CO2 and sulphur emissions from the shipping industry - EGCSA...GUSTAV KRANTZ CO2 emissions related...

CO2andsulphuremissionsfromtheshippingindustry

GUSTAVKRANTZ

CO2emissionsrelatedtothefuelswitchintheshippingindustryinNorthernEurope.

October2016

CO2andthemaritimefuelswitch

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Abstract

AmajorityoftheshippingindustryintheBalticSea,theNorthSeaandtheEnglishChannel(SECA)haveswitchedfuelasofJanuary2015tocomplywiththenewsulphuremissionregulation.Gasoilormarine diesel are, post the implementation of the directive, predominant over the previouslypopularlowsulphurfueloil.Asaconsequence,airbornesulphuremissionshasdecreaseddrasticallyandseveralstudies indicateonlyminorchanges ingreenhousegas(GHG)emissionsasaresultofthe fuel switch. This report disputes such claims and instead argues that the increase in indirectemissions of CO2 is severely underestimated,with a theoretical increase of 112million tonnes ofCO2andstatisticalsupportfor93milliontonnesofCO2perannumcausedbythefuelswitchintheEuropeanSECAregion.Itisimportanttonotethatthisincreaseinoverallemissionsdoesnotstandincontrasttoreducedtailpipeemissionsfromtheshippingindustry.

The increase inCO2emissions canbedetectedwhenobserving refinery crudeoil intake,pre andpost the new regulation was implemented, that has increased as a consequence of the shippingindustrydemandswitchfromalowvaluetoahighvalueoilproduct.Increasedcrudeoilintakeisinturnequivalentto increasedemissionsofCO2 if theshareofoilproductsbeingstoredorusedforotherpurposesthancombustionisconstant.

DuringtheperiodNovember2012toNovember2015,fueloilpriceaveragedbetween60%and80%of crude oil whereas price for gasoil ranged between 110% and 180% to that of crude oil.Whenassessing CO2 emissions from sub products in such a system, low value products often areattributedwithanunjustifiableshareofCO2emissions.WhenassessingeffectsofthefuelswitchintheSECAregion,whereanentireindustryhasswitchedfuelovernight,overlookinghowademandshiftaffectsdemandforcrudeoil,isafallacy.

Shippingcompaniesthathave installedscrubbers,anexhaustgascleaningdevice,canuse fueloiland still complywith the stricter sulphur regulation and therefore do not contribute to increasedindirectCO2emissions.IncentivesforreducingCO2shouldthereforebedirectedtoincreasetheuseofscrubbers in themaritime industry.Preliminaryestimatessuggest that reducingCO2emissionswiththeuseofscrubberscouldhaveaverylowornegativecostandaremostlikelyonparwiththeEuropeanemissiontradingsystem.


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Forewordandacknowledgements

Iwanttothankthefollowingorganizationsforcontributingtotheperformanceofthisstudy:

• EGCSA–theExhaustGasCleaningSystemsAssociation

• SmurfitKappa–aglobalpackagingcompany• SveMin–Swedish Association of Mines, Mineral and Metal Producers • TheSwedishConfederationofEnterprise

• TT-Line

• WagenborgShippingSwedenAB

TT-Line is a modern shipping company operating ferry routes across the Baltic Sea betweenGermanyandSwedenaswellasbetweenPolandandSweden.Withsixro-ropassengerferriesandup to23dailydeparturesandup to 150departuresaweek,TT-Line connects the largestGermanBaltic ports Travemünde andRostock aswell as thePolish port of Świnoujściewith Trelleborg insouthernSweden.TT-Line is themarket leader inpassengerand freight trafficbetweenGermanyandSweden.Theferryconnectionbetweenthesetwocountriesexistssince1962.

TT-Line's technical innovations andenvironmentalmanagementhas received several awards. TT-Linedeveloped its 'GreenBridgeConcept'andachieved further reductionofemissionsofharmfulsubstanceswiththeinstallationofdieselelectricpropulsionsystemssince1995.InordertomeettheIMO's (InternationalMaritimeOrganization)requirementstoreduceairpollutionbyships, in forcesince the beginning of 2015, TT-Line installed state of the art exhaust gas cleaning systems, so-called'scrubbers',onitsferries"NilsHolgersson"and"NilsDacke".Besidesremovingagoodpartofparticles fromtheexhaustgasby thescrubbers, sulphuroxideemissionsare reducedtoat leastalevel corresponding to a sulphur content in fuel ofmaximum0.1%.Other vessels in the fleet areoperatedtodaywithcompliantlowsulphurfuel.

TheExhaustGasCleaningSystemsAssociation (EGCSA)wasestablished in2008 tohelp createasustainableoperatingenvironmentwithin themarineandenergy industry sectors forexhaustgascleaningsystemtechnologies,providingclarityandarationalvoiceforthosecompaniesinterestedinreducingmarineexhaustgasemissions.EGCSAoffersimpartialtechnicalinformation,adviceandopinionon themany current and future issues and challenges related to emissions reduction andmarine exhaust gas cleaning systems.Member companies of the EGCSA are involved in thedevelopment, design and final installed configuration and design approval and acceptance ofturnkeyexhaustgascleaningsystemstomeetthecurrentandfutureemissionsregulationsofIMOand,whereapplicable,additionalregulationsintroducedbyregionalandnationalauthorities.

