1. OGC 1

2. BUNKER FUELS Regulation and practice David Springett SGS MARINE SERVICES October 2012 © SGS Group Management Ltd. Geneva Switzerland 2012 Not to be reproduced without permission

3. Overview Regulatory  ISO 8217 - 2010  ECA’s  Marpol In real life  In practice  Cost implications Not to be reproduced without permission 3

4. Engine manufacturers Shipping companies Major refiners Testing agencies ISO 8217 Who has set the Agenda? Not to be reproduced without permission 4

5. 2010 revision Current edition ISO 8217 published June 2010 Superseded the third edition published in 2005. 2005 edition itself was a massive change from 1996 due to environmental requirements 2010 standard built on 2005 and addressed some issues. Not to be reproduced without permission 5

6. 2010 Revision part 2 These standards are always a consensus between various interests. That consensus has shifted dramatically since 2005 The environmental content aligned with MARPOL VI and this link will remain solid as we move forward. Standard amended slightly in July 2012 for H2S Not to be reproduced without permission 6

7. So where do we stand? – 2010 vs 2005 Adoption of 2010 revision has been very slow Suppliers, are reacting to demand as and when needed The ISO standard is NOT mandatory, although Marpol is.  Only as a part of a contract or where locally legislated Probably about 75-80% of bunker supplied in 2012 are to 2005 standard  Cost premium  Charter parties  Availability – see above Not to be reproduced without permission 7

8. IMO Regulations -SOX Amendments to Marpol Annex VI July 2010 ECA Europe Sulphur 1% January 2012 global sulphur 3.5% ECA covering most of the North American coast became effective in August 2012 In January 2015 the sulphur limit in all ECAs will be lowered to 0.1%. In 2020 (or possibly 2025, subject to review in 2018) the global sulphur cap will be lowered to 0.5%. Not to be reproduced without permission 8

9. IMO Regulations -NOX The amended Annex VI introduces additional controls on emissions of NOX. Controls will be phased in for ships built between 1990 and 2000. Such ships have until now been exempt from NOX controls. Tighter NOX limits apply to ships built from 2011, with more stringent limits being introduced for ships built from 2016 onward. Not to be reproduced without permission 9

10. SUMMARY 10 Not to be reproduced without permission What about other areas?  In the short to medium term we might expect Singapore, Hong Kong, Japan and Australia Source: IMO

11. MARPOL, ECA and CARB limits Not to be reproduced without permission 11

12. USA/Canada ECA Source: US EPA Reductions in 2020 320 000 MT NOX = 23% 90 000 MT PM = 74% 920 000 MT SOX = 86% According to EPA Cost = $3.2 Billion Benefit = $20 Billion Not to be reproduced without permission 12

13. Industry Challenges (1) Increased costs are the biggest challenge of all Total world bunker market approx 200 million tonnes  Asia approx 70 million tonnes.  USA 25 million tonnes – Fairly equally divided between USEC,USWC,USGC  ARA 24 million tonnes  Med – 16 million tonnes  Russia 10 million tonnes If ECA’s are implemented in the regions  As above, estimated between $75 and $200 a tonne extra just to reach 1% Numerous Quality challenges 13 Not to be reproduced without permission

14. Hot Spots The most common quality challenges can be split into two main categories Quality itself........  Sulphur  Catfines (Al+Si)  Others, such as viscosity, density etc Bunker with care.......... meeting that quality has a cost Not to be reproduced without permission 14

15. Meeting Sulphur requirements Main Regional challenges  UAE - Fujairah  Korea - Busan  USWC – Long Beach  USEC - New York, Miami  USGC – Houston  Italy Cost estimates for even 1% sulphur are probably between $75 and $200 per tonne – possibly achieved by.........  Naturally low sulphur crudes  Re-direct land based fuel to sea  Re-blending  Desulphurisation The IMO 2020 regulation for 0.5% would basically require distillates  About 200 million tonnes of it....  And this causes capacity issues 15 At 4.5% Sulphur was not critical – it is when we get down to 0.5% Not to be reproduced without permission

16. Aluminium and Silicon (Catfines) Two Issues  Local refining  Extra risk with lower sulphur blends – increased use of slurry oils Main regional challenges  ARA  Houston  USEC Most engine manufacturers recommend 15ppm Al+Si  A purifier usually removes only 60-70%  Settlement in service tanks can be an issue 16 Not to be reproduced without permission

17. Other Issues Density  Increased use of slurry oil as a blending component Stability  Increased use of other resources Chemical Contamination  Possible sharp practice Ignition quality  CCAI     Usually between 800 and 880.  Not always a reliable indicator 17 Not to be reproduced without permission

18. Practical supply issues Utility demand is declining in USA  Advent of LNG and renewables – LNG raises its own challenges Residual fuel production declining accordingly Sulphur levels in imported US fuel oil  Approx 70% over 1%  Canada, Mexico, Russia  Most of the 30% low sulphur oil was from Algeria/North Africa/ARA Japan - post Fukushima Where does that leave us?  Pre 2015 – Europe ECA experience  Post 2015? 18 Not to be reproduced without permission

19. Future solutions? Fuel is almost 50% of ship operating costs LNG  Not the answer to all the issues  Short sea trading – Ferries, Regular trade  Very expensive to fit/retrofit “Scrubbing” technology  Open and closed systems, various brands – Alfa-laval, Hamworthy, Wartsila.MAN etc  Verification/ wash water content.........  SCR  Expensive Low Sulphur fuel  Distillates Oil, Gas & Chemicals Services 19

20. Conclusions 20 Not to be reproduced without permission Current challenges High fuel prices ECA zone expansion Environmen tal pressure Depressed freight rates Low margins (Re)Action Better routeing / planning Slow steaming Retrofit for alternative fuels Retrofit Scrubbing Back to the future? Advanced vessel design New build LNG New build with scrubber Bio fuels? Alternate fuels

21. SGS Marine Services A global network – the largest coverage Operating to Industry and SGS internal standards IFIA certified – plus local qualifications On going training – experienced personnel SGS Ethics policy Major client portfolio Dedicated teams 21 copyright Portpictures.nl Not to be reproduced without permission

22. SGS Marine Services Quantity Inspections  SGS presence in all major ports with SGS personnel to IFIA/local standards  Single point contact Quality testing  Routine analysis – dedicated labs  Dispute analysis – SGS ISO 17025 network  Forensic testing – SGS M-Scan Lubricating oil testing – SGS Vernolab Environmental testing Specialist work – P&I, NDT, HACCP etc 22 Not to be reproduced without permission SGS – your single source for multiple services

23. Distillates – at a glance Not to be reproduced without permission 23

24. Residuals – at a glance Not to be reproduced without permission 24

25. Oil, Gas & Chemicals Services 25 WWW.SGS.COM/OGC © SGS SA 2011. ALL RIGHTS RESERVED.