importers – increase in landed cost of product
Anticipated rise in the price of fuel – pushed by increased FOB prices and increased freight component of the BFP
Exporters – competition with other third-party suppliers in target markets
Potential implications for local marginal miners
Outstanding work in the process of concluding
Agreement in FONAR reporting
Port state control over non-compliant supply
Remaining questions over fuel compatibility / safety

22. Presentation outline Some Background Role of EVs Future Fuel Pool
Where are we now?
Headwinds
Summary

23. Summary Future fuels commence ‘now’ going into the future
For the immediate term the implementation of the IMO 2020 sulphur cap on bunker fuel
Limited to no ability of shippers to switch to cheaper fuels / biofuels or gas
Set to have major ramifications world wide
In the not too distant future the cleaner fuels program
Pre-requisite for the introduction of better vehicle technology
Industry requires support for investment
In the future
Oil still forms the key energy carrier for transport
Will be a mix of other carriers – bioproducts and gas
EVs are not expected to make it big up to dependent on government action

24. End Thank you Dankie Ngiyathokoza Ke a leboha Ke a leboga Siyabonga
Inkomu
Ndo livhuwa
Enkosi
Ngiyabonga