The impact of IMO MARPOL sulphur regulations on UK refining
Background
MARPOL is short for ‘Marine Pollution’ and is derived from the International Convention for the Prevention of Pollution convention in 1973 and later modified by the protocol of 1978. This gives the name MARPOL 73/78 or simply the MARPOL convention. Annex VI of the convention covers ‘Air Pollution’ from shipping.
The International Maritime Organisation (IMO) has set up ‘Sulphur Emission Control Areas’ (SECAs) under MARPOL where sulphur emission standards are more restrictive than the open sea. In Europe, the North Sea & English Channel SECA was set up in 2007 which was added to the Baltic Sea SECA established the previous year. Today these areas are now referred to ECAs since they potentially could include other emissions (however they currently restrict only sulphur emissions).
Figure 1: Emission Control Areas in the EU (illustrative only)
The IMO, through its Marine Environment Protection Committee (MEPC), have established new emission standards in MARPOL Annex VI. The revised standards came into force from 1 July 2010 and in summary are shown in the following table:
Figure 2: Evolution of Marine Fuel Sulphur 2010-2020 (2025)
(Note: SCMF- Sulphur Content of Marine Fuels Directive; FQD – Fuel Quality Directive)
Figure 3: Comparison of Marine Sulphur Levels with other Fuels (ppm)
(Source: http://www.airclim.org/policy/sub6_4.php)
The marine market and MARPOL changes
In terms of market size; the annual demand (1) for all marine fuel is ~50mte in the EU and the worldwide marine market ~200mte.
The tightening of the MARPOL sulphur specifications comes essentially in two stages (as set out in figure 2):
(i) Jan 2015: The sulphur levels for fuels consumed in ECAs will be reduced from 1.00 to 0.10 mass % (1000ppm). To comply with this change, the EU will switch from low sulphur residue to gasoil. This will consume an additional ~15mte of gasoil2 which will be supplied to the marine market. The EU is already heavily deficit in this grade by ~27mte/ year2 and the increase in gasoil supply to marine market will add further to this shortfall. Alternatively, and if an economic case could be made, the capital investment needed for EU refiners to generate an additional 15mte gasoil would be in the region of $6-7bn. However this scale of refinery development could not be constructed within this timescale.
(ii) Jan 2020 (2025): The sulphur level in the global market for marine falls from 3.50 to 0.50 mass %. This reduction is subject to a feasibility review by 2018 which could defer the implementation until 2025. There is also an alternative within MARPOL which permits the use of abatement measures on ships (e.g. exhaust flue gas scrubbing) or sulphur trading schemes to give an equivalent environmental performance to burning lower sulphur fuels.
By 2020, the global marine market is forecast to have grown closer to 250 mte/ year. If the refining industry were to make the proposed change to 0.50 mass % fuels it would have a massive impact on refinery configuration and operations. The alternatives for refineries to manufacture this fuel include:
i. Substantial investment in upgrading fuel oil residues to gasoil grades –but as many refiners are global companies they will only make such investments in locations with good returns.
ii. Reduction of residue production through changes in crude slate – but suitable crudes will trade at a high premia and refining margins reduce.
iii. Residue destruction (i.e. not produce fuel) – also requires huge investment.
iv. Desulphurisation of residues and blend with low sulphur gasoils – again requiring huge investment.
These are discussed more in the next section.
UK refining and marine
There are currently eight operating refineries in the UK processing ~75mte crude oil and other feedstocks per year (this is ~12% of the total EU capacity). The process flow diagram for a typical UK refinery is as follows (not all have the same units and some have units not shown on the diagram):
Figure 4: Typical Conversion Refinery Process Flow Diagram
(Source: UKPIA Statistical Review)
Marine fuels are manufactured using product from either the Vacuum or Visbreaker residue which is then blended to make grades typically to the ISO 8217 marine fuel specification and other fuel oils.
The sulphur content of these fuels therefore is determined by the sulphur level of the crude oil processed. This is illustrated in the following table which indicates the typical properties of some crude oils.
| Crude | Country | Crude oil, mass % sulphur | Fuel oil residue, mass % sulphur |
| Ekofisk | Norway | 0.21 | 0.69 |
| Brent | UK | 0.42 | 1.27 |
| Urals | Russian | 1.35 | 2.78 |
| Dubai | Dubai | 2.13 | 4.05 |
Figure 5: Crude Oil Data
(Source: Total http://www.totsa.com/pub/crude/crude_assays.php?rub=1)
Currently UK refineries process crude oils predominantly (~80%) (2)
from the North Sea and typically manufacture fuel oil to meet a 1.00 mass % maximum sulphur level in line with current standards for inland consumption and marine in the North Sea ECA. Fuel oil is an excess product and 1.00 mass % material is widely traded in the export market.
To manufacture fuel oil products meeting 0.50 mass % new process units will need to be added to upgrade and/or desulphurise the residue streams depending on economic choices. Refiners could choose to add heavy oil conversion processes to upgrade residues into higher value products. Gasoils from these upgrading projects would then source the marine requirement. The processes required are high pressure, high temperature and consume huge volumes of hydrogen which must also be manufactured (releasing further CO2). The capital cost is massive, operating costs are much higher and lead times for construction are in excess of 5 years.
Concawe (3) have studied an number of scenarios and conclude within the EU the capital cost of the facilities to meet the IMO 2020 scenario could be as high as $65bn with a corresponding increase in CO2 emissions of up to 40mte/year ( ~25% increase on existing). These are in addition to all other demands on refiners to cover other environmental, demand and quality changes in the same period. In the UK, with half of the refineries currently for sale and the outlook for refining margins not encouraging in the medium to longer term, it is unlikely that a business case could be made for investments of this magnitude.
Figure 6: $/bbl - Weak Refining Margins Forecast to Continue
(Source: WoodMackenzie, 2009)
In terms of supply and demand balance, the UK is projected to require imports of ~10mte based on the current manufacturing capability of both jet fuel and diesel by 2020 (4). The increased demand for distillates as marine fuel on a global basis will reduce their availability for the UK to make these imports.
The UK already has excess fuel oil, and the change to increase the use of gasoil for marine will weaken the value of fuel oil residue as there will be limited outlets – mainly blenders and those with access to flue gas scrubbing equipment. As a result refining margins will weaken for those who do not invest adding further pressure to the continuing viability of those operations. The MARPOL requirements therefore raise further supply resilience questions.
The IMO 2018 review should, based on technology available at the time, compare:
i. The cost (including the impact to supply resilience) to the oil industry of providing fuel at 0.50 mass % sulphur, and
ii. The additional CO2 released associated with manufacturing these fuels, with
iii. The cost of providing sulphur abatement equipment on board ships and/or sulphur trading schemes.
This should show that the cost to the oil industry is substantially higher than providing on board abatement measures and that higher sulphur fuels may continue to be used while at the same time meeting the emission levels set out in MARPOL Annex VI.
UKPIA members therefore consider the most practicable, workable and cost effective mechanism to achieve the emission reductions required by MARPOL is through the use of approved abatement equipment on board ships and/ or sulphur trading schemes
[1] Source : Europia white paper
[2] Source DECC statistics ~80% North Sea (including Norwegian).
[3] Source: Concawe – Impact of marine fuels quality legislation on EU refineries at the 2020 horizon (report 3/09)
[4] DECC – ‘UK Downstream Oil Infrastructure – Wood Mackenzie’