What Can We Make? “Retooling” for Renewables Transportation Fuels Regulations Update and Tutorial

Session Overview Regulations Tutorial U.S. Regulations current status Gasoline fuels Diesel fuels Rise of renewables – regulations recap The rest of the world – Euro 5 and Asia On the horizon – MARPOL (Bunker Fuel Regs)

U.S. Regulations current status

Gasoline fuels

Diesel fuels

Rise of renewables – regulations recap

The rest of the world – Euro 5 and Asia

On the horizon – MARPOL (Bunker Fuel Regs)

Summary and outlook Implications for the future Session Overview “What Can We Make?”

Summary and outlook

Implications for the future

Regulations Tutorial Overview of Current Regulatory Environment

Rationale for regulations Concern over air quality and impact of increasing numbers of automobiles on public health Legislation gives U.S. Environmental Protection Agency (EPA) authority to regulate emissions into the atmosphere Fuels regulations are designed to improve air emissions from “mobile sources” (vehicles) Background information – regulatory framework Requires product registration for all gasoline, diesel and fuel additives Applies to manufacturers (refiners), blenders and importers EPA requires testing of some fuels and additives EPA required certified detergent additives for gasoline Current Regulations – U.S.

Rationale for regulations

Concern over air quality and impact of increasing numbers of automobiles on public health

Legislation gives U.S. Environmental Protection Agency (EPA) authority to regulate emissions into the atmosphere

Fuels regulations are designed to improve air emissions from “mobile sources” (vehicles)

Background information – regulatory framework

Requires product registration for all gasoline, diesel and fuel additives

Applies to manufacturers (refiners), blenders and importers

EPA requires testing of some fuels and additives

EPA required certified detergent additives for gasoline

Enforcement Customer complaints and random sampling of fuels can result in litigation and imposition of fines Fuel producer, blender, importer can be required to produce records showing compliance with the regulations If out of compliance, responsible party can be fined up to $32,500 per day for each violation found Current Regulations – U.S.

Enforcement

Customer complaints and random sampling of fuels can result in litigation and imposition of fines

Fuel producer, blender, importer can be required to produce records showing compliance with the regulations

If out of compliance, responsible party can be fined up to $32,500 per day for each violation found

EPA and State Interface States must file a “State Implementation Plan” (SIP) with the EPA telling how they will meet Federal clean air standards for certain pollutants within a specified time EPA sets a standard for the state or certain geographical areas within it that must meet specific targets Example “Severe Non-Attainment” area means an area subject to the most stringent regulations States can “opt” to meet more stringent standards than the EPA requires if they choose Current Regulations – U.S. Federal vs. State

EPA and State Interface

States must file a “State Implementation Plan” (SIP) with the EPA telling how they will meet Federal clean air standards for certain pollutants within a specified time

EPA sets a standard for the state or certain geographical areas within it that must meet specific targets

Example “Severe Non-Attainment” area means an area subject to the most stringent regulations

States can “opt” to meet more stringent standards than the EPA requires if they choose

Why states agree to Federal regulation States that do not meet compliance targets for air quality by designated target dates are not eligible for Federal highway funding Populations of large states like Texas would face significant costs to build and maintain roads without this money Current Regulations – U.S. Penalties for Noncompliance

Why states agree to Federal regulation

States that do not meet compliance targets for air quality by designated target dates are not eligible for Federal highway funding

Populations of large states like Texas would face significant costs to build and maintain roads without this money

Current Regulations – U.S. Gasoline

1973 – ban on lead Initial regulations targeted elimination of TEL (tetraethyl lead) Complete ban - 1995 Operations changes – round 1 Blend changes to replace octane loss Arco (BP) introduces “EC-1” with MTBE in California Use of ethanol in U.S. PADDII (“Gasohol”) RVP not an issue until 1989 Current Regulations – U.S. Gasoline – Lead Leaves the Pool

1973 – ban on lead

Initial regulations targeted elimination of TEL (tetraethyl lead)

Complete ban - 1995

Operations changes – round 1

Blend changes to replace octane loss

Arco (BP) introduces “EC-1” with MTBE in California

Use of ethanol in U.S. PADDII (“Gasohol”)

RVP not an issue until 1989

1989 Regs – Summer Volatility Standards Imposed to reduce ozone formation in summer Phase I – 1989 to 1991 Phase II – 1992 and later Current ranges are 7.0 to 9.0 depending on the regulated area outside California California standards are more stringent Gasoline blended with ethanol can exceed these limits by 1.0 even though it reduces the benefit of lower RVP Operations changes Increases in low RVP blending components Reduced ability to blend butane Current Regulations – U.S. Gasoline – RVP Reductions

