1. An Overview and Challenges for Producing Cleaner Fuels in Asia May 2006 Manila, Philippines John D. Courtis

2. Questions on the Production of Cleaner Fuels Is there a need for cleaner fuels in Asia ? Is the technology to produce cleaner fuels available ? What are the costs ? How soon clean fuels can be produced ? What is the best strategy ?

3. Is There a Need for Cleaner Fuels? The air pollution problem in most Asian metropolitan areas is significant Both fuels and motor vehicles are the major contributor to the air pollution problem Experience from the USA, EU, Japan shows that clean fuels and M.V standards result in improvements of air quality The vehicles need cleaner fuels to meet the M.V standards and to operate as designed Euro 4 or better fuels are preferable

4. Is the Technology Currently Available to Produce Cleaner Fuels? Actual experience in USA, EU, Japan indicates The refining process technology is mature and available There is experience with the installation and integration of new processes in exiting refineries There is experience with the production, blending,distribution, and quality monitoring of cleaner fuels There are tools available to optimize refining operations

5. Are the Costs Known? Numerous studies in EU, USA, Asia were performed and evaluated the costs of producing clean fuels There are actual costs from areas where refinery retrofits were implemented Usually the costs are: –refinery specific –function of the properties that need to be controlled

6. Refining Industry in Asia

7. Asia: Small vs. Large Refineries

8. Asia: Refineries by Process (%Crude Capacity)

9. Asia: Refinery Complexity Part 3

10. Comparison: Refinery Complexity 0% 10% 20% 30% 40% Percent of Crude Throughput Thermal Cracking Coking Visbreaking Cat Cracking Hydro Cracking Japan Germany California Singapore Indonesia India China Part 3

11. Comparison: ASIA Vs. Northern Europe Part 3

12. Comparison: Asia Vs. Southern Europe

13. Comparison: Average Hydrotreating, Hydrocracking Capacity 0% 10% 20% 30% 40% 50% Percent of Crude Througput Japan Germany California Singapore India China Hydro-treating Hydro-cracking

14. What is Needed to Produce Fuels What are the Costs of Production

15. What Fuel Properties Need to be Improved? Gasoline Diesel LeadSulfur SulfurCetane RVPDensity BenzenePolyaromatics AromaticsDistillation Distillation Oxygenates

16. Part 3

17. Example: Sulfur Reductions for Gasoline (Target: 50 ppm / 15 ppm) FCC GASOLINE HDS UNIT GASOLINE FUEL REFORMATE NAPTHA UNTREATED FCC FEED ISOMERATE/ HYDROCRACATE ALKYLATE ((0 ppm) ((lowS content) (high S content) (0 ppm) OTHERS FCC FEED HDS UNIT HDS ADD.ALKY. CAPACITY (lowS content) ADD. ISO. CAPACITY (butane, MTBE, etc)

18. Example: Sulfur Reduction for Diesel (target: 50 ppm/30 ppm) REVAMPED DISTILLATE DESULFURIZATION UNIT HIGHWAY DIESEL FUEL HYDROCRACKED STOCK STRAIGHT RUN CRACKED STOCK COKER DISTILLATE STRAIGHT RUN NEW CAPACITY low S med. S high S very high S

19. Changes in Gasoline Properties

20. Changes in Diesel Properties

21. Costs of Production

22. Ability to finance and recover costs What will happened to the small refineries ? What is the optimum strategy? –Phased introduction of cleaner fuels –Supply and demand –Timing –Flexibility Challenges

23. Ability to Finance and Recover Costs Capital availability –Current fuels market is expected to increase refiners’ ability to raise capital(assumes the ability to recover expenditures) –For governmental owned refineries capital investments may need to compete with other social expenditures –In competitive markets some projects may be considered to be not financially viable Can the costs be recovered? –Competitive markets usually allow the recovery of capital expenditures –Price controlled markets need to have prices adjusted to reflect additional costs

24. What will Happened to Small Refineries Small topping, and some hydro-skimming refiners will require significant refinery modifications to produce clean fuels Because of their small size the costs on per liter basis would be higher Their ability to continue operations may have an impact on local fuel supply Governmental owned small refineries may continue operations in a protective/controlled market Some will supply unregulated markets An option: Different standards or a different compliance schedule (issues)

25. Timing for Implementation European implementation in 4-6 years USA implementation in 6-7 years Realistic implementation time: –Permitting, financing, engineering, etc.: ~2years –Construction: ~ 2 years –Contingencies: ~ 1 years Total time:~ 4-6 years Must be concurrent with the implementation of M.V standards

26. Phasing the Introduction of Cleaner Fuels Option A : Allow concurrent introduction of fuels and motor vehicle standards but phased over years –delay health and air quality benefits; in high growth areas air quality will deteriorate –phase the investment costs over years –potential increases in long term costs Option B: Implement some fuel quality standards first and follow later with more comprehensive standards –requires less capital investments in the short term –sub-optimum strategy; more costly in the long term –lose some air quality benefits

27. Phasing the Introduction of Cleaner Fuels (continued) Option C: Limited introduction of fuel quality standards in cities and regions where air quality is an issue; different standards for the remainder of the country. –depends upon the ability to monitor compliance; possible enforcement and fuel adulteration issues –reduces the costs of compliance; increases the costs for fuel segregation; increases the costs of compliance monitoring –potential for quality of fuels in the uncontrolled areas to deteriorate Option D: Follow an integrated strategy for all fuel properties at the same time –optimum strategy; takes full advantage of refinery integration –requires larger capital investment; all air quality benefits materialized

28. Supply and Demand Issues Supply and demand balance will change –Expected increases in demand due to growth –New refineries and expansions are needed; planned expansions much needed –Potential reductions in supply due to: some small-independent refiners may discontinue fuels production reductions in yields –The production and use of biofuels would increase supply Questions –Will the merchant/export refineries increase production? –Will local refiners invest in sufficient capital to increase production as needed?

29. Flexibility is Critical Fuel regulators in the USA have built flexibility in their fuels programs –Flexible standards: Average, caps, predictive models, alternative standards –Special treatment for small-inefficient refineries –Time phase-in, regional delays Flexibility would allow reductions on both capital and operating expenses However, flexibility would require increased resources for monitoring, enforcement, etc.

30. Thank You jcourtis@aol.com jcourtis@sbcglobal.net