The Confederation of Swedish Enterprise (Svenskt Näringsliv) is Sweden’s largest and mostinfluential business federation representing 49 member organizations and 60 000 membercompanieswithover1.6millionemployees.SvensktNäringslivhasanactiveroleininvestigatingtheeffects of the European Sulphur Directive by providing a forum of discussion and by supportingextensiveanalysisoftheeffectsforSwedishcompanies,transportsystemandenvironment.


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1. INTRODUCTION 5

2. BACKGROUND 5

3. EMISSIONSANDSHIPPINGFUELUSE 7

4. REFINING 8

4.1.REFINERSRESPONSETOFUELSHIFTINSHIPPINGINDUSTRY 9

4.2.NEWTECHNOLOGYINREFINERIES 10

4.3.CRUDEOILQUALITYANDORIGIN 12

4.4.OILPRODUCTSUPPLY 12

4.5.REFINERYTHROUGHPUTANDADDEDCO2EMISSIONS 13

4.6.THEORETICALADDEDCO2EMISSIONSRESULTINGFROMTHEFUELSWITCH 15

4.7.SCRUBBERSANDCO2EMISSIONS 16

5. DISCUSSION 17

5.1.MITIGATINGCO2EMISSIONSFROMTHESHIPPINGFUELSWITCH 17

5.2.COSTFORCO2-REDUCTIONBYTHEUSEOFSCRUBBERS 18

5.3.THE0.5%SULPHURCAPFORINTERNATIONALSHIPPING 19

6. REFERENCES 20


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1. Introduction

ThepurposeofthisstudyistoassesschangesinemissionsofCO2asaresultofthesulphuremissionregulationinthemaritimeindustryinnorthernEurope.SeveralpublicandscientificreportswiththeobjectivetoanalysetheeffectsofthefuelswitchhavenotindicatedincreasedCO2emissionsasaresultofreducedsulphuremissionlimitsthatwentintoeffectinJanuary2015.

This report provides an alternative view to what has happened to overall CO2 emissions and issupported by statistics from the Eurostat. The conclusion is that emissions of CO2 has increaseddrasticallyandalsoproposeshowthisincreasecanbemitigated.

Thestudyfurthersetsouttosparkadebatearoundtowhatextenthighandlowvaluedfuelscanbesaid to affect refinery intake of crude oil that ultimately, contrary to demand for any single oilproduct, is linked to emissions of CO2. Presently, emissions from oil products are assessedseparatelyregardlessofpriceandhowitaffectsdemandforcrudeoil.ThiswayofestimatingCO2emissionsisvalidaslongasdemanddoesnotshiftbetweenoilproducts.Dramaticshiftsindemandforoilproducts,likeinthecasewiththesulphurregulationasof2015,areveryuncommon.Howeverif a fuel switch takes place, assuming no change in demand for crude oil risks concealingincreases/decreasesofCO2todecisionmakersthusresultinginaflawedpolicyforreductionofCO2emissions.

2. Background

In January2015,anamendment to the regulatory framework in theEU formarine fuelwas takenintoeffect for theBalticSea, theNorthSeaandtheEnglishChannel (area referredtoasSECAseFigure 1). This came into force parallel to an amendment toMARPOL Annex VI on internationallevel,alsoaddressingregionalrequirementsforSECA.Europeandirective2012/33/EU1,theso-calledsulphurdirective,wasfirstintroducedtomirrorMARPOLAnnexVIonaEuropeanlegislativelevel.Insomeareas,directive2012/33/EUevengoesbeyondMARPOL.AmendmentstoMARPOLAnnexVIwereadoptedbytheInternationalMaritimeOrganizationin2008.Themainpurposewastoreduceairbornesulphuroxideemissionsthatcanbelinkedtorespiratorydisease.Thenewframeworkformarinefuelstipulatedbybothlegislations,post1stofJanuary2015,limitsfuelsulphurcontentto0,1weight-% forall shipsentering thedesignatedarea, regardlessof flag,whereas theprevious limitwas1weight-%.

1EuropeanCommission,Directive2012/33/EU.2Swedish Transport Analysis, 2015. Implementation of the Sulphur Directive – Industry preparations. Report


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Figure1–TheEuropeanSulphurEmissionControlArea(SECA)

Source:SwedishForestIndustriesFederation.

The fuel sulphur content is not, since it generally does not add to the heat value of the fuel,correlatedtoemissionsofCO2.Simplyswitchingfuelshouldthereforeonlyhaveminoreffectsonoverall CO2 emissions from a “tank-to-propeller” perspective, i.e. the energy required to propelshipsremainsunchanged.

Before the amended sulphur regulation, shipping in SECApredominantly used low sulphur heavyfueloil(LSHFO)duetoitslowpricerelativetootheroilproducts.Fueloilhastobekeptatcertaintemperatures to remain in liquid form and is therefore unsuitable for use except in dedicatedapplications,whichisonereasontotherelativelowprice.

AccordingtoastudybytheSwedishgovernmentalagencyofTransportAnalysis2,mostvesselspostJanuary2015hasswitchedtolowsulphurfuels,primarilymarinedieseloil(MDO)whichisablendoffueloilandgasoilormarinegasoil(MGO)typicallywithasulphurcontentofunder50ppm,inorderto complywith the new regulation. The studydoes not highlight other consequences to the newregulation,likeincreaseduseofscrubbersornewtechnologyintherefiningindustrytoreformfueloilintogasoil.