1989 Regs – Summer Volatility Standards

Imposed to reduce ozone formation in summer

Phase I – 1989 to 1991

Phase II – 1992 and later

Current ranges are 7.0 to 9.0 depending on the regulated area outside California

California standards are more stringent

Gasoline blended with ethanol can exceed these limits by 1.0 even though it reduces the benefit of lower RVP

Operations changes

Increases in low RVP blending components

Reduced ability to blend butane

Oxygenated fuels programs Begun by states to reduce formation of carbon monoxide in winter Original RFG was “EC-1” introduced in California by Arco (BP) in the late 1980’s to replace leaded gasoline; contained MTBE Resulted in the first reformulated gasoline (RFG) standards at the federal level in 1995 Required in areas considered “severe” non-attainment for ozone Other areas can “opt in” RFG Phase I and II – 1995 to 2000 and 2000 to 2005 Established fuel performance standards Required 2% to 2.7% oxygenate by weight Initially allowed ethanol or MTBE to be used Current Regulations – U.S. Gasoline – Oxygenates/RFG

Oxygenated fuels programs

Begun by states to reduce formation of carbon monoxide in winter

Original RFG was “EC-1” introduced in California by Arco (BP) in the late 1980’s to replace leaded gasoline; contained MTBE

Resulted in the first reformulated gasoline (RFG) standards at the federal level in 1995

Required in areas considered “severe” non-attainment for ozone

Other areas can “opt in”

RFG Phase I and II – 1995 to 2000 and 2000 to 2005

Established fuel performance standards

Required 2% to 2.7% oxygenate by weight

Initially allowed ethanol or MTBE to be used

Current Regulations – U.S. Gasoline – Pre and Post RFG Fuel Parameter Values (national basis) Conventional Gasoline Pre RFG Regs Gasohol Oxyfuel (2.7 wt% oxygen) Phase I RFG Phase II RFG 2005 Conventional Gasoline 2005 Range2 Avg Avg Avg Avg Avg RVP3 6.9-15.1 9.7-S 8.7-S 7.2/8.1-S 6.9 S 8.3 - S (psi) 11.5-W 11.5-W 11.5-W 11.5-W 11.9 W 12.1 - W T50 (øF) 141-251 202 205 202 202 – S 181 - W 211 – S 200- W T90 (øF) 286-369 316 318 316 330 331 – S 324 - W Aromatics (vol%) 6.1-52.2 23.9 25.8 23.4 20.7 – S 19.2 - W 27.7 – S 24.7 - W Olefins (vol%) 0.4-29.9 8.7 8.5 8.2 11.9 – S 11.2 - W 12 – S 11.6 - W Benzene (vol%) 0.1-5.18 1.60 1.60 1.0 (1.3 max) 0.66 1.21 – S 1.15 - W Sulfur (ppm) 10-1170 305 313 302 (500 max) 71 – S 81 - W 106 – S 97 - W MTBE4 (vol%) 0.1-13.8 -- 15 11 (7.8-15) 7.02 – S 6.63-W 1.66 – S 1.41 - W EtOH4 (vol%) 0.1-10.4 10 7.7 5.7 (4.3-10) 3.03 - S 2.86 – W 1.75 – S 2.19 – W

Dramatic reduction in sulfur in total pool From 1170 to 106 ppm in conventional by 2005 From 313 in “oxyfuel” to 71-81 in RFG by 2005 RVP reductions From as high as 15.9 in conventional to 8.3 (summer) From 8.7 for “oxyfuel” to 6.9 for Phase II RFG Reduction in benzene From as high as 5.18% to 1.21% in conventional and from 1.6% to .66% in RFG Current Regulations – U.S. Gasoline – Changes with RFG

Dramatic reduction in sulfur in total pool

From 1170 to 106 ppm in conventional by 2005

From 313 in “oxyfuel” to 71-81 in RFG by 2005

RVP reductions

From as high as 15.9 in conventional to 8.3 (summer)

From 8.7 for “oxyfuel” to 6.9 for Phase II RFG

Reduction in benzene

From as high as 5.18% to 1.21% in conventional and from 1.6% to .66% in RFG

“ Tier 2 and Gasoline Sulfur Program” Required changes in vehicles for model year 2004 and later Required another “ratchet” downward on sulfur in motor gasoline Major changes in sulfur limits for gasoline and diesel Per gallon cap of 80 ppm (gasoline) Average of 30 ppm (gasoline) Diesel regs discussed in next section “ Phase in” period began January 2004 Special rules for small refiners to extend transition period Current Regulations – U.S. Tier 2 – More Sulfur Reductions

