Chris Turner from Cockett Marine Oil Group gave a presentation on how the Middle East bunker industry will cope with the upcoming global sulfur cap regulation. He noted that the Middle East produces high-sulfur crude oil and currently supplies around 15 million tons of bunker fuel per year, much of which will not comply with the 0.5% sulfur limit. However, the region is projected to have a surplus of distillate fuels by 2020 and refineries are investing in upgrades to increase production of very low sulfur fuels. While there are challenges, Turner concluded the Middle East could adapt to the new regulations by relying more heavily on its growing distillate pool and upcoming refinery upgrades to supply compliant marine fuels.

1. Middle East Bunker Conference
Dubai
March 16th 2016
Chris Turner
Group Technical Manager
Cockett Marine Oil Group | www.cockettgroup.com Tel: +971 4 4255 100 (Bunkers) | Fax: +971 4 4255 111 | Email: dubai@cockett.com

2. Established in 1979 to provide an independent specialist
marine fuel service to the shipping industry.
Today we are owned 50% by Vitol and 50% by Grindrod.
www.grindrod.co.zawww.vitol.com
Cockett Marine Oil is one of the World’s top reseller’s of bunkers
and maritime lubricants, supplying approx. 8 million tons of
bunkers per annum, with a turnover In excess of US $2 billion

3. How will the Middle East cope with the
onset of the Global Bunkering Cap ?

4. The Challenge Ahead for the Middle East
• Background
• Current Position
• Requirements
• Options & Alternatives
• Conclusions

5. Global Picture
Source : OPEC World Oil Outlook 2015 / IAE
• Marpol Annex VI Regulation 14 (SOx)
• Review requested to be initiated by
1st Sept 15
• View to report at MEPC 70, Autumn
2016
• Industry waiting with baited breath
as to outcome of Fuel study
• Tug of war between Political and
Technical as to implementation date
– 2020 ?
• Significant investment required for
Hydrocracking, Coking and
Desulphurization units
• Required estimated HFO conversion
of approximately 2.2-2.6 mb/d
worldwide assuming low uptake in
Scrubbers and 20% non Compliance
• Moving target depending on
commissioning of scrubbing & non
compliance

6. ME Current Qualities
• ME Crude Oil “Sour” and Heavy with
large residual fraction
• Sulphur concentrates into heavier
fractions during conventional distillation
processes
• Processing of Sour Crudes correlates
with qualities obtained locally Iranian
Heavy
1.8%
Basrah
Light
2.9%
Oman
Blend
2.0%
Arab Light 1.09%
Arab Medium 2.59%
Arab Heavy 2.87%
Jeddah
3.3%S
HFO
Fuj
3.0%
HFO
Typical Middle East Qualities
• Compliant MGO or AGO available in
main ports (0.05% -0.1% S)
• Some ports MGO exceed 0.50% S
• HFO Sulphur Content higher than 0.5%
Fuj MGO
0.10 %
Jeddah
MGO
0.7-0.9 %
Rastanura
MGO
<0.05 %
Source : OPEC World Oil Outlook 2015 / Veritas Petroleum Services

7. Using Fujairah / Khorfakkan as an example :
Fujairah & KFK is estimated
to be ~75 % of the bunker
market in the ME
11 Mn MT p/a ~ 190k
bbls/d HFO will not meet
Global Cap
15 Mn MT p/a ~ 250k
bbls/d across the ME
Significant Supply Chain
changes will have to occur
in the Middle East

8. How will the Industry Adapt ?

9. ME Options & Alternatives
• Use existing and projected
Distillate Pool of AGO / MGO ?
• 400-500k b/d surplus of Distillate in the
Region by 2020
• Inevitable slippage of refinery upgrading
projects should not prevent avails.
• ‘’Pockets” of unavailability of compliant
Distillates
• Flash Point generally SOLAS compliant but
seen to be close to specs
• Qualities generally good. *Care always
with cold flow if future operation in colder
climes
• Stowage & Housekeeping on board will
come under renewed scrutiny
Source : OPEC World Oil Outlook 2015

10. ME Options & Alternatives
• Refinery Upgrades
– Globally the Middle East is very
active with only China expected to
increase conversion capacity more
in run up to 2020 globally
– Estimated 0.5 mb/d Conversion
capacity to be added
– Estimated 0.7mb/d
Desulphurization capacity to be
added in ME by 1st Jan 2020
– Influence of Iran cannot be
underestimated
2016 200 kb/d
2019 425 kb/d
2017 0 kb/d*
2018 50 kb/d
+
+
+
+
-
+
+
+
+
++
+
+Looking Further Ahead
2020/1- 933 kb/d
+
+
+
+
+
+
– Further 0.9 mb/d desulphurization
capacity to be added in ME during
2020 & 2021
– Caveats……..
Source : OPEC World Oil Outlook 2015 / IAE

11. So its Possible….?
CAUTION
– ME is predominantly an Export Market
– Desulphurization additions also include Gasoline (EU5)
– Marine (as always) will be last to benefit from Desulphurization in Refineries
BUT
– Good News is we (ME) do have a projected Surplus
– Potentially much more competitive as a region – No Freight / Importing
DON’T FORGET
– A Truly GLOBAL cap…
– Be in no doubt NOT same picture globally
– Generally acknowledged a major challenge if 2020
occurs with significant tightness of product
expected.
Source : OPEC World Oil Outlook 2015

12. Options and Alternatives
Question : Will we simply blend existing HFO ?
• Complex Blending
• Limited economical blending component
• Quality Issues, Unstable fuels

13. • “As is” Residual barrels are
largely not usable
• Little or no possibility of safely
blending existing HFO with
suitable economic blendstocks
• Confidence that distillate will
assume main role in Bunkering
• ME distillate Surplus and
incoming Refinery upgrades
investment make this possible
• Pockets of unavailability but in
general ME region is swimming
with compliant Distillate
• Opportunities to grow market
share with competitive prices
• Drivers out of the control of this
audience
• Watch this space…..
Middle East Conclusions

14. Thank you
Cockett Marine Oil Group | www.cockettgroup.com Tel: +971 4 4255 100 (Bunkers)| Fax: +971 4 4255 111 | Email: dubai@cockett.com