Sulphur

IMO Sulfur Regulations Impact on the Bunker Fuel Supply

October 25-27, 2009

2009 Energy Buyers ConferenceMiami Beach, Florida

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Page 2 Global & Regional Marine Fuel Regulations

2005, May 19 IMO Global cap – 4.5%S

2006, May 19 IMO Baltic Sea ECA – 1.5%S2006, Aug 11 EU EU passenger ships 1.5%S2006, Aug 11 EU EU ports - 1.5%S MDO & 0.2%S MGO2007, Jan 1 CARB California, auxiliary engines - 1.5%S MGO & 0.5%s MDO2007, Nov 22 IMO North Sea/English Channel ECA - 1.5%S2009, Jul 1 CARB California, 24 nm off coast - 1.5%S MGO & 0.5%S MDO

2010, Jan 1 EU EU waterways & 2 hrs+ ships at berth – 0.1%S2010, Jan 1 CARB California, auxiliary engines – 0.1%S MGO2010, Jul 1 IMO Existing ECAs – 1.0%S2012, Jan 1 IMO Global cap – 3.5%S2012, Jan 1 CARB California, 24 nm off coast - 0.1%S MGO2012, Aug 1 IMO U.S. & Canada ECA – 1.0%S (200 nm off coast)2015, Jan 1 IMO Existing ECAs – 0.1%S2020/25, Jan 1 IMO Global cap – 0.5%S (subj. to 2018 feasibility study)

HISTORICAL

FUTURE

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Page 3 California Marine Fuel Stance

• July 2009, California banned residual bunker fuel burn 24 nm off its coast and imposed 1.5%S MGO & 0.5%S MDO fuel limits

• Market response: Los Angeles MDO/MGO price firmed compared to other major bunkering ports

• Possibility of oil spill from a ship whose propulsion fails while switching fuel

Major Bunkering Ports, MDO/MGO Cost

350

400

450

500

550

600

650

700

750

800

Dec-08

J an-09Feb-09M

ar-09Apr-09

May-09

J un-09J ul-09Aug-09

Sep-09O

ct-09

$/m

t

LOS ANGELESFUJ AIRAHNEW YORKSINGAPOREHOUSTONROTTERDAM

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Page 4 International Bunker Fuel Sales Overview

*Europe excludes all the Former Soviet Union republics (which includes Lithuania, Latvia and Estonia)

75

18

51

12

23

1218

0.3

13

37

1 42

0

10

20

30

40

50

60

70

80

Mill

ion

Met

ric T

ons

Asia-Pacific Europe * NorthAmerica

Middle East S.America &Caribbean

FormerSoviet Union

Africa

Marine Bunkers Sales by Global Region, 2008

Residual Bunker Fuel

Marine Gasoil/Diesel

Global Bunker Fuel Sales, 2008Marine Gasoil/Diesel 20%

Residual Bunker Fuel80%

192.1 million mt

47.9 million mt

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Page 5 July 2010 ECA 1.0%S Marine Fuel Switch:

• The Baltic Sea/North Sea ECA is satisfactory managing the current 1.5%S bunker demand

• The switch to 1.0% would not present too much of a supply challenge, however at what cost, remains to be seen

2010 North Europe ECA - Estimated Demand for 1.0%S Heavy Bunkers

0

5

10

15

20

25

30

35

40

2010

mill

ion

mt

1%S HFO Bunker Shift

Remaining HFO Bunker Demand

36.4

21%

79%

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Page 6 Aug 2012 North America 1.0%S Marine Fuel Switch:

• Canada & US East Coasts can meet the 1.0%S demand

• North America West Coast would require LSFO imports

• Gulf Coast could require some level of imports

• The Great Lakes could meet the demand with Canadian LSFO production

2012 North America ECA - Estimated Demand for 1.0%S Heavy Bunkers

0

2

4

6

8

10

East Coast West Coast Gulf Coast Great Lakes

mill

ion

mt

1%S HFO Bunker Shift

Remaining HFO Bunker Demand8.3

23%

7.9 20% 6.4

22%

0.3 100%

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Page 7January 2015 - ECA 0.1%S Marine Fuel Switch

• 0.1%S bunker fuel cannot be achieved by desulfurizing residual fuel oil; switching to marine gasoil required

• NW Europe diesel/gasoil short net position would create an issue for the 0.1%S changeover. Russian gasoil/diesel supplies would meet some of the demand.