“ Tier 2 and Gasoline Sulfur Program”

Required changes in vehicles for model year 2004 and later

Required another “ratchet” downward on sulfur in motor gasoline

Major changes in sulfur limits for gasoline and diesel

Per gallon cap of 80 ppm (gasoline)

Average of 30 ppm (gasoline)

Diesel regs discussed in next section

“ Phase in” period began January 2004

Special rules for small refiners to extend transition period

The “MSAT” Regulations Establishes an Exhaust Toxics Standard for conventional gasoline Establishes a Total Toxics Standard for RFG Requires refiners to maintain at least their average 1998-2000 performance levels for 5 types of toxics considered probable human carcinogens Benzene Formaldehyde Acetaldehyde 1-3 Butadiene POM Current Regulations – U.S. Gasoline – Toxics

The “MSAT” Regulations

Establishes an Exhaust Toxics Standard for conventional gasoline

Establishes a Total Toxics Standard for RFG

Requires refiners to maintain at least their average 1998-2000 performance levels for 5 types of toxics considered probable human carcinogens

Benzene

Formaldehyde

Acetaldehyde

1-3 Butadiene

POM

Also known as the “anti backsliding” regulation Performance in 2000 was better than what the current regulations actually required at the time Set a baseline for future performance at the 1998-2000 level Producers had to file their baselines and demonstrate they were at those levels or better (further reduction from baseline) in the future Established a default baseline for refiners without a 1998-2000 history Current Regulations – U.S. Gasoline – Toxics – MSAT 1

Also known as the “anti backsliding” regulation

Performance in 2000 was better than what the current regulations actually required at the time

Set a baseline for future performance at the 1998-2000 level

Producers had to file their baselines and demonstrate they were at those levels or better (further reduction from baseline) in the future

Established a default baseline for refiners without a 1998-2000 history

Followed a review of toxics in fuels as of mid decade Affects gasoline, passenger vehicles, and gas cans Applies to both conventional and reformulated gasoline Sets a new annual average benzene content limit of .62% nationwide New standard goes into effect 2011 Current Regulations – U.S. Gasoline Toxics – MSAT 2

Followed a review of toxics in fuels as of mid decade

Affects gasoline, passenger vehicles, and gas cans

Applies to both conventional and reformulated gasoline

Sets a new annual average benzene content limit of .62% nationwide

New standard goes into effect 2011

Other provisions of MSAT 2 Refiners/blenders can meet the standard by buying credits until 2012 After July 1, 2012, actual volume ceiling of 1.3% is effective for all California is exempt; its standards are already lower Special compliance flexibility for approved small refiners Current Regulations – U.S. Gasoline Toxics – MSAT 2

Other provisions of MSAT 2

Refiners/blenders can meet the standard by buying credits until 2012

After July 1, 2012, actual volume ceiling of 1.3% is effective for all

California is exempt; its standards are already lower

Special compliance flexibility for approved small refiners

Forecast impact Refiners/blenders in Pacific NW, AK and Rockies, others with higher than average benzene will have to make additional investments Refiners/blenders who reduce benzene early, can generate and trade “early credits” if using specific technologies approved by EPA Current Regulations – U.S. Gasoline Toxics – MSAT 2 Impact

Forecast impact

Refiners/blenders in Pacific NW, AK and Rockies, others with higher than average benzene will have to make additional investments

Refiners/blenders who reduce benzene early, can generate and trade “early credits” if using specific technologies approved by EPA

Early credits Early credits can be generated from 2007 through 2010 5 types of benzene control technologies qualify for early credit generation: Reformer feed treating (light naphtha splitting or isomerization) Reformate treating (benzene extraction or benzene saturation) Treating other streams not used as reformer feed (other naphtha) Treating benzene streams other than reformate Benzene alkylation Current Regulations – U.S. Gasoline Toxics MSAT 2 – Credits

Early credits

Early credits can be generated from 2007 through 2010

5 types of benzene control technologies qualify for early credit generation:

Reformer feed treating (light naphtha splitting or isomerization)

Reformate treating (benzene extraction or benzene saturation)

Treating other streams not used as reformer feed (other naphtha)