2Swedish Transport Analysis, 2015. Implementation of the Sulphur Directive – Industry preparations. Reportnumber2015:11.


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3. Emissionsandshippingfueluse

Studies post the implementation of the new regulation indicate that sulphur emissions from themarineindustryhavedecreaseddrasticallyinSECA.Thereisalsoaconsensualconclusionthattherehavebeenonlyminorchanges inCO2emissions.SomeassessmentsarebasedonamethodologycalledaccountingLifeCycleAnalysis(aLCA)thataddsemissionsfromaproductslifecycle,startingby theextractionof crudeoil all theway to the combustionof theoil product. Themethodologyadds emissions for sub-products and necessary refining processes, as well as direct emissionsresultingfromtransportingandend-using.

Emissionscanalsobeassessedfromatop-downperspective,forexamplebyassumingthatafixedshareofalloilproductsiscombusted.Ifmakingsuchassumptionsitisunnecessarytoassesseachoilproduct individually. If the refined crude oil share that does not get combusted (for instanceproductsthatisusedforplasticsandasphaltproduction)isconstantorquantifiable,thencrudeoilextractionratesorcrudeoilrefineryintakeprovidesgoodcorrelationwithCO2emissions.

In periods of rapid transition, fuelsmay be stored inwait of higher prices. This could reduce theaccuracyinassessingemissionsfromatop-downperspectivesincetheoilproductisnotcombustedatthesamepaceaspriortothesystemshift.Howeversincecapacitytostoreoilproductsislimitedthesystemwillobtainasteadystateoncestoragecapacityisfull.

CO2emissionsfromcrudeoilrangebetween2,940-3,212gramsofCO2pergramofcrudeoil3.CO2emissions for fuel oil are 3,114 grams per gram and 3,206 grams CO2 per grammarine diesel oilaccording to an LCA study by the InternationalMaritimeOrganization, IMO. The study indicatesstagnantemissionsofCO2fromshippingovertheperiod2007-2012,seeFigure2.

Figure2

Source:ThirdIMOGHGstudy20144.

The consultancy company SWECO estimated5annual shipping fuel use in the European SECA, in2011,to20milliontonnescorrespondingtobetween62,3-64,1milliontonnesofCO2emissions.

3WorldNuclearassociation,2010.4InternationalMaritimeOrganization,2014.ThirdIMOgreenhousegasreport2014.

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Prior to the implementation of the sulphur directive, therewere concerns that goodsmight shifttransport modes resulting in lower energy efficiency per tonne kilometre, but anymajor shift intransportmodeshasnotbeendetectedaccording to a report from theSwedishTrafficAnalysis6.One important reasontothis is therelative low levelofoilprices,andhencefuelpricesprevailingsincetheendof2014.

Astudyofgreenhousegasemissions7publishedinElsevierjournalforTransportationResearchPartDin2014,iscomparingalternativemarinepropulsionsystems.Threeofthemarelistedbelow:

1) Heavyfueloil(HFO)2) HFOcombinedwithexhaustgascleaningcombinedwithascrubber3) Marinegasoil(MGO)

Thestudyconcludes thatalternative2hasslightlyhigherGHGemissions thanalternative1whichhasslightlyhigheremissionsthanalternative3. Inotherwords,CO2emissionsfromshipsrunningongasoilarelowercomparedtofueloil(withorwithoutscrubbers).Theapproachofthestudyissocalled consequential Life Cycle Analysis (cLCA), which sets out to assess changes in CO2 as aconsequencetoacertaindecision,inthiscasethepotentialfuelshifttakingplacewhenintroducingthesulphurdirectiveinSECA.ThestudyconcludesthatGHGemissionsvarylessthan8%betweenthethreealternativescompared.ThestudydoesnotmentionchangesinrefineryoperationsotherthanaddedGHGfromdesulphurizationofgasoil.

AstudyfromtheFinnishMeteorologicalInstitute8concludesthatdirectCO2emissionsintheBalticSeahasincreasedby5.6%in2015comparedto2014basedonanalysisfromAIStransponders.Thestudydoesnotaddressindirecteffectsandfocusononlytailpipeemissions.

4. Refining

Thetermcrudeoilcoversalmostasmanydifferentqualitiesasthereareoil fields.Afewcrudeoilqualities are used as benchmark and other crude oils are priced in relation. Important for theevaluationofa crudeoilquality is thecontentof sulphurandphosphoraswell asdensity (that inturndecides theoilproduct shares).Next thevarious subproductsmaydiffer in termsof sulphurcontent,pourpoint,flashpointetc.

Inorder touseeachproductasefficientlyaspossible theyhave tobeseparated fromeachother,whichisdonebyrefining.Themostfundamentalprocessinarefineryisdistillationthatseparatesoil

5SWECO.ConsequencesoftheSOXDirective,2012.6Swedish Transport Analysis. Implementation of the Sulphur Directive – Industry preparations. Report2015:11.7TransportationResearchPartD.CompliancepossibilitiesforthefutureECAregulationsthroughtheuseofabatementtechnologiesorchangeoffuels,2014.Brynolf,Fridell,MagnussonandAndersson.8Emissions from Baltic Sea shipping in 2015, Finnish Meteorological Institute, Atmospheric CompositionResearch,LasseJohanssonandJukka-PekkaJalkanen.September2016.


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productsaccordingtocondensationtemperature. Ifonlyseparatingoilproductsbydistillationtheshareofhighvalueproductswillbelow.Toincreaserevenuerefineriesaddprocessesthatincreasetheshareofhighvalueproductsandminimizeshareoflowvalueproducts.Fueloilhasahistoriclowvaluecomparedtocrudeoilthatinturnhasalowvaluecomparedtogasoil.Refinerswillthereforehavetobalanceoutputoffueloilwithpositivemarginsfromhighvalueoilproducts.

Figure3displaysaveragemarinebunkerpricefortheportsofSingapore,Rotterdam,FujairahandHoustonforMGOandIFO380.Itshowstherelativepricedifferenceforfueloil(IFO380,blackline,leftaxis)andMarineGasoil(MGO,blueline,leftaxis)comparedtocrudeoil(Brent,greenline,rightaxis)fortheperiodNov2012toNov2015.

Figure3

Source:Ship&Bunker,November2015.

Note that fuel oil price has been averaging between 60-80% of crude oil price in the periodNovember2012October2015whereatthesameperiodpriceforgasoilrangedbetween110-180%tothatofcrudeoilwhichisaclearindicatorofahighandlowvaluesubproductsystem.

4.1. Refinersresponsetofuelshiftinshippingindustry

Marine fuel canbeclassifiedaccording todensity from lightest toheaviest:MarineGasoil (MGO),Marine Diesel Oil (MDO), Intermediate Fuel Oil (IFO),Marine Fuel Oil (MFO) and Heavy Fuel Oil(HFO).Sulphur removal in refineries isexpensive,both in termsofcapital investmentandrunningcost since desulphurization requires considerable amounts of hydrogen, typically obtained fromnaturalgas.This inturncorrelatessulphurremovaltodirectCO2emissions.Sulphurremovalwithhydrogenistypicallyperformedforvacuumgasoilor lighterproducts; it isnotdoneforheavyfueloil. Lowering sulphur content in heavy fuel requires blending with low sulphur products whileensuringthattheblendmeetsallnecessaryspecifications.

The report from the Swedish Traffic Analysis2 indicates that the shipping industry havepredominantlyswitchedfuelfromLSHFOtoMDOasofJanuary2015.Thishastriggeredaresponse


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fromrefinersthatalreadyweremaximizingthegasoilfractionandminimizingthefueloilfraction.Toadapttothenewdemand,mostrefinershadthefollowingoptionsclosestathand:

1) Install/investintechnologythatincreasesthegasoiltofueloiloutputratio.2) Switchcrudeoilqualitytoatypethatcontainshighershareofthedesiredfractions.3) Increaseoverallrefineryutilizationratewithunchangedproductshares.

Option1mightmeana reductionofCO2eventhough itmay increaseCO2fordesulphurizingthegasoil fractionsinceaddingprocessingsteps in imposes increasedenergyconsumption.Notethatrefineries operating equipment that can desulphur fuel oil prior to 2015 are expected to alreadymaximizetheirgasoiloutputandcannotcontributetoincreasedgasoiltofueloiloutputratiopost2015.

Option 2 is possible but would assume that supply of a crude oil quality that matches the newdemandofrefineriescanbesuppliedpostJanuary2015.

Option3requiresthatrefineryutilizationwasintentionallybelow100%preJanuary2015.Furtherarequirement is that the oil product outputmix provides a beneficial economy to the refiners, i.e.goodrefinerymargins.

Refineryresponseandoptionswillbeanalysedanddiscussedfurtherinchapter4.2-4.6.

4.2. Newtechnologyinrefineries

An advanced refinery has several processes that allow for transformation of low valued productsintohighervaluedproducts.Twoimportantprocesses inEuropeanrefineriesarethefluidcatalyticcracking and hydrocracking. Hydrocracking exists in different forms but amodern version calledslurryhydrocrackingallowsforalmostcompletetransformationoffueloilintogasoil.Thisfar,thereisonlyasinglerefineryinEuropethatusesthistechnology.Amorewidelyusedconversionmethodisthevacuumgasoilhydrocrackeroftencombinedwithaviscoustransformationunit(VIS-breaker).Such a unit allows for transformation of vacuum gasoil (VGO) into gasoil or diesel. The fuel oilresidue,after theVGO is separated, is calledheavy fueloil (HFO)and typicallyhasahighsulphurcontentthatisveryhardtoremove.

According to the European oil branch organisation CONCAWE9, there has been only minormodificationsintheEuropeanrefineryindustryduring2014and2015thatallowsformoreextensivedesulphurization.Itcanthereforebeassumedthattheratiogasoiltofueloilhavenotbeenalteredafter the sulphur directive was implemented, which is supported by production data from twoEuropean refiningcompanies:NesteOilandTOTAL.Theirproductionsharesare listed in tables1and2.

9CONCAWE,2014.PresentationbyAlanReidataseminarinStockholm.


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Table1 NesteOilsshareofin-houseproduction[%] Diesel Gasoline Fueloil Other Dieselshare

2012 38 27 7 17 43%2013 37 26 8 17 42%2014 35 27 7 16 41%2015 34 26 8 16 40%

Source:NesteOilFinancialStatementin2015and2013.