• Generally refiners look to invest in resid destruction capacity to produce high value transportation fuels

• Depending on MDO/MGO cost, vessel exhaust scrubbing technology could be an option for shipowners if commercially viable

ECAs MDO/MGO 2015 Projected Availability

14

-17

68

-20

-15

-10

-5

0

5

10

15

20

North America ECA NW Europe ECA *

million m

t

Gasoil/Diesel Net Position

Demand for 0.1%S Bunker Fuel

* NW Europe gasoil/diesel net position given, does not include Russia's net position

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Page 8 Global Marine Fuel Cap – 3.5%S

In January 2012, global marine fuel sulfur content is to be capped at 3.5%S. Since average global sulfur content is 2.7% according to IMO methods, this sulfur limit drop is generally symbolic

Major Ports Average Heavy Bunker Fuel Sulfur Content

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

ROTTERD

AM

NEW

YORK

LOS A

NG

ELES

HO

USTO

N

SING

APORE

FUJ A

IRAH

% S

ulfu

rJ an 2012 Global 3.5%S Cap

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Page 9 Global Marine Fuel Cap – 0.5%S

• Global marine HFO, which in 2008 accounted for about 192 million mt, could increase by 10-15% by time frame of 2020/2025

• Global production of gasoil/diesel would not be sufficient to meet the surge in world 0.5%S MDO/MGO demand

• To speculate – unless scrubbers become accepted as commercially viable, refiners will need price incentives to desulfurize HFO. A combination of both will probably occur

MARPOL Annex VI Marine Fuel Sulfur Limits

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2000 2005 2010 2015 2020 2025

Sulfur

, %

Global

SOx ECA

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Page 10Considered Future ECAs

• In 2008, Mediterranean sea countries’ marine HFO sales for domestic burn were about 1 million mt and projected to grow through 2015

• Mediterranean countries are net short diesel/gasoil

• Gasoil/diesel supply from the Black Sea region would alleviate this short position

• Mexico is considering joining the U.S. and Canada North America ECA initiative

• In 2008, Mexico’s marine HFO sales for domestic burn were about 800 thousand mt and projected to grow through 2015

• Mexico is net short diesel/gasoil, so as a prospective ECA member it would need MDO/MGO imports to meet demand in 2015

Mexico, Diesel/Gasoil Net Position

-4.5

-6.0-7-6-5-4-3-2-101

2008 Projected 2015

mill

ion m

t

Mediterranean, Diesel/Gasoil Net Position

-13.2

8.4

13.6

-10.0-16-12-8-4048

1216

2008 Projected 2015

mill

ion

mt

Countries Surrounding the MedMed & Black Sea Countries

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Page 11 Near-Term Tanker Shipping Expectations

• Still bullish on China and India• Lower than ‘expected’ GDP growth assessments do not necessarily denote low

growth

• Cash injections by certain governments will help support shipping industry in certain markets, particularly in the East

• Demand in OECD markets expected to recover slowly through the remainder of 2009 bolstering tanker demand

• Economic recovery will be largely dictated by policy• Banking sector regulation

• Stimulus and deficit

• Taxes

• Likelihood of the ‘double-dip’ recession

Marine Fuel Regulations 2010-2025What the Future Holds for the International Shipping Industry

A Focused Analysis and Outlook on the Marine Fuels Market

- Overview of Marine Fuel Historical and Future Regulations

- Residual Bunker Fuel and Marine Gasoil/Diesel (2007-2008)

Demand by Region

- ECA 1.0%S Marine Fuel Limit (July 2010)

- Impact of Future North America ECA (2012)

- ECA 0.1%S Marine Fuel Limit (January 2015)

- Global 0.5%S Bunker Limit (2020/2025)

- Future Marine Fuel Pricing Implications

to be published December 2009

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Page 12

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