Treating benzene streams other than reformate

Benzene alkylation

20 years after the Clean Air Act Elimination of lead The rise and fall of MTBE as a gasoline blendstock Dramatic reductions in sulfur (from 1000+ ppm to virtually none today) Major reductions in RVP ceilings To meet summer ozone standards To accommodate mandated increases in ethanol blending Stringent caps on benzene Summary Current Regulations – U.S. Gasoline

20 years after the Clean Air Act

Elimination of lead

The rise and fall of MTBE as a gasoline blendstock

Dramatic reductions in sulfur (from 1000+ ppm to virtually none today)

Major reductions in RVP ceilings

To meet summer ozone standards

To accommodate mandated increases in ethanol blending

Stringent caps on benzene

Current Regulations – U.S. Diesel

Diesel fuel quality Has been regulated since 1993 with introduction of “LSD” (Low Sulfur Diesel) Highway sulfur diesel program finalized in 2001 Required transition from low sulfur diesel to ULSD (Ultra Low Sulfur Diesel) by 2006 for on road vehicles New sulfur limit for ULSD is 15 ppm Limit is measured at the point where the fuel is delivered to the consumer Refiners upstream in the distribution system have to deliver at less than 15 ppm “ Non Road”, Locomotive, and Marine (NRLM) diesel sulfur content reduction targets are staged between 2007 and 2012 Current Regulations – U.S. Diesel

Diesel fuel quality

Has been regulated since 1993 with introduction of “LSD” (Low Sulfur Diesel)

Highway sulfur diesel program finalized in 2001

Required transition from low sulfur diesel to ULSD (Ultra Low Sulfur Diesel) by 2006 for on road vehicles

New sulfur limit for ULSD is 15 ppm

Limit is measured at the point where the fuel is delivered to the consumer

Refiners upstream in the distribution system have to deliver at less than 15 ppm

“ Non Road”, Locomotive, and Marine (NRLM) diesel sulfur content reduction targets are staged between 2007 and 2012

Source: U. S. Environmental Protection Agency (EPA) Distillate Regulations – Regulated Categories (to date)

Source: U. S. Environmental Protection Agency (EPA) Diesel Regulations – On Road Fuel Performance Targets

Source: U. S. Environmental Protection Agency (EPA) Diesel Regulations – Off Road Fuel Performance Targets

“ NR” = Non Road “LM”= Locomotive/Marine Source: U. S. Environmental Protection Agency (EPA) Diesel Regulations Summary and Timeline

Billions in hydrotreating investments Needed to produce initial LSD (Low Sulfur Diesel) and remove gasoline sulfur (RFG program) in mid 1990’s Significant investments since 2000 to accommodate Tier 2 sulfur reductions and ULSD (Ultra Low Sulfur Diesel) programs Some new refineries will treat whole crude stream vs. intermediates Investment in testing & instrumentation ULSD standards require test methods able to detect very low concentrations of sulfur Repeatability is important to document compliance with specs when shipments are transferred New lab equipment needed at terminals; increase in transmix volumes due to “trail back” of sulfur in batch systems Impact of Diesel Rules to Date

Billions in hydrotreating investments

Needed to produce initial LSD (Low Sulfur Diesel) and remove gasoline sulfur (RFG program) in mid 1990’s

Significant investments since 2000 to accommodate Tier 2 sulfur reductions and ULSD (Ultra Low Sulfur Diesel) programs

Some new refineries will treat whole crude stream vs. intermediates

Investment in testing & instrumentation

ULSD standards require test methods able to detect very low concentrations of sulfur

Repeatability is important to document compliance with specs when shipments are transferred

New lab equipment needed at terminals; increase in transmix volumes due to “trail back” of sulfur in batch systems

Dramatic reductions in allowable sulfur content beginning with low sulfur diesel in 1993 Reduction in allowable sulfur in most engine fuels to 15 ppm by 2014 Further restrictions on sulfur in residual fuels due to new limits in the marine markets (MARPOL VI standards) Requirements for blendstocks to accommodate mandated use of biofuels (Renewables standards) Summary Current Regulations – U.S. Diesel/Distillate Fuels

Dramatic reductions in allowable sulfur content beginning with low sulfur diesel in 1993

Reduction in allowable sulfur in most engine fuels to 15 ppm by 2014

Further restrictions on sulfur in residual fuels due to new limits in the marine markets (MARPOL VI standards)