NesteOilhastwopetroleumrefineriesinFinlandthat,bytheirlocationwithlongdistancesinSECAregulatedwatersareextraaffectedbythemarinefuelswitch. Inspiteofthisfact,thedieselsharehasbeenfollowingadownwardtrendduring2012to2015.Table1isbasedonlyonthedieselshareusingcrudeoilasfeedstock,i.e.norenewabledieselisincluded.

Table2 TOTALsproductshareofownrefineries[%] Diesel Gasoline Fueloil Other Dieselshare

2012 42 20 9 28 42%2013 44 20 8 28 44%2014 45 20 8 27 45%2015 44 19 7 30 44%

Source:TOTALsFinancialStatementin2015and2013.

TOTALoperates12refineriesinEurope.Theproductiondatashowaslightincreaseindieselsharesforthewholeperiodbutadecreasebetween2014and2015.Theproductiondatadoesnotsupportthatoutputsharesforgasoilandfueloilhasnotbeenalteredin2015.

Arefinerythatdoespossess,butdonotutilize,thepotententialtotransformfueloiltogasoilwouldmost likely be operating financially sup-optimal, especially considering the increased demand forgasoil compared to fuel oil since January 2015. This supports the hypothesis that refiners wherealreadymaximizingoutputratioofgasoilcomparedtofueloilpriortoJanuary2015.


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4.3. Crudeoilqualityandorigin

Crude oil contains varying shares of oil products and substances depending on type of origin ofbiologicalmaterialandhowtheoilhasbeenimbeddedandstored. Ifcrudeoil is refined inabasicrefinery, the oil product output ratio is less likely tomatch the oil products demanded. Figure 4providestypicaloilproductsharesforfivedifferenttypesofcrudeoilqualitiesdividedaccordingtooriginandalsotheEuropeandemandfromallsectors.

Figure4

Source:CONCAWE,2015.

Apotential response to the shipping fuel switch could be to switch crude oil quality, for instancefromBrent toNigerian.CO2emissionswouldnot increaseas longas supplyofNigerianoil couldmeetthenewdemand.

4.4. Oilproductsupply

OutputofoilproductsiscorrelatedwiththetrendofthedecreasingnumberofEuropeanrefineriesthathasbeenon-goingforoveradecade.OilproductoutputfromEuropeanrefineriesispublishedthrough the European Commission database Eurostat. Russian refineries are not part of thestatistics but in general tend to have a lower output of high value products compared to theEuropeanrefineryaverage.

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LPGNaphtha/gasolineKero/jetGasoil/DieselHeavy fuel oil


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Figure5

Source:Eurostat-MonthlyoilproductrefineryoutputfromSECAregion.

Figure5showsoutputoffueloilandgasoilfromrefineriesinorneartheSECAregion(refineriesinBelgium,Denmark,Estonia,Finland,France,Germany,Latvia,Lithuania,theNetherlands,Norway,Poland,SwedenandtheUnitedKingdom)fromJanuary2012toJuly2016.Nomajorshiftinoutputratio isdetectableand the twocurvesappearwell correlated.The ratioofgasoil to fueloilwouldlikely have increased along with the demand switch if refineries did possess spare capacity toproducemoregasoilonbehalfoffueloil.Thiswouldalsoholdtrueifrefinersshouldswitchcrudeoiltype in favourofaqualitycontaininga largergasoil share.Assumingthatgasoil to fueloil ratio isfixedbetween2014and2015istherebysupportedbystatistics.

AdvancedrefinerieswithasurplusupgradepotentialofVGOdoeshavetheoptionofbuyingstraightrun fuel oil or VGO from less advanced refineries. This can explain monthly variations in gasoiloutputvisibleinFigure4.

4.5. RefinerythroughputandaddedCO2emissions

According to CONCAWE, the European crude distillation capacity dropped by more than 29 %duringtheperiod1983-2013.Thenumberofrefineriesinthesameperioddecreasedfrom130to82.Among the still operative refineries, only a minority operate at maximum capacity. A possibleresponse from refiners to a shift in demand from fuel oil to gasoil could therefore be to increaserefinery utilization rates resulting in added output of all oil products. In principal, such increasedutilization would be more beneficial to refiners the lower the refinery output ratio of fuel oilcomparedtogasoil.Accordingtotables1and2thisratiovariesbetween1/4and1/6forNesteandTOTAL.


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StatisticaldataofrefinerycrudeoilintakeintheSECAregionisplottedinFigure6.

Figure6

Source:EurostatdataacquiredinAugust2016.

TwotrendlinesareaddedinFigure6,onecoveringtheperiodJanuary2012untilOctober2014(bluedotted) andone for theperiodNovember2014 to July 2016 (reddotted). Theblue trend linehasbeenextended tomake it comparablewith the trend line for the secondperiod. In July2016, thedifferencebetweenthetwolineswas2.65millionmetrictonnesofcrudeoilpermonth.Thetrendshiftcoincideswith the introductionof thesulphurdirective. Increased refinerycrudeoil intakeof2.65millionmetrictonnespermonthcorrespondsto32milliontonnesofcrudeoilandisequivalentto93milliontonnesofCO2(2.94gramsCO2pergramcrudeoil)inaddedemissions.

2.65 𝑥 12 𝑥 2.94 = 93 𝑚𝑖𝑙𝑙𝑖𝑜𝑛 𝑡𝑜𝑛𝑛𝑒𝑠 𝑜𝑓 𝐶𝑂2

Utilizing32milliontonnesofcrudeinarefinerywithoutputsharesmatchingthoseprovidedintable2would correspond to 14million tonnesof gasoil. Since the fuel usage for shipping inSECAwasestimated to20million tonnes there is adeficit of 6million tonnesof fuel (assumingall shippingswitchingfromfueloiltogasoil)or5milliontonnestakingintoaccounthigherheatvalueofgasoil10.

Oilproductoutputarisingfromthefuelswitchareassumedtobefullycombusted,thatistherearenooilproductsbeingusedasrawmaterialforasphaltorplasticsproduction.Also,oilproductsarenotassumedtosubstituteotherenergysourcestherebyresultinginsubstitutioneffects.

10Preemproductinformation,2012.Heatvalues:IFO380-11,3kWh/kg.Gasoil-11.9kWh/kg.


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Thetimeintervals inwhichshipsbunkervarybuttypicallyshippingfuel ispurchasedat leastafullmonthaheadofusage.The impactofstrictersulphurregulation intermsof increaseddemandforlow sulphur shipping fuel could therefore be expectedbefore January 2015 and iswhy trends areobservedpre/postOctober2014.

4.6. TheoreticaladdedCO2emissionsresultingfromthefuelswitch

CO2emissionscausedbythemarinefuelswitchcanbecalculatedunderthefollowingassumptions:

• RefineryoilproductoutputiscombustedandtransformedintoCO2bothpriorandpostthesulphurdirectivegot implemented.Oilproductsusedasrawmaterial, forexampleasphaltandplastics,aredisregardedi.e.allproductsleavingrefineriesarecombusted.

• Net storing of oil products is assumed at the same levels as prior to the new sulphurregulation,i.e.assumingtheperspectiveisthatofasteadystatesystem.

• RefineriesinSECAusethesamecrudeoilqualityaspriortothefuelswitch.

• Refineries inside SECA supplies oil products to match demand, i.e. increased demand ofgasoilwillbemetbyrefineriesinSECA,notbyimports.RefineriesinSECAaremaximizinggasoil output sharesprior andpost the implementationof the sulphurdirectiveand therearenoadditionsinprocessstepsintherefineries.

TheCO2emissionincreasecanbecalculated:

1) Crude oil emits 2.940- 3.212 grams of CO2 per gram crude oil11combusted, not includingemissionsarisinginthecrudeoilvaluechain.Fueloilemits3.114gCO2pergramfueloil.

2) TheshippingindustryinSECAconsumesfuelatayearlyrateof20milliontonnesoffueloilpre the implementation of the sulphur directive and 19million tonnes of gasoil post theimplementationofthesulphurdirective12.

3) RefineryoutputshareofgasoilforaSECArefineryisassumedat45%(highestimate)and9% for fuel oil (high estimate). The additional 19million tonnesof fuel oil is consideredasurplusproductandthereforeCO2emissionsaresubtractedfromtheincreasearisingfromincreasedcrudeoilthroughput.Thisisaprecautioninordernottooverestimatetheincreaseinemissions,forinstanceifthefueloilsurplusshouldnotbecombusted.

Theoretically,alowerlimittoincreasedemissionsisprovidedby:

19 𝑥 10! 𝑥 2,9400,45 −

19 𝑥 10! 𝑥 0,09 𝑥 3,1140,45 = 112 𝑚𝑖𝑙𝑙𝑖𝑜𝑛 𝑡𝑜𝑛𝑛𝑒𝑠 𝑜𝑓 𝐶𝑂2

Theestimateofaddedemissionsof112milliontonnesofCO2(lowestimate)wouldcorrespondto0.33%ofglobalCO2emissionsof2012.

11WorldNuclearassociation,2010.12Preemproductinformation,2012.Heatvalues:IFO380-11,3kWh/kg.Gasoil-11.9kWh/kg.


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4.7. ScrubbersandCO2emissions

Ascrubberisadevicethatcapturessulphuremissionsfromexhaustgasestherebypreventingittoreach the atmosphere. A scrubber enables the use of high sulphur fuel in the SECA region andprevents increased indirect CO2 emissions. Scrubber extra weight and space increases energyconsumptionat thesametimeas increaseddeadweightwill reducecargocapacitycausingdirectCO2emissionstoincreaseslightly.

Thereareseveraltypesofscrubbersthatofferdifferentbenefits:

• Dryscrubbers.• Closedandopenloopscrubbers.

• Hybrids.

Dry scrubbers are based on exhaust gases passing through a layer of granulate that has to beemptied and refilled at timely intervals.Open loop scrubbers capture sulphur fromexhaust gasesusing either salinity from seawater or chemicals then return all fluids, along with the capturedsulphur, tothesea.Closed loopscrubbersstorethewashingfluidsalongwiththesulphur intanksthathavetobeemptiedregularly.Hybridsareacombinationofopenloopandclosedloop.

Byusingfueloilcombinedwithascrubberinsteadofswitchingfueltogasoil,theincreasedrefinerycrude oil intake will not take place. Scrubbers thereby provide an indirect reduction of CO2emissions.Priortotheimplementationofthesulphurdirective,theEuropeanUnionofferedsupportschemes for testing and developing scrubber technology as they were considered not fullycommercial technology. Post the implementation of the sulphur directive there is no longer suchsupportschemes.


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5. Discussion

Statistics fromEurostat supports that refinerieshave increased crudeoil intakeduring theperiodNov 2014-July 2016 compared to the period Jan 2012-Oct 2014. The increase coincides with theimplementationof thesulphurdirectiveandtherebyalsothehypothesisof thisstudybuttowhatextent could the shift in refinery behaviour be linked to other factors? Would refineries haveincreased crude oil intake if the sulphur directive had not been implemented and if so, to whatextent? Is increased refinery crude oil utilizationmerely a response to improved refinerymarginsthatjusthappentocorrelatewithincreaseddemandforgasoil?Thisreportdoesnotprovideproofthat increased refineryutilization is a causalityof increaseddemand forgasoil but concludes thatthe correlation is hard to dispute combinedwith standardmarket fundamentals - refinerieswerealreadymaximizinggasoilsharespriortotheimplementationofthesulphurdirective.Turningthequestionaround:whywouldarefinerythathastheabilitytoincreasegasoiloutput(onbehalfoffueloiloutput)withoutincreasingcrudeoilthroughput,notalreadyhavedoneso?Notincreasingoutputsharesofaprofitableproductwouldbeirrational.

5.1. MitigatingCO2emissionsfromtheshippingfuelswitch

AtechnologyinstallationthatreducesGHGemissionsisqualificableforgovernmentalorEuropeansupport measures. Some support systems prioritize according to the highest CO2 emissionreduction per fiscal unit, as is the casewith the Swedish support scheme – “Klimatklivet” (freelytranslatedtheClimateStep).ThemaritimeindustryisnotpartoftheemissiontradingsystemnorisshippingfuelsubjecttoGHGtaxationduetoitsinternationalnature.HoweverifcostsformitigatingCO2 emissions are lower compared to best practice measures in other sectors and the GHGreductioncanbescientificallysupported,suchmeasureswouldbeunwisetooverlook.

Comparing the cost for CO2 emission reduction through the use of scrubbers to other forms ofmeasuresmust be further analysedby authorities that govern such steering tools and could be asuitableexercisetofollowthisstudy.IndicativecalculationssuggestthatscrubbersofferatotalcostperCO2reductiononparwiththeEuropeanemissiontradingsystem(ETS),whichinofMay2016cost less than 6 € per metric tonne of CO2. Since several shipping companies have installedscrubberswithoutbeingawardedanysupportmeasures,thecostformitigatingCO2bytheuseofscrubberscouldevenbenegative.Measuresthatoffernegativecostfalls intothedefinitionoflowhaningfruitsandisthefastestwaytoprovidereductionsinGHGemissions.


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5.2. CostforCO2-reductionbytheuseofscrubbers

AccordingtoareportbySWECO13,14000shipsareactiveintheSECAregionperday.Outofthose,2200operateinsideSECAonadailybasisand2600operateinsideSECAabouthalfoftheiryearlyoperativetime.Theremaining9200shipsoperateinSECAonlyonoccationalbasis.

Assuming that a ship can be equipped with a scrubber at a cost of 8 million € and that theinstallationwillhavealifespanof20yearsandthatallvesselsintotalconsume20milliontonnesoffueloil(insteadofgasoil)peryear,thecostperemissionreductioncanbecalculatedasfollows:

14 000 𝑣𝑒𝑠𝑠𝑒𝑙𝑠 𝑥 8 𝑚𝑖𝑙𝑙𝑖𝑜𝑛 € 𝑝𝑒𝑟 𝑠ℎ𝑖𝑝20 𝑦𝑒𝑎𝑟𝑠 𝑙𝑖𝑓𝑒𝑠𝑝𝑎𝑛 𝑥 112 𝑚𝑖𝑙𝑙𝑖𝑜𝑛 𝑡𝑜𝑛𝑛𝑒𝑠 𝐶𝑂2

= 50 € 𝑝𝑒𝑟 𝑡𝑜𝑛𝑛𝑒 𝑜𝑓 𝐶𝑂2 𝑚𝑖𝑡𝑖𝑔𝑎𝑡𝑒𝑑

Thepricebenefitofbeingabletousefueloilinsteadofgasoilhasalreadydrivenshippingcompaniesto install scrubbers, indicating that the measure can be economically motivated without furtherincentives.Itisalsoworthnotingthatthecostforemissionreductionforthe2200oftheshipsthatoperate in SECA at a daily basis would be considerably lower than in the example above. Withregards to fuel consumption, ships that operate insideSECAon adaily basis use a proportionallylarger share per ship and year compared to ships that only occationally enter SECA. Ships thatoccasionallyentertheSECAwill likelynotprovidealowcostperCO2emissionreductionfromtheuseofscrubber.

Supporting scrubbers through governmental incentives does not require imposing GHG tax onshipping fuel,whichwouldbe incompatiblewiththe internationalnatureof theshipping industry.Insteadthiscouldbeincentivizedthroughreducedportorroutefeesforshipsthatusehighsulphurfueloilbutdoesnotemit sulphur in theexhaustgases.Such feesalreadybenefit ships thatmeetcertainenvironmentalstandards,similartosupportsystemsfortheuseofrenewablefuels.

Yetanotherwayofsupportistoincentivizeharbourinfrastructureforremovingandsupplyingshipswiththenecessarylogisticschainsforwaste,chemicalsandotherconsumablesthatarerequiredtooperate scrubbers. Currently, only a small share of all Swedish harbours has invested in suchinfrastructure, which is an important parameter for a shipping company when making decisionsaboutapossiblescrubberinstallation.

Lastbutequallyimportant,Swedishauthoritiesandpoliticianssupportedthesulphurdirectivewiththe argument that thiswould give our domestic shipping industry an opportunity to lead a goodexampleofhowtoadapttostrictersulphurregulation.Fromtheperspectiveofthisreport,withanincreaseinCO2emissions,usingscrubbersandtherebynotcontributingtoaddedCO2wouldbeasmartwaytoleadbyexample.Supportsystemsshouldbeadaptedaccordingly.

13SWECO,2012.ConsequencesoftheSulphurDirective.


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5.3. The0.5%sulphurcapforinternationalshipping

The straight run fuel oil obtained froma basic refinery contains varying shares of gasoil (labelled“fueloil” infigure5).AdvancedrefineriesusevacuumdistillationunitstoseparateVGOfromHFO(orresiduefueloil),typicallyconcentratingsulphurcontenttoHFOthatreachsharesof1%ormore.Straightrunfueloilontheotherhandtypicallyhasasulphurcontentunder0.5%.

As of 2020, the IMO is planning to implement a sulphur capof 0.5% for all internationalwaters.Such a regulation would permit only aminor share of global residue fuel oil or HFO to serve asshipping fuel without blending with low sulphur fuel or removal of sulphur through some othermeasure. Blending HFO with gasoil would make little sense in an advanced refinery where theobjectiveistoseparatethetwoproducts.Abasicrefinery,wherestraightrunfueloilstillcanbeusedasshippingfuel,isthereforebenefittedcomparedtoanadvancedrefinery.RefinerieswithadvancedequipmentforsulphurremovalfromVGOcouldbefacingthemarketfortheresidueHFOvanishing.

If basic refineries takemarket shares fromadvanced refineries, the estimateoverall gasoil sharesused in chapter 4 would be reduced, which in turn requires an even higher increase in refineryutilizationinordertomakesupplyforhighvalueoilproductsmeetdemand.

Figure7

Exampleproductionscheme

If basic refineries were to take market shares from advanced refineries and assuming that therefineryslatematchesfigure7,thecrudeoilneededtosupplythemarketwiththesameamountofdieselwouldincreaseby47%.EmissionsofCO2wouldincreaseatsameratiosanditisadvisednottoimplementthe0.5%sulphurcapwithoutextensivesupportmeasuresforremovalofsulphurfromexhaustgasessoshipscancontinuetouseHFO.

44%

7%

19%

30%

Advancedrefinery

Diesel Fueloil Gasoline Other

30%

19%18%

33%

Basicrefinery

Diesel Fueloil Gasoline Other


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6. References

CONCAWE 2013. Oil refining in the EU in 2020 with perspectives to 2030.https://www.concawe.eu//uploads/Modules/Publications/rpt_13-1r-2013-01142-01-e.pdf

CONCAWE 2014.Developing amethodology for an EU refining industry CO2 emissions benchmark.https://www.concawe.eu//uploads/Modules/Publications/rpt_12-9-2012-05440-01-e.pdf

CONCAWE.AlanReid,2014.PresentationataseminarinStockholm.

Elsevier, Transportation Research Part D28 (2014). Compliance possibilities for the future ECAregulationsthroughtheuseofabatementtechnologiesorchangeoffuels.Brynolf,Fridell,MagnussonandAndersson.

EuropeanCommission.Directive2012/33/EUpublishedon2012-11-27.eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:327:0001:0013:EN:PDF

EuropeanCommission,Eurostat.Energystatisticsdataacquiredin28thofSeptember,2016.

FinnishMeteorological Institute,AtmosphericCompositionResearch,Lasse Johanssonand Jukka-PekkaJalkanen.September2016.EmissionsfromBalticSeashippingin2015.

InternationalMaritimeOrganization.ThirdIMOGreenHouseGasStudy2014.http://www.imo.org/en/OurWork/Environment/PollutionPrevention/AirPollution/Pages/Greenhouse-Gas-Studies-2014.aspx

NesteOil.Financialstatementfor2015and2013publishedonwww.nesteoil.com

Preemproductinformation,2012.HeatvaluesforshippingfuelIFO380-11,3kWh/kg.HeatvalueforshippingfuelGasoil-11.9kWh/kg.

Ship&Bunker–newsandintelligenceforthemarinefuelsindustry,November2015.TheFutureofBunkerPrices:RelativetoCrude,MGOWillBeMoreExpensive,HFOWillBeCheaper.

SWECO.ConsequencesoftheSOXDirective,2012.http://www.svensktnaringsliv.se/migration_catalog/consequences-of-the-sulphur-directive_533051.html/BINARY/Consequences%20of%20the%20Sulphur%20Directive

Swedish Forest Industries Federation. Figure published in SWECO report Consequences of theSulphurDirective,2012.

SwedishTransportAnalysis.SummaryReport2015:11trafa.se/en/maritime-transport/implementation-of-the-sulphur-directive--industry-preparations-3353/

TOTAL.FinancialStatementfor2015and2013publishedonwww.total.com

WorldNuclearassociation.HeatValuesofvariousfuels,2010.http://www.world-nuclear.org/information-library/facts-and-figures/heat-values-of-various-fuels.aspx

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