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Factors Impacting Residual Fuel Oil Supply and Demand Through 2015

Factors Impacting Residual Fuel Oil Supply and Demand Through 2015. October 2010 2010 Energy Buyers Conference Miami Beach, Florida . © Poten & Partners 2010 . Fuel Oil Production. ASIA/PACIFIC Drop in Japan and S. Korea production is offset by increase in China and India

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Factors Impacting Residual Fuel Oil Supply and Demand Through 2015

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  1. Factors Impacting Residual Fuel Oil Supply and Demand Through 2015 October 2010 2010 Energy Buyers Conference Miami Beach, Florida © Poten & Partners 2010

  2. Fuel Oil Production ASIA/PACIFIC Drop in Japan and S. Korea production is offset by increase in China and India MIDDLE EAST UAE and Saudi Arabia growth in crude oil refining capacity FSU Russia and Belarus increase in resid conversion capacity S. AMERICA/CARIB Colombia and Brazil growth in crude oil refining capacity

  3. Fuel Oil Production - Continued • Russia has about 5.8 MBD of crude oil refining capacity and only 18% resid conversion capacity • The U.S. has 17.2 MBD of crude oil refining capacity over55% resid conversion capacity

  4. Residual Bunker Fuel Burn – no Scrubber Scenario • China and Singapore are expected to drive the Asia/Pacific residual bunker fuel sales growth to nearly 90 million mt by 2015 If marine exhaust scrubbers are not widely utilized by 2015, residual bunker sales in Europe, the FSU countries and North America are expected to decline as a result of 0.1%S max marine fuel in the ECAs

  5. Residual Bunker Fuel Burn - Continued • Singapore bunker fuel sales continued to grow through the global economic slow-down. Bunker fuel sales increased 5% in 2009 compared to the 11% jump in 2008 • U.S. residual bunker fuel sales are nearly equally divided between the East, West and Gulf Coasts. • UAE bunker fuel sales are driven by Fujairah. Vopak Horizon’s terminal expansion is expected to attract more bunker fuel suppliers

  6. Residual Bunker Fuel Specifications • Al + Si fines are abrasive to fuel pumps, injectors and cylinder liners. • Global Al + Si average is only about 25 ppm, so ISO’s 60 ppm limit is a formality • Increased IFO blending to meet the July 2010 1%S marine fuel restrictions has increased the levels of Al + Si

  7. North Europe ECAs – No Scrubber Scenario1.5%S Max (Nov 2007) / 1%S Max (Jul 2010) / 0.1%S Max (Jan 2015) • Beginning 2015, to meet 0.1%S max bunker fuel restrictions, vessels would turn to marine distillates or install scrubbers. • Russian refineries near the Baltic Sea appear to have enough nameplate capacity to fill a fair portion of the estimated marine gasoil demand

  8. North America ECA – No Scrubber Scenario1%S Max (Aug 2012) / 0.1%S Max (Jan 2015) • In 2015, from a macro perspective, N. America should have no problem meeting the new marine distillates demand • Post mid-2012 N. America 1%S max IFO demand is projected at 23% of total IFO sales. Industry will adjust to this swing via marginal crude slate changes and blendstock imports

  9. Marine Exhaust Scrubbers • Scrubbers still seeking wider commercial acceptance • The price differential between 0.1%S gasoil and 1%S residual bunker fuel drives scrubber economics • High vessel fuel consumption generates significant fuel cost savings

  10. NOx Emission Limits • Tier I - no additional technology is required to meet limits • Tier II – engine manufacturers have modified their engines to meet upcoming regulation • Tier III – vessels operating in the ECAs and built after 2015 may require 0.1%S MGO to meet NOx restrictions, since most exhaust scrubbers have not yet reached the NOx reductions levels.

  11. Near-Term Tanker Shipping Expectations Fuel Oil Prospects 2010-2015 A Medium-Term Outlook on the Residual Fuel Oil Market Marine Fuel Regulations Pollution Abatement Technology and Vessel Operating Cost Spot Tanker Transportation by Routeand Type of Tanker Fixture Fuel Oil/Crude Oil Annual Price Outlook (2010-2015) World Regions Asia/Pacific Middle East S. America/N. America/Carib Europe FSU Africa For Each Region (2010-2015) Crude Oil Refining Capacity & Resid Conversion Capacity Announced Refining Projects Fuel Oil Production Fuel Oil Inland Consumption Bunker Fuel Sales • 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 Published May 2010

  12. 805 THIRD AVENUE WEBSITE: www.poten.comNEW YORK, NY 10022 TEL: +1 (212) 230-2087USA EMAIL: fueloil@poten.com 805 THIRD AVENUE TEL: +1 (212) 230-2000NEW YORK, NY 10022 FAX: +1 (212) 355-0295USA EMAIL:MarineProjects@poten.com

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