Requirements for blendstocks to accommodate mandated use of biofuels (Renewables standards)

http://www.dieselnet.com Technical research library on diesel fuels emissions and control technologies U.S. Environmental Protection Agency Office of Transportation & Air Quality (OTAQ) http://www.epa.gov/otaq/ Reference Diesel/Distillate Fuels

http://www.dieselnet.com

Technical research library on diesel fuels emissions and control technologies

U.S. Environmental Protection Agency

Office of Transportation & Air Quality (OTAQ)

http://www.epa.gov/otaq/

Current Regulations – U.S. The Rise of Renewable Fuels

A new type of regulation Energy Independence and Security Act of 2007 Gives EPA the power to revise and implement regulations to “ensure that gasoline sold in the United States contains a minimum volume of renewable fuel.” Departs from air quality mission - this goal NOT based on air quality issues Designed to promote increased use of U.S. based renewable fuels Renewable Fuels

A new type of regulation

Energy Independence and Security Act of 2007

Gives EPA the power to revise and implement regulations to “ensure that gasoline sold in the United States contains a minimum volume of renewable fuel.”

Departs from air quality mission - this goal NOT based on air quality issues

Designed to promote increased use of U.S. based renewable fuels

Current regulations “RFS 1” “ Renewables” defined as produced from plant or animal products or wastes Target total volume of renewables to be blended into gasoline From a minimum of 7.5 billion gallons by 2012 (489,000 BPD) to 36 billion gallons (2.3 million BPD) by 2022 2012 target has been met; 2008 volume was 9 billion gallons Target post 2012 adjusted depending on gasoline demand – if gasoline demand actually peaked in 2007 the target could potentially fall Refiners “obligated” to either blend the required volume or buy “RIN’s” (Renewable ID Numbers) to make up the difference Refiners must file reports demonstrating compliance on a corporate level Small refiners exempt through 2010 Alaska and Hawaii exempt indefinitely Renewable Fuels – “RFS 1”

Current regulations “RFS 1”

“ Renewables” defined as produced from plant or animal products or wastes

Target total volume of renewables to be blended into gasoline

From a minimum of 7.5 billion gallons by 2012 (489,000 BPD) to 36 billion gallons (2.3 million BPD) by 2022

2012 target has been met; 2008 volume was 9 billion gallons

Target post 2012 adjusted depending on gasoline demand – if gasoline demand actually peaked in 2007 the target could potentially fall

Refiners “obligated” to either blend the required volume or buy “RIN’s” (Renewable ID Numbers) to make up the difference

Refiners must file reports demonstrating compliance on a corporate level

Small refiners exempt through 2010

Alaska and Hawaii exempt indefinitely

“ RFS 1” impacts to date Consumer resistance in some regions due to lowered mileage Unsufficient consideration given to total lifecycle emissions of renewable production High cost of RIN’s has changed the relationship between refiners and third party blenders Issues over difficulty with biodiesel “gelling” in cooler regions 2009 “standard” is 10.21% - this exceeds the warranty tolerance for many automobiles Renewable Fuels – “RFS 1”

“ RFS 1” impacts to date

Consumer resistance in some regions due to lowered mileage

Unsufficient consideration given to total lifecycle emissions of renewable production

High cost of RIN’s has changed the relationship between refiners and third party blenders

Issues over difficulty with biodiesel “gelling” in cooler regions

2009 “standard” is 10.21% - this exceeds the warranty tolerance for many automobiles

“ RFS 2” rules proposed early 2009 Resets the minimum gallon target from 5.4 billion in 2008 to 9.0 billion (vs. previous target of 7.5 billion by 2012) Adds mandated renewables requirement for diesel (both on and off-road) Sets new, specific volume standards for: Cellulosic biofuels Biomass based diesel Advanced biofuel Total Renewables Renewable Fuels – “RFS 2”

“ RFS 2” rules proposed early 2009

Resets the minimum gallon target from 5.4 billion in 2008 to 9.0 billion (vs. previous target of 7.5 billion by 2012)

Adds mandated renewables requirement for diesel (both on and off-road)

Sets new, specific volume standards for:

Cellulosic biofuels

Biomass based diesel

Advanced biofuel

Total Renewables

Source: U.S. Environmental Protection Agency (EPA) RFS 2 – Volume Targets 2015-2023+ New Targets for “Nonconventional” Biofuels Renewable Fuel Volume Requirements for RFS2 (billion gallons) Year Cellulosic biofuel requirement Biomass-based diesel requirement Advanced biofuel requirement Total renewable fuel requirement 2008 n/a n/a n/a 9.0 2009 n/a 0.5 0.6 11.1 2010 0.1 0.65 0.95 12.95 2011 0.25 0.80 1.35 13.95 2012 0.5 1.0 2.0 15.2 2013 1.0 a 2.75 16.55 2014 1.75 a 3.75 18.15 2015 3.0 a 5.5 20.5

a – target not yet known; minimum 1 billion gals. b – not yet determined Source: U.S. Environmental Protection Agency (EPA) RFS 2 – Volume Targets 2008-2015 New Targets for “Nonconventional” Biofuels Renewable Fuel Volume Requirements for RFS2 (billion gallons) Year Cellulosic biofuel requirement Biomass-based diesel requirement Advanced biofuel requirement Total renewable fuel requirement 2016 4.25 a 7.25 22.25 2017 5.5 a 9.0 24.0 2018 7.0 a 11.0 26.0 2019 8.5 a 13.0 28.0 2020 10.5 a 15.0 30.0 2021 13.5 a 18.0 33.0 2022 16.0 a 21.0 36.0 2023 + b b b b

Renewables producers must determine lifecycle GHG impact of their fuels Lifecycle includes production and transport of feedstock used in fuels production Renewables must demonstrate a specified reduction in lifecycle GHG as compared to a 2005 baseline for the diesel or gasoline displaced to qualify for the “quota” in the regulations Ethanol plants in operation before December 2007 are exempt from this requirement “ RFS 2” Introduction of Lifecycle GHG Standards

Renewables producers must determine lifecycle GHG impact of their fuels

Lifecycle includes production and transport of feedstock used in fuels production

Renewables must demonstrate a specified reduction in lifecycle GHG as compared to a 2005 baseline for the diesel or gasoline displaced to qualify for the “quota” in the regulations

Ethanol plants in operation before December 2007 are exempt from this requirement

Source: NPRA Summary of Regulatory Impacts

Current Regulations The Rest of the World Euro V and Asia

Applies to vehicles sold and emissions standards applicable to European Union member states Retrofits not required for older vehicles but new ones must comply “ Euro” standards are a series of European Union directives Standards have grown progressively more restrictive Other countries (non member European states, Australia, parts of Asia) are harmonizing their requirements with these European Fuels Specifications “Euro” Standards

Applies to vehicles sold and emissions standards applicable to European Union member states

Retrofits not required for older vehicles but new ones must comply

“ Euro” standards are a series of European Union directives

Standards have grown progressively more restrictive

Other countries (non member European states, Australia, parts of Asia) are harmonizing their requirements with these

European Fuels – Gasoline/Petrol “Euro” Standards

European Fuels – Diesel “Euro” Standards

Current standard for 2009 is Euro 5 Sulfur cap - gasoline From 500 ppm for “Euro 2” fuels to 10 ppm for “Euro 5” Sulfur cap – diesel From 500 ppm for “Euro 2” to 10 ppm for “Euro 5” European Fuels – Sulfur “Euro” Standards

Current standard for 2009 is Euro 5

Sulfur cap - gasoline

From 500 ppm for “Euro 2” fuels to 10 ppm for “Euro 5”

Sulfur cap – diesel

From 500 ppm for “Euro 2” to 10 ppm for “Euro 5”

http://www.dieselnet.com/standards/eu/fuel.php European Standards References

http://www.dieselnet.com/standards/eu/fuel.php

Began emissions regulations in 1983 Imposes fuel economy standards on new vehicles Major fuel types addressed Gasoline Diesel Biodiesel (B100) Compressed natural gas Methanol (M15 and M85) LPG Asia - China Fuels Regulations Ministry of Environmental Protection

Began emissions regulations in 1983

Imposes fuel economy standards on new vehicles

Major fuel types addressed

Gasoline

Diesel

Biodiesel (B100)

Compressed natural gas

Methanol (M15 and M85)

LPG

Vapor pressure controls imposed during summer season Mandatory detergent additives Future reductions in sulfur and toxics Source: Chinese Ministry of Environmental Protection Presentation Asia China - Gasoline

Currently not compliant with U.S. and Euro V Sulfur standards for on road fuel Source: Chinese Ministry of Environmental Protection Presentation Asia China - Diesel

Association of Southeast Asian Nations Includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Viet Nam Promotes increase in interregional and international trade, economic growth Concerned about GHG, sustainability, and increasing use of biofuels Other Asia ASEAN

Association of Southeast Asian Nations

Includes

Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Viet Nam

Promotes increase in interregional and international trade, economic growth

Concerned about GHG, sustainability, and increasing use of biofuels

Targeting agreement on emissions reductions as a bloc by 2012 Promoting common standards for vehicles Hydrocarbon fuels standards likely to track Euro V Export refineries (Singapore) already in compliance with CARB for components exported to U.S. West Coast Concerned about GHG, sustainability, and increasing use of biofuels Other Asia ASEAN – Fuels Issues

Targeting agreement on emissions reductions as a bloc by 2012

Promoting common standards for vehicles

Hydrocarbon fuels standards likely to track Euro V

Export refineries (Singapore) already in compliance with CARB for components exported to U.S. West Coast

Concerned about GHG, sustainability, and increasing use of biofuels

On the Horizon Marine Bunker Fuels Changes MARPOL VI

Regulations developed by “MARPOL” Discharge into the air and water from marine vessels in the open seas subject to agreements made by and between members party to the International Convention for the Prevention of Pollution from Ships (MARPOL 73/78) All parties to this “convention” must agreed to be bound by Annexes I and II; others are optional Affects pollution liability insurance Violators subject to inspection and fines Diesel Regulations Marine Fuels

Regulations developed by “MARPOL”

Discharge into the air and water from marine vessels in the open seas subject to agreements made by and between members party to the International Convention for the Prevention of Pollution from Ships (MARPOL 73/78)

All parties to this “convention” must agreed to be bound by Annexes I and II; others are optional

Affects pollution liability insurance

Violators subject to inspection and fines

MARPOL International MARine POLlution Convention (document) created by the United Nations in 1973 Subscribers to the MARPOL rules are members of the International Marine Organization (IMO) IMO is a UN agency that oversees the shipping industry Has 167 international government members Diesel Regulations Marine Fuels – “MARPOL”

MARPOL

International MARine POLlution Convention (document) created by the United Nations in 1973

Subscribers to the MARPOL rules are members of the International Marine Organization (IMO)

IMO is a UN agency that oversees the shipping industry

Has 167 international government members

Annexes I and II – applies to all subscribers Set agreed limits on discharges of oil/oily waste Contains standards for double hull tankers Forbid discharges of chemicals dangerous to marine life Governs discharges of “noxious liquid substances” in Baltic and Black Seas Annexes III through VI – optional Annex VI governs air pollution from ships at sea Diesel Regulations Marine Bunkers MARPOL VI

Annexes I and II – applies to all subscribers

Set agreed limits on discharges of oil/oily waste

Contains standards for double hull tankers

Forbid discharges of chemicals dangerous to marine life

Governs discharges of “noxious liquid substances” in Baltic and Black Seas

Annexes III through VI – optional

Annex VI governs air pollution from ships at sea

Annex VI – air pollution controls Covers emissions of SoX, NoX & VOC’s from marine vessels Applies to fixed and floating drilling rigs and vessels above 400 tons Provides for issuance of an International Air Pollution Prevention Certificate to vessels and rigs inspected and in compliance NoX controls on engines installed or overhauled after January 2000 Limits of 4.5% sulfur in marine bunkers on the seas and 1.5% in designated SoX control areas Diesel Regulations Marine Bunkers MARPOL VI

Annex VI – air pollution controls

Covers emissions of SoX, NoX & VOC’s from marine vessels

Applies to fixed and floating drilling rigs and vessels above 400 tons

Provides for issuance of an International Air Pollution Prevention Certificate to vessels and rigs inspected and in compliance

NoX controls on engines installed or overhauled after January 2000

Limits of 4.5% sulfur in marine bunkers on the seas and 1.5% in designated SoX control areas

Limits already imposed on sulfur in many ports Baltic Sea and North Sea established as Sulfur Emission Control Areas (SECA’s) with 1.5% limits U.S. EPA recently imposed a 1.5% limit on marine fuels within 200 miles of U.S. coasts Diesel Regulations Marine Bunkers MARPOL VI – Issues to Date

Limits already imposed on sulfur in many ports

Baltic Sea and North Sea established as Sulfur Emission Control Areas (SECA’s) with 1.5% limits

U.S. EPA recently imposed a 1.5% limit on marine fuels within 200 miles of U.S. coasts

Pressure is mounting for a global reduction from 4.5% to 1.5% on all marine fuels Proposed reduction from 1.5% to .5% in the Baltic Sea and North Sea SECA’s Proposed outright ban on marine bunkers New regulations on particulates and GHG’s Diesel Regulations Marine Bunkers MARPOL VI – On the Horizon

Pressure is mounting for a global reduction from 4.5% to 1.5% on all marine fuels

Proposed reduction from 1.5% to .5% in the Baltic Sea and North Sea SECA’s

Proposed outright ban on marine bunkers

New regulations on particulates and GHG’s

EU fuels standards already more stringent than U.S. on sulfur; fewer restrictions on RVP and aromatics Export refiners already comply with U.S. standards for components coming here due to certification and registration requirements Chinese standards following Europe – sulfur too high for export to U.S. Middle East exporters targeting Euro V specs Still have flexibility to market “non compliant” components outside these boundaries Latin, Central, South America are still relatively “unregulated” markets All consuming markets interested in renewables Asia, Europe, Other Current Regulations - Summary

EU fuels standards already more stringent than U.S. on sulfur; fewer restrictions on RVP and aromatics

Export refiners already comply with U.S. standards for components coming here due to certification and registration requirements

Chinese standards following Europe – sulfur too high for export to U.S.

Middle East exporters targeting Euro V specs

Still have flexibility to market “non compliant” components outside these boundaries

Latin, Central, South America are still relatively “unregulated” markets

All consuming markets interested in renewables

Summary and Outlook “What Can We Make?” Scenario for the Future

Continued pressure to remove sulfur from transportation fuels “ Nowhere to run, nowhere to hide” in fuels pool Coke, asphalt last refuge for sulfur Need for low sulfur kerosene in biodiesel blends Increased octane giveaway potential due to need for low RVP “BOB’s” (blendstocks for oxygenate blending) to accommodate increased ethanol use Replacing energy lost from increased use of ethanol Outcome of “debate” over automobile warranties as ethanol content increases Facing the Future – Issues

Continued pressure to remove sulfur from transportation fuels

“ Nowhere to run, nowhere to hide” in fuels pool

Coke, asphalt last refuge for sulfur

Need for low sulfur kerosene in biodiesel blends

Increased octane giveaway potential due to need for low RVP “BOB’s” (blendstocks for oxygenate blending) to accommodate increased ethanol use

Replacing energy lost from increased use of ethanol

Outcome of “debate” over automobile warranties as ethanol content increases

Low sulfur fuels Low RVP blendstocks for oxygenate blending Asphalt (considered a CO2 reduction since it’s not transformed in refining) Heating oil (higher sulfur still allowed for now) Low sulfur distillate Overall Outlook What Can We Make?

Low sulfur fuels

Low RVP blendstocks for oxygenate blending

Asphalt (considered a CO2 reduction since it’s not transformed in refining)

Heating oil (higher sulfur still allowed for now)

Low sulfur distillate

Outcome of GHG regulations for motor fuels – ongoing status of the Sept 2009 proposal for carbon emissions limits Whether EPA will continue to require increasing volumes of renewables regardless of overall gasoline/diesel market growth Pushback from consumers and car makers on requirements for higher ethanol volumes above warranted levels Adoption of programs to increase use of E85 in regions with high ethanol production Overall Outlook What to Watch

Outcome of GHG regulations for motor fuels – ongoing status of the Sept 2009 proposal for carbon emissions limits

Whether EPA will continue to require increasing volumes of renewables regardless of overall gasoline/diesel market growth

Pushback from consumers and car makers on requirements for higher ethanol volumes above warranted levels

Adoption of programs to increase use of E85 in regions with high ethanol production

Presenter Bio Anne B. Keller President of Midstream Energy Group, consultancy and asset development company specializing in transportation, processing, and distribution of natural gas, gas liquids, and transportation fuels 20+ years’ experience with Conoco and DuPont in finance and operations support for refining, LPG, and petrochemical feedstock logistics Managed fuels reporting software service for Pace/Jacobs Consultancy to handle compliance with gasoline regulations Developed and deployed new software system to handle reporting and “tracking” of movements of ULSD from refinery gate to customer Midstream Energy Group, Inc. 12 Greenway Plaza, Suite 1100 Houston, TX 77046 Office: 713.425.4932 Cell: 713.582.2579 Email: abk@midstreamenergygroup.com

President of Midstream Energy Group, consultancy and asset development company specializing in transportation, processing, and distribution of natural gas, gas liquids, and transportation fuels

20+ years’ experience with Conoco and DuPont in finance and operations support for refining, LPG, and petrochemical feedstock logistics

Managed fuels reporting software service for Pace/Jacobs Consultancy to handle compliance with gasoline regulations

Developed and deployed new software system to handle reporting and “tracking” of movements of ULSD from refinery gate